-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KA1lTuyoZKeeHP7ftclTWU90viMkcB+m4Cjss9u4KzefetN6sE/MTsfrutF4ZMCF qkm6R+kuj7QWhZgBPyfNjA== 0000950144-96-000655.txt : 19960227 0000950144-96-000655.hdr.sgml : 19960227 ACCESSION NUMBER: 0000950144-96-000655 CONFORMED SUBMISSION TYPE: S-4 PUBLIC DOCUMENT COUNT: 16 FILED AS OF DATE: 19960223 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: COLONIAL BANCGROUP INC CENTRAL INDEX KEY: 0000092339 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 630661573 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-4 SEC ACT: 1933 Act SEC FILE NUMBER: 333-01163 FILM NUMBER: 96524416 BUSINESS ADDRESS: STREET 1: ONE COMMERCE ST STE 800 STREET 2: P O BOX 1108 CITY: MONTGOMERY STATE: AL ZIP: 36104 BUSINESS PHONE: 3342405000 MAIL ADDRESS: STREET 1: ONE COMMERCE STREET STE 800 STREET 2: PO BOX 1108 CITY: MONTGOMERY STATE: AL ZIP: 36101 FORMER COMPANY: FORMER CONFORMED NAME: SOUTHLAND BANCORPORATION DATE OF NAME CHANGE: 19820205 S-4 1 COLONIAL BANCGROUP DOTHAN FEDERAL S-4 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON D. C. 20549 --------------------------- FORM S-4 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 --------------------------- THE COLONIAL BANCGROUP, INC. (Exact name of Registrant as specified in its charter) Delaware 6711 63-0661573 (State of Incorporation) (Primary Standard Industrial (I.R.S. Employer Classification Code Number) Identification No.) ONE COMMERCE STREET, SUITE 800 (334) 240-5000 MONTGOMERY, ALABAMA 36104 (Telephone No.) (Address of principal executive offices) --------------------------- W. FLAKE OAKLEY, IV SECRETARY POST OFFICE BOX 1108 MONTGOMERY, ALABAMA 36102 (Name and address of agent for service) Copies to: MICHAEL D. WATERS, ESQUIRE WILLIAM C. CARN, III MILLER, HAMILTON, SNIDER & ODOM, L.L.C. LEE & MCINISH ONE COMMERCE STREET, SUITE 802 POST OFFICE BOX 1665 P.O. BOX 19 DOTHAN, ALABAMA 36302 MONTGOMERY, ALABAMA 36101-0019 Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement. If the securities being registered on this Form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, check the following box. [ ] CALCULATION OF REGISTRATION FEE (1)
Title of Each Class Amount to be Proposed Maximum Proposed Maximum Amount of of Securities to be Registered Offering Price Per Aggregate Offering Registration Fee Registered Unit Price - ----------------------------------------------------------------------------------------------------------------------- Common Stock, par 173,333(2) Not Applicable $1,413,000(3) $487.24 value $2.50 per share
(1) Calculated pursuant to Rule 457(f)(2) based upon book value of company acquired at December 31, 1995. (2) Represents a maximum number of shares based upon a market price at closing of $15 per share. The actual number of shares to be issued will vary based upon the market price of registrant's securities at closing. (3) Respresents the book value of company acquired less $2,600,000 cash paid by Registrant. THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON EACH SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(a), MAY DETERMINE. 2 THE COLONIAL BANCGROUP, INC. CROSS REFERENCE SHEET TO ITEMS IN FORM S-4
FORM S-4 ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS OR OTHER LOCATION IN -------------------------------- ------------------------------------------ REGISTRATION STATEMENT ---------------------- Item 1. Forepart of Registration Statement and Outside Facing page, Cross Reference Sheet, Outside Front Cover Page of Prospectus front cover page of Prospectus Item 2. Inside Front and Outside Back Cover Pages of "AVAILABLE INFORMATION," Inside front cover page Prospectus of Prospectus, "DOCUMENTS INCORPORATED BY REFERENCE," "TABLE OF CONTENTS" Item 3. Risk Factors, Ratio of Earnings to Fixed Charges "SUMMARY," Cover Page of Prospectus, "PER SHARE and Other Information DATA," "APPROVAL OF THE MERGER," "PRO FORMA FINANCIAL INFORMATION" AND "SELECTED FINANCIAL DATA" Item 4. Terms of the Transaction "APPROVAL OF THE MERGER," "DOCUMENTS INCORPORATED BY REFERENCE" Item 5. Pro Forma Financial Information "PER SHARE DATA," "CONDENSED PRO FORMA STATEMENTS OF CONDITION," AND "CONDENSED PRO FORMA STATEMENTS OF INCOME" Item 6. Material Contacts with the Company "APPROVAL OF THE MERGER -- Background of the Merger," "Reasons for the Merger," and "Interests of Certain Persons in the Merger"
3 Item 7. Additional Information Required for Reoffering Not Applicable by Persons and Parties Deemed to be Underwriters Item 8. Interests of Named Experts and Counsel "LEGAL MATTERS" Item 9. Disclosure of Commission Position on Not Applicable; See Items 20 and 22 below Indemnification for Securities Act Liabilities Item 10. Information with Respect to S-3 Registrants "DOCUMENTS INCORPORATED BY REFERENCE," "BUSINESS OF BANCGROUP - Proposed Affiliate Banks" and "Management Information" Item 11. Incorporation of Certain Information by "DOCUMENTS INCORPORATED BY REFERENCE" Reference Item 12. Information with Respect to S-2 or S-3 Not Applicable Registrants -- Item 12(b) Item 13. Incorporation of Certain Information by Not Applicable Reference Item 14. Information with Respect to Registrants Other Not Applicable Than S-3 or S-2 Registrants Item 15. Information with Respect to S-3 Companies Not Applicable Item 16. Information with Respect to S-2 or S-3 Companies Not Applicable Item 17. Information with Respect to Companies Other than "BUSINESS OF THE BANK" S-3 or S-2 Companies "FINANCIAL STATEMENTS" Item 18. Information if Proxies, Consents or "INTRODUCTION," "BUSINESS OF BANCGROUP - Voting Authorizations are to be Solicited Securities and Principal Stockholders," "Security Ownership of Management," "Management Information"
4 Item 19. Information if Proxies, Consents or Not Applicable Authorizations are not to be Solicited or in an Exchange Offer Item 20. Indemnification of Directors and Officers PART II, Item 20 Item 21. Exhibits and Financial Statement Schedules PART II, Item 21 Item 22. Undertakings PART II, Item 22
5 DOTHAN FEDERAL SAVINGS BANK 1962 WEST MAIN STREET DOTHAN, ALABAMA 36302 (334) 794-1988 NOTICE OF SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON , 1996 NOTICE IS HEREBY GIVEN that a Special Meeting of stockholders (the "Special Meeting") of Dothan Federal Savings Bank (the "Bank") will be held at 1962 West Main Street, Dothan, Alabama on , 1996, at 5:30 p.m., local time, for the following purposes: 1. Merger. To consider and vote upon the proposed merger (the "Merger") of the Bank with and into Colonial Bank ("Colonial Bank"), a subsidiary of The Colonial BancGroup, Inc. ("BancGroup"), in accordance with an Agreement and Plan of Merger, dated as of January 22, 1996 (the "Agreement"). Pursuant to the Agreement, Colonial Bank will be the surviving corporation in the Merger, and each share of Common Stock of the Bank outstanding at the time of the Merger will be converted into the right to receive shares of Common Stock of BancGroup and cash, with cash also paid in lieu of fractional shares, as described more fully in the accompanying Joint Proxy Statement and Prospectus. The Agreement is attached to the Joint 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 thereof. The Board of Directors of the Bank is not aware of any other business to come before the Special Meeting. The Board of Directors of the Bank has fixed the close of business on , 1996, as the record date for the determination of stockholders entitled to notice of and to vote at the Special Meeting. Only holders of record of Common Stock of the Bank at the close of business on that date will be entitled to notice of and to vote at the Special Meeting or any adjournments thereof. Under federal law, holders of Common Stock of the Bank are eligible to exercise dissenters' rights of appraisal in connection with the Merger, as described more fully in the accompanying Joint Proxy Statement and Prospectus. You are requested to complete and sign the enclosed form of Proxy which is solicited by the Board of Directors of the Bank and to mail it promptly in the enclosed envelope. The Proxy may be revoked at any time by filing with the Secretary of the Bank a written revocation, by executing a later dated Proxy, or by attending the Special Meeting and voting in person. BY ORDER OF THE BOARD OF DIRECTORS Secretary Dothan, Alabama , 1996 6 JOINT PROXY STATEMENT AND PROSPECTUS COLONIAL BANCGROUP COMMON STOCK DOTHAN FEDERAL SAVINGS BANK SPECIAL MEETING OF STOCKHOLDERS TO BE HELD ON , 1996 This Joint Proxy Statement and Prospectus (the "Prospectus") relates to the proposed merger (the "Merger") of Dothan Federal Savings Bank, a federal savings bank, (the "Bank") with and into Colonial Bank ("Colonial Bank"), an Alabama banking corporation and a wholly-owned subsidiary bank of The Colonial BancGroup, Inc., a Delaware corporation, ("BancGroup") and is furnished to the Bank's stockholders on or about the date set forth below. Colonial Bank conducts business throughout the State of Alabama. In connection with the Merger, BancGroup will issue shares of its Common Stock, par value $2.50 per share, and also pay cash to the holders of the outstanding shares of Common Stock of the Bank. The number of shares of BancGroup Common Stock to be issued to the stockholders of the Bank will depend upon the market value of such shares prior to the Merger. See "APPROVAL OF THE MERGER -- Conversion of Bank Shares." The shares of Common Stock of BancGroup are listed on the New York Stock Exchange ("NYSE") under the symbol "CNB." The closing price per share of such stock as reported by the NYSE as of February 9, 1996, was $32 1/8. Consummation of the Merger requires, among other things, the affirmative vote of at least two-thirds of the outstanding shares of Common Stock of the Bank. BancGroup has filed a Registration Statement pursuant to the Securities Act of 1933, as amended, to register the shares of its Common Stock to be issued in connection with the Merger described herein. This document constitutes a Proxy Statement of the Bank in connection with stockholder approval of the Merger described herein and a Prospectus of BancGroup with respect to the BancGroup Common Stock to be issued in the Merger. THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS APPROVAL OF THE MERGER. THESE SECURITIES 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 OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY. The office and mailing address of the Bank are 1962 West Main Street, Dothan, Alabama 36302 (telephone 334-794-1988), and the principal office and mailing address of BancGroup are Colonial Financial Center, One Commerce Street, Post Office Box 1108, Montgomery, Alabama 36192 (telephone 334-240-5000). The date of this Prospectus is , 1996. 7 AVAILABLE INFORMATION BancGroup is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, 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: 7 World Trade Center, 13th Floor, New York, New York 10048; Citicorp Center, 500 West Madison Street, suite 1400, Chicago, Illinois 60661-2511; 1401 Brickell Avenue, Suite 200, Miami, Florida 33131; 1801 California Street, Suite 4800, Denver, Colorado 80202-2648; 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 prescribed rates. BancGroup's 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 of 1933, as amended, to register the shares of Common Stock of BancGroup being offered 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 the Bank has been furnished by the Bank. The Bank is not subject to the periodic reporting requirements of the Exchange Act. DOCUMENTS INCORPORATED BY REFERENCE THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM THE PERSON 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, 1994; (2) BancGroup's Quarterly Reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 1995; (3) BancGroup's Current Report on Form 8-K dated February 21, 1995; (4) BancGroup's Current Report on Form 8-K/A dated April 21, 1995; (5) BancGroup's Current Report on Form 8-K dated July 10, 1995; and (6) BancGroup's Registration Statement on Form 8-A dated November 22, 1994, effective February 22, 1995, containing a description of BancGroup's Common Stock. All documents filed by BancGroup pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934 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 the other subsequently filed document which also is, or is deemed to be, incorporated 2 8 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 an Agreement and Plan of Merger dated as of January 22, 1996 (the "Agreement") with the Bank 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 at 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). 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). 3 9 TABLE OF CONTENTS
CAPTION PAGE - ------------------------------------------------------------------------------------- ---- SUMMARY.............................................................................. 6 INTRODUCTION......................................................................... 14 General.............................................................................. 14 Record Date; Shares Entitled to Vote; Vote Required for the Merger................... 14 Solicitation; Voting and Revocation of Proxies....................................... 14 Voting Effect of Merger.............................................................. 15 APPROVAL OF THE MERGER............................................................... 15 General.............................................................................. 15 Reasons for and Background of the Merger............................................. 16 Interests of Certain Persons in the Merger........................................... 16 Conversion of Bank Shares............................................................ 17 Certain Federal Income Tax Consequences.............................................. 18 Other Possible Consequences.......................................................... 21 Conditions of Consummation of the Merger............................................. 21 Amendment and Termination............................................................ 22 Conduct of Business Pending the Merger............................................... 22 Rights of Dissenting Stockholders.................................................... 23 Resale of BancGroup Common Stock..................................................... 24 Accounting Treatment................................................................. 24 COMPARATIVE MARKET PRICES AND DIVIDENDS.............................................. 25 BancGroup............................................................................ 25 The Bank............................................................................. 25 BANCGROUP CAPITAL STOCK AND DEBENTURES............................................... 26 Common Stock......................................................................... 26 Preference Stock..................................................................... 26 1986 Debentures...................................................................... 27 Changes in Control................................................................... 27 COMPARATIVE RIGHTS OF STOCKHOLDERS................................................... 29 Director Elections................................................................... 29 Removal of Directors................................................................. 29 Voting............................................................................... 30 Preemptive Rights.................................................................... 30 Directors' Liability................................................................. 30 Indemnification...................................................................... 30 Special Meetings of Stockholders; Action Without a Meeting........................... 31 Mergers, Share Exchanges and Sales of Assets......................................... 31 Amendment of Certificate of Incorporation and Bylaws................................. 32 Rights of Dissenting Stockholders.................................................... 32 Antitakeover Statutes................................................................ 33 Preferred Stock...................................................................... 33 Other Provisions..................................................................... 33 Effect of Merger on Bank Stockholders................................................ 33 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES........................................ 34 Condensed Pro Forma Statement of Condition (Unaudited)............................... 34 Condensed Pro Forma Statements of Income (Unaudited)................................. 38 RECENT DEVELOPMENTS -- COLONIAL BANCGROUP INC., DOTHAN FEDERAL SAVINGS BANK, COMMERCIAL BANCORP OF GEORGIA, INC., AND SOUTHERN BANKING CORPORATION.............. 41
4 10
CAPTION PAGE - ------------------------------------------------------------------------------------- ---- THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES........................................ 48 Selected Interim Financial Data (Unaudited).......................................... 48 Selected Financial Data (as restated)................................................ 49 Selected Quarterly Financial Data 1994-1993 (as restated)............................ 51 DOTHAN FEDERAL SAVINGS BANK.......................................................... 52 Selected Interim Financial Data (unaudited).......................................... 52 Management's Discussion and Analysis of Financial Condition and Results of Operations Comparison of the Three Months Ended September 30, 1995 and 1994................... 53 Selected Financial Data.............................................................. 54 Management's Discussion and Analysis of Financial Condition and Results of Operations......................................................................... 55 BUSINESS OF BANCGROUP................................................................ 61 General.............................................................................. 61 Lending Activities................................................................... 61 Proposed Affiliate Banks............................................................. 62 Voting Securities and Principal Stockholders......................................... 62 Security Ownership of Management..................................................... 64 Management Information............................................................... 65 Certain Regulatory Considerations.................................................... 65 BUSINESS OF THE BANK................................................................. 67 General.............................................................................. 67 Principal Stockholders............................................................... 67 Security Ownership of Management..................................................... 68 ADJOURNMENT OF SPECIAL MEETING....................................................... 68 OTHER MATTERS........................................................................ 69 DATE FOR SUBMISSION OF BANCGROUP STOCKHOLDER PROPOSALS............................... 69 INDEPENDENT ACCOUNTANTS.............................................................. 69 LEGAL MATTERS........................................................................ 69 INDEX TO FINANCIAL STATEMENTS........................................................ F-1 APPENDIX A -- Agreement and Plan of Merger........................................... A-1 APPENDIX B -- OTS Regulation Regarding Dissenters' Rights of Appraisal............... B-1
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES OR THE SOLICITATION OF A PROXY OR AN OFFER TO SELL THE SECURITIES COVERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH SOLICITATION OR OFFER. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE. 5 11 SUMMARY The following provides a summary of information included in this Prospectus. The summary is qualified in its entirety by the more detailed information appearing elsewhere herein, the Appendices hereto and the documents incorporated herein by reference. Stockholders of the Bank are urged to read this document in full. GENERAL This Prospectus relates to the issuance of shares of BancGroup Common Stock and the offer of cash pursuant to the Merger of the Bank with and into Colonial Bank. Colonial Bank will be the surviving corporation in the Merger. See "APPROVAL OF THE MERGER." The Merger will be presented for approval at the Special Meeting of the stockholders of the Bank to be held on , , 1996, at 5:30 p.m., local time, at the Bank's main office. See "INTRODUCTION." TERMS OF THE MERGER Upon the date of consummation of the Merger (the "Effective Date") and subject to certain conditions, holders of the Bank's Common Stock will be entitled to receive shares of BancGroup Common Stock and cash. On the Effective Date, each share of Bank Common Stock issued and outstanding shall be converted by operation of law into the right to receive the number of shares, or such fractions of a share, of BancGroup Common Stock which shall be equal to $2,600,000 divided by the total number of shares of Bank Common Stock outstanding, divided in turn by the Market Value. The "Market Value" shall represent the per share market value of the BancGroup Common Stock at the Effective Date and shall be determined by calculating the average of the closing prices of the Common Stock of BancGroup as reported by the NYSE on each of the 10 consecutive trading days ending on the trading day immediately preceding the Effective Date. In addition, BancGroup will pay an aggregate of $2,600,000 in cash for the outstanding shares of Bank Common Stock, with the amount of cash to be paid for each share of Bank Common Stock equal to $2,600,000 divided by the number of shares of Bank Common Stock outstanding. (The BancGroup Common Stock to be issued and cash to be exchanged for Bank Common Stock as stated above is sometimes referred to as the "Merger Consideration.") As of the date of this Prospectus, there were 399,688 shares of Bank Common Stock outstanding. Stockholders of the Bank may elect, subject to the restrictions summarized below, to receive their Merger Consideration in all cash or all shares of BancGroup Common Stock, or some proportion that is other than 50% for each. Stockholders must file an election form (a copy of which is enclosed with this Prospectus) prior to the Special Meeting if they wish to have their Merger Consideration paid in a proportion of BancGroup Common Stock and cash that is other than 50-50. Regardless of such elections, however, the total amount of BancGroup Common Stock to be issued in the Merger shall equal 50% of the total Merger Consideration and the total amount of cash (including cash paid for appraisal rights) shall equal 50%. Accordingly, stockholders of the Bank may be paid Merger Consideration in a proportion that is other than 50-50 of BancGroup Common Stock and cash, even if such stockholders have filed an election form requesting Merger Consideration in some other proportion. No fractions of shares of Common Stock will be issued. Pursuant to the Agreement, each holder of shares of Bank Common Stock who would otherwise be entitled to receive a fraction of a share of BancGroup Common Stock shall receive, in lieu of such fractional share, cash (without interest) in an amount equal to such fractional share multiplied by the Market Value. As an example, a stockholder of the Bank who owns 500 shares of Bank Common Stock would be entitled to receive for such shares BancGroup Common Stock and cash. Assuming such stockholder receives BancGroup Common Stock and cash in the proportion of 50-50 for each, assuming no exercise of appraisal 6 12 rights, and assuming a Market Value of BancGroup Common Stock at the Merger of $32, then such stockholder would receive Merger Consideration as follows:
NUMBER OF SHARES OF AMOUNT OF BANCGROUP COMMON CASH TO TOTAL VALUE NUMBER OF SHARES STOCK TO BE BE OF MERGER OF BANK COMMON STOCK RECEIVED RECEIVED CONSIDERATION - -------------------- ------------------- --------- ------------- 500 101.64(1) $3,252.55(2) $ 6,505(3)
- --------------- (1) Each share of Bank Common Stock receives an amount of BancGroup Common Stock determined by the following formula: $2,600,000 / 399,688 / 32 = .203284. Thus, 500 shares multiplied by .203284 yields 101.64 BancGroup shares. The fraction of .64 of a share would be paid in cash. (2) Determined by the following formula: $2,600,000 / 399,688 = $6.51 cash for each share of Bank Common Stock. (3) The total Merger Consideration represents the $3252.55 of cash to be received plus the value of the 101.64 shares of BancGroup Common Stock to be received at a Market Value of $32 per share. See "APPROVAL OF THE MERGER -- Conversion of Bank Shares." The closing price of BancGroup Common Stock as reported on the NYSE as of February 9, 1996 was $32 1/8 per share. See "COMPARATIVE MARKET PRICES AND DIVIDENDS." Except as stated above, no adjustments will be made to the number of shares of BancGroup Common Stock to be issued in the Merger based upon the operating results, financial condition or other factors relating to either the Bank or BancGroup. The actual number of shares to be issued will depend upon the Market Value of the BancGroup Common Stock at the time of the Effective Date of the Merger. The aggregate number of shares of BancGroup Common Stock issued in the Merger will increase as the Market Value of such shares at the Effective Date of the Merger decreases and will decrease as the Market Value increases. The amount of cash to be paid will not vary based upon the earnings of the Bank or other performance factors. See "APPROVAL OF THE MERGER -- Conversion of Bank Shares" and "-- Certain Federal Income Tax Consequences." Bank stockholders will be given notice of consummation of the Merger promptly after the Effective Date of the Merger. Certificates for the BancGroup Common Stock issued and cash to be paid will not be distributed until stockholders surrender their certificates representing Bank Common Stock. See "APPROVAL OF THE MERGER -- Conversion of Bank Shares." INTEREST OF CERTAIN PERSONS IN THE MERGER The Bank has entered into agreements with Charles Williams, president and chief executive officer of the Bank, and Charles E. Myers, executive vice president and controller of the Bank, pursuant to which each person could receive cash payments following the Merger, should such persons terminate employment with the Bank (or Colonial Bank following the Merger). The purpose of these agreements is to provide incentives to each person to remain as officers and employees of the Bank during the period of time that the Merger is pending. REASONS FOR THE MERGER The Board of Directors of the Bank believes the Merger is in the best interests of Bank stockholders. In recommending the Merger, the Board considered a number of factors, including the market price of BancGroup Common Stock, the dividend history of the BancGroup Common Stock, the lack of liquidity for the Bank Common Stock, and the apparent and continued trend toward consolidation in the banking field which may make it more difficult for the Bank to compete and maintain profitability in the future. See "APPROVAL OF THE MERGER -- Reasons for and Background of Merger." 7 13 VOTE REQUIRED Pursuant to OTS regulations, the Merger (item 1 on the proxy card) requires the approval of at least two-thirds of the outstanding shares of Common Stock of the Bank. Each share of Bank Common Stock is entitled to one vote per share. A total of 399,688 shares are outstanding. Only those stockholders of the Bank who were stockholders of record at the close of business on , 1996, are entitled to notice of and to vote at the Special Meeting. The Bank's directors and executive officers own in the aggregate 210,549 shares representing 52.68% of the outstanding shares of Common Stock of the Bank and have agreed to vote for the Merger. Directors and executive officers of BancGroup beneficially own in the aggregate 2,103,478 shares representing 15.35% of the outstanding shares of Common Stock of BancGroup, but no vote of BancGroup's stockholders is required for the Merger. See "INTRODUCTION" and "BUSINESS OF THE BANK -- Principal Stockholders," and "Security Ownership of Management." Proxies should be submitted in the envelope enclosed herewith. Stockholders of the Bank submitting proxies may revoke their proxies by giving notice of such revocation in writing to the person named in the Notice of Special Meeting of Stockholders, by executing and delivering a proxy bearing a later date, or by attending the Special Meeting and voting in person. Because approval of the Merger requires the approval of at least two-thirds of the outstanding shares of Common Stock of the Bank, 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 "INTRODUCTION -- Solicitation, Voting and Revocation of Proxies." RIGHTS OF DISSENTING STOCKHOLDERS Pursuant to regulations of the OTS, any stockholder of record of the Bank may dissent from the Merger and obtain the fair value of his Common Stock in cash if such stockholder (i) gives notice in writing to the Bank before voting on the Merger that he intends to demand appraisal rights, (ii) does not vote in favor of the Merger, and (iii) follows certain other procedures explained further herein. Exercise of appraisal rights by stockholders will reduce the $2,600,000 figure for determining the amount of cash to be issued in the Merger by an amount equal to the number of shares exercising appraisal rights multiplied by $13.01. See "APPROVAL OF THE MERGER -- Rights of Dissenting Stockholders" and Appendix B hereto. Any stockholder who properly exercises appraisal rights and receives the fair market value for his shares will encounter income tax treatment different than the treatment for stockholders who do not exercise appraisal rights. See "APPROVAL OF THE MERGER -- Certain Federal Income Tax Consequences." For certain information concerning dissenting stockholders' rights, voting at the Special Meeting, and management of BancGroup and the Bank, see "APPROVAL OF THE MERGER -- Rights of Dissenting Stockholders," "-- Conversion of Bank Shares"; "INTRODUCTION -- Solicitation, Voting and Revocation of Proxies," "-- Record Date; Shares Entitled to Vote; Vote Required"; "BUSINESS OF BANCGROUP -- Voting Securities and Principal Stockholders," "-- Security Ownership of Management," and "BUSINESS OF THE BANK -- Principal Holders of Common Stock," and "-- Security Ownership of Management." CONDITIONS OF CONSUMMATION The Merger is subject to approval by the requisite vote of at least two-thirds of the outstanding shares of Common Stock of the Bank, and certain other conditions. The Merger must be approved by the Alabama State Banking Department (the "Alabama Department"), the Office of Thrift Supervision ("OTS") and the Federal Deposit Insurance Corporation ("FDIC"). Applications are expected to be filed with these agencies within the next two weeks, and the regulatory approval process is expected to take approximately five months. It is anticipated that the foregoing conditions, as well as certain other conditions contained in the Agreement, will be satisfied, but the Agreement states that the Bank and BancGroup may waive all conditions to their obligations to consummate the Merger, except that the conditions of the requisite approvals of regulatory authorities and stockholder approval of the Merger may not be waived. Either BancGroup or the Bank may terminate the Merger if the Merger is not consummated by December 31, 1996. See "APPROVAL OF THE MERGER -- Conditions of Consummation of the Merger." 8 14 In addition, the Boards of Directors of BancGroup and the Bank may amend or terminate the Agreement before or after approval by the stockholders of the Bank. No amendments will be made to the Agreement which would alter the Merger Consideration or which, in the opinion of the Board of Directors of the Bank, would adversely affect the rights of the stockholders of the Bank. Any amendments to the Agreement which in the opinion of the Board of Directors of the Bank would have a material adverse effect upon the stockholders of the Bank would be submitted to the Bank's stockholders for approval. Such amendments could require the filing of an amendment of the Registration Statement, of which this Prospectus forms a part, with the Commission. See "APPROVAL OF THE MERGER -- Conditions of Consummation of the Merger." BUSINESS OF THE BANK The Bank is a federally chartered stock savings bank which began operations in 1988. The Bank's primary business is to accept savings deposits from the general public and to make real estate loans secured by residential and commercial property and, to a lesser extent, to make commercial and consumer loans. Its income is derived from interest and fees in connections with such loans. The Bank's principal expenses are interest paid on deposits and operating expenses. The Bank conducts business through one office in Dothan, Alabama. See "BUSINESS OF THE BANK." BUSINESS OF BANCGROUP BancGroup conducts a commercial banking business in the states of Alabama, Tennessee and Georgia through 98, four and four banking offices, respectively. Colonial Mortgage Company, a subsidiary of BancGroup's Alabama bank subsidiary, Colonial Bank, is a mortgage company that has $9 billion of residential loan servicing and 13 offices in 12 states. As of September 30, 1995, BancGroup had consolidated assets of $3.4 billion and consolidated shareholders' equity of $223 million. BancGroup has entered into agreements to acquire an additional bank in Alabama and to acquire a bank in Orlando, Florida. See "BUSINESS OF BANCGROUP" and "PRO FORMA INFORMATION." COMMON STOCK OF THE BANK The holders of Common Stock of the Bank are entitled to dividends as and when declared by the Board of Directors out of funds legally available therefor, to one vote for each share held on matters submitted to a vote of stockholders, and, in the event of liquidation, to the net assets remaining after satisfaction of all liabilities. As of , 1996, the Bank had 399,688 shares of its Common Stock outstanding and 196 stockholders of record. See "COMPARATIVE RIGHTS OF STOCKHOLDERS." COMMON STOCK OF BANCGROUP BancGroup is authorized to issue 44,000,000 shares of its Common Stock, of which on January 31, 1996, 13,491,691 shares were issued and outstanding. Further, up to 345,321 shares of Common Stock are issuable upon conversion of certain debentures of BancGroup and 214,957 shares are subject to issue upon exercise of outstanding options under BancGroup's stock option plans. BancGroup has authorized 1,000,000 shares of Preference Stock, none of which has been issued. Certain provisions of BancGroup's Restated Certificate of Incorporation and bylaws may have the effect of preventing, delaying or deferring a change in control of BancGroup. Among other things, these provisions include the election of the BancGroup Board of Directors on a classified basis, supermajority votes of stockholders to approve certain business combinations, and the inability of stockholders to call special meetings or to act by written consent. See "BANCGROUP CAPITAL STOCK AND DEBENTURES," and "COMPARATIVE RIGHTS OF STOCKHOLDERS." 9 15 CERTAIN FEDERAL INCOME TAX CONSEQUENCES No ruling with respect to the federal income tax consequences of the Merger to the Bank's stockholders will be requested from the Internal Revenue Service (the "IRS"). BancGroup and the Bank have received an opinion from counsel to BancGroup, Miller, Hamilton, Snider & Odom, L.L.C., Mobile, Alabama, that, among other things, a stockholder of the Bank who exchanges shares of Bank Common Stock for BancGroup Common Stock and cash shall recognize gain, if any, but only in an amount not in excess of the sum of such cash received. Also, stockholders of the Bank will also recognize gain to the extent such stockholders receive cash in lieu of fractional shares of BancGroup Common Stock or who receive cash pursuant to the exercise of their dissenting stockholders' rights. See "APPROVAL OF THE MERGER -- Certain Federal Income Tax Consequences." ACCOUNTING TREATMENT The acquisition of the Bank will be treated as a "purchase" transaction by BancGroup. Accordingly, the purchase price will be assigned to the fair value of the net tangible assets acquired and any purchase price in excess thereof will be assigned to intangibles. The valuation of intangibles, if any, will be made as of the Effective Date of the Merger. Intangibles, approximating $1,574,000, will be amortized by charges or credits to future earnings over a period approximating 20 years. See "APPROVAL OF THE MERGER -- Accounting Treatment." RECENT PER SHARE MARKET PRICE The Bank. There is no established public trading market for the Common Stock of the Bank. To the knowledge of the Bank, 10,518 shares of the Bank Common Stock have been transferred since January 1, 1994. The Bank has no knowledge of the sales prices, if any, in such transfers. See "COMPARATIVE MARKET PRICES AND DIVIDENDS -- The Bank." BancGroup. BancGroup Common Stock is listed for trading on the NYSE under the System symbol "CNB." The following table indicates the high and low closing prices of the BancGroup Class A Common Stock and the BancGroup Common Stock as reported on the Nasdaq National Market and the NYSE for the last two full fiscal years. Prior to February 21, 1995, BancGroup had two classes of Common Stock outstanding, Class A and Class B. Class B was not publicly traded. Class A was traded as a Nasdaq National Market security under the symbol "CLBGA" until February 24, 1995. On February 21, 1995, the Class A and Class B Common Stock were reclassified into Common Stock.
PRICE PER SHARE OF COMMON STOCK -------------- HIGH LOW ---- --- 1994 First Quarter................................................................ 20 1/4 18 Second Quarter............................................................... 25 19 1/4 Third Quarter................................................................ 24 3/4 22 Fourth Quarter............................................................... 23 3/4 19 1/2 1995 First Quarter(1)............................................................. 23 5/8 19 1/2 Second Quarter............................................................... 27 1/2 23 1/8 Third Quarter................................................................ 29 7/8 27 1/2 Fourth Quarter............................................................... 32 7/8 28 1/2 1996 First Quarter (through February 9, 1996)..................................... 32 1/2 30
- --------------- (1) Trading on the NYSE commenced on February 24, 1995. 10 16 See "COMPARATIVE MARKET PRICES AND DIVIDENDS -- BancGroup." On November 20, 1995, the business day immediately prior to the public announcement of the Merger, the closing price of the Common Stock on the NYSE was $29 per share. The following table presents the market value of BancGroup Common Stock on November 20, 1995, and the market value and equivalent per share value of the Bank Common Stock on that date:
EQUIVALENT BANCGROUP BANK BANCGROUP COMMON STOCK COMMON STOCK COMMON STOCK (PER SHARE) (PER SHARE) (PER SHARE) ------------ ------------ ------------ Comparative Market Value.............................. $29.00(1) $ 9.89(2) $ 6.5051(3)
- --------------- (1) Closing price as reported by the NYSE. (2) There is no established public trading market for the Common Stock of the Bank. The value shown is the per share book value at September 30, 1995. (3) If the Merger had closed on, November 21, 1995, .2230 (6.5051/29.175) shares of BancGroup Common Stock would have been exchanged for each one share of the Bank Common Stock, and $6.50 in cash would also have been paid for such share, assuming 399,688 shares of Bank Common Stock outstanding, no exercise of dissenters' rights of appraisal, and a 50-50 distribution of stock and cash for each one share of Bank Common Stock. See "COMPARATIVE MARKET PRICES AND DIVIDENDS." CERTAIN LEGAL RESTRICTIONS ON ACQUISITIONS OF CONTROL Certain restrictions under Delaware law prevent a person who beneficially owns 15% or more of BancGroup's Common Stock from engaging in a "business combination" with BancGroup unless certain conditions are satisfied. Also, the Change in Bank Control Act of 1978 prohibits a person from acquiring "control" of BancGroup unless certain notice provisions with the Federal Reserve Board have been satisfied. BancGroup's Restated Certificate of Incorporation and bylaws also contain provisions which may deter or prevent a takeover of BancGroup that is not supported by BancGroup's Board of Directors. These provisions include (1) a classified Board of Directors, (2) supermajority vote 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 stockholders to call special meetings and act by written consent, and (5) certain advance notice provisions for the conduct of business at stockholder meetings. See "COMPARATIVE RIGHTS OF STOCKHOLDERS." PER SHARE DATA The table on the following page presents on a per share basis the book value, cash dividends and income from continuing operations of BancGroup and the Bank on a historical basis and on a pro forma equivalent basis assuming the acquisition of the Bank. Certain information from the table has been taken from the 11 17 condensed pro forma statements of condition and income included elsewhere in this document. The table should be read in conjunction with those pro forma statements.
NINE MONTHS YEAR ENDED ENDED SEPTEMBER 30, 1995 1994(A) ------------------ ------- BANCGROUP -- HISTORICAL (RESTATED):(1) Net Income Primary............................................................ $ 2.35 $ 2.28 Fully diluted...................................................... 2.27 2.23 Book value at end of period.......................................... 18.22 16.08 Dividends per share: Common Stock....................................................... 0.675 Common A........................................................... 0.80 Common B........................................................... 0.40 DOTHAN FEDERAL SAVINGS BANK: Net Income Historical: Primary......................................................... 0.28 0.82 Fully diluted................................................... 0.28 0.82 Pro forma equivalent assuming acquisition of Dothan Federal Savings Bank only(b): Primary......................................................... 0.48 0.47 Fully diluted................................................... 0.46 0.46 Pro forma equivalent assuming acquisition of Dothan Federal Savings Bank, Commercial Bancorp of Georgia, Inc. and Southern Banking Corporation(b): Primary......................................................... 0.44 0.41 Fully diluted................................................... 0.43 0.40 Book value at end of period Historical......................................................... 9.89 9.04 Pro forma equivalent assuming acquisition of Dothan Federal Savings Bank only(b).................................................... 3.75 N/A Pro forma equivalent assuming acquisition of Dothan Federal Savings Bank, Commercial Bancorp of Georgia, Inc. and Southern Banking Corporation(b).................................................. 3.53 N/A Dividends per share Historical(d)...................................................... 0.15 Pro forma equivalent assuming acquisition of Dothan Federal Savings Bank only(c).................................................... 0.14 0.16 Pro forma equivalent assuming acquisition of Dothan Federal Savings Bank, Commercial Bancorp of Georgia, Inc. and Southern Banking Corporation(c).................................................. 0.14 0.16
- --------------- (1) As restated to give effect to the February 17, 1995 acquisition of Colonial Mortgage Company, an entity under common control, which was accounted for in a manner similar to a pooling of interests.
12 18
NINE MONTHS YEAR ENDED ENDED SEPTEMBER 30, 1995 1994(A) ------------------ ------- BANCGROUP -- PRO FORMA COMBINED (DOTHAN FEDERAL ONLY): Net Income: Primary............................................................ 2.33 2.28 Fully diluted...................................................... 2.26 2.23 Book value at end of period.......................................... 18.31 N/A BANCGROUP -- PRO FORMA COMBINED (DOTHAN FEDERAL SAVINGS BANK, COMMERCIAL BANCORP OF GEORGIA, INC. AND SOUTHERN BANKING CORPORATION): Net Income Primary............................................................ 2.13 2.00 Fully diluted...................................................... 2.08 1.97 Book value at end of period.......................................... 17.25 N/A
- --------------- N/A Not applicable due to pro forma balance sheet being presented only at September 30, 1995 which assumes the transaction was consummated on the latest balance sheet date in accordance with Rule 11.02(b) of Regulation S-X. (a) Per share data of BancGroup (restated) is for the year ended December 31, 1994. Per share data of Dothan Federal Savings Bank is for the year ended December 31, 1994 (last six months from fiscal year end June 30, 1994 and first six months of fiscal year end June 30, 1995). (b) Pro forma equivalent per share amounts are calculated by multiplying the pro forma combined total income per share and the pro forma combined total book value per share of BancGroup by the conversion ratio so that the per share amounts are equated to the respective values for one share of Dothan Federal Savings Bank. For the purposes of these pro forma equivalent per share amounts, a .2045 BancGroup common stock share conversion ratio is utilized. The ratio is based on the 10-day average market price of Colonial BancGroup, Inc. common stock of $31.8125 at January 9, 1996. (c) Pro forma equivalent dividends per share are shown at BancGroup's Class A Common Stock dividend per share rate multiplied by the .2045 conversion ratio per share of Dothan Federal Savings Bank common stock (see note (a)). BancGroup presently contemplates that dividends will be declared in the future. However, the payment of cash dividends is subject to BancGroup's actual results of operations as well as certain other internal and external factors. Accordingly, there is no assurance that cash dividends will either be declared and paid in the future, or, if declared and paid, that such dividends will approximate the pro forma amounts indicated. (d) Dothan Federal declared a $.15 per share dividend in the fiscal year ended June 30, 1995.
13 19 INTRODUCTION GENERAL This Prospectus is being furnished to the stockholders of the Bank in connection with the solicitation of proxies by the Board of Directors of the Bank for use at a Special Meeting of stockholders to be held on , 1996, at 5:30 p.m., local time, and at any adjournments thereof (the "Special Meeting"), as stated in the accompanying Notice of Special Meeting of Stockholders and described herein. The purpose of the Special Meeting is to consider and vote upon the proposed Merger of the Bank with and into Colonial Bank, BancGroup's Alabama bank subsidiary. Colonial Bank will be the surviving corporation in the Merger. 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 stockholders is required to approve the Merger. The Board of Directors of the Bank believes that the Merger is in the best interests of the Bank and its stockholders and unanimously recommends that stockholders vote "FOR" the Merger (item 1 on the proxy card). Each member of the Board of Directors of the Bank has separately agreed with BancGroup to vote his or her shares in favor of the Merger. RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED FOR THE MERGER Shares of Common Stock, par value $.01 per share, are the only securities of the Bank issued and outstanding. The close of business on , 1996, has been fixed by the Board of Directors of the Bank as the record date for determination of stockholders entitled to vote at the Special Meeting. There were 196 record holders of Bank Common Stock as of such date. On that date, there were outstanding 399,688 shares of Common Stock of the Bank. Approval of the Merger requires the affirmative vote of at least two-thirds of the outstanding shares of Common Stock of the Bank. Each share is entitled to one vote. Under federal regulations, stockholders of the Bank have dissenters' rights of appraisal with respect to the Merger. See "APPROVAL OF THE MERGER -- Rights of Dissenting Stockholders." If the Merger is approved at the Special Meeting, the Bank is expected to merge with and into Colonial Bank promptly after the other conditions to the Agreement are satisfied. See "APPROVAL OF THE MERGER -- Conditions of Consummation of the Merger." If the Merger is not approved at the Special Meeting and it becomes reasonably and objectively certain that stockholder approval cannot be obtained or the other conditions to the Agreement are not satisfied, the Merger will be terminated. THE BOARD OF DIRECTORS OF THE BANK URGES THE STOCKHOLDERS OF THE BANK TO EXECUTE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE AND UNANIMOUSLY RECOMMENDS THAT THE SHARES REPRESENTED BY THE PROXY BE VOTED IN FAVOR OF THE MERGER. SOLICITATION, VOTING AND REVOCATION OF PROXIES In addition to soliciting proxies by mail, directors, officers, and other employees of the Bank, without receiving special compensation therefor, may solicit proxies from the Bank's stockholders by telephone, by telegram or in person. Arrangements will also be made with brokerage firms and other custodians, nominees and fiduciaries, if any, to forward solicitation materials to any beneficial owners of shares of Common Stock of the Bank held of record by such persons. The cost of mailing this Prospectus and other materials furnished to stockholders of the Bank and all other expenses of solicitation, including the expenses of brokers, custodians, nominees, and other fiduciaries who, at the request of the Bank, mail material to or otherwise communicate with beneficial owners of the shares held by them, will be paid by the Bank. Expenses incident to the registration of the securities to be issued in connection with the Merger will be paid by BancGroup. 14 20 Each proxy which is solicited on behalf of the Bank, as stated on such proxy, permits each record holder of Common Stock of the Bank to vote on the Merger. Where a stockholder specifies his or her choice on the proxy with respect to the Merger, the shares represented by the proxy will be voted in accordance with such specification. IF NO SUCH SPECIFICATION IS MADE, THE SHARES WILL BE VOTED IN FAVOR OF THE MERGER. Properly executed proxies will be voted in accordance with the determination of a majority of the Board of Directors of the Bank as to any other matter which may properly come before the Special Meeting. The enclosed proxy card should be returned in the accompanying envelope. 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 be counted for purposes of determining a quorum at the Special Meeting. Stockholders who execute proxies retain the right to revoke them at any time. However, abstentions and broker non-votes will have the same effect as a "no" vote respecting stockholder approval of the Merger. A proxy may be revoked at any time before it is voted by: (i) filing with the Secretary of the Bank a written notice of revocation, (ii) delivering to the Bank a duly executed proxy bearing a later date; or (iii) attending the Special Meeting and voting in person. Attendance at the Special Meeting will not in and of itself constitute revocation of the proxy. The Board of Directors of the Bank is not aware of any business to be acted upon at the Special Meeting other than consideration of the Merger described herein. VOTING EFFECT OF MERGER Assuming that (i) no dissenters' rights of appraisal are exercised in connection with the Merger and (ii) a Market Value of BancGroup's Common Stock of $32 per share, upon consummation of the Merger (a) 81,250 shares of BancGroup Common Stock will be issued and $2,600,000 in cash will in the aggregate be paid in connection with the Merger and (b) former holders of Bank Common Stock will hold 81,250 shares, or .60%, of the BancGroup Common Stock then outstanding. APPROVAL OF 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 REGULATIONS OF THE OTS RELATING TO THE RIGHTS OF DISSENTING STOCKHOLDERS, A COPY OF WHICH IS ATTACHED HERETO AS APPENDIX B. ALL BANK STOCKHOLDERS ARE URGED TO READ ALL APPENDICES IN THEIR ENTIRETY. GENERAL Pursuant to the Agreement, subject to stockholder approval, receipt of necessary regulatory approval and certain other conditions set forth in the Agreement, the Bank will merge with and into Colonial Bank, a wholly-owned Alabama bank subsidiary of BancGroup. Upon completion of the Merger, the corporate existence of the Bank will cease, and Colonial Bank will succeed to the business formerly conducted by the Bank. In the event there is an insufficient number of shares of Bank Common Stock present in person or by proxy at the Special Meeting to approve the Merger, the Board of Directors of the Bank intends to adjourn the Special Meeting. Any such adjournment will require the affirmative vote of a majority of shares present at the Special Meeting. While such an adjournment would not invalidate any proxies previously filed, including those filed by stockholders voting against the Merger, it would give the Bank the opportunity to solicit additional proxies in favor of the Merger. 15 21 REASONS FOR AND BACKGROUND OF THE MERGER In March, 1995, BancGroup contacted representatives of the Bank about a possible acquisition of the Bank. At that time, the Bank did not enter into negotiations regarding such an acquisition. In August, 1995, the Bank retained the services of T. Stephen Johnson & Associates, a financial brokerage firm, to seek possible buyers of the Bank. In September 1995, such broker contacted BancGroup to determine whether BancGroup would have an interest in the Bank. Approximately 24 potential purchasers of the Bank were contacted, and ten expressed interest to the Bank in an acquisition. BancGroup was the only institution making an offer of acquisition. The Bank's Board of Directors decided that the BancGroup proposal represented the best transaction for the Bank's stockholders. Following negotiations, the Bank and BancGroup entered into a letter of intent on November 17, 1995, stating the intent of the parties to merge the Bank with Colonial Bank. Following further discussions and a review of the Bank's finances and operations by BancGroup, the Agreement was executed in late January, 1996. In negotiating the letter of intent and the Agreement, Bank management wanted an opportunity for the stockholders of the Bank to be paid cash for their Bank Common Stock. Although the Common Stock of BancGroup represents a liquid security that may be readily sold on the NYSE, Bank management believed that the opportunity for Bank stockholders to receive cash in the Merger was important. At the same time, Bank stockholders have an opportunity in the Merger to receive BancGroup Common Stock that, unlike the Bank Common Stock for which there is no active trading market, may be traded on the NYSE. The Bank also considered the market value of the BancGroup Common Stock and the dividend history of BancGroup. In approving the Agreement, the Board of Directors of the Bank also considered the general trend in the banking industry toward consolidations and mergers between community and regional banks. The Board believes that new interstate banking legislation may result in increased consolidation in the banking industry and may make it more difficult for smaller community banks, such as the Bank, to compete in a given market area with larger, better capitalized banks. With such increased competition, the upgrading of customer services and products that would probably be necessary for the Bank would necessitate additional personnel and overhead costs, both of which could significantly reduce the Bank's profitability. Finally, the Board considered the management philosophy of BancGroup -- i.e., an emphasis upon local input and judgment in the operations of its branch banks -- to be important in serving the Bank's customers. In reaching its decision to approve the Merger, the Board of Directors did not place a relative weight on any of the foregoing factors, but concluded that in light of all of the foregoing, the merger is in the best interests of the Bank's stockholders. The Merger will also enable BancGroup to expand its banking operations in southeast Alabama in locations where BancGroup has not previously had branch banking offices. INTERESTS OF CERTAIN PERSONS IN THE MERGER Charles Williams, president and chief executive officer of the Bank, and Charles E. Myers, vice president and controller, each entered into agreements with the Bank, dated October 22, 1995, and expiring October 1, 1996, which provide that in the event of a change in control of the Bank, each person will be entitled for a period of 180 days from the date of closing the change in control transaction to terminate such agreements and receive a lump sum cash payment, in the case of Mr. Williams, of $32,000, and in the case of Mr. Myers of $22,000. Mr. Williams is also entitled to receive his Bank-furnished automobile. Among other things, a "change in control" is defined as a merger of the Bank in which any person acquires control of 50% or more of the Bank's Common Stock. The agreements were entered into by the Bank to provide incentives to Mr. Williams and Mr. Myers to remain as officers and employees of the Bank during the time that the Bank was actively considering a sale. The Merger constitutes a change in control of the Bank. 16 22 CONVERSION OF BANK SHARES Merger Consideration. On the effective date of the Merger (the "Effective Date"), and except as stated below, each share of the Bank's Common Stock outstanding and held of record by Bank stockholders shall be converted by operation of law into the right to receive shares of BancGroup Common Stock and cash upon surrender of the certificates representing shares of Bank Common Stock. Each outstanding share of Bank Common Stock shall be converted into the number of shares, or such fractions of a share, of BancGroup Common Stock which shall be equal to $2,600,000 divided by the total number of shares of Bank Common Stock outstanding, divided in turn by the Market Value. The "Market Value" shall represent the per share market value of the BancGroup Common Stock at the Effective Date and shall be determined by calculating the average of the closing prices of the Common Stock of BancGroup as reported by the NYSE on each of the 10 consecutive trading days ending on the trading day immediately preceding the Effective Date. In addition, BancGroup will pay an aggregate of $2,600,000 in cash for the outstanding shares of Bank Common Stock, with the amount of cash to be paid for each share of Bank Common Stock equal to $2,600,000 divided by the number of shares of Bank Common Stock outstanding. (The BancGroup Common Stock to be issued and the cash to be paid in exchange for Bank Common Stock as stated above is sometimes referred to as the "Merger Consideration.") The closing price of the BancGroup Common Stock on the NYSE on February 9, 1996, was $32 1/8 per share. As of the date of this Prospectus, there were 399,688 shares of Bank Common Stock outstanding. No fractions of shares of BancGroup Common Stock will be issued in the Merger. Pursuant to the Agreement, each holder of shares of Bank Common Stock who would otherwise be entitled to receive a fraction of a share of BancGroup Common Stock shall receive, in lieu of such fractional share, cash (without interest) in an amount equal to such fraction of a share multiplied by the Market Value. As an example, a stockholder of the Bank who owns 500 shares of Bank Common Stock would be entitled to receive for such shares BancGroup Common Stock and cash. Assuming such stockholder receives BancGroup Common Stock and cash in the proportion of 50-50 for each, assuming no exercise of appraisal rights, and assuming a Market Value of BancGroup Common Stock at the Merger of $32, then such stockholder would receive Merger Consideration as follows:
AMOUNT OF NUMBER OF SHARES OF CASH TO TOTAL VALUE NUMBER OF SHARES BANCGROUP COMMON BE OF MERGER OF BANK COMMON STOCK STOCK TO BE RECEIVED RECEIVED CONSIDERATION - -------------------- -------------------- --------- ------------- 500 101.64(1) $ 3252.55(2) $ 6505(3)
- --------------- (1) Each share of Bank Common Stock receives an amount of BancGroup Common Stock determined by the following formula: $2,600,000 / 399,688 / 32 = .203284. Thus, 500 shares multiplied by .203284 yields 101.64 BancGroup shares. The fraction of .64 of a share would be paid in cash. (2) Determined by the following formula: $2,600,000 / 399,688 = $6.51 cash for each share of Bank Common Stock. (3) The total Merger Consideration represents the $3252.55 of cash to be received plus the value of the 101.64 shares of BancGroup Common Stock to be received at a Market Value of $32 per share. If any stockholder of the Bank exercises dissenters' rights of appraisal and receives cash for Bank Common Stock held, the $2,600,000 figure stated above which is to be used for calculating the cash to be distributed shall be reduced by an amount that equals the number of shares of Bank Common Stock properly exercising dissenting rights of appraisal multiplied by $13.01. See "Rights of Dissenting Stockholders." Election Forms. A holder of Bank Common Stock may, prior to the Special Meeting, file a written election form (an "Election Form") with the Bank specifying whether such holder prefers to have the Merger Consideration paid to such holder in shares of BancGroup Common Stock only, cash only, or a proportion of cash and BancGroup Common Stock that is other than 50% for each, provided that, notwithstanding any elections made pursuant to such Election Forms, the aggregate number of shares of BancGroup Common 17 23 Stock to be distributed in the Merger shall equal 50% of the total Merger Consideration and the aggregate amount of cash to be paid in the Merger shall equal 50% of the total Merger Consideration. An Election Form shall apply to all shares of record of Bank Common Stock held by the holder of record submitting the Election Form. An Election Form is enclosed with this Prospectus. If the aggregate amount of cash to be paid in the Merger is less than 50% of the Merger Consideration based upon the Election Forms which have been properly filed, then a sufficient amount of additional cash shall be distributed pro rata to all stockholders of the Bank who have not elected to receive 100% of the Merger Consideration in cash, regardless of whether such stockholders have filed an Election Form, so that the aggregate amount of Merger Consideration to be paid in cash in the Merger will equal 50%, and the number of shares of BancGroup Common Stock otherwise required to be distributed shall be reduced pro rata as to all stockholders who have not elected to receive 100% of the Merger Consideration in cash. If the aggregate amount of cash to be paid in the Merger is greater than 50% of the Merger Consideration based upon the Election Forms which have been properly filed, then the aggregate amount of cash will be reduced and a sufficient amount of cash shall be distributed pro rata to all stockholders of the Bank who have not elected to receive 100% of the Merger Consideration in BancGroup Common Stock, regardless of whether such stockholders have filed an Election Form, so that the aggregate amount of Merger Consideration to be paid in cash in the Merger will equal 50%, and the number of shares of BancGroup Common Stock otherwise required to be distributed shall be increased pro rata as to all stockholders who have not elected to receive 100% of the Merger Consideration in BancGroup Common Stock. Cash to be paid to holders exercising dissenter's rights of appraisal shall be included as part of the Merger Consideration for determining the amount of cash to be paid in the Merger. Interest will not be paid on any cash to be paid as part of the Merger Consideration. Deadline for Election Forms. The Election Form may be submitted to the Bank along with the proxy in the envelope which has been provided with this Prospectus. ELECTION FORMS MUST BE RECEIVED BY THE BANK NO LATER THAN 5:30 P.M. ON , 1996, THE START OF THE SPECIAL MEETING. Surrender of Certificates and Dividends. Upon the Effective Date and subject to the conditions described at "Conditions of Consummation of the Merger," the Bank's stockholders will automatically, and without further action by such stockholders or by BancGroup, have the right to receive shares of BancGroup Common Stock and cash upon surrender of the certificates representing their shares of Bank Common Stock as described herein. Outstanding certificates representing shares of Bank Common Stock shall represent the right to receive shares of Common Stock of BancGroup and cash. Thereafter, upon surrender of the certificates formerly representing shares of Bank Common Stock, the holder will receive certificates for the Common Stock of BancGroup and the cash payment to which such person is entitled. Dividends on the shares of BancGroup Common Stock will accumulate without interest and will not be distributed to any former stockholder of the Bank unless and until such stockholder surrenders for cancellation his certificates for Bank Common Stock. No interest will be paid on the cash to be distributed in the Merger. Trust Company Bank, Atlanta, Georgia, transfer agent for BancGroup Common Stock, will act as the Exchange Agent with respect to the shares of Bank Common Stock surrendered and cash paid in connection with the Merger. A detailed explanation of these arrangements will be mailed to Bank stockholders promptly following the Effective Date. STOCK CERTIFICATES FOR BANK COMMON STOCK SHOULD NOT BE SENT TO THE EXCHANGE AGENT UNTIL SUCH NOTICE IS RECEIVED. CERTAIN FEDERAL INCOME TAX CONSEQUENCES The following discussion is a summary of certain anticipated material federal income tax consequences of the Merger to the Bank and the Bank stockholders who are citizens of the United States. It does not discuss all the tax consequences that may be relevant to the Bank stockholders entitled to special treatment under the Internal Revenue Code of 1986, as amended (the "Code") (such as insurance companies, dealers in securities, tax-exempt organizations or foreign persons) or to Bank stockholders who acquired their Bank Common Stock pursuant to the exercise of employee stock options or otherwise as compensation. The summary set forth below does not purport to be a complete analysis of all potential tax effects of the 18 24 transactions contemplated by the Agreement or the Merger itself. EACH BANK STOCKHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX AND FINANCIAL ADVISOR AS TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER ON HIS OR HER OWN PARTICULAR FACTS AND CIRCUMSTANCES, AND ALSO AS TO ANY STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES ARISING OUT OF THE MERGER. No ruling has been or will be requested from the Internal Revenue Service ("IRS") as to any of the federal income tax effects to the Bank stockholders of the Merger or the federal income tax effects to the Bank. Instead, the Bank is relying upon an opinion of BancGroup's special counsel, Miller, Hamilton, Snider & Odom, L.L.C., as to the federal income tax consequences of the Merger to the Bank stockholders and to the Bank. Based upon the opinion of Miller, Hamilton, Snider & Odom, L.L.C., which relies upon various representations and is subject to various assumptions and qualifications, including that the Merger is consummated in the manner and according to the terms provided in the Agreement, the following federal income tax consequences to the Bank stockholders and to the Bank will result from the Merger. The tax opinion is based upon certain assumptions, including the assumption that the Bank has no knowledge of any plan or intention on the part of the Bank stockholders 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 Bank Common Stock outstanding immediately upon the Merger. The following presents a summary of that opinion: 1. The Merger will qualify as a reorganization within the meaning of Section 368(a)(1) pursuant to Section 368(a)(2)(D) of the Code. 2. A Bank stockholder who exchanges shares of Bank Common Stock solely for BancGroup Common Stock pursuant to the election provided in the Agreement, will not recognize any gain or loss. 3. No gain or loss will be recognized by the Bank as a result of the Merger. 4. A Bank stockholder who exchanges shares of Bank Common Stock for a combination of BancGroup Common Stock and cash, as described in the Agreement, shall recognize gain. The amount of the gain realized by a stockholder will be the excess of (a) the sum of (i) the amount of cash received, and (ii) the fair market value of shares of BancGroup Common Stock received, over (b) the tax basis of the shares of Bank Common Stock exchanged therefor. Of such gain realized, a stockholder will recognize gain, but limited to the amount of cash received. No loss shall be recognized. Any gain recognized by such stockholders of the Bank will be characterized as capital gain if the Bank Common Stock is a capital asset in the hands of such stockholders and their receipt of the cash does not have "the effect of the distribution of a dividend" within the meaning of Section 356(a)(2) of the Code, as interpreted by the United States Supreme Court in Commission v. Clark, 489 U. S. 726 (1989). Otherwise, the receipt of the cash will be treated as a dividend. Pursuant to Clark, such Bank stockholders will be treated as if the stockholder received only BancGroup Common Stock and then BancGroup redeemed a portion of such Common Stock for the amount of cash that actually was issued (a post-reorganization hypothetical redemption). If that hypothetical redemption satisfies any of the tests of Section 302(b) of the Code, it will be treated as an exchange. Bank stockholders should be able to satisfy one or more of the tests for exchange treatment under of Section 302(b) of the Code. Consequently, any gain recognized by a Bank stockholder should be treated as capital gain or loss. However, the application of Section 302(b) is dependent on each stockholder's particular facts and circumstances and is affected by the attribution rules of Section 318 of the Code. Consequently, Bank stockholders should seek independent tax advice as to the tax effect of the Merger including the receipt of the cash, to them. 5. A Bank stockholder who exchanges Bank Common Stock solely for cash pursuant to an election provided in the Agreement shall recognize gain or loss. The amount of the gain realized by such stockholder will be the excess of the amount of cash received over the tax basis of the shares of Bank Common Stock exchanged therefor. Any gain recognized by such stockholders of the Bank will be 19 25 characterized as capital gain if the Bank Common Stock is a capital asset in the hands of such stockholders and receipt of the cash does not have the "effect of the distribution of a dividend" within the meaning of Section 356(a)(2) of the Code. It is unclear whether the post-reorganization hypothetical redemption of the Clark case discussed above will be applicable to such stockholders. Nonetheless, such stockholders should be entitled to capital gain treatment if the redemption satisfies any of the tests of Section 302(b) of the Code. Such Bank stockholders should be able to satisfy one or more of the tests for exchange treatment under Section 302(b) of the Code. However, the application of Section 302(b) is dependent upon each stockholder's particular facts and circumstances and is affected by the attribution rules of Section 318 of the Code. Consequently, such Bank stockholders should seek independent tax advice as to the tax effects of the Merger, including the receipt of the cash, to them. 6. The payment of cash to a Bank stockholder in lieu of a fractional share of BancGroup Common Stock as part of the Merger will be treated as if the fractional share was delivered to the stockholder and then redeemed by BancGroup, with the tax effect of such deemed redemption being determined under Section 302(b) of the Code. 7. A Bank stockholder who dissents and receives only cash pursuant to dissenter's rights of appraisal 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 Bank Common Stock converted, if the shares of Bank Common Stock were held as capital assets. However, a Bank stockholder who receives only cash may need to consider the effects of Sections 302 and 318 of the Code in determining the federal income tax consequences of the transaction. 8. The basis of the BancGroup Common Stock (including any fractional share) received by a Bank stockholder in the Merger will be the same as the basis of the Bank Common Stock surrendered in exchange therefor, decreased by the amount of cash received, and increased by the amount treated as a dividend and the amount of gain recognized on the exchange. 9. The holding period of the BancGroup Common Stock received by a Bank stockholder in the Merger will include the holding period of the Bank Common Stock surrendered in exchange therefor, provided such shares of Bank Common Stock were capital assets or property described under Section 1231 of the Code in the hands of the Bank stockholder on the day of the Merger, and otherwise will begin on the date following the date of the Merger. If the assumption stated above, that there is no plan or intention by the Bank stockholders to sell or dispose of BancGroup Common Stock that would reduce their holdings to the number of shares with an aggregate fair market value of at least 50 percent of the total fair market value of Bank Common Stock outstanding immediately before the Merger, were to be incorrect, then counsel would not be able to opine that the Merger is a reorganization under Section 368 of the Code. Accordingly, the Merger must satisfy the "continuity of interest" requirement contained in Treasury Regulations and in judicial authority. The IRS has stated that, for ruling purposes, for mergers to qualify as reorganizations, the stockholders of the acquired corporation must receive and retain stock of the acquiror equal to 50 percent of the aggregate fair market value of the acquired corporation immediately before the Merger. Thus, of the total consideration received by the stockholders of the Bank, at least 50% must consist of BancGroup Common Stock. Moreover, Bank stockholders must retain at least that amount of BancGroup stock after the Merger. The "continuity of interest" test may be affected by actions of the Bank's stockholders subsequent to the Merger. If shares of BancGroup Common Stock received in the Merger are sold after the Merger, for example, within a twelve month period, the IRS may challenge the status of the Merger as a reorganization under Section 368 of the Code. For example, if ten percent of such shares were sold within such twelve month period pursuant to a pre-arranged plan or commitment by any one or more Bank stockholders, the IRS might assert that there was insufficient continuity by the Bank stockholders. If the IRS were successful in that assertion, the Merger would be taxable to both the Bank and its stockholders. As a result, Bank stockholders would be subject to gain or loss on the entire transaction, including the receipt of BancGroup stock. 20 26 As noted above, for advance ruling purposes the IRS requires fifty percent continuity. However, that is not a rule of substantive law. Rather, it is the minimum required by the IRS for issuance of Private Rulings to taxpayers that request such rulings prior to consummating a transaction. Courts, however, have upheld the status of mergers as reorganizations where continuity was less than fifty percent. The opinion of Miller, Hamilton, Snider & Odom, L.L.C., is based entirely upon the Code, regulations now in effect thereunder, current administrative rulings and practice, and judicial authority, all of which are subject to change. Unlike a ruling from the IRS, an opinion of counsel is not binding on the IRS and there can be no assurance, and none is hereby given, that the IRS will not take a position contrary to one or more positions reflected herein or that the opinion will be upheld by the courts if challenged by the IRS. OTHER POSSIBLE CONSEQUENCES If the Merger becomes effective, the stockholders of the Bank, a federal savings bank, will exchange their shares of Common Stock for securities in a Delaware business corporation. The state tax consequences, where applicable, of owning stock of a Delaware business corporation may be different from those of owning shares of a federal savings bank. For a discussion of the differences, if any, in the rights, preferences, and privileges attaching to Bank Common Stock as compared with BancGroup Common Stock, see "COMPARATIVE RIGHTS OF STOCKHOLDERS." CONDITIONS OF CONSUMMATION OF THE MERGER Consummation of the Merger is subject to a number of conditions. First, the Agreement must be approved by the affirmative vote of at least two-thirds of the outstanding shares of Common Stock of the Bank. The Merger must also be approved by the Alabama State Banking Department (the "Alabama Department"), the Office of Thrift Supervision ("OTS") and the Federal Deposit Insurance Corporation ("FDIC"). Applications for approval are expected to be filed with these agencies within the next two weeks, and the regulatory approval process is expected to take approximately five months. Any of these agencies might refuse or revoke approval or condition approval on one or more of the parties agreeing to take some action such as making some change in operations. The Bank Merger Act imposes a waiting period which prohibits consummation of the Merger, in ordinary circumstances, for a period ranging from 15-30 days following the FDIC's approval of the Merger. During such period, the United States Department of Justice, should it object to the Merger for antitrust reasons, may challenge the consummation of the Merger. The obligations of the Bank and BancGroup to consummate the Merger are conditioned upon, among other things, (i) the absence of pending or threatened litigation with a view to restraining or prohibiting consummation of the Merger or in which it is sought to obtain divestiture, rescission or damages in connection with the Merger, (ii) the absence of any investigation by any governmental agency which might result in any such proceeding, (iii) consummation of the Merger no later than December 31, 1996, and (iv) receipt of a favorable opinion of counsel to BancGroup regarding certain federal income tax consequences of the Merger. The mutual obligations of the Bank and BancGroup to consummate the Merger are further conditioned upon, among other things, (i) the accuracy in all material respects of the representations and warranties of the Bank and BancGroup contained in the Agreement, and the performance by the Bank and BancGroup of all covenants and agreements of the Bank and BancGroup; (ii) the absence of any material adverse changes in the results of operations and financial condition of the Bank and BancGroup, except as may be disclosed in the Agreement; and (iii) in the case of BancGroup's obligations, receipt by BancGroup of certain undertakings from holders of the Bank Common Stock who may be deemed to be "affiliates" of the Bank pursuant to the rules of the Securities and Exchange Commission (the "Commission"). It is anticipated that the foregoing conditions, as well as certain other conditions contained in the Agreement, such as the receipt of certificates of officers of each party as to compliance with the Agreement, 21 27 will be satisfied, but the Agreement states that the Bank and BancGroup may waive all conditions to their obligations to consummate the Merger, except that the conditions of the requisite approvals of regulatory authorities and Bank stockholder approval of the Merger may not be waived. In making any decisions regarding a waiver of one or more conditions to consummation of the Merger or an amendment of the Agreement, the Board of Directors of the Bank would be subject to fiduciary duty standards imposed upon such board by relevant law that would require such Board to act in the best interests of the Bank's stockholders. AMENDMENT AND TERMINATION The Boards of Directors of BancGroup and the Bank may amend or terminate the Agreement before or after approval by the stockholders of the Bank. No amendments will be made to the Agreement which would alter the Merger Consideration or which, in the opinion of the Board of Directors of the Bank would adversely affect the rights of the stockholders of the Bank. Any amendments to the Agreement which in the opinion of the Board of Directors of the Bank would have a material adverse effect upon the stockholders of the Bank would be submitted to the Bank's stockholders for approval. Such amendments could require the filing of an amendment of the Registration Statement, of which this Prospectus forms a part, with the Commission. CONDUCT OF BUSINESS PENDING THE MERGER The Agreement contains certain restrictions on the conduct of the business of the Bank pending consummation of the Merger. In particular, prior to the Effective Date, the Agreement prohibits the Bank from taking any of the following actions, subject to certain limited exceptions previously agreed to by the parties, without the prior written approval of BancGroup: (i) Issuing, delivering or agreeing to issue or deliver any stock, bonds or other corporate securities (whether authorized and unissued or held in the treasury); (ii) Borrowing or agreeing to borrow any funds or incurring or becoming subject to, any liability (absolute or contingent) except borrowings, obligations and liabilities incurred in the ordinary course of business and consistent with past practice; (iii) Paying any material obligation or liability (absolute or contingent) other than current liabilities reflected in or shown on the most recent balance sheet and current liabilities incurred since that date in the ordinary course of business and consistent with past practice; (iv) Declaring or making or agreeing to declare or make, any payment of dividends or distributions of any assets of any kind whatsoever to stockholders, or purchasing or redeeming or agreeing to purchase or redeem, any of its outstanding securities; (v) Except in the ordinary course of business, selling or transferring or agreeing to sell or transfer, any of its assets, property or rights or canceling, or agreeing to cancel, any debts or claims; (vi) Except in the ordinary course of business, entering or agreeing to enter into any agreement or arrangement granting any preferential rights to purchase any of its assets, property or rights or requiring the consent of any party to the transfer and assignment of any of its assets, property or rights; (vii) Suffering any losses or waiving any rights of value which in the aggregate are material; (viii) Except in the ordinary course of business, making or permitting any amendment or termination of any contract, agreement or license to which it is a party if such amendment or termination is material considering its business as a whole; (ix) Except for customary bonuses, making any accrual or arrangement for or payment of bonuses or special compensation of any kind or any severance or termination pay to any present or former officer or employee; (x) Except in accordance with normal and usual practice, increasing the rate of compensation payable to or to become payable to any of its officers or employees or making any material increase in any 22 28 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) Receiving notice or having 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; (xii) 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 (xiii) Entering into any other material transaction other than in the ordinary course of business. Until the termination of the Agreement, neither the Bank nor any of its directors or officers (or any person representing any of the foregoing) shall solicit or encourage inquiries or proposals with respect to, furnish any information relating to or participate in any negotiations or discussions concerning, any acquisition or purchase of all or of a substantial portion of the assets of, or of a substantial equity interest in, the Bank or any business combination involving the Bank other than as contemplated by the Agreement. The Bank will notify BancGroup immediately if any such inquiries or proposals are received by the Bank, if any such information is requested from the Bank, or if any such negotiations or discussions are sought to be initiated with the Bank. The Bank shall instruct its officers, directors, agents or affiliates or their subsidiaries to refrain from doing any of the above; provided, however, that nothing contained in the Agreement shall be deemed to prohibit any officer or director of such party from fulfilling his fiduciary duty or from taking any action that is required by law, and provided further that nothing in the foregoing clause shall be deemed a waiver by BancGroup that any action taken by the Bank pursuant to such proviso constitutes a breach of the Agreement. RIGHTS OF DISSENTING STOCKHOLDERS Stockholders of record of the Bank have certain appraisal rights under Federal law relating to the Merger. OTS regulation 12 C.F.R. sec. 552.14 provides for rights of appraisal for the value of the shares of such stockholder who (1) has given notice in writing to the Bank prior to voting upon the Merger that he or she intends to exercise appraisal rights and demand appraisal for his or her Bank Common Stock and (2) does not vote in favor of the Merger. Failure of a stockholder to give such written notice or to follow properly any provision of this regulation will result in a waiver of his or her rights of appraisal. Such notice must identify the stockholder and state that the stockholder intends to demand appraisal of and payment for his or her shares. Such written notice must be in addition to and separate from any proxy or vote against the Merger by the stockholder. Within 10 days of the consummation of the Merger, Colonial Bank will give written notice of the Effective Date to the stockholders who dissented from the Merger and will make a written offer to such stockholders to pay for their shares at a specified price deemed by Colonial Bank to be the fair value thereof and outlining other applicable procedures. If within 60 days after the Effective Date the fair value of such shares is agreed upon between Colonial Bank and a dissenting Bank stockholder, payment therefor shall be made within 90 days after the Effective Date upon the surrender of the certificate representing such stockholder's shares of Bank Common Stock. If within such period of 60 days a dissenting stockholder and Colonial Bank do not agree, then such stockholder may file a petition with the OTS, 1700 G. Street, N.W., Washington, D.C. 20552, attention: Director, with a copy filed by certified or registered mail, with Colonial Bank, demanding a determination of the fair market value of the shares. A stockholder who fails to file such petition within 60 days of the Effective Date will be deemed to have accepted the terms offered under the Merger. (At any time within such 60 days, any stockholder will have the right to withdraw his demand for appraisal and accept the terms of the Merger.) Within such 60 day period, such stockholder must also submit to Trust Company Bank, BancGroup's transfer agent, his or her certificates representing Bank Common Stock with a notation thereon that appraisal rights have been requested. ANY STOCKHOLDER WHO FAILS TO SUBMIT HIS OR HER STOCK CERTIFICATES FOR SUCH NOTATION WILL NO LONGER BE ENTITLED TO APPRAISAL RIGHTS AND WILL BE DEEMED TO HAVE ACCEPTED THE TERMS OF THE MERGER. The OTS shall determine the fair market value of such shares as of the date of the Merger, exclusive of any 23 29 element of value arising from the accomplishment or expectation of the Merger. Colonial Bank shall pay to such stockholders the fair market value as determined by the OTS. The costs and expenses of any proceeding under this regulation may be apportioned and assessed by the OTS as it deems equitable against all or some of the parties. In making this determination the OTS shall consider whether any party has acted arbitrarily, vexatiously, or not in good faith in respect to the rights provided by this section. Cash, if any, received by a Bank stockholder who dissents to the Merger will be taxable as having been received as a distribution in redemption of the stockholder's shares of Bank Common Stock, subject to the provisions and limitations of the Code. See "Certain Federal Income Tax Consequences." STOCKHOLDERS OF THE BANK WHO EXERCISE APPRAISAL RIGHTS MAY RECEIVE MORE OR LESS CONSIDERATION THAN THOSE WHO DO NOT, IF THEIR SHARES ARE APPRAISED FOR MORE OR LESS THAN THE AGGREGATE CONSIDERATION THEY WOULD HAVE RECEIVED PURSUANT TO THE MERGER. THE FAILURE OF A HOLDER OF BANK COMMON STOCK TO VOTE AGAINST THE MERGER WILL NOT ITSELF CONSTITUTE A WAIVER OF THE RIGHT TO RECEIVE PAYMENT FOR HIS SHARES, NOR WILL A VOTE AGAINST THE MERGER SATISFY THE NOTICE REQUIREMENTS REFERRED TO ABOVE. A STOCKHOLDER WHO HAS DEMANDED APPRAISAL RIGHTS SHALL THEREAFTER NEITHER BE ENTITLED TO VOTE SUCH STOCK NOR BE ENTITLED TO THE PAYMENT OF DIVIDENDS. If a stockholder does not hold shares directly or of record but instead holds shares of Bank Common Stock through a bank, broker or other nominee, such stockholder must act promptly to cause the bank, broker or other nominee, as the record holder, to follow the steps outlined above properly and in a timely manner to perfect such stockholder's dissenters' rights. Stockholders who hold shares of Bank Common Stock through banks, brokers or other nominees are urged to consult with such banks, brokers or nominees regarding these procedures. Stockholders who wish to exercise dissenters' rights should consult a legal advisor before attempting to exercise such rights. References herein to applicable regulations are summaries of portions thereof, do not purport to be complete, and are qualified in their entirety by reference to applicable law. OTS regulation 12 C.F.R. sec. 552.14, is attached hereto as Appendix B. RESALE OF BANCGROUP COMMON STOCK The issuance of the shares of BancGroup Common Stock pursuant to the Merger has been registered under the Securities Act of 1933 (the "Securities Act") and the shares so issued may be traded without restriction, except that such registration does not cover resales by persons ("Affiliates") receiving such Common Stock who may be deemed to control or be controlled by, or be under common control with the Bank at the time of the Special Meeting. Rule 145 promulgated by the Commission under the Securities Act restricts the resale of Common Stock received in the Merger by Affiliates. The Bank will provide BancGroup with such information as may be reasonably necessary to determine the identity of those persons (primarily officers, directors and principal stockholders) who may be deemed to be Affiliates. The Bank will also obtain from each such person a written undertaking to the effect that no sale or transfer will be made of any shares of Common Stock by such person except pursuant to Rule 145 of the Commission or pursuant to an effective registration 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. If such certificates 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 stop transfer orders will be given to BancGroup's stock transfer agent. ACCOUNTING TREATMENT The acquisition of the Bank will be treated as a "purchase" transaction by BancGroup. Accordingly, the purchase price will be assigned to the fair value of the net tangible assets acquired and any purchase price in excess thereof will be assigned to intangibles. The valuation of intangibles, if any, will be made as of the 24 30 Effective Date of the Merger. Intangibles, in the approximate amount of $1,574,000, will be amortized by charges or credits to future earnings over a period of approximately twenty years. COMPARATIVE MARKET PRICES AND DIVIDENDS BANCGROUP BancGroup Common Stock is listed for trading on the NYSE. The Common Stock was first listed on the NYSE on February 24, 1995. Prior to February 21, 1995, BancGroup had two classes of common stock outstanding, Class A and Class B. The Class B was not publicly traded. The Class A Common Stock was traded in the over-the-counter market and quoted on the Nasdaq National Market. The Class A Common Stock had more limited voting rights than the Class B Common Stock. The Class A and Class B Common Stock were reclassified into one class of Common Stock on February 21, 1995, and the Class A Common Stock ceased to be quoted on the Nasdaq National Market on February 24, 1995. The following table shows the dividends paid per share and indicates the high and low closing prices for the Class A Common Stock as reported by on the Nasdaq National Market up to February 24, 1995, and the same information reported by the NYSE for the BancGroup Common Stock commencing February 24, 1995.
PRICE AND DIVIDENDS PAID ---------------------------- DIVIDENDS HIGH LOW (PER SHARE) ---- --- ----------- 1994 1st Quarter................................................ $20 1/4 $18 $ 0.20 2nd Quarter................................................ 25 191/4 0.20 3rd Quarter................................................ 24 3/4 22 0.20 4th Quarter................................................ 23 3/4 191/2 0.20 1995 1st Quarter................................................ 23 5/8 191/2 0.225 2nd Quarter................................................ 27 1/2 231/8 0.225 3rd Quarter................................................ 29 7/8 271/2 0.225 4th Quarter................................................ 32 7/8 281/2 0.225 1996 1st Quarter (through February 9, 1996)............................... 32 1/2 30 0.27
On November 20, 1995, the business day immediately prior to the public announcement of the Merger, the closing price as reported on the NYSE of the BancGroup Common Stock was $29 per share. At December 31, 1995, BancGroup's banking subsidiaries accounted for approximately 98% of BancGroup's consolidated assets. BancGroup derives substantially all of its income from dividends received from its subsidiary banks. Various statutory provisions limit the amount of dividends the subsidiary banks may pay without regulatory approval. In addition, federal statutes restrict the ability of subsidiary banks to make loans to BancGroup, and regulatory policies may also restrict such dividends. THE BANK There is no organized public market for the Bank's Common Stock. To the knowledge of the Bank, 10,518 shares of Bank Common Stock have been transferred since January 1, 1994. The Bank has no knowledge of the sales price, if any, in such transfers. The Bank has paid one cash dividend. That dividend was paid in 1994 at the rate of 15c per share. The Agreement contains certain restrictions on the Bank's right to pay dividends prior to consummation of the Merger. See "APPROVAL OF THE MERGER -- Conduct of Business Pending the Merger." 25 31 BANCGROUP CAPITAL STOCK AND DEBENTURES BancGroup's authorized capital stock consists of 44,000,000 shares of its 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 January 31, 1996, there were issued and outstanding a total of 13,491,691 shares of 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 $9,416,000 are currently outstanding and are convertible at any time into 345,321 shares of Common Stock, subject to adjustment. There are 214,957 shares of Common Stock subject to exercise under BancGroup's stock option plans. In addition to BancGroup Common Stock issued in the Merger, BancGroup will issue additional shares of its Common Stock in two pending acquisitions. See "BUSINESS OF BANCGROUP -- Proposed Affiliate Banks." The following statements with respect to Common Stock and Preference Stock are brief summaries of material provisions of Delaware law and the Restated Certificate of Incorporation (the "Certificate"), as amended, and bylaws of BancGroup, do not purport to be complete and are qualified in their entirety by reference to the foregoing. COMMON STOCK Dividends. Subject to the rights of holders of BancGroup's Preference Stock, if any, to receive certain dividends prior to the declaration of dividends on shares of BancGroup Common Stock, when and as dividends, payable in cash, stock or other property, are declared by the BancGroup Board of Directors, the holders of Common Stock are entitled to share ratably in such dividends. Voting Rights. Each holder of Common Stock has one vote for each share held on matters presented for consideration by the stockholders. Preemptive Rights. The holders of Common Stock have no preemptive rights to acquire any additional shares of BancGroup. Issuance of Stock. The BancGroup Certificate authorizes the BancGroup Board to issue authorized shares of 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 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 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 BancGroup's Preference Stock may be issued from time to time as a class without series, or if so determined by the BancGroup Board of Directors, 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 BancGroup Preference Stock (or of the entire class of BancGroup 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 BancGroup Board of Directors. BancGroup Preference Stock may have a preference over the 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 BancGroup Board. 26 32 1986 DEBENTURES BancGroup issued in 1986 its 7 1/2% Convertible Subordinated Debentures due 2011 in the total principal amount of $28,750,000 of which $9,416,000 are outstanding at January 31, 1996. The 1986 Debentures were issued under a trust indenture (the "1986 Indenture") between BancGroup and Trust Company Bank, Atlanta, Georgia, as trustee. The 1986 Debentures will mature on March 31, 2011, and are convertible at any time into shares of BancGroup Common Stock at the option of a holder thereof, at the conversion price of $28 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, a total of 345,321 shares of such Common Stock will be issued. The 1986 Debentures are redeemable, in whole or in part, at the option of BancGroup at certain premiums until 1996, when the redemption price shall be equal to 100% of the face amount of the 1986 Debentures plus accrued interest. The payment of principal and interest on the 1986 Debentures is subordinate, to the extent provided in the 1986 Indenture, to the prior payment when due of all Senior Indebtedness of BancGroup. "Senior Indebtedness" is defined as any indebtedness of BancGroup for money borrowed, or any indebtedness incurred in connection with an acquisition or with a merger or consolidation, outstanding on the date of execution of the 1986 Indenture as originally executed, or thereafter created, incurred or assumed, and any renewal, extension, modification or refunding thereof, for the payment of which BancGroup (which term does not include BancGroup's consolidated or unconsolidated subsidiaries) is at the time of determination responsible or liable as obligor, guarantor or otherwise. Senior Indebtedness does not include (i) indebtedness as to which, in the instrument creating or evidencing the same or pursuant to which the same is outstanding, it is provided that such indebtedness is subordinate in right of payment to any other indebtedness of BancGroup, and (ii) indebtedness which by its terms states that such indebtedness is subordinate to or equally subordinate with the 1986 Debentures. At September 30, 1995, BancGroup's Senior Indebtedness as defined in the 1986 Indenture aggregated approximately $543.8 million. 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. CHANGES IN CONTROL Certain provisions of the BancGroup Certificate and 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 the BancGroup Board to prevent a change in control despite a shift in ownership of the BancGroup Common Stock. See "General" and "Preference Stock." In addition, the BancGroup Board's power 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 "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 18 directors of BancGroup. This provision of BancGroup's Certificate also stipulates that (i) directors can be removed only for cause upon a vote of 80% of the voting power of the outstanding shares entitled to vote in the election of directors, voting as a class, (ii) vacancies in the Board may only be filled by a majority vote of the directors remaining in office, (iii) the maximum number of directors shall be fixed by resolution of the Board of 27 33 Directors, and (iv) the provisions relating to the classified Board 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 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 chairman and president of BancGroup, or 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. The current Board of Directors of BancGroup owns approximately 15% of the outstanding shares of Common Stock of BancGroup. Board Evaluation of Mergers. BancGroup's 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 Common Stock. This provision may give greater latitude to the Board of Directors in terms of the factors which the Board may consider in recommending or rejecting a merger or other Business Combination of BancGroup. Director Authority. BancGroup's 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 to act by majority vote. Bylaw Provisions. BancGroup's 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 stockholders must comply with certain advance written notice provisions. These bylaw provisions are intended to provide for the more orderly conduct of stockholder meetings but could make it more difficult for stockholders to nominate directors or introduce business at stockholder 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 BancGroup Board has approved either (i) the business combination or (ii) prior to the stock acquisition by which such person's beneficial ownership interest reached 15% (a "Stock Acquisition"), the Stock Acquisition. The prohibition lasts for three years from the date of the Stock Acquisition. Notwithstanding the preceding, Delaware law allows BancGroup to enter into a business combination with an Interested Stockholder if (i) the business combination is approved by the BancGroup Board of Directors and authorized by an affirmative vote of at least 66 2/3% of the outstanding voting stock of BancGroup which is not owned by the Interested Stockholder or (ii) upon consummation of the transaction which resulted in the stockholder becoming an Interested Stockholder, such stockholder owned at least 85% of the outstanding stock of BancGroup (excluding BancGroup stock held by officers and directors of BancGroup or by certain BancGroup stock plans). These provisions of Delaware law apply simultaneously with the 28 34 provisions of BancGroup's Certificate relating to business combinations with a related person, described above at "Business Combinations," but they are generally less restrictive than BancGroup's 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 Board has been given 60 days' prior written notice of such proposed acquisition and within that time period the Federal Reserve Board 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 Board issues written notice of its intent not to disapprove the action. Under a rebuttable presumption established by the Federal Reserve Board, 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 STOCKHOLDERS If the Merger is consummated, all stockholders of the Bank, other than those properly exercising dissenters' rights of appraisal or receiving all cash pursuant to an Election Form, will become holders of BancGroup Common Stock. The rights of the holders of the Common Stock of the Bank who become holders of the Common Stock of BancGroup following the Merger will be governed by BancGroup's Certificate and bylaws, as well as the laws of Delaware, the state in which BancGroup is incorporated. The following summary compares the rights of holders of Bank Common Stock with the rights of the holders of the Common Stock of BancGroup. For a more complete description of the rights of the holders of BancGroup Common Stock, see "BANCGROUP CAPITAL STOCK AND DEBENTURES." The following information is qualified in its entirety by BancGroup's Certificate and bylaws, and the Bank's Stock Charter and bylaws, the Delaware General Corporation Law (the "Delaware GCL") and the regulations of the OTS. DIRECTOR ELECTIONS The Bank. The Bank's directors are elected to terms of three years with approximately one-third of the board to be elected annually. Stockholders of the Bank have cumulative voting rights in the election of directors, which means a stockholder is entitled to the number of votes as shall equal the number of directors to be elected multiplied by the number of shares held by such stockholder. The stockholder may give one candidate all of such votes or may distribute votes among the directors to be elected as such stockholder determines. 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 The Bank. At a meeting of stockholders called expressly for such purpose, stockholders of the Bank may remove a director with cause upon the affirmative vote of the holders of at least a majority of the Common Stock entitled to 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. 29 35 VOTING The Bank. Each share of Common Stock of the Bank is entitled to one vote per share on all matters requiring a stockholder vote, except in the election of directors, in which case stockholders have cumulative voting rights. See "Director Elections." BancGroup. Each stockholder is entitled to one vote for each share of Common Stock held, and such holders are not entitled to cumulative voting rights in the election of directors. PREEMPTIVE RIGHTS The Bank. Holders of the Bank's capital stock do not have preemptive rights to acquire additional shares of capital stock which the Bank may issue. 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 The Bank. Neither the Bank's Stock Charter nor bylaws contain any provisions respecting the personal liability of directors. BancGroup. The BancGroup Certificate provides that a director of BancGroup will have no personal liability to BancGroup or its stockholders for monetary damages for breach of fiduciary duty as a director except (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or that involve intentional misconduct or a knowing violation of law, (iii) for the payment of certain unlawful dividends and the making of certain stock purchases or redemptions, or (iv) for any transaction from which the director derived an improper personal benefit. This provision would absolve directors of personal liability for negligence in the performance of duties, including gross negligence. It would not permit a director to be exculpated, however, for liability for actions involving conflicts of interest or breaches of the traditional "duty of loyalty" to BancGroup and its stockholders, and it would not affect the availability of injunctive or other equitable relief as a remedy. INDEMNIFICATION The Bank. Neither the Bank's Stock Charter nor bylaws contain any provisions respecting indemnification of the Bank's directors. Pursuant to OTS regulations, the Bank shall indemnify any person against whom an action is brought or threatened because that person is or was a director, officer or employee of the Bank for any amount for which that person becomes liable under a judgment and reasonable attorney's fees, actually paid or incurred by that person in defending or settling such action, or in enforcing his or her rights under such regulations if he or she obtains a favorable judgment in such enforcement action. Indemnification shall be made to such person only if: (1) Final judgment on the merits is in his or her favor; or (2) In case of: (i) Settlement, (ii) Final judgment against him or her, or (iii) Final judgment in his or her favor, other than on the merits, if a majority of the disinterested directors of the Bank determine that he or she was acting in good faith within the scope of his or her employment or authority as he or she could reasonably have perceived it under the circumstances and for a purpose he or she could reasonably have believed under the circumstances was in the best interests of the Bank or its members. However, no indemnification shall be made unless the Bank gives the OTS at least 60 days' notice of its intention to make such indemnification. 30 36 BancGroup. Section 145 of the Delaware GCL 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 Delaware GCL, other than an action brought by or in the right of BancGroup, such indemnification is available if it is determined that the proposed indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of BancGroup and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was unlawful. In actions brought by or in the right of BancGroup, such indemnification is limited to expenses (including attorneys' fees) actually and reasonably incurred in the defense or settlement of such action if the indemnitee acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of BancGroup and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person has been adjudged to be liable to BancGroup unless and only to the extent that the Delaware Court of Chancery or the court in which the action was brought determines upon application that in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper. To the extent that the proposed indemnitee has been successful on the merits or otherwise in defense of any action, suit or proceeding (or any claim, issue or matter therein), such person must be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by such person in connection therewith. In addition, BancGroup maintains an officers' and directors' insurance policy and a separate indemnification agreement pursuant to which certain officers and all directors of BancGroup would be entitled to indemnification against certain liabilities, including reimbursement of certain expenses. SPECIAL MEETINGS OF STOCKHOLDERS; ACTION WITHOUT A MEETING The Bank. Special meetings of stockholders of the Bank may be called at any time by the Chairman of the Board of the Bank, the President, or a majority of the Board of Directors, and shall be called by the Chairman, the President or Secretary upon the written request of the holders of at least 10 percent of the outstanding shares of capital stock. Any action required to be taken at any meeting of stockholders may be taken without a meeting if a consent, in writing, setting forth the action to be taken, is given by all stockholders entitled to vote on such matter. 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 The Bank. Regulations of the OTS provide that mergers, consolidations and sales of all or substantially all of the assets of the Bank must be approved by the affirmative vote of at least two-thirds of the outstanding share of Bank Common Stock. Stockholders of the Bank need not authorize a merger or other such transaction if the Bank is the resulting corporation and if: (i) The Bank's Stock Charter is not changed; (ii) Each share of stock outstanding immediately prior to the effective date of the transaction is to be an identical outstanding share or a treasury share of the resulting Federal stock association after such effective date; and (iii) Either: (A) No shares of voting stock of the resulting Federal stock association and no securities convertible into such stock are to be issued, or delivered under the plan of combination, or (B) The authorized unissued shares of the treasury shares of voting stock of the resulting Federal stock association to be issued or delivered under the plan of combination, plus those initially issuable upon conversion of any securities to be issued or delivered under such plan, do not exceed 15% of the total shares of voting stock of such association outstanding immediately prior to the effective date of the combination. 31 37 BancGroup. The Delaware GCL provides that mergers and sales of substantially all of the assets of a corporation must be approved by a majority of the outstanding stock of the corporation entitled to vote thereon. The Delaware GCL law 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 The Bank. Amendments to the Bank's Stock Charter must be approved by the affirmative vote of the holders of at least a majority of the outstanding shares of Bank Common Stock, after recommendation by the Board of Directors. The Bank's bylaws may be amended by a vote of at least two-thirds of the Board of Directors or by at least a majority of the shares of Common Stock voted at a meeting of stockholders. BancGroup. Under the Delaware GCL, a corporation's certificate of incorporation may be amended by the affirmative vote of the holders of a majority of the outstanding shares entitled to vote thereon, and a majority of the outstanding stock of each class entitled to vote as a class, unless the certificate requires the vote of a larger portion of the stock. The BancGroup Certificate requires "supermajority" stockholder approval to amend or repeal any provision of, or adopt any provision inconsistent with, certain provisions in the BancGroup Certificate governing (i) the election or removal of directors, (ii) business combinations between BancGroup and a Related Person, and (iii) Board of Director evaluation of business combination procedures. See "BANCGROUP CAPITAL STOCK AND DEBENTURES -- Changes in Control." As is permitted by the Delaware GCL, the Certificate gives the Board of Directors the power to adopt, amend or repeal the bylaws. The stockholders entitled to vote have concurrent power to adopt, amend or repeal the BancGroup bylaws. RIGHTS OF DISSENTING STOCKHOLDERS The Bank. Stockholders of the Bank have the right to exercise dissenters' rights of appraisal respecting mergers, consolidations and sales of all or substantially all of the assets of the Bank. For a description of such rights, see "APPROVAL OF THE MERGER -- Rights of Dissenting Stockholders." Stockholders of a federal savings bank do not have such appraisal rights if the consideration to be paid for the shares of the bank in the transaction constitutes only "qualified consideration" and if the shares of the bank are listed on a national securities exchange or quoted on the Nasdaq National Market. "Qualified consideration" means cash, or shares listed on a national securities exchange or quoted on the Nasdaq National Market, or a combination of both. BancGroup. Under the Delaware GCL, a stockholder has the right, in certain circumstances, to dissent from certain corporate transactions (such as a Merger but not a sale of assets) and receive the fair value (excluding any appreciation or depreciation as a consequence or in expectation of the transaction) of his shares in cash in lieu of the consideration he otherwise would have received in the transaction. 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 National Market, or held of record by more than 2,000 stockholders (as is BancGroup Common Stock), and (ii) stockholders are permitted by the 32 38 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. ANTITAKEOVER STATUTES The Bank. Neither the OTS regulations nor Alabama law has a business combination statute that may have antitakeover effects. BancGroup. As a Delaware corporation, BancGroup is subject to the business combination statute described under the heading "BANCGROUP CAPITAL STOCK AND DEBENTURES -- Changes in Control -- Control Acquisitions." PREFERRED STOCK The Bank. The Bank's Stock Charter permits the Bank to issue up to 1,000,000 shares of preferred stock, par value $1.00 per share. The shares may be issued from time to time on such terms as the Bank's Board of Directors may determine. Among other things, the Board may decide the voting rights (including the right of the preferred stock to vote as a class), dividend rights, redemption, and liquidation preferences of the preferred stock to be issued. BancGroup. The BancGroup Certificate authorizes the issuance of 1,000,000 shares of Preference Stock from time to time by resolution of the BancGroup Board of Directors. Currently, no shares of Preference Stock are issued and outstanding. See "BANCGROUP CAPITAL STOCK AND DEBENTURES -- Preference Stock." OTHER PROVISIONS The Bank's Stock Charter provides that no shares of capital stock shall be issued to officers, directors or controlling persons of the Bank other than as a part of a general public offering unless the issue is approved by at least a majority of the Bank's shares of Common Stock outstanding. BancGroup's Certificate has no similar provisions. EFFECT OF THE MERGER ON BANK STOCKHOLDERS As of January 31, 1996, the number of stockholders of record of the Bank was 196 and the number of shares of Common Stock outstanding was 399,688. As of that date, BancGroup had 13,491,691 shares of Common Stock outstanding with 5,388 stockholders of record. Assuming at the Effective Date a 10-day average market price per share of the BancGroup Common Stock of $32, an aggregate amount of 81,250 shares of BancGroup Common Stock would be distributed to the stockholders of the Bank pursuant to the Merger. These shares would represent .60% of the total shares of Common Stock outstanding after the Merger, not counting shares of BancGroup Common Stock to be issued in other pending acquisitions. The issuance of the Common Stock pursuant to the Merger will reduce the percentage interest of the Common Stock currently held by each principal stockholder and each director and officer of BancGroup. Such reduction will not be material. See "BUSINESS OF BANCGROUP -- Voting Securities and Principal Stockholders." BancGroup has entered into agreements pursuant to which approximately 2,898,412 additional shares of BancGroup Common Stock will be issued. See "BUSINESS OF BANCGROUP -- Proposed Affiliate Banks." 33 39 THE COLONIAL BANCGROUP INC. AND SUBSIDIARIES CONDENSED PRO FORMA STATEMENT OF CONDITION (UNAUDITED) (IN THOUSANDS) The following summary includes (i) the condensed statement of condition of BancGroup and subsidiaries as of September 30, 1995, (ii) the condensed statement of condition of Dothan Federal Savings Bank ("Dothan Federal") as of September 30, 1995, (iii) the condensed statement of condition of Commercial Bancorp of Georgia, Inc. and subsidiaries ("CBG") as of September 30, 1995, (iv) the condensed statement of condition of Southern Banking Corporation and subsidiary ("SBC") as of September 30, 1995, (v) adjustments to give effect to the proposed purchase method acquisition of Dothan Federal and the proposed pooling of interests with CBG and SBC, and (vi) the pro forma combined condensed statement of condition of BancGroup and subsidiaries as if such combination had occurred on September 30, 1995. These pro forma statements should be read in conjunction with the accompanying notes and the separate consolidated statements of condition of BancGroup and subsidiaries (as restated), incorporated by reference herein, and the statements of condition of Dothan Federal, CGB and SBC, included elsewhere herein. The pro forma information provided below may not be indicative of future results. The pro forma statements provided do not reflect two immaterial completed acquisitions: Mt. Vernon Financial Corporation and Farmers and Merchants Bank. 34 40
SEPTEMBER 30, 1995 ---------------------------------------------------------------------------------------- COMMERCIAL COLONIAL DOTHAN FEDERAL ADJUSTMENTS/ BANCORP OF ADJUSTMENTS/ BANCGROUP SAVINGS BANK (DEDUCTIONS) SUBTOTAL GEORGIA, INC. (DEDUCTIONS) ---------- -------------- ------------ ---------- ------------- ------------ (DOLLARS IN THOUSANDS) ASSETS Cash and due from banks................. $ 100,485 $ 2,643 $ (2,600)(1) $ 100,528 $ 12,682 Interest-bearing deposits............... 3,737 3,737 Federal funds sold...................... 1,250 1,250 25,900 Securities available for sale........... 114,057 5,195 119,252 17,004 Investment securities................... 305,407 3,248 (13)(1) 308,642 17,873 Mortgage loans held for sale............ 140,437 140,437 Loans, net of unearned income........... 2,562,386 35,457 2,597,843 142,940 Less: Allowance for possible loan losses................................ (35,691) (14) (35,705) (1,926) ---------- ------- ------------ ---------- ------------- ------------ Loans, net.............................. 2,526,695 35,443 2,562,138 141,014 Premises and equipment, net............. 47,841 1,051 48,892 5,671 Excess of cost over tangible and intangible assets acquired, net....... 18,145 1,574(1) 19,719 Purchased mortgage servicing rights..... 74,489 74,489 Other real estate owned................. 8,807 8,807 1,446 Accrued interest and other assets....... 59,227 504 (22)(1) 59,876 5,256 (29)(1) 196(1) ---------- ------- ------------ ---------- ------------- ------------ Total Assets.................... $3,400,577 $ 48,084 $ (894) $3,447,767 $ 226,846 $ 0 ========= ============ ========== ========= ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Deposits................................ $2,539,762 $ 41,042 $2,580,804 $ 202,907 FHLB short-term borrowings.............. 420,000 420,000 Other short-term borrowings............. 106,418 106,418 Subordinated debt....................... 17,418 17,418 Other long-term debt.................... 24,005 2,500 26,505 Other liabilities....................... 69,746 588 $ 460(1) 70,794 3,321 ---------- ------- ------------ ---------- ------------- ------------ Total liabilities............... 3,177,349 44,130 460 3,221,939 206,228 Common Stock............................ 30,622 4 (4)(1) 30,826 1,857 $ (1,857)(3) 204(1) 3,105(2) Additional paid in capital.............. 116,211 3,329 (3,329)(1) 118,607 16,090 (16,090)(3) 2,396(1) 14,542(2) Treasury Stock.......................... (300) 300(3) Retained earnings....................... 76,176 636 (636)(1) 76,176 2,946 Unrealized loss on securities........... 219 (15) 15(1) 219 25 ---------- ------- ------------ ---------- ------------- ------------ Total equity.................... 223,228 3,954 (1,354) 225,828 20,618 0 Total liabilities and equity.... $3,400,577 $ 48,084 $ (894) $3,447,767 $ 226,846 $ 0 ========= ============ ========== ========= ========== ========== SEPTEMBER 30, 1995 ------------------------------------------------------ SOUTHERN PRO FORMA BANKING ADJUSTMENTS/ COMBINED SUBTOTAL CORPORATION (DEDUCTIONS) TOTAL ---------- ----------- ------------ ---------- Cash and due from banks................. $ 113,210 $ 14,832 $ 128,042 Interest-bearing deposits............... 3,737 1,044 4,781 Federal funds sold...................... 27,150 9,500 36,650 Securities available for sale........... 136,256 18,386 154,642 Investment securities................... 326,515 15,959 342,474 Mortgage loans held for sale............ 140,437 140,437 Loans, net of unearned income........... 2,740,783 142,130 2,882,913 Less: Allowance for possible loan losses................................ (37,631) (1,715) (39,346) ---------- ----------- ------------ ---------- Loans, net.............................. 2,703,152 140,415 2,843,567 Premises and equipment, net............. 54,563 4,957 59,520 Excess of cost over tangible and intangible assets acquired, net....... 19,719 2,438 22,157 Purchased mortgage servicing rights..... 74,489 74,489 Other real estate owned................. 10,253 156 10,409 Accrued interest and other assets....... 65,132 3,038 68,170 ---------- ----------- ------------ ---------- Total Assets.................... $3,674,613 $ 210,725 $ 0 $3,885,338 ========= ========= ========== ========= Deposits................................ $2,783,711 $ 193,056 $2,976,767 FHLB short-term borrowings.............. 420,000 420,000 Other short-term borrowings............. 106,418 106,418 Subordinated debt....................... 17,418 17,418 Other long-term debt.................... 26,505 1,476 27,981 Other liabilities....................... 74,115 74,115 ---------- ----------- ------------ ---------- Total liabilities............... 3,428,167 194,532 3,622,699 Common Stock............................ 33,931 3,362 $ (3,362)(5) 37,944 4,013(4) Additional paid in capital.............. 133,149 7,405 (7,405)(5) 139,903 6,754(4) Treasury Stock.......................... Retained earnings....................... 79,122 5,543 84,665 Unrealized loss on securities........... 244 (117) 127 ---------- ----------- ------------ ---------- Total equity.................... 246,446 16,193 0 262,639 Total liabilities and equity.... $3,674,613 $ 210,725 $ 0 $3,885,338 ========= ========= ========== =========
35 41 PRO FORMA ADJUSTMENTS (IN THOUSANDS): DOTHAN FEDERAL SAVINGS BANK (PURCHASE METHOD) (1) To assign the amount by which the estimated value of the investment in Dothan Federal Savings Bank is in excess of the historical carrying amount of the net assets acquired, based on the estimated fair value of such net assets and to record the investment in Dothan Federal Savings Bank by the issuance of approximately 81,729 shares of BancGroup Common Stock and $2,600,000 in cash for all of the outstanding 399,688 shares of Dothan Federal Savings Bank as follows: Equity in carrying value of net assets of Dothan Federal Savings Bank....... $3,954 Adjustments to state assets at fair value: Write-down prepaid expenses............................................... (22) Write-down deposit premium................................................ (29) Write-down investment securities.......................................... (13) Acquisition accruals: Miscellaneous legal, accounting, other professional....................... (460) Tax effect of purchase adjustments.......................................... 196 Goodwill.................................................................... 1,574 ------ Total adjustments................................................. 1,246 ------ Adjusted equity in carrying value of net assets............................. $5,201 ====== Allocated as follows: Par Value of 81,729 shares issued for all outstanding shares of Dothan Federal Savings Bank...................................................... $ 204 Estimated amount in excess of par value of 81,729 shares of BancGroup Common Stock issued for Dothan Federal Savings Bank outstanding shares at an assumed market value of $31.8125 per share (10 day average at January 9, 1996)..................................................................... 2,396 Cash of approximately $6.51 per share paid to Dothan Federal Savings Bank shareholders......................................... 2,600 ------ Total purchase price.............................................. $5,200 ======
COMMERCIAL BANCORP OF GEORGIA, INC. (POOLING OF INTEREST) (2) To record the issuance of 1,241,908 shares of BancGroup Common Stock in exchange for all of the outstanding shares of CBG: Par value of 1,241,908 shares issued at $2.50 per share........... $ 3,105 Shares issued at par value........................................ $ 3,105 Total capital stock of CBG.............................. 17,647 ------- Excess recorded as an increase in contributed capital... 14,542 -------- 17,647
(3) To eliminate CBG's capital stock: Common stock, at par value................................................ (1,857) Contributed capital....................................................... (16,090) Treasury Stock............................................................ 300 -------- (17,647) -------- Net change in equity............................................ $ 0 ========
36 42 SOUTHERN BANKING CORPORATION (POOLING OF INTEREST) (4) To record the issuance of 1,632,709 shares of BancGroup Common Stock in exchange for all of the outstanding shares and options of SBC common stock determined as follows:
OUTSTANDING SHARES OPTIONS TOTAL ----------- --------- --------- Southern Bank outstanding shares................... 3,362,000 1,015,056 Conversion ratio per agreement..................... 0.3919 0.2834* ----------- --------- Colonial BancGroup shares to be issued............. 1,317,568 287,667 1,605,235 ======== Par value of 1,632,709 shares issued at $2.50 per share................ $ 4,013 Shares issued at par value.................................... $ 4,013 Total capital stock of SBC.......................... 10,767 ------- Excess recorded as an increase in contributed capital............. 6,754 -------- 10,767
(5) To eliminate SBC's capital stock: Common stock, at par value................................................ (3,362) Contributed capital....................................................... (7,405) -------- (10,767) -------- Net change in equity................................................. $ 0 ========
- --------------- * Assumes no options are exercised prior to the date of combination and that the weighted average exercise price of the options is $3.32 per share. 37 43 CONDENSED PRO FORMA STATEMENTS OF INCOME (UNAUDITED) The following summaries include (i) the condensed statements of income of Colonial BancGroup and subsidiaries on a historical basis for the nine months ended September 30, 1995 and the year ended December 31, 1994 (as restated), (ii) the condensed statements of income of Dothan Federal for the nine months ended September 30, 1995 and for the year ended December 31, 1994, (iii) the condensed statements of income of CBG for the nine months ended September 30, 1995 and for the year ended December 31, 1994, (iv) the condensed statements of income of SBC for the nine months ended September 30, 1995 and for the year ended December 31, 1994, (v) adjustments to give effect to the proposed purchase method acquisition of Dothan Federal and the proposed pooling of interests with CBG and SBC, and (vi) the pro forma combined condensed consolidated statements of income of BancGroup and subsidiaries as if such combinations had occurred on January 1, 1994. These pro forma statements should be read in conjunction with the accompanying notes and the separate consolidated statements of income of BancGroup and subsidiaries (as restated), incorporated by reference herein, and the statements of income of Dothan Federal, CBG and SBC included elsewhere herein. The pro forma information provided may not necessarily be indicative of future results. These pro forma statements do not reflect three immaterial completed purchase method acquisitions; Brundidge Banking Company, Mt. Vernon Financial Corporation, and Farmers and Merchants Bank.
NINE MONTHS ENDED SEPTEMBER 30, 1995 ---------------------------------------------------------------------------- CONSOLIDATED COMMERCIAL COLONIAL DOTHAN FEDERAL ADJUSTMENTS/ BANCORP OF BANCGROUP SAVINGS BANK (DEDUCTIONS) SUBTOTAL GEORGIA, INC. ------------ -------------- ------------ ----------- ------------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Interest income.......................... $ 180,233 $ 2,616 $ 2(1) $ 182,739 $ 13,877 (112)(1) Interest expense......................... 94,048 1,628 95,676 6,097 ------------ -------------- ------------ ----------- ------------- Net interest income before provision for loan losses............................ 86,185 988 (110) 87,063 7,780 Provision for loan losses................ 3,430 45 3,475 633 ------------ -------------- ------------ ----------- ------------- Net interest income after provision for loan losses............................ 82,755 943 (110) 83,588 7,147 ------------ -------------- ------------ ----------- ------------- Noninterest income....................... 36,542 53 3(1) 36,598 1,859 Noninterest expense...................... 74,810 801 (17)(1) 75,653 6,183 59(1) ------------ -------------- ------------ ----------- ------------- Income before income taxes............... 44,487 195 (149) 44,533 2,823 Income taxes............................. 15,734 83 (32)(1) 15,785 1,114 ------------ -------------- ------------ ----------- ------------- Net Income............................... $ 28,753 $ 112 $ (117) $ 28,748 $ 1,709 ========== ============ ========== ========== ========== Average primary shares outstanding....... 12,247,000 399,688 81,729 12,328,729 1,826,711 (399,688) Average fully-diluted shares outstanding............................ 13,017,000 399,688 81,729 13,098,729 1,826,711 (399,688) Earnings per share: Net Income: Primary.............................. $ 2.35 $ 0.28 $ 2.33 $ .94 Fully diluted........................ $ 2.27 $ 0.28 $ 2.26 $ .94 NINE MONTHS ENDED SEPTEMBER 30, 1995 ------------------------------------ SOUTHERN PRO FORMA ADJUSTMENTS/ BANKING ADJUSTMENTS/ COMBINED (DEDUCTIONS) SUBTOTAL CORPORATION (DEDUCTIONS) TOTAL ------------ ----------- ----------- ------------ ----------- < Interest income.......................... $ 0 $ 196,616 $ 12,569 $ 0 $ 209,185 Interest expense......................... 101,773 4,431 106,204 ------------ ----------- ----------- ------------ ----------- Net interest income before provision for loan losses............................ 0 94,843 8,138 0 102,981 Provision for loan losses................ 4,108 245 4,353 ------------ ----------- ----------- ------------ ----------- Net interest income after provision for loan losses............................ 0 90,735 7,893 0 98,628 ------------ ----------- ----------- ------------ ----------- Noninterest income....................... 38,457 1,401 39,858 Noninterest expense...................... 81,836 6,178 88,014 ------------ ----------- ----------- ------------ ----------- Income before income taxes............... 0 47,356 3,116 0 50,472 Income taxes............................. 16,899 1,147 18,046 ------------ ----------- ----------- ------------ ----------- Net Income............................... $ 0 $ 30,457 $ 1,969 $ 0 $ 32,426 ========== ========== ========= ========== ========== Average primary shares outstanding....... 1,241,908 13,570,637 3,647,540 1,605,235 15,175,872 (1,826,711 ) (3,647,540 ) Average fully-diluted shares outstanding............................ 1,241,908 14,340,637 3,647,541 1,605,235 15,945,872 (1,826,711 ) (3,647,541 ) Earnings per share: Net Income: Primary.............................. $ 2.24 $ 0.54 $ 2.14 Fully diluted........................ $ 2.18 $ 0.54 $ 2.09
38 44
YEAR ENDED DECEMBER 31, 1994 --------------------------------------------------------------------------------------------- COLONIAL COMMERCIAL BANCGROUP DOTHAN FEDERAL ADJUSTMENTS/ BANCORP ADJUSTMENTS/ (RESTATED)(1) SAVINGS BANK (DEDUCTIONS) SUBTOTAL OF GEORGIA, INC. (DEDUCTIONS) ----------- -------------- ------------ ----------- ---------------- ------------ (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Interest income...................... $ 187,230 $ 3,089 $ 3(1) $ 190,172 $ 14,347 $ 0 (150)(1) Interest expense..................... 82,549 1,563 84,112 5,458 ----------- -------------- ------------ ----------- ---------------- ------------ Net interest income before provision for loan losses............................. 104,681 1,526 (147) 106,060 8,889 0 Provision for loan losses............ 6,481 60 6,541 695 ----------- -------------- ------------ ----------- ---------------- ------------ Net interest income after provision for loan losses............................. 98,200 1,466 (147) 99,519 8,194 0 ----------- -------------- ------------ ----------- ---------------- ------------ Noninterest income................... 44,243 55 4(1) 44,302 2,215 Noninterest expense.................. 100,791 1,000 (22)(1) 101,848 9,213 79(1) ----------- -------------- ------------ ----------- ---------------- ------------ Income before income taxes........... 41,652 521 (200) 41,973 1,196 0 Income taxes......................... 14,342 193 (42)(1) 14,493 498 ----------- -------------- ------------ ----------- ---------------- ------------ Net Income........................... $ 27,310 $ 328 $ (158) $ 27,480 $ 698 $ 0 ========== ============ =========== ========== ============ ========== Average primary shares outstanding... 11,996,000 399,688 81,729 12,077,729 1,826,711 1,241,908 (399,688) (1,826,711) Average fully-diluted shares outstanding........................ 12,763,000 399,688 81,729 12,844,729 1,826,711 1,241,908 (399,688) (1,826,711) Earnings per share: Net income: Primary.......................... $ 2.28 $ 0.82 $ 2.28 $ 0.38 Fully diluted.................... $ 2.23 $ 0.82 $ 2.23 $ 0.38 YEAR ENDED DECEMBER 31, 1994 ------------------------------------------------------ SOUTHERN PRO FORMA BANKING ADJUSTMENTS/ COMBINED SUBTOTAL CORPORATION (DEDUCTIONS) TOTAL ----------- ----------- ------------ ----------- Interest income...................... $ 204,519 $ 10,326 $ 0 $ 214,845 Interest expense..................... 89,570 2,895 92,465 ----------- ----------- ------------ ----------- Net interest income before provision for loan losses............................. 114,949 7,431 0 122,380 Provision for loan losses............ 7,236 330 7,566 ----------- ----------- ------------ ----------- Net interest income after provision for loan losses............................. 107,713 7,101 0 114,814 ----------- ----------- ------------ ----------- Noninterest income................... 46,517 1,294 47,811 Noninterest expense.................. 111,061 5,672 116,733 ----------- ----------- ------------ ----------- Income before income taxes........... 43,169 2,723 0 45,892 Income taxes......................... 14,991 989 15,980 ----------- ----------- ------------ ----------- Net Income........................... $ 28,178 $ 1,734 $ 0 $ 29,912 ========== ========= ========== ========== Average primary shares outstanding... 13,319,637 2,730,623 1,605,235 14,924,872 (2,730,623 ) Average fully-diluted shares outstanding........................ 14,086,637 2,730,624 1,605,235 15,691,872 (2,730,624 ) Earnings per share: Net income: Primary.......................... $ 2.12 $ 0.63 $ 2.00 Fully diluted.................... $ 2.08 $ 0.63 $ 1.98
- --------------- (1) Restated to give effect to the February 17, 1995 acquisition of Colonial Mortgage Company and of its parent. 39 45 PRO FORMA ADJUSTMENTS (IN THOUSANDS)
NINE MONTHS YEAR SEPTEMBER 30, DECEMBER 31, 1995 1994 ------------- ------------ Adjustments Applicable to Dothan Federal Savings Bank: (1) To amortize the assignment of estimated fair value in excess of the carrying amount of assets acquired. The amortization consists of the following: Increases in income: Reduction of amortization of deposit premium (8 year period).................................................... $ 3 $ 4 Amortization of write-down of investment securities (5 year period).................................................. 2 3 Decreases in income: Earnings forgone on $2,600,000 cash at an average interest rate 5.75%.................................................... (112) (150) ------------- ------------ Total.............................................. (107) (143) ------------- ------------ Decrease in expense: Reversal of prepaid expenses................................. 17 22 Increase in expense: Amortization of goodwill (20 year period).................... (59) (79) ------------- ------------ Total.............................................. (42) (57) ------------- ------------ Net decrease in income before tax............................ (149) (200) ------------- ------------ Tax effect of the pro forma adjustments (other than goodwill amortization).............................................. 32 42 ------------- ------------ Net decrease in income....................................... $(117) $ (158) ------------- ------------
SUMMARY OF FUTURE ADJUSTMENTS Assuming that the actual purchase accounting adjustments approximate such adjustments used in preparing the September 30, 1995 pro forma statement of condition, (assuming that the acquisitions had taken place January 1, 1994) the anticipated effect of purchase accounting adjustments for the acquisition of Dothan Federal Savings Bank and the other acquisitions would be as follows:
YEARS ENDING DECEMBER 31, -------------------------------- 1995 1996 1997 1998 1999 ---- ---- ---- ---- ---- Amortization of goodwill...................................... $(79) $(79) $(79) $(79) $(79) ---- ---- ---- ---- ---- Total charges to earnings........................... (79) (79) (79) (79) (79) Amortization of write-down of securities...................... 3 3 3 3 1 ---- ---- ---- ---- ---- Total credits to earnings........................... 3 3 3 3 1 ---- ---- ---- ---- ---- Net charges to future earnings before income taxes............ (76) (76) (76) (76) (78) Tax benefit of net charges to future earnings................. (1) (1) (1) (1) (0) ---- ---- ---- ---- ---- Net charges to future earnings................................ $(77) $(77) $(77) $(77) $(78) ---- ---- ---- ---- ----
40 46 RECENT DEVELOPMENTS COLONIAL BANCGROUP INC., DOTHAN FEDERAL SAVINGS BANK, COMMERCIAL BANCORP OF GEORGIA, INC., AND SOUTHERN BANKING CORPORATION COLONIAL BANCGROUP INC. -- RECENT UNAUDITED RESULTS The following condensed consolidated financial statements present certain unaudited data for Colonial BancGroup as of and for the period ended December 31, 1995 and comparative data derived from audited financial statements as of and for the year ended December 31, 1994. Unaudited historical data reflect, in the opinion of management, all adjustments (consisting of normal recurring adjustments) necessary to a fair presentation of such data. The unaudited financial information is presented for informational purposes only and is not necessarily indicative of the financial position or results of operations which would have actually occurred if the transactions had been consummated in the past or which may be obtained in the future. THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF CONDITION
DECEMBER 31, ----------------------- 1995 1994* ---------- ---------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) ASSETS Cash and due from banks............................................... $ 126,777 $ 129,720 Interest-bearing deposits in banks.................................... 5,384 1,777 Federal funds sold.................................................... -- 500 Securities available for sale......................................... 159,863 78,265 Investment securities................................................. 269,493 326,599 Mortgage loans held for sale.......................................... 110,486 60,536 Loans, net of unearned income......................................... 2,875,581 2,094,028 Less: Allowance for possible loan losses.................................. (36,912) (33,410) ---------- ---------- Loans, net............................................................ 2,838,669 2,060,618 Premises and equipment................................................ 55,161 45,874 Excess of cost over tangible and identified intangible assets acquired, net....................................................... 26,262 16,239 Mortgage servicing rights............................................. 80,053 54,796 Other real estate owned............................................... 8,781 8,199 Accrued interest and other assets..................................... 60,288 55,220 ---------- ---------- Total....................................................... $3,741,217 $2,838,343 ========= ========= LIABILITIES AND SHAREHOLDERS' EQUITY Deposits.............................................................. $2,785,958 $2,171,464 FHLB short-term borrowings............................................ 465,000 210,000 Other short-term borrowings........................................... 132,256 134,550 Subordinated debt..................................................... 17,121 17,459 Other long-term debt.................................................. 29,038 69,042 Other liabilities..................................................... 58,696 44,277 ---------- ---------- Total liabilities........................................... 3,488,069 2,646,792 ---------- ---------- Shareholders' equity: Preference Stock $2.50 par value; 1,000,000 shares authorized, none issued........................................................... Common Stock, $2.50 par value; 44,000,000 shares authorized, 13,084,721 shares issued and outstanding at December 31, 1995.... 32,712 -- Class A Common Stock, $2.50 par value; 40,000,000 shares authorized, 11,280,031 shares issued and outstanding at December 31, 1994**........................................................... -- 28,200 Class B Common Stock, $2.50 par value; 4,000,000 shares authorized, 635,088 shares issued and outstanding at December 31, 1994**..... 1,588 Additional paid in capital.......................................... 137,107 109,658 Retained earnings................................................... 83,315 55,042 Unearned compensation............................................... (822) -- Unrealized gains (losses) on securities available for sale, net of taxes............................................................ 836 (2,937) ---------- ---------- Total shareholders' equity.................................. 253,148 191,551 ---------- ---------- Total....................................................... $3,741,217 $2,838,343 ========= =========
- --------------- * As restated ** On February 21, 1995 the Class A and Class B Common Stock were reclassified into one class. 41 47 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED THREE MONTHS ENDED DECEMBER 31, DECEMBER 31, ------------------- ------------------- 1995 1994* 1995 1994* -------- -------- -------- -------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Interest income: Interest and fees on loans.......................... $224,784 $164,649 $ 63,780 $ 44,979 Interest on investments............................. 25,473 22,102 6,582 5,831 Other interest income............................... 643 479 305 60 -------- -------- -------- -------- Total interest income....................... 250,900 187,230 70,667 50,870 -------- -------- -------- -------- Interest expense: Interest on deposits................................ 99,490 68,663 29,243 18,443 Interest on short-term borrowings................... 29,231 10,425 8,314 3,941 Interest on long-term debt.......................... 3,737 3,461 853 957 -------- -------- -------- -------- Total interest expense...................... 132,458 82,549 38,410 23,341 -------- -------- -------- -------- Net interest income before provision for possible loan losses.............................................. 118,442 104,681 32,257 27,529 Provision for possible loan losses.................... 5,480 6,481 2,050 1,767 -------- -------- -------- -------- Net interest income after provision for possible loan losses.............................................. 112,962 98,200 30,207 25,762 -------- -------- -------- -------- Noninterest income: Mortgage servicing and origination fees............. 23,429 22,216 6,367 5,951 Service charges on deposit accounts................. 14,203 12,384 3,982 3,223 Other charges, fees and commissions................. 3,545 3,134 889 851 Securities gains, net............................... 5 84 1 -- Other income........................................ 8,993 6,425 2,394 1,403 -------- -------- -------- -------- Total noninterest income.................... 50,175 44,243 13,633 11,428 -------- -------- -------- -------- Noninterest expense: Salaries and employee benefits...................... $ 39,786 $ 43,355 $ 10,742 $ 11,667 Occupancy expense of bank premises, net............. 9,004 8,610 2,382 2,200 Furniture and equipment expenses.................... 8,504 7,468 2,417 1,950 Amortization of purchased servicing rights.......... 9,095 6,078 3,145 2,116 Amortization of intangible assets................... 1,325 1,196 392 288 Other expense....................................... 35,516 34,084 9,342 8,783 -------- -------- -------- -------- Total noninterest expense................... 103,230 100,791 28,420 27,004 -------- -------- -------- -------- Income before income taxes............................ 59,907 41,652 15,420 10,186 Applicable income taxes............................... 21,113 14,342 5,379 3,542 -------- -------- -------- -------- Net income.................................. $ 38,794 $ 27,310 $ 10,041 $ 6,644 ======== ======== ======== ======== Earnings per share: Primary............................................. $ 3.12 $ 2.28 $ 0.78 $ 0.55 Fully diluted....................................... 3.02 2.23 0.75 0.54 Dividends paid: Common Stock........................................ $ 0.90 N/A $ 0.225 N/A Class A**........................................... N/A $ 0.80 N/A $ 0.20 Class B**........................................... N/A 0.40 N/A 0.10
- --------------- N/A not applicable * As restated ** On February 21, 1995 BancGroup's Class A and Class B Common Stock were reclassified into one class of stock called Common Stock.
42 48 Net income for year ended 1995 was $38,794,000 compared to $27,310,000 for the previous year, a 42% increase. Earnings per share for the year were $3.02 on a fully diluted basis, a 35% increase over 1994. The company's return on average equity was 17.94% compared to 14.94% in 1994. Return on average assets was 1.20% compared to 1.00% in 1994. Net income for the fourth quarter of 1995 was $10,041,000 compared to $6,644,000 in 1994, a 51% increase. Earnings per share for the fourth quarter of 1995 were $.75 compared to $.54 for the same period in 1994, a 39% increase. The Company's internal loan growth of 25% has been a factor in its increased earnings. Loans increased from $2.094 billion in 1994 to $2.876 billion in 1995. Loans increased $781.6 million or 37% over 1994. For the year ended 1995, net charge-offs were $3.1 million, or .13% of average loans, compared to $1.7 million, or .09% in 1994. The provision for loan losses was $5.480 million for 1995 versus $6.481 million for 1994. Nonperforming assets at year-end 1995 were $22.4 million, .78% of loans and other real estate compared to .90% at year-end 1994. The total reserve for loan losses at year end 1995 was $36.9 million or 1.28% of loans. 43 49 DOTHAN FEDERAL SAVINGS BANK UNAUDITED RESULTS OF OPERATIONS AND FINANCIAL HIGHLIGHTS FOR THE SIX MONTHS ENDED DECEMBER 31, 1995 Dothan Federal Savings Bank ("Dothan Federal") unaudited results for the six months ended December 31, 1995 reported net income of $71,000 or $.18 per share, versus $137,000 or $.34 per share for the prior year. For the second quarter of 1995, Dothan Federal showed net income of $40,000 or $.10 per share, as compared to net income of $70,000 or $.18 per share, for the same period in 1994. The decrease in net income in the second quarter of 1995 as compared to the same period in 1994 is due to an increase in interest expense as a result of increased deposit balances of approximately $7,691,000 over the same period in 1994. Net interest income for the six months ended December 31, 1995 decreased over 1994, again as a result of increased interest expense from higher deposit balances. Other income and other expense remained consistent from six months ended 1994 to 1995. Set forth below are selected financial highlights for Dothan Federal for the periods indicated:
THREE MONTHS SIX MONTHS ENDED DECEMBER ENDED DECEMBER 31, 31, ----------------- ----------------- 1995 1994 1995 1994 ------- ------- ------- ------- (UNAUDITED) (UNAUDITED) (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Total interest income........................... $ 911 $ 796 $ 1,792 $ 1,552 Total interest expense.......................... 612 441 1,199 834 ------- ------- ------- ------- Net interest income............................. 299 355 593 718 Provision for loan losses....................... 15 15 30 30 ------- ------- ------- ------- Net interest income after provision for loan losses........................................ 284 340 563 688 Total other income.............................. 25 25 55 42 Total other expenses............................ 239 254 493 509 ------- ------- ------- ------- Income before taxes............................. 70 111 125 221 Income tax...................................... 30 41 54 84 ------- ------- ------- ------- Net income...................................... 40 70 71 137 ======= ======= ======= ======= Net income per share............................ .10 .18 .18 .34 Average share outstanding....................... 399,688 399,688 399,688 399,688
DECEMBER 31, ------------------- 1995 1994 ------- ------- (UNAUDITED) Total Assets................................................... $48,620 $44,191 Deposits....................................................... 41,798 34,107 Loans receivable, net.......................................... 35,792 35,423 Allowances for loan losses..................................... 286 227 Securities..................................................... 11,213 7,043 Real estate owned.............................................. -- 5 Stockholders' equity........................................... 4,013 3,614 Stockholders' equity per share................................. 10.0402 9.0426
44 50 COMMERCIAL BANCORP OF GEORGIA, INC. UNAUDITED RESULTS OF OPERATIONS AND FINANCIAL HIGHLIGHTS FOR YEAR ENDED DECEMBER 31, 1995 Commercial Bancorp of Georgia, Inc. ("CBG") unaudited results for the year ended December 31, 1995 reported net income of $857,000 or $.47 per share, versus $698,000 or $.38 per share for the prior year. For the fourth quarter of 1995, CBG experienced a loss of $852,000 or ($.47) per share, as compared to net income of $121,000 or $.07 per share, for the same period in 1994. The fourth quarter loss reflected additional provision for loan losses of $892,000 as a result of $380,000 in normal monthly provision and a one-time increase of $512,000 due to estimated change in economic uncertainty as compared to approximately $290,000 for the fourth quarter of 1994. There was also approximately $1,219,000 of proposed acquisition related expenses incurred in the fourth quarter of 1995. Net interest income for the year ended December 31, 1995 increased over the 1994 as a result of increased interest income from slightly higher interest rates and increased construction loan volume. Other income remained consistent from year end 1994 to 1995. BancGroup has previously considered the impact of the aforementioned fourth quarter additional expenses and earnings trends in evaluating the exchange ratio in the Merger, therefore, BancGroup does not expect the decrease in earnings or additional expenses to have a material impact on BancGroup's future earnings or financial condition. BancGroup has advised CBG that CBG's unaudited 1995 financial results will not affect the proposed Merger. Set forth below are selected financial highlights for CBG for the periods indicated:
THREE MONTHS ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ------------------ ----------------------- 1995 1994 1995 1994 ------- ------ ----------- ------- (UNAUDITED) (UNAUDITED) (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Total interest income..................... $ 5,263 $4,134 $19,140 $14,347 Total interest expense.................... 2,267 1,565 8,364 5,458 ------- ------ ----------- ------- Net interest income....................... 2,996 2,569 10,776 8,889 Provision for loan losses................. 892 291 1,525 695 ------- ------ ----------- ------- Net interest income after provision for loan losses............................. 2,104 2,278 9,251 8,194 Total other income........................ 304 584 2,163 2,215 Total other expenses...................... 3,528 2,563 9,711 9,213 ------- ------ ----------- ------- Income (loss) before taxes................ (1,120) 299 1,703 1,196 Income tax................................ (268) 178 846 498 ------- ------ ----------- ------- Net income (loss)......................... (852) 121 857 698 ======= ====== ========= ======= Net income (loss) per share............... (.47) .07 .47 .38 ======= ====== ========= ======= Average share outstanding................. 1,827 1,827 1,827 1,827
45 51
DECEMBER 31, -------------------------- 1995 1994 ----------- -------- (UNAUDITED) Total Assets............................................... $ 229,740 $199,377 Deposits................................................... 206,631 178,264 Loans receivable, net...................................... 142,230 133,736 Allowance for loan losses.................................. 2,670 1,966 Securities................................................. 35,813 26,588 Real estate owned.......................................... 1,247 1,480 Stockholders' equity....................................... 19,978 18,732 Stockholders' equity per share............................. 10.9367 10.2544
46 52 SOUTHERN BANKING CORPORATION UNAUDITED RESULTS OF OPERATIONS AND FINANCIAL HIGHLIGHTS FOR YEAR ENDED DECEMBER 31, 1995 Southern Banking Corporation ("SBC") unaudited results for the year ended December 31, 1995 reported net income of $2,091,000 or $.57 per share, versus $1,734,000 or $.63 per share for the prior year. For the fourth quarter of 1995, SBC recorded net income $122,000 or $.03 per share, as compared to net income of $726,000 or $.27 per share, for the same period in 1994. The decrease in fourth quarter earnings in 1995 as compared to the same period in 1994 was the result of approximately $893,000 in acquisition related expenses incurred in the fourth quarter of 1995; as well as approximately $250,000 in additional loan loss provision as a result of decline in asset quality in the fourth quarter. Net interest income for the year ended December 31, 1995 increased over the 1994 as a result of increased interest income from slightly higher interest rates and increased loan volume. Other income remained consistent from year end 1994 to 1995. Other expense increased from year end 1994 to 1995 as a result of approximately $893,000 in acquisition related expenses incurred in 1995. BancGroup has previously considered the impact of the aforementioned fourth quarter additional expenses and earnings trends in evaluating the exchange ratio in the Merger, therefore, BancGroup does not expect the decrease in earnings or additional expenses to have a material impact on BancGroup's future earnings or financial condition. BancGroup has advised SBC that SBC's unaudited 1995 financial results will not affect the proposed Merger. Set forth below are selected financial highlights for SBC for the periods indicated:
THREE MONTHS ENDED DECEMBER 31, YEAR ENDED DECEMBER 31, ----------------- ----------------------- 1995 1994 1995 1994 ------ ------ ----------- ------- (UNAUDITED) (UNAUDITED) (AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS) Total interest income........................ $4,755 $4,243 $17,324 $10,326 Total interest expense....................... 1,702 1,085 6,133 2,895 ------ ------ ----------- ------- Net interest income.......................... 3,053 3,158 11,191 7,431 Provision for loan losses.................... 280 60 525 330 ------ ------ ----------- ------- Net interest income after provision for loan losses..................................... 2,773 3,098 10,666 7,101 Total other income........................... 562 (129) 1,926 1,294 Total other expenses......................... 3,079 1,923 9,220 5,672 ------ ------ ----------- ------- Income before taxes.......................... 256 1,046 3,372 2,723 Income tax................................... 134 320 1,281 989 ------ ------ ----------- ------- Net income................................... 122 726 2,091 1,734 ====== ====== ========= ======= Net income per share......................... .03 .27 .57 .63 ====== ====== ========= ======= Average share outstanding.................... 3,648 2,731 3,648 2,731
DECEMBER 31, ---------------------- 1995 1994 ----------- -------- (UNAUDITED) Total Assets................................................... $ 230,270 $181,362 Deposits....................................................... 211,610 154,734 Loans receivable, net.......................................... 152,347 121,530 Allowances for loan losses..................................... 1,958 1,609 Securities..................................................... 33,663 34,735 Real estate owned.............................................. 129 -- Stockholders' equity........................................... 16,524 13,735 Stockholders' equity per share................................. 4.915 4.1001
47 53 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES SELECTED INTERIM FINANCIAL DATA (UNAUDITED)
SEPTEMBER 30, SEPTEMBER 30, 1995 1994* ------------- ------------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF CONDITION SUMMARY Total assets...................................................... $ 3,400,577 $ 2,718,072 Loans, net of unearned income..................................... 2,562,386 1,980,201 Total earnings assets............................................. 3,127,274 2,485,042 Deposits.......................................................... 2,539,762 2,123,120 Shareholders' equity.............................................. 223,228 187,173 Book value per share.............................................. $ 18.22 $ 15.72 ------------- -------------
NINE MONTHS ENDED SEPTEMBER 30, ------------------- 1995 1994* ------- ------- EARNINGS SUMMARY Net interest income (taxable equivalent)................................. $88,080 $78,793 Provision for loan losses................................................ 3,430 4,714 Noninterest income....................................................... 36,542 32,815 Noninterest expense...................................................... 74,810 73,787 Net income............................................................... 28,753 20,666 Average primary shares outstanding....................................... 12,247 11,986 Average fully diluted shares outstanding................................. 13,017 12,759 Per common share: Fully-diluted earnings: Net Income.......................................................... $ 2.35 $ 1.72 Dividends: Common Stock........................................................ 0.675 N/A Class A............................................................. N/A 0.60 Class B............................................................. N/A 0.30 ------- ------- SELECTED RATIOS Return on average assets................................................. 1.24% 1.02% Return on average equity................................................. 18.51% 15.31% Efficiency ratio......................................................... 60.03% 66.11% Equity to assets......................................................... 6.56% 6.89% Total capital............................................................ 8.04% 8.62% Tangible leverage........................................................ 6.16% 6.45% ------- -------
- --------------- * As restated 48 54 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA (AS RESTATED)*
FOR THE YEARS ENDED DECEMBER 31, ---------------------------------------------------- 1994 1993 1992 1991 1990 -------- -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF INCOME Interest income............................. $187,230 $141,572 $130,624 $138,969 $137,343 Interest expense............................ 82,549 59,517 60,576 81,486 88,102 -------- -------- -------- -------- -------- Net interest income......................... 104,681 82,055 70,048 57,483 49,241 Provision for possible loan losses.......... 6,481 7,945 7,979 6,364 6,306 -------- -------- -------- -------- -------- Net interest income after provision for possible loan losses...................... 98,200 74,110 62,069 51,119 42,935 Noninterest income.......................... 44,243 40,433 34,727 31,271 28,547 Noninterest expense......................... 100,791 86,520 75,529 65,996 61,435 -------- -------- -------- -------- -------- Income before income taxes.................. 41,652 28,023 21,267 16,394 10,047 Applicable income taxes..................... 14,342 8,886 5,715 4,175 1,782 -------- -------- -------- -------- -------- Income before extraordinary items and the cumulative effect of a change in accounting for income taxes............... 27,310 19,137 15,552 12,219 8,265 Extraordinary items, net of income taxes.... -- (463) -- 831 1,385 Cumulative effect of a change in accounting for income taxes.......................... -- 3,219 -- -- -- -------- -------- -------- -------- -------- Net income.................................. $ 27,310 $ 21,893 $ 15,552 $ 13,050 $ 9,650 ======== ======== ======== ======== ======== EARNINGS PER COMMON SHARE Income before extraordinary items and the cumulative effect of a change in accounting for income taxes: Primary................................... $ 2.28 $ 2.01 $ 1.72 $ 1.37 $ 0.94 Fully-diluted............................. $ 2.23 $ 1.96 $ 1.71 $ 1.37 $ 0.94 Net income: Primary................................... $ 2.28 $ 2.30 $ 1.72 $ 1.47 $ 1.10 Fully-diluted............................. $ 2.23 $ 2.21 $ 1.71 $ 1.47 $ 1.10 Average shares outstanding: Primary................................... 11,996 9,530 9,016 8,905 8,792 Fully-diluted............................. 12,763 10,623 10,327 10,247 10,095 Cash dividends per common share:(1) Class A................................... $ 0.80 $ 0.71 $ 0.67 $ 0.63 $ 0.60 Class B................................... $ 0.40 $ 0.31 $ 0.27 $ 0.23 $ 0.20 ======== ======== ======== ======== ========
- --------------- * As restated to give effect to the February 17, 1995 acquisition of Colonial Mortgage Company, an entity under common control, which was accounted for in a manner similar to a pooling of interests; restated BancGroup financial statements were filed on July 10, 1995 on Form 8-K and are incorporated by reference to this prospectus. (1) On February 21, 1995, the Class A and Class B Common Stock were reclassified into one class of Common Stock. 49 55 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES SELECTED FINANCIAL DATA -- (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------------------------------- 1994 1993(1) 1992 1991 1990 ---------- ---------- ---------- ---------- ---------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) STATEMENT OF CONDITION At year-end: Total assets....................... $2,838,343 $2,822,521 $1,796,246 $1,687,177 $1,568,216 Loans, net of unearned income...... 2,093,703 1,771,989 1,172,151 1,093,728 1,062,798 Mortgage loans held for sale....... 60,536 361,496 144,215 105,219 31,069 Deposits........................... 2,171,464 2,190,998 1,493,479 1,452,344 1,339,918 Long-term debt..................... 69,043 57,397 22,979 27,225 29,397 Shareholders' equity............... 191,551 172,764 100,406 88,429 78,412 Average daily balances: Total assets....................... $2,726,710 $2,119,660 $1,764,397 $1,643,622 $1,532,863 Interest-earning assets............ 2,458,568 1,871,254 1,540,926 1,450,115 1,355,059 Loans, net of unearned income...... 1,906,385 1,315,910 1,136,124 1,094,096 1,016,826 Mortgage loans held for sale....... 131,121 241,683 118,510 65,373 28,525 Deposits........................... 2,158,532 1,644,658 1,476,668 1,403,538 1,309,395 Shareholders' equity............... 182,823 119,790 94,833 84,423 75,371 Book value per share at year-end..... $ 16.08 $ 14.64 $ 11.27 $ 10.00 $ 8.92 Tangible book value per share at year-end........................... 14.71 13.25 10.60 9.21 8.12 ========= ========= ========= ========= ========= SELECTED RATIOS Income before extraordinary items and the cumulative effect of a change in accounting for income taxes to: Average assets..................... 1.00% 0.90% 0.88% 0.74% 0.54% Average shareholders' equity....... 14.94 15.98 16.40 14.47 10.97 Net income to: Average assets..................... 1.00 1.03 0.88 0.79 0.63 Average shareholders' equity....... 14.94 18.28 16.40 15.46 12.80 Efficiency ratio..................... 66.68 69.50 70.64 72.52 76.69 Dividend payout ratio................ 27.21 25.33 26.85 31.60 44.00 Average equity to average total assets............................. 6.70 5.65 5.37 5.14 4.92 Total nonperforming assets to net loans, other real estate and repossessions...................... 0.91 1.31 1.34 1.07 1.49 Net charge-offs to average loans..... 0.09 0.33 0.47 0.51 0.49 Allowance for possible loan losses to total loans (net of unearned income)............................ 1.60 1.62 1.60 1.48 1.42 Allowance for possible loan losses to nonperforming loans................ 314% 347% 246% 246% 132% ========= ========= ========= ========= =========
- --------------- * As restated to give effect to the February 17, 1995 acquisition of Colonial Mortgage Company, an entity under common control, which was accounted for in a manner similar to a pooling of interests; restated BancGroup financial statements were filed on July 10, 1995 on Form 8-K and are incorporated by reference to this prospectus. 50 56 THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES SELECTED QUARTERLY FINANCIAL DATA 1994-1993 (AS RESTATED)*
1994 1993 --------------------------------------- --------------------------------------- DEC. 31 SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31 ------- -------- ------- -------- ------- -------- ------- -------- (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) Interest income.......................... $50,870 $47,180 $45,779 $43,401 $38,269 $37,524 $35,361 $30,418 Interest expense......................... 23,341 20,439 19,915 18,854 15,922 15,824 14,855 12,916 ------- -------- ------- -------- ------- -------- ------- -------- Net interest income...................... 27,529 26,741 25,864 24,547 22,347 21,700 20,506 17,502 Provision for loan losses................ 1,767 1,818 1,448 1,448 2,333 2,061 2,263 1,288 ------- -------- ------- -------- ------- -------- ------- -------- Net interest income after provision for loan losses............................ 25,762 24,923 24,416 23,099 20,014 19,639 18,243 16,214 Income before extraordinary items and the cumulative effect of a change in accounting for income taxes............ 6,644 7,078 6,740 6,848 4,688 5,223 5,202 4,024 Net income............................... $6,644 $ 7,078 $6,740 $ 6,848 $4,688 $ 4,760 $5,202 $ 7,243 (1) ------- -------- ------- -------- ------- -------- ------- -------- Per common share: Income before extraordinary items and the cumulative effect of a change in accounting for income taxes Primary................................ $ 0.55 $ 0.59 $ 0.56 $ 0.57 $ 0.48 $ 0.54 $ 0.54 $ 0.44 Fully-diluted.......................... 0.54 0.58 0.55 0.56 0.47 0.53 0.52 0.43 Net income Primary................................ $ 0.55 $ 0.59 $ 0.56 $ 0.57 $ 0.48 $ 0.49 $ 0.54 $ 0.80 Fully-diluted.......................... 0.54 0.58 0.55 0.56 0.47 0.48 0.52 0.74 ======= ======= ======= ========= ======= ======= ======= =========
- --------------- * As restated to give effect to the February 17, 1995 acquisition of Colonial Mortgage Company, an entity under common control, which was accounted for in a manner similar to a pooling of interests; restated BancGroup financial statements were filed on July 10, 1995 on Form 8-K and are incorporated by reference to this prospectus. (1) SFAS 109 was adopted in the first quarter of 1993. 51 57 DOTHAN FEDERAL SAVINGS BANK SELECTED INTERIM FINANCIAL DATA (UNAUDITED) FINANCIAL CONDITION DATA:
SEPTEMBER 30, ----------------------- Total Amount of: 1995 1994 -------- -------- (DOLLARS IN THOUSANDS) Assets........................................................ $48,084 $41,625 Investments(1)................................................ 11,086 8,201 Loans Receivable, net......................................... 35,443 31,963 Deposits...................................................... 41,042 33,115 FHLB Advances................................................. 2,500 4,417 Retained Earnings............................................. 636 455 -------- -------- Number of Full Service Facilities............................. 1 1 -------- --------
- --------------- (1) Consist of Interest Bearing Deposits in Other Banks, Marketable Securities and Cash OPERATING DATA:
THREE MONTHS ENDED SEPTEMBER 30, --------------------- 1995 1994 ------- ------- (DOLLARS IN THOUSANDS) Interest and Dividend Income................................... $ 881 $ 756 Interest Expense............................................... 587 393 ------- ------- Net Income Before Loan Loss Provision.......................... 294 363 ------- ------- Provision for Loan Loss........................................ 15 15 Non-Interest Income............................................ 29 17 Non-Interest Expense........................................... 254 255 ------- ------- Income Before Income Taxes..................................... 54 110 Provision For Income Taxes..................................... 24 43 ------- ------- Net Income..................................................... $ 30 $ 67 ======= =======
PER SHARE DATA:
THREE MONTHS ENDED SEPTEMBER 30, --------------------- 1995 1994 ------- ------- Earnings per share............................................. $ 0.08 $ 0.17 Dividends Paid................................................. NA 0.15
52 58 DOTHAN FEDERAL SAVINGS BANK MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION Comparison of the Three Months Ended September 30, 1995 and 1994 FINANCIAL CONDITION ASSETS. Total assets increased $1,442,987 from $40,182,106 as of June 30, 1994 to $41,625,093 at September 30, 1994. The net increase was primarily due to an increase in loans and investments of $842,213 and an increase in cash of $370,444. Total assets increased $3,426,465 from $44,657,061 at June 30, 1995 to $48,083,526 at September 30, 1995. The increase was due to an increase in loans and investments of $1,649,329 and a decrease in cash federal funds of $1,729,797. LIABILITIES. Total liabilities were $38,002,015 at September 30, 1994, an increase of $1,473,229 from June 30, 1994, and were $44,129,704 at September 30, 1995, a $3,370,553 increase from June 30, 1995. Both the 1994 and 1995 increases were due to increases of deposits and borrowed money of $1,507,010 and $3,248,635, respectively. CAPITAL. Capital as of September 30, 1994 totaled $3,623,078, a $30,242 decrease from capital of $3,653,320 at June 30, 1994. The net decrease consists of net income of $66,683 less cash dividends declared of $59,953, and a $36,972 adjustment in unrealized losses on securities. Capital as of September 30, 1995 totaled $3,953,822, a $55,912 increase from capital of $3,897,910 at June 30, 1995. The net increase consists of net income of $30,449 and a $25,463 adjustment in unrealized gains on securities. RESULTS OF OPERATIONS SUMMARY. The Bank's net income decreased $36,234 from $66,683 or $.17 per share to $30,449 or $.08 per share for the three months ended September 30, 1994 and 1995, respectively. The decrease can be attributed to a $69,247 decrease in net interest income. NET INTEREST INCOME. Net interest income decreased from $363,154 for the three months ended September 30, 1994, to $293,907 for the same period of 1995. Interest earning assets increased $905,994 to $39,542,116 in the three months ended September 30, 1994 and increased $2,964,580 to $45,599,405 during the same period in 1995. Interest bearing liabilities increased $1,507,010 to $37,531,827 in the three months ended September 30, 1994 and increased $3,248,635 to $43,542,314 during the same period in 1995. PROVISION FOR LOAN LOSSES. During the first three months ended September 30, 1994 and 1995, the Bank added $15,000 to the allowance for loan losses. Even though the Bank's asset quality continues to be strong, the Bank's management and Board of Directors feels that a monthly increase of $5,000 would help to strengthen the Bank's allowance due to higher risk commercial loans being portfolioed in 1995. NON-INTEREST INCOME. For the three months ended September 30, 1995, the Bank's non-interest income increased $12,693 to $29,820 compared to the same period in 1994. The increase is primarily due to a $10,000 payment received to resolve a legal matter. NON-INTEREST EXPENSE. Non-interest expense decreased $995 to $254,340 for the first three months of 1995 from $255,335 for the same period in 1994. The decrease is primarily due to a $9,602 decrease in compensation expense offset by a $10,128 increase in consulting fees. PROVISION FOR INCOME TAXES. The provision for income taxes for the three months ended September 30, 1995 and 1994 was $23,938 and $43,263, respectively. The income tax expense expressed as percent of income before income taxes was 44.01% for 1995 and 39.35% for 1994. 53 59 DOTHAN FEDERAL SAVINGS BANK SELECTED FINANCIAL DATA FINANCIAL CONDITION DATA:
JUNE 30, ------------------- TOTAL AMOUNT OF: 1995 1994 ---------------- ------- ------- (DOLLARS IN THOUSANDS) Assets........................................................... $44,657 $40,182 Investments(1)................................................... 7,692 9,035 Loans Receivable, net............................................ 35,457 29,917 Deposits......................................................... 37,627 32,191 FHLB Advances.................................................... 2,667 3,833 Retained Earnings................................................ 605 448 ------- ------- Number of Full Service Facilities................................ 1 1 ------- -------
- --------------- (1) Consist of Interest Bearing Deposits in Other Banks, Marketable Securities and Cash OPERATING DATA:
YEAR ENDED JUNE 30, ------------------------ 1995 1994 1993 ------ ------ ------ (DOLLARS IN THOUSANDS) Interest and Dividend Income................................. $3,293 $3,160 $3,088 Interest Expense............................................. 1,874 1,460 1,510 ------ ------ ------ Net Income Before Loan Loss Provision........................ 1,419 1,700 1,578 ------ ------ ------ Provision For Loan Loss...................................... 60 60 90 Non-Interest Income.......................................... 58 71 69 Non-Interest Expense......................................... 1,057 956 921 ------ ------ ------ Income Before Income Taxes................................... 360 755 636 Provision for Income Taxes................................... 143 278 0 ------ ------ ------ Net Income......................................... $ 217 $ 477 $ 636 ====== ====== ======
SELECTED STATISTICAL DATA:
YEAR ENDED JUNE 30, ---------------- 1995 1994 ------ ----- Return on Assets (net earnings divided by average total assets)..... 0.49% 1.18% Equity-to-Assets Ratio (average equity divided by average total assets)........................................................... 8.46% 8.68% Allowance for possible loan losses as a percent of total loans...... 0.72% 0.71% Cash Dividends per share............................................ $ 0.15 NA Dividend Payout ratio (dividend declared per share dividend by net income per share)................................................. 27.78% NA Earnings per share.................................................. $ 0.54 $1.19
54 60 DOTHAN FEDERAL SAVINGS BANK MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS INTRODUCTION The following discussion and financial information is presented to aid the understanding of the current financial position and results of operations of Dothan Federal Savings Bank, Dothan, Alabama (the "Bank") and should be read in conjunction with the Financial Statements and Notes. With respect to the figures for the years ended June 30, 1995 and 1994 and for the three month periods ended September 30, 1995 and 1994, which are unaudited, in the opinion of management all adjustments (none of which were other than normal recurring adjustments) necessary for a fair statement of such results for such periods have been included. The Bank has one banking facility located in Houston County, Alabama. As of and For the Years Ended June 30, 1995 and 1994 FINANCIAL CONDITION ASSETS. The total assets of the Bank were $44,657,061 at June 30, 1995, a $4,474,955 increase from the 1994 year end assets of $40,182,106. At June 30, 1995, earning assets totaled $42,606,060 or 95.41% of total assets, compared to $38,554,768, or 95.95% at June 30, 1994. The Bank's investment securities portfolio decreased from $8,221,091 at June 30, 1994 to $6,778,919 at year end 1995. The primary reason for the decrease was normal principal repayments and maturities. During 1995, the average yield on interest bearing deposits in other banks increased from an average rate of 3.47% in 1994 to an average of 5.91%. The balance of interest bearing deposits in other banks decreased from $417,151 at June 30, 1994 to $369,732 at June 30, 1995. The decrease was due mainly to the purchase of adjustable rate mortgage loans to help improve the Bank's interest rate risk. Total loans, net of unearned income, increased by $5,584,292 during 1995, or 18.53% from the June 30, 1994 total of $30,128,839. Mortgage loans increased $4,118,242 or 15.31%. Commercial non-real estate loans decreased by $716,620 or 26.97%. Consumer loans increased $944,252 or 34.05%. The increase in loan demand was caused by an increase in rates during the first quarter, which caused consumers to enter the market early in the year and take advantage of lower rates while they could. An allowance is established for uncollectible interest on loans that are 60 days past due based on management's periodic evaluations. The allowance is established by a charge to interest income equal to all interest previously accrued, and income is subsequently recognized to the extent that cash payments are received until, in management's judgment, the borrower's ability to make periodic interest and principal payments has been demonstrated, in which case the loan is returned to accrual status. Loans that had been placed on nonaccrual status at June 30, 1995 and 1994 totaled $145,531 and $10,452, respectively. The Allowance for loan losses is maintained through provisions charged to expense at levels which management considers adequate to absorb losses inherent in the loan portfolio. The allowance is decreased by charge-offs, net of recoveries. Management's evaluation of the allowance includes a review of all loans for which full collectibility is not reasonably assured and considers, among other factors, prior years' loss experience, economic conditions, distribution of loans by risk class, and the estimated value of underlying collateral. Though management believes the allowance for loan losses to be adequate, the ultimate losses may vary from these evaluations; however, the allowance is reviewed periodically and, as adjustments become necessary, they are reported in earnings in the periods in which they become known. The Bank's allowance for loan losses at June 30, 1995 and 1994, was $255,722 and $212,313, respectively, with the corresponding ratios of allowance to total loans being .72% and .71%. Net charge-offs totaled $16,591 and $25,023 in 1995 and 1994, respectively, representing .05% and .08% of net loans. 55 61 DEPOSITS. The Bank relies on deposits to fund loans and other investments. Total deposits at June 30, 1995 were $37,627,012, an increase of $5,435,528 or 16.88% from June 30, 1994. Demand and time deposit accounts at June 30, 1995 were $2,837,515 and $28,852,755, respectively, representing a decrease of $68,154 and an increase of $6,503,415, respectively. Savings and money market accounts totaled $5,936,742 at June 30, 1995, representing a decrease of $999,733. The decrease in savings and money market accounts and increase in time deposits was due to customers withdrawing their funds from the low yielding savings accounts and depositing them in higher yielding time deposits. LIQUIDITY. Liquidity refers to the ability of the Bank to meet borrowing needs and withdrawal demands of its customers, while also providing funds for operating expenses and its own cash flow requirements. The Bank achieves its desired liquidity from management of both assets and liabilities. In the ordinary course of business, the Bank's cash flows are generated from interest and fee income, as well as from loan repayments and the maturity or sales of other earning assets. In addition, liquidity is continuously provided through the acquisition of new deposits or the rollover of matured deposits. The Bank normally meets it short-term liquidity requirements with interest bearing deposits in other banks and short term government securities; however, occasionally it may become necessary to borrow from the Federal Home Loan Bank to meet short-term cash flow needs. At June 30, 1995, the Bank's average regulatory liquidity ratio was 8.65% which is 3.65% above the OTS's Requirement of 5.00%. The Bank's liquid assets as of June 30, 1995 totaled $2,526,392, down from $3,415,856 on June 30, 1994. Management considers the Bank's liquidity sources to be adequate to meet its current and projected needs. The Bank's total outstanding advances from the FHLB of Atlanta were $2,666,667 as of June 30, 1995 compared to $3,833,333 on June 30, 1994. This decrease of $1,166,666 was due to the repayment of maturing advances with funds received from increased deposits. CAPITAL. Capital is a measure of the Bank's financial soundness and viability. The Bank is committed to maintaining a strong capital position to protect shareholders and depositors, provide for reasonable growth, and fully comply with all regulatory requirements while paying dividends to its shareholders. The Bank's capital at June 30, 1995 totaled $3,897,910 compared to $3,653,320 in 1994. This growth in the Bank's capital has been through the retention of internally generated earnings. Total capital as expressed as a percent of total assets as of June 30, 1995 and 1994 was 8.73% and 9.09%, respectively. As a federally chartered savings bank, the Bank is required by its primary regulator, the Office of Thrift Supervision ("OTS"), to maintain capital sufficient to meet three requirements, as defined: (1) a tangible capital requirement equal to 1.5% of adjusted total assets; (2) a leverage or core capital requirement of 3% of adjusted total assets, though it is anticipated that most institutions will be required by the regulators to maintain capital of an additional 100 to 200 basis points; and (3) a risk-based capital requirement equal to 8% of risk-weighted assets, which were approximately $21,895,200 at June 30, 1995. Assets and off-balance sheet commitments are assigned a credit-risk weighting based upon their relative risk ranging from 0% for assets backed by the full faith and credit of the United States Government or that pose no credit risk to the Bank, to the 100% for assets such as commercial loans, delinquent, or repossessed assets. 56 62 The following presents the Bank's capital levels and ratios compared to its minimum capital requirements as of June 30, 1995:
AMOUNT PERCENTAGE ---------- ---------- (UNAUDITED) Tangible capital, as defined................................... $3,903,946 8.74% Required minimum............................................... 669,946 1.5 ---------- ---------- Excess............................................... $3,234,000 7.24% ========= ======== Core capital, as defined....................................... $3,903,946 8.74% Required Minimum(a)............................................ 1,339,893 3.00 ---------- ---------- Excess............................................... $2,564,053 5.74% ========= ======== Risk-based capital............................................. $4,039,268 18.45% Required Minimum............................................... 1,751,616 8.00 ---------- ---------- Excess............................................... $2,287,652 10.45% ========= ========
- --------------- (a) The required minimum based on 5% would be $2,233,155 leaving an excess of $1,670,791. Capital requirements continue to be under study by the OTS. Management continues to monitor these requirements and contemplated changes and believes that the Bank will continue to exceed its regulatory minimum requirements. The Bank has not been required by the OTS to incorporate an interest rate risk component to the risk-based capital requirement. This regulation requires a deduction from risk-based capital based on an institution's exposure to interest rate risk. Management believes the Bank would continue to exceed its regulatory minimum requirements if the interest rate risk component is ever required. RESULTS OF OPERATIONS For the year ended June 30, 1995 the Bank recorded net income of $217,207 which represents a 54.47% decrease from 1994 net income of $477,048 and a 65.83% decrease from 1993 net income at $635,747. Earnings per share were $0.54, $1.19 and $1.59, respectively, for the years ended June 30, 1995, 1994 and 1993. NET INTEREST INCOME. By the nature of its business, the largest portion of the Bank's income is derived primarily from net interest income. Net interest income is the difference between interest income, earned primarily on loans and investment securities, and interest expense, which is paid on deposits and other interest-bearing liabilities. Many factors influence net interest income, including fluctuations in interest rates and changes in the volume and mix of earning assets and interest-bearing liabilities. The table included in this section details the distribution of average assets, liabilities and shareholders' equity, with the interest rate differentials for the Bank for the two years ended June 30, 1995 and 1993. Interest income for 1995 of $3,293,441 represents a 4.23% increase over 1994 interest income of $3,159,905. The increase in income occurred as a result of an increase in the volume of earning assets of $4,051,292 from 1994 to 1995. Interest income on loans represents the largest source of revenue for the Bank. Interest income on loans increased from $2,797,004 in 1994 to $2,873,845 in 1995. This $76,841 or 2.75% increase was due to an increase in net loans of $5,540,883 even though the average yield on loans decreased from 9.05% to 8.37% during the year. Even though investment securities decreased by $1,442,172 in 1995 interest income on investment securities increased by $52,068 in 1995 over 1994. This increase occurred due to the maturing of lower yielding securities and the repricing of adjustable mortgage backed securities to a higher rate. 57 63 Interest income on interest bearing deposits in other banks in 1995 increased from $32,248 in 1994 to $36,875. This increase was due to the increase in the yield on these deposits in 1995 to 5.91% compared to 3.47% during 1994. Interest expense is the Bank's largest single expense category. In 1995, interest expense totaled $1,874,878, a 28.45% increase from the 1994 interest expense of $1,459,562. This increase was due to the increased volume of deposits and FHLB borrowings, and slightly higher rates. The resulting net interest income for 1995 was $1,418,563, a 16.57% decrease from the 1994 net interest income of $1,700,343. This decrease was due to interest bearing liabilities repricing at a faster rate than interest earning assets. This timing difference would lead to lower earnings in a time of increasing interest rates. PROVISION FOR LOAN LOSSES. The provision for loan losses in 1995 and 1994 was $60,000. The purpose of the provision for loan losses is to replace reductions in the allowance for loan losses caused by actual charge-offs and to establish adequate reserves for the growth of the loan portfolio. The allowance for loan losses represents the estimated uncollectible amount of loans included in the Bank's loan portfolio, and is available to absorb potential losses from any category of loans. NON-INTEREST INCOME. Non-interest income is generated by various financial services and activities. As pressures on net interest income continue, expansion of these services and the related fee income is of great importance to the future profitability of the Bank. Among these fees are deposit service charge, safe deposit box rent, and net gains on the sale of assets. Total non-interest income decreased $13,039 in 1995 to $58,214. This was primarily due to decreased gains on the sale of mortgage loans during the year. NON-INTEREST EXPENSE. Total non-interest expense for 1995 totaled $1,056,644 compared to $956,423 for the previous year, an increase of $100,221 or 10.48%. The majority of the increase was due to the implementation of a profit sharing plan for the Bank's employees. Payments under the plan amounted to $18,954 during 1995. INCOME TAX EXPENSE. Income before taxes for 1995 was $360,133, a 52.31% decrease from the 1994 income before taxes of $755,173. The income tax expense expressed as a percent of income before taxes was 39.69% and 36.83% for 1995 and 1994, respectively. The income tax expense for 1995 totaled $142,926 compared to $278,125 for 1994. The Bank did not begin recording a provision for income taxes until July, 1993 due to the utilization of net operating loss carry forwards. The provision for income taxes includes deferred taxes on temporary differences between income tax and financial accounting. NEW ACCOUNTING STANDARDS On June 30, 1994, the Bank adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." The Bank has elected to classify all its mortgage-backed securities and mortgage related securities as available-for-sale and all its U.S. Government securities as held-to-maturity. The effect of this election decreased stockholder's equity by $40,525 and $127,861 as of June 30, 1995 and 1994, respectively. IMPACT OF INFLATION AND INTEREST RATE SENSITIVITY The financial statements and related data presented herein have been prepared in accordance with generally accepted accounting principles which require the measurement of financial position and operating results without considering changes in the relative purchasing power of money over time due to inflation. The majority of assets and liabilities of a financial institution are monetary in nature and therefore differ greatly from most commercial and industrial companies that have an important impact on the growth of total assets and creates the need to generate more equity capital in order to maintain an appropriate equity to assets ratio. Another significant effect of inflation is on non-interest expenses, which tend to rise during periods of inflation. 58 64 A portion of the Bank's interest earning assets are long-term fixed rate mortgage loans and mortgage-backed securities, while its principal source of funds are saving deposits with maturities of three years or less. Because of the short-term nature of the savings deposits, their costs generally reflect returns currently available in the market. Accordingly, the savings deposits have a high degree of interest rate sensitivity while the mortgage loan portfolio, to the extent of fixed rate loans, is relatively fixed and has much less sensitivity to changes in current market rates. Although these conditions are somewhat mitigated by the Bank's risk management strategies of selling long-term fixed rate loans and reinvesting in adjustable-rate mortgage-backed securities and loans, changes in market interest rates tend to directly affect the level of net interest income. 59 65 DOTHAN FEDERAL SAVINGS BANK AVERAGE BALANCE SHEETS AND ANALYSIS OF NET INTEREST INCOME FOR THE YEARS ENDED JUNE 30, 1995 AND 1994 (DOLLARS IN THOUSANDS) (UNAUDITED)
1995 1994 --------------------------- --------------------------- AVERAGE YIELD/ AVERAGE YIELD/ BALANCE INTEREST RATE BALANCE INTEREST RATE ------- -------- ------ ------- -------- ------ ASSETS Interest Earning Assets: Loans, Net................................... $34,330 $ 2,874 8.37% $30,921 $ 2,797 9.05% Investment Securities........................ 6,660 383 5.75 6,615 331 5.00 Interest Bearing Deposits in Other Banks..... 626 37 5.91 921 32 3.47 ------- -------- ------ ------- -------- ------ Total Interest Earning Assets........ 41,616 3,294 7.92 38,457 3,160 8.22 ------- -------- ------ ------- -------- ------ Non-interest Earning Assets Cash and Due From Banks...................... 637 833 Bank Premises and Equipment (net)............ 1,009 752 Other Assets................................. 647 500 ------- ------- Total Non-Interest Earning Assets.... 2,293 2,085 ------- ------- Total Assets......................... $43,909 $40,542 ======= ======= LIABILITIES Interest Bearing Liabilities: Interest Bearing Demand Deposits............. $33,668 $ 1,620 4.81% $31,360 $ 1,279 4.08% FHLB Advances................................ 5,078 255 5.02 3,944 181 4.59 ------- -------- ------ ------- -------- ------ Total Interest Bearing Liabilities... 38,746 1,875 4.84 35,304 1,460 4.14 ------- -------- ------ ------- -------- ------ Non-Interest Bearing Liabilities: Non-Interest Bearing Demand Deposits......... 856 1,252 Other Liabilities............................ 593 464 ------- ------- Total Non-Interest Bearing Liabilities........................ 1,449 1,716 ------- ------- Total Liabilities.................... 40,195 37,020 ------- ------- Stockholders' Equity........................... 3,714 3,521 ------- ------- Total Liabilities and Stockholders' Equity............................. $43,909 $40,541 ======= ======= Net Interest Income............................ $ 1,419 $ 1,700 ====== ====== Net Spread on Interest Earning Assets.......... 3.08% 4.08% ===== =====
60 66 BUSINESS OF BANCGROUP GENERAL BancGroup is a bank holding company registered under the Bank Holding Company Act of 1956, as amended. It was organized in 1974 under the laws of Delaware. BancGroup operates a wholly-owned subsidiary bank in Alabama, Colonial Bank, which conducts a full service commercial banking business in the state of Alabama through 98 banking offices. The Bank will merge with Colonial Bank in the Merger. BancGroup also has a wholly-owned bank subsidiary in Tennessee, The Colonial Bank of Tennessee, which conducts a general commercial banking business through four offices located in that state, and BancGroup operates a wholly-owned federal savings bank subsidiary in Georgia, Colonial Bank, which conducts the business of a federal savings bank through four offices in the Atlanta area. This bank located in Georgia is sometimes referred to as Colonial Bank -- Georgia. Colonial Mortgage Company, a subsidiary of Colonial Bank, is a mortgage banking company with approximately $9 billion in residential loan serving and 13 offices in 12 states. BancGroup's commercial banking loan portfolio is comprised primarily of commercial real estate loans (26%) and residential real estate loans (43%), 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. The lending activities of Colonial Bank in Alabama are dependent upon the demands within the local markets of its branches. Based on this demand, loans collateralized by commercial and residential real estate have been the fastest growing component of Colonial Bank's loan portfolio. LENDING ACTIVITIES BancGroup, through the branches and offices of its subsidiary banks, makes loans for a range of business and personal uses in response to local demands for credit. Loans are concentrated in Alabama, Georgia and Tennessee and are dependent upon economic conditions in those states. Alabama has historically been a slow growth state. The following broad categories of loans have varying risks and underwriting standards. - Real Estate -- Commercial. Loans classified as commercial real estate loans are loans which are collateralized by real estate and substantially dependent upon cash flow from income-producing improvements attached to the real estate. For BancGroup, these primarily consist of apartments, hotels, office buildings, shopping centers, amusement/recreational facilities, one to four family residential housing developments, and health service facilities. Loans within this category are underwritten based on projected cash flows and loan-to-appraised-value ratios of 80% or less. The risks associated with commercial real estate loans are primarily dependent upon real estate values in local market areas, the equity investments of borrowers, and the borrowers' experience and expertise. BancGroup has diversified its portfolio of commercial real estate loans with less than 10% of its total loan portfolio concentrated in any of the above-mentioned industries. - Real Estate Construction. Construction loans include loans to finance single family and multifamily residential as well as nonresidential real estate. Loan values for these loans are from 80% to 85% of completed appraised values. The principal risks associated with these loans are related to the borrowers' ability to complete the project and local market demand, the sales market, presales or preleasing, and permanent loan commitments. BancGroup evaluates presale requirements, preleasing rates, permanent loan take-out commitments, as well as other factors in underwriting construction loans. - Real Estate-Residential. These loans consist of loans made to finance one to four family residences and home equity loans on residences. BancGroup may loan up to 95% of appraised value on these loans without other collateral or security. The principal risks associated with one to four family residential loans are the borrowers' debt coverage ratios and real estate values. - Commercial, Financial, and Agricultural. Loans classified as commercial, financial, and agricultural consist of secured and unsecured credit lines and equipment loans for various industrial, agricultural, commercial, retail, or service businesses. 61 67 The risk associated with loans in this category are generally related to the earnings capacity and cash flows generated from the individual business activities of the borrowers. Collateral consists primarily of business equipment, inventory, and accounts receivables with loan-to-value ratios of less than 80%. Credit may be extended on an unsecured basis or in excess of 80% of collateral value in circumstances as described in the paragraph below. - Installment and Consumer. Installment and consumer loans are loans to individuals for various purposes. Automobile loans and unsecured loans make up the majority of these loans. The principal source of repayment is the earnings capacity of the individual borrowers as well as the value of the collateral. Installment and consumer loans are sometimes made on an unsecured basis or with loan-to-value ratios in excess of 80%. Collateral values referenced above are monitored by loan officers through property inspections, reference to broad measures of market values, as well as current experience with similar properties or collateral. Loans with loan-to-value ratios in excess of 80% have potentially higher risks which are offset by other factors including the borrower's or guarantors' credit worthiness, the borrower's other banking relationships, the bank's lending experience with the borrower, and any other potential sources of repayment. BancGroup's subsidiary banks fund loans primarily with customer deposits approximately 10% of which are considered more rate sensitive or volatile than other deposits. In addition the subsidiary banks borrow funds from the Federal Home Loan Bank to fund residential real estate loans. PROPOSED AFFILIATE BANKS BancGroup has entered into a definitive agreement dated as of December 21, 1995, to acquire Commercial Bancorp of Georgia, Inc., Lawrenceville, Georgia ("CBG"). CBG is a Georgia corporation and is a holding company for Commercial Bank of Georgia ("Commercial Bank"). CBG will merge with BancGroup, and following such merger, Commercial Bank, which will be a wholly-owned subsidiary of BancGroup doing business in the Atlanta, Georgia area, will be merged with Colonial Bank -- Georgia. Based on the market price of BancGroup Common Stock as of January 9, 1996, a total of 1,265,703 shares of Common Stock of BancGroup will be offered to the stockholders of CBG. The actual number of shares of BancGroup Common Stock to be issued in this transaction will depend upon the market value of such Common Stock at the time of the Merger. This transaction is subject to, among other things, approval by the stockholders of CBG and approval by appropriate regulatory authorities. At September 30, 1995, CBG had assets of $227 million, deposits of $203 million and stockholders' equity of $21 million. See "THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES -- Condensed Pro Forma Statements of Condition (Unaudited)." BancGroup has entered into a definitive agreement dated as of February 15, 1996, to acquire Southern Banking Corporation, Orlando, Florida ("Southern"). Southern is a Florida corporation and is a holding company for Southern Bank of Central Florida. Southern will merge with BancGroup and following such merger Southern Bank of Central Florida will become a subsidiary of BancGroup with the name "Colonial Bank". A total of 1,605,235 shares of Common Stock of BancGroup will be offered to the stockholders of Southern. This transaction is subject to, among other things, approval by the stockholders of Southern and approval by appropriate regulatory authorities. At September 30, 1995, Southern had assets of $211 million, deposits of $193 million and stockholders' equity of $16 million. See "THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES -- Condensed Pro Forma Statements of Condition (Unaudited)." VOTING SECURITIES AND PRINCIPAL STOCKHOLDERS As of January 31, 1996, BancGroup had issued and outstanding 13,491,691 shares of Common Stock with 5,388 stockholders of record. Each such share is entitled to one vote. In addition, as of that date, 214,957 shares of Common Stock were subject to issue upon exercise of options pursuant to BancGroup's stock option plans and up to 345,321 shares of Common Stock were issuable upon conversion of BancGroup's 1986 Debentures. There are currently 44,000,000 shares of Common Stock authorized. 62 68 On February 21, 1995, BancGroup concluded a reclassification of its Class A and Class B Common Stock into one class of Common Stock. The reclassification was approved by BancGroup's stockholders on December 8, 1994. On February 24, 1995, the Common Stock of BancGroup was listed for trading on the New York Stock Exchange. The following table shows those persons who are known to BancGroup to be beneficial owners as of January 31, 1996, of more than five percent of BancGroup's outstanding Common Stock. SHARES OF BANCGROUP BENEFICIALLY OWNED
PERCENTAGE OF COMMON CLASS NAME AND ADDRESS STOCK OUTSTANDING(1) - ------------------------------------------------------------------- --------- -------------- Robert E. Lowder(2)................................................ 1,437,345 10.49% Post Office Box 1108 Montgomery, AL 36101 James K. Lowder.................................................... 1,099,649 8.03% Post Office Box 250 Montgomery, AL 36142 Thomas H. Lowder................................................... 1,073,053 7.83% Post Office Box 11687 Birmingham, AL 35202
- --------------- (1) Percentages are calculated assuming the issuance of 214,957 shares of Common Stock pursuant to BancGroup's stock option plans. (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. Robert E. Lowder's mother, Catherine K. Lowder, owns 85,442 shares of Common Stock. Mr. Lowder disclaims any beneficial interest in such shares. 63 69 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 January 31, 1996. SHARES OF BANCGROUP BENEFICIALLY OWNED
PERCENTAGE COMMON OF CLASS NAME STOCK OUTSTANDING(1) - ----------------------------------------------------------------- --------- -------------- DIRECTORS Young J. Boozer.................................................. 7,082(2) * William Britton.................................................. 6,808 * Jerry J. Chesser................................................. 73,231 * Augustus K. Clements, III........................................ 8,976 * Robert S. Craft.................................................. 5,997 * Patrick F. Dye................................................... 26,063(3) * Clinton O. Holdbrooks............................................ 145,932(4) 1.07% D. B. Jones...................................................... 9,797 * Harold D. King**................................................. 77,729(4) * Robert E. Lowder**............................................... 1,437,345(5) 10.49% John Ed Mathison................................................. 14,227 * Milton E. McGregor............................................... 0 * John C. H. Miller, Jr. .......................................... 10,243 * Joe D. Mussafer.................................................. 10,000 * William E. Powell, III........................................... 6,959 * Jack H. Rainer................................................... 1,345 * Frances E. Roper................................................. 181,970 1.33% Ed V. Welch...................................................... 29,582 * EXECUTIVE OFFICERS WHO ARE NOT ALSO DIRECTORS Young J. Boozer, III............................................. 22,914(2)(6) * W. Flake Oakley, IV.............................................. 11,337(6) * Michael R. Holley................................................ 6,808 * Samuel R. Morgan................................................. 5,926(6) * Michelle Condon.................................................. 3,207 * All Executive Officers & Directors as a Group.................... 2,103,478 15.35%
- --------------- * Represents less than one percent. ** Executive Officer. (1) Percentages are calculated assuming the issuance of 214,957 shares of Common Stock pursuant to BancGroup's stock option plans. (2) Includes 500 shares of Common Stock out of 1,000 shares owned by Young J. Boozer, and Young J. Boozer, III EX U/W Phyllis C. Boozer. (3) Includes 24,600 shares of Common Stock subject to options exercisable under BancGroup's stock option plans. (4) Includes 12,262 shares and 12,262 shares of Common Stock subject to options exercisable by Mr. Holdbrooks and Mr. King, respectively, under BancGroup's stock option plans. (5) These shares include 90,510 shares of Common Stock subject to options under BancGroup's stock option plans. See the table at "Voting Securities and Principal Stockholders." (6) Young J. Boozer, III, Michael R. Holley, W. Flake Oakley, IV, and Samuel R. Morgan, hold options respecting 12,500, 5,000, 3,000, and 500 shares of Common Stock, respectively, pursuant to BancGroup's stock option plans. 64 70 MANAGEMENT INFORMATION Certain information regarding the biographies of the directors and executive officers of BancGroup, executive compensation and related party transactions is included in BancGroup's Annual Report on Form 10-K for the fiscal year ending December 31, 1994, at items 10, 11, and 13 and is incorporated herein by reference. CERTAIN REGULATORY CONSIDERATIONS BancGroup is a registered bank holding company subject to supervision and regulation by the Federal Reserve. As such, it is subject to the Bank Holding Company Act of 1956 as amended (the "BHC Act") and many of the Federal Reserve's regulations promulgated thereunder. It is also subject to regulation by the Georgia Department of Banking and Finance and by the OTS as a savings and loan holding company. BancGroup's subsidiary banks, Colonial Bank, Colonial Bank of Tennessee and Colonial Bank -- Georgia, (the "Subsidiary Banks"), are subject to supervision and examination by applicable federal and state banking agencies. Colonial Bank, as a state chartered bank and not a member of the Federal Reserve system, is regulated and examined both by the State of Alabama Banking Department and by the FDIC. Colonial Bank of Tennessee is also state chartered and not a member of the Federal Reserve system and is regulated by both the State of Tennessee Department of Financial Institutions and by the FDIC. Colonial Bank -- Georgia, is a federal savings bank and is regulated by the OTS. The deposits of the Subsidiary Banks are insured by the FDIC to the extent provided by law. The FDIC assesses deposit insurance premiums the amount of which may, in the future, depend in part on the condition of the Subsidiary Banks. Moreover, the FDIC may terminate deposit insurance of the Subsidiary Banks under certain circumstances. Both the FDIC and the respective state regulatory authorities have jurisdiction over a number of the same matters, including lending decisions, branching and mergers. One limitation under the BHC Act and the Federal Reserve's regulations requires that BancGroup obtain prior approval of the Federal Reserve before BancGroup acquires, directly or indirectly, more than five percent of any class of voting securities of another bank. Prior approval also must be obtained before BancGroup acquires all or substantially all of the assets of another bank, or before it merges or consolidates with another bank holding company. BancGroup may not engage in "non-banking" activities unless it demonstrates to the Federal Reserve's satisfaction that the activity in question is closely related to banking and a proper incident thereto. Because BancGroup is a registered bank holding company, persons seeking to acquire 25 percent or more of any class of its voting securities must receive the approval of the Federal Reserve. Similarly, under certain circumstances, persons seeking to acquire between 10 percent and 25 percent also may be required to obtain prior Federal Reserve approval. In 1989 Congress expressly authorized the acquisition of savings associations by bank holding companies. BancGroup must obtain the prior approval of the Federal Reserve and the OTS (among other agencies) before making such an acquisition, and must demonstrate that the likely benefits to the public of the proposed transaction (such as greater convenience, increased competition, or gains in efficiency) outweigh potential burdens (such as an undue concentration of resources, decreased or unfair competition, conflicts of interest, or unsound banking practices). Following enactment in 1991 of the FDIC Improvement Act, banks now are subject to increased reporting requirements and more frequent examinations by the bank regulators. The agencies also now have the authority to dictate certain key decisions that formerly were left to management, including compensation standards, loan underwriting standards, asset growth, and payment of dividends. Failure to comply with these new standards, or failure to maintain capital above specified levels set by the regulators, could lead to the imposition of penalties or the forced resignation of management. If a bank becomes critically undercapitalized, the bank agencies have the authority to place an institution into receivership or require that the bank be sold to, or merged with, another financial institution. In September 1994 Congress enacted the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994. This legislation, among other things, amended the BHC Act to permit bank holding companies, 65 71 subject to certain limitations, to acquire either control or substantial assets of a bank located in states other than that bank holding company's home state regardless of state law prohibitions. This legislation became effective on September 29, 1995. In addition, this legislation also amended the Federal Deposit Insurance Act to permit, beginning on June 1, 1997 (or earlier where state legislatures provide express authorization), the merger of insured banks with banks in other states. The officers and directors of BancGroup and the Subsidiary Banks are subject to numerous insider transactions restrictions, including limits on the amount and terms of transactions involving the Subsidiary Banks, on the one hand, and their principal stockholders, officers, directors, and affiliates on the other. There are a number of other laws that govern the relationship between the Subsidiary Banks and their customers. For instance, the Community Reinvestment Act is designed to encourage lending by banks to persons in low and moderate income areas. The Home Mortgage Disclosure Act and the Equal Credit Opportunity Act attempt to minimize lending decisions based on impermissible criteria, such as race or gender. The Truth-in-Lending Act and the Truth-in-Savings Act require banks to provide full disclosure of relevant terms related to loans and savings accounts, respectively. Anti-tying restrictions (which prohibit, for instance, conditioning the availability or terms of credit on the purchase of another banking product) further restrict the Subsidiary Banks' relationships with their customers. The Budget Reconciliation Act of 1995 ("Budget Act") was passed by Congress but subsequently vetoed by President Clinton. Congressional leadership and President Clinton began discussions in 1995 to determine whether the Congress and the Administration could reach a compromise on budget reconciliation. It is unknown whether these negotiations will be successful. The Budget Act originally passed by Congress and subsequently vetoed by the President contained a provision which directed the FDIC to set a one-time special assessment on SAIF-insured deposits which would be in an amount sufficient to recapitalize the Savings Association Insurance Fund ("SAIF"). It is anticipated that a special assessment in the range of $0.80 to $0.90 per $100 of SAIF-insured deposits would be necessary in order to recapitalize the SAIF, if the assessment were to be made in the next six months. In the event a budget reconciliation agreement is reached between the Congress and the Administration, it is expected that the agreement would include the special assessment provision contained in the original Budget Act. If no agreement is reached by the Congress and the Administration, it is still possible that Congress could attach such a provision to another piece of legislation or pass such a provision as a free-standing bill. The Administration, in testimony before Congress and in the press, has indicated its support of the recapitalization of SAIF in the manner provided in the Budget Act. BancGroup's subsidiary banks maintain deposits which are insured by both the SAIF and the BIF (Bank Insurance Fund). The SAIF insured deposits in all of BancGroup's subsidiary bank's total $797 million. Under the Budget Act certain of these deposits would be excluded from the special assessment. The total special assessment that would be due under the Budget Act is estimated to be approximately $5.4 million. It should be noted that supervision, regulation, and examination of BancGroup and the Subsidiary Banks are intended primarily for the protection of depositors, not stockholders. 66 72 BUSINESS OF THE BANK GENERAL The Bank was organized in July, 1988. On July 22, 1988, the Bank commenced its business operations as a federally chartered stock savings bank. The Bank is a member of the Federal Home Loan Bank System and its deposits are insured by the SAIF. The Bank's primary business is to accept savings deposits from the general public and to make real estate loans secured by residential and commercial property, and to a lesser extent, to make commercial and consumer loans. Its income is derived from interest and fees in connection with such loans. The Bank's principal expenses are interest paid on deposits and operating expenses. The Bank conducts its operations through one office located at 1962 West Main Street, Dothan, Alabama. The Bank's primary market area is the City of Dothan and Houston County in the southeastern portion of the State of Alabama. PRINCIPAL STOCKHOLDERS There are 399,688 shares of Bank Common Stock outstanding with 176 stockholders of record. The following table shows those persons who are known to the Bank to be beneficial owners as of the date of this Prospectus of more than five percent of the Bank's outstanding Common Stock as of January 31, 1996. SHARES OF BANK BENEFICIALLY OWNED
PERCENTAGE COMMON OF CLASS NAME AND ADDRESS STOCK OUTSTANDING - ---------------- ------ ----------- Gerald B. Crowley...................................................... 28,620(1) 7.16% 8235 S. County Road 33 Dothan, AL 36301 Barbara Everett........................................................ 30,578(2) 7.65% 405 Choctow Street Dothan, AL 36303 Hayne Hollis SDIRS..................................................... 20,635 5.16% Hollis & Spann, Inc. 116 Loftin Road Dothan, AL 36303 William M. Lee......................................................... 37,696(3) 9.43% 109 Christen Lane Dothan, AL 36301 Ralph Don Lewis........................................................ 25,960(4) 6.50% 202 Boyce Road Dothan, AL 36301 William C. Shelor, Jr.................................................. 24,099(5) 6.03% 402 Girard Avenue Dothan, AL 36303
- --------------- (1) Includes 1,800 shares owned indirectly. (2) Includes 18,813 shares owned indirectly. (3) Includes 25,783 shares owned indirectly. (4) Includes 12,695 shares owned indirectly. (5) Includes 15,307 shares owned indirectly. 67 73 SECURITY OWNERSHIP OF MANAGEMENT The following table indicates for each director, executive officer, and all executive officers and directors of the Bank as a group the number of shares of outstanding Common Stock of the Bank beneficially owned as of January 31, 1996. SHARES OF BANK BENEFICIALLY OWNED*
PERCENTAGE COMMON OF CLASS NAME STOCK OUTSTANDING - ---- ------ ----------- DIRECTORS Sue K. Byrd............................................................ 9,298 (1) 2.33% Gerald B. Crowley...................................................... 28,620 7.16% William Griggs Espy.................................................... 7,647 1.91% Barbara Everett........................................................ 30,578 7.65% James H. Hartzog....................................................... 13,530(2) 3.39% William M. Lee**....................................................... 37,696 9.43% Ralph Don Lewis........................................................ 25,960 6.50% Larry Register......................................................... 8,846 (3) 2.21% William C. Shelor, Jr.................................................. 24,099 6.03% Terry Weatherly........................................................ 14,728 3.69% Felton E. Woodham...................................................... 9,547 (4) 2.39% All Directors and Executive Officers as a group........................ 210,549 52.68%
- --------------- * For shares owned indirectly by directors Crowley, Everett, Lee, Lewis and Shelor see the footnotes to the table at "Principal Stockholders." ** Director is also an executive officer. (1) Includes 970 shares owned indirectly. (2) Includes 2,940 shares owned indirectly. (3) All of these shares are owned by Mr. Register's company, Register Realty. (4) Includes 1,569 shares owned indirectly. ADJOURNMENT OF SPECIAL MEETING Approval of the Merger by the Bank's stockholders requires the affirmative vote of at least two-thirds of the total votes eligible to be cast at the Special Meeting. In the event there are an insufficient number of shares of Bank Common Stock represented in person or by proxy at the Special Meeting to approve the Merger, the Bank's Board of Directors in its discretion may adjourn the Special Meeting to a later date. The place and date to which the Special Meeting would be adjourned would be announced at the Special Meeting, but would not be more than 30 days after the date of the Special Meeting. Proxies voted against the Merger will not be voted to adjourn the Special Meeting. The effect of any such adjournment would be to permit the Bank to solicit additional proxies for approval of the Merger. While such an adjournment would not invalidate any proxies previously filed, including those filed by stockholders voting against the Merger, it would afford the Bank the opportunity to solicit additional proxies in favor of the Merger. 68 74 OTHER MATTERS The Board of Directors of the Bank is not aware of any business to come before the Special Meeting other than those matters described above in this Prospectus. If, however, any other matters not now known should properly come before the Special Meeting, the proxy holders named in the accompanying proxy will vote such proxy on such matters as determined by a majority of the Board of Directors of the Bank. DATE FOR SUBMISSION OF BANCGROUP STOCKHOLDER PROPOSALS In order to be eligible for inclusion in BancGroup's proxy solicitation materials for its 1997 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 BancGroup's proxy statement used for BancGroup's 1996 annual meeting of stockholders. INDEPENDENT ACCOUNTANTS Coopers & Lybrand L.L.P. serves as the independent accountants for BancGroup. The consolidated financial statements of BancGroup as of December 31, 1994 and 1993 and for each of the three years ended December 31, 1994 that 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. The financial statements of Dothan Federal Savings Bank included in this Prospectus have been audited by Arthur Andersen LLP, independent public accountants, as indicated in their report with respect thereto and are included herein in reliance upon the authority of said firm as experts in giving said reports. It is expected that a representative of such firm will be present at the Special Meeting and will have an opportunity to answer questions from stockholders. LEGAL MATTERS Certain legal matters regarding the tax consequences of the Merger and the shares of 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 and of Colonial Bank, is a partner. John C. H. Miller, Jr. owns 10,243 shares of Common Stock. Mr. Miller also received employee-related compensation from BancGroup in 1995 of $58,070. PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE ACCOMPANYING ENVELOPE AS PROMPTLY AS POSSIBLE. YOU MAY REVOKE THE PROXY BY GIVING WRITTEN NOTICE OF REVOCATION TO THE PERSON NAMED IN THE NOTICE OF THE SPECIAL MEETING PRIOR TO THE SPECIAL MEETING, BY EXECUTING A LATER DATED PROXY OR BY ATTENDING THE SPECIAL MEETING VOTING IN PERSON. 69 75 INDEX TO FINANCIAL STATEMENTS COLONIAL BANCGROUP: All required financial statements have been incorporated by reference into this prospectus.
PAGE ---- DOTHAN FEDERAL SAVINGS BANK: Report of Independent Public Accountants................................................... F-2 Statements of Financial Condition, June 30, 1995 and 1994.................................. F-3 Statements of Income Years Ended June 30, 1995, 1994 and 1993.............................. F-4 Statements of Stockholders' Equity Years Ended June 30, 1995, 1994 and 1993................ F-5 Statements of Cash Flows Years Ended June 30, 1995, 1994 and 1993.......................... F-6 Notes to Financial Statements.............................................................. F-7 Condensed Statements of Financial Condition, September 30, 1995 and 1994 (Unaudited)....... F-18 Condensed Statements of Income for the Three Months Ended September 30, 1995 and 1994 (Unaudited).............................................................................. F-19 Condensed Statement of Stockholders' Equity for the Three Months Ended September 30, 1995 (Unaudited).............................................................................. F-20 Condensed Statements of Cash Flows for the Three Months Ended September 30, 1995 and 1994 (Unaudited).............................................................................. F-21 Notes to Condensed Financial Statements.................................................... F-22 COMMERCIAL BANCORP OF GEORGIA, INC. Independent Auditors' Report............................................................... F-23 Consolidated Balance Sheets, December 31, 1994 and 1993.................................... F-24 Consolidated Statements of Income Years Ended December 31, 1994, 1993 and 1992............. F-25 Consolidated Statements of Changes in Stockholders' Equity Years Ended December 31, 1994, 1993 and 1992................................................................................. F-26 Consolidated Statements of Cash Flows Years Ended December 31, 1994, 1993 and 1992......... F-27 Notes to Consolidated Financial Statements................................................. F-28 Consolidated Balance Sheet, September 30, 1995 and 1994 (Unaudited)........................ F-43 Consolidated Income Statement for the Three Months and Nine Months Ended September 30, 1995 and 1994 (Unaudited)..................................................................... F-44 Consolidated Statements of Changes in Stockholders' Equity for the Nine Months Ended September 30, 1995 and 1994 (Unaudited).................................................. F-45 Condensed Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 1995 and 1994 (Unaudited)..................................................................... F-46 Notes to Financial Statements September 30, 1995 and 1994.................................. F-47 SOUTHERN BANKING CORPORATION: Report of Independent Accountants.......................................................... F-49 Consolidated Balance Sheets, December 31, 1994 and 1993.................................... F-50 Consolidated Statements of Income Years Ended December 31, 1994, 1993 and 1992............. F-51 Consolidated Statements of Stockholders' Equity Years Ended December 31, 1994, 1993 and 1992................................................................................. F-52 Consolidated Statements of Cash Flows Years Ended December 31, 1994, 1993 and 1992......... F-53 Notes to Consolidated Financial Statements................................................. F-55 Consolidated Statements of Financial Condition, September 30, 1995 and 1994 (Unaudited).... F-66 Consolidated Statements of Income for the Nine Months Ended September 30, 1995 and 1994 (Unaudited).............................................................................. F-67 Consolidated Statement of Stockholders' Equity for the Nine Months Ended September 30, 1995 (Unaudited).............................................................................. F-68 Consolidated Statement of Cash Flows for the Nine Months Ended September 30, 1995 and 1994 (Unaudited).............................................................................. F-69
F-1 76 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors of Dothan Federal Savings Bank: We have audited the accompanying statements of financial condition of DOTHAN FEDERAL SAVINGS BANK (a federally chartered savings bank) as of June 30, 1995 and 1994 and the related statements of income, stockholders' equity, and cash flows for each of the three years in the period ended June 30, 1995. These financial statements are the responsibility of the Bank's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dothan Federal Savings Bank as of June 30, 1995 and 1994 and the results of its operations and its cash flows for each of the three years in the period ended June 30, 1995 in conformity with generally accepted accounting principles. As discussed in Note 1 to the financial statements, effective June 30, 1994, the Bank changed its method of accounting for investment securities and mortgage-backed securities. Arthur Andersen LLP Birmingham, Alabama July 28, 1995, (except with respect to the matter discussed in Note 14, as to which the date is February 19, 1996) F-2 77 DOTHAN FEDERAL SAVINGS BANK STATEMENTS OF FINANCIAL CONDITION AS OF JUNE 30, 1995 AND 1994
1995 1994 ----------- ----------- ASSETS CASH AND CASH EQUIVALENTS: Cash on hand and in banks........................................... $ 543,604 $ 396,328 Interest-bearing deposits in other banks............................ 369,732 417,151 ----------- ----------- 913,336 813,479 ----------- ----------- SECURITIES AVAILABLE FOR SALE (Notes 1 and 2)....................... 5,280,789 5,713,879 SECURITIES HELD TO MATURITY, fair values of $1,504,690 and $2,486,016, respectively (Notes 1 and 2).......................... 1,498,130 2,507,212 LOANS RECEIVABLE, net of allowance for loan losses of $255,722 and $212,313, respectively (Notes 1 and 3)............................ 35,457,409 29,916,526 LAND, BUILDINGS, AND EQUIPMENT, less accumulated depreciation of $180,194 and $202,981, respectively (Notes 1 and 4)............... 1,048,117 771,369 REAL ESTATE OWNED (Note 5): Held pending sale................................................... 0 27,000 Properties under mortgage loans to facilitate sale.................. 28,765 69,746 ACCRUED INTEREST AND DIVIDENDS RECEIVABLE (Note 6).................. 331,692 293,312 OTHER ASSETS (Note 1)............................................... 98,823 69,583 ----------- ----------- Total assets.............................................. $44,657,061 $40,182,106 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Deposits (Note 7)................................................. $37,627,012 $32,191,484 Federal Home Loan Bank advances (Note 8).......................... 2,666,667 3,833,333 Advance payments by borrowers for taxes and insurance............. 186,094 161,947 Accrued interest payable.......................................... 179,610 93,418 Income taxes payable (Notes 1 and 9): Current........................................................ 15,465 193,458 Deferred....................................................... 41,765 14,286 ----------- ----------- 57,230 207,744 ----------- ----------- Accrued expenses and other liabilities............................ 42,538 40,860 ----------- ----------- Total liabilities......................................... 40,759,151 36,528,786 ----------- ----------- COMMITMENTS AND CONTINGENCIES (Note 10) STOCKHOLDERS' EQUITY (Note 1): Preferred stock, 1,000,000 shares authorized, none issued, par value of $.01........................................................ 0 0 Common stock, 4,000,000 shares authorized, 399,688 issued and outstanding, par value of $.01................................. 3,997 3,997 Paid-in capital................................................... 3,329,339 3,329,339 Retained earnings................................................. 605,099 447,845 Unrealized loss on securities available for sale, net (Notes 1 and 2)............................................................. (40,525) (127,861) ----------- ----------- Total stockholders' equity................................ 3,897,910 3,653,320 ----------- ----------- Total liabilities and stockholders' equity................ $44,657,061 $40,182,106 ========== ==========
The accompanying notes are an integral part of these statements. F-3 78 DOTHAN FEDERAL SAVINGS BANK STATEMENTS OF INCOME FOR THE YEARS ENDED JUNE 30, 1995, 1994, AND 1993
1995 1994 1993 ---------- ---------- ---------- INTEREST INCOME: Interest and fees on loans................................. $2,873,845 $2,797,004 $2,852,402 Interest and dividends on securities available for sale.... 309,585 242,319 0 Interest on mortgage-backed securities..................... 0 0 103,364 Interest and dividends on securities....................... 73,136 88,334 73,034 Other interest income...................................... 36,875 32,248 59,482 ---------- ---------- ---------- Total interest income............................ 3,293,441 3,159,905 3,088,282 ---------- ---------- ---------- INTEREST EXPENSE: Interest on deposits (Note 7).............................. 1,619,537 1,278,586 1,371,427 Interest on other borrowings (Note 8)...................... 255,341 180,976 138,727 ---------- ---------- ---------- Total interest expense........................... 1,874,878 1,459,562 1,510,154 ---------- ---------- ---------- Net interest income.............................. 1,418,563 1,700,343 1,578,128 PROVISION FOR LOAN LOSSES (Notes 1 and 3).................. 60,000 60,000 90,000 ---------- ---------- ---------- Net interest income after provision for loan losses......................................... 1,358,563 1,640,343 1,488,128 ---------- ---------- ---------- OTHER INCOME: Service charges............................................ 47,251 38,794 32,620 Gain on sale of securities................................. 7,169 0 34,531 Gain/(loss) on sale of loans............................... 3,304 25,847 0 Other income............................................... 490 6,612 2,289 ---------- ---------- ---------- Total other income............................... 58,214 71,253 69,440 ---------- ---------- ---------- OTHER EXPENSES: Salaries and employee benefits (Note 11)................... 508,742 500,980 426,802 Office building and equipment.............................. 143,657 127,668 101,183 Federal deposit insurance premiums......................... 75,682 74,159 66,894 Data processing............................................ 79,042 64,244 63,140 Real estate owned (income)/expense, net.................... (3,838) (13,739) 47,643 Other expenses............................................. 253,359 203,111 216,159 ---------- ---------- ---------- Total other expenses............................. 1,056,644 956,423 921,821 ---------- ---------- ---------- INCOME BEFORE PROVISION FOR INCOME TAXES................... 360,133 755,173 635,747 Provision for income taxes (Notes 1 and 9)................. 142,926 278,125 0 ---------- ---------- ---------- NET INCOME................................................. $ 217,207 $ 477,048 $ 635,747 ========= ========= ========= EARNINGS PER SHARE (Note 1)................................ $ .54 $ 1.19 $ 1.59 ========= ========= =========
The accompanying notes are an integral part of these statements. F-4 79 DOTHAN FEDERAL SAVINGS BANK STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED JUNE 30, 1995, 1994, AND 1993
COMMON STOCK RETAINED UNREALIZED TOTAL ------------------- PAID-IN EARNINGS GAIN (LOSS), STOCKHOLDERS' SHARES AMOUNT CAPITAL (DEFICIT) NET EQUITY ------- --------- ---------- --------- ------------ ------------- BALANCE, JUNE 30, 1992....... 399,688 $ 399,688 $2,933,648 $(664,950) $ 0 $ 2,668,386 Net income................... 0 0 0 635,747 0 635,747 Change in par value (Note 1)......................... 0 (395,691) 395,691 0 0 0 ------- --------- ---------- --------- ------------ ------------- BALANCE, JUNE 30, 1993....... 399,688 3,997 3,329,339 (29,203) 0 3,304,133 Net income................... 0 0 0 477,048 0 477,048 Unrealized loss on securities available for sale, net (Notes 1 and 2)............ 0 0 0 0 (127,861) (127,861) ------- --------- ---------- --------- ------------ ------------- BALANCE, JUNE 30, 1994....... 399,688 3,997 3,329,339 447,845 (127,861) 3,653,320 Net income................... 0 0 0 217,207 0 217,207 Dividends paid............... 0 0 0 (59,953) 0 (59,953) Change in unrealized loss on securities available for sale, net (Notes 1 and 2)......................... 0 0 0 0 87,336 87,336 ------- --------- ---------- --------- ------------ ------------- BALANCE, JUNE 30, 1995....... 399,688 $ 3,997 $3,329,339 $ 605,099 $ (40,525) $ 3,897,910 ======= ========= ========= ========= ========= ==========
The accompanying notes are an integral part of these statements. F-5 80 DOTHAN FEDERAL SAVINGS BANK STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED JUNE 30, 1995, 1994, AND 1993
1995 1994 1993 ------------ ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net Income....................................................... $ 217,207 $ 477,048 $ 635,747 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................................. 65,200 78,351 83,071 Accretion of deferred income................................... (84,431) (149,915) (89,051) Provision for losses on loans and real estate owned............ 60,000 60,000 165,000 Provision for deferred taxes................................... 17,482 80,125 0 Loan fees deferred, net........................................ 49,169 95,325 127,461 Federal Home Loan Bank stock dividend.......................... 0 (10,300) (14,400) Loss (gain), net, on sale of: Loans........................................................ (3,304) (25,847) 0 Real estate owned............................................ (5,980) (15,145) (31,433) Securities available for sale................................ (7,169) 0 0 Securities................................................... 0 0 (34,531) Equipment.................................................... 27,704 (2,353) 3,364 Change in assets and liabilities: Increase in accrued interest and dividends receivable........ (38,380) (31,856) (3,015) Decrease in other assets..................................... 3,390 3,077 1,065 Increase (decrease) in current income taxes payable.......... (262,680) 193,458 0 Increase (decrease) in accrued expenses and other liabilities................................................ 1,678 727 (6,590) Increase in accrued interest payable......................... 86,192 39,046 9,338 ------------ ----------- ----------- Net cash provided by operating activities............... 126,078 791,741 846,026 ------------ ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from maturities of securities held to maturity.......... 1,500,000 0 0 Proceeds from sales of securities available for sale............. 184,508 0 0 Proceeds from sales of loans..................................... 1,756,117 3,534,550 0 Proceeds from sales of mortgage-backed securities................ 0 0 496,354 Proceeds from sales of equipment................................. 10,500 14,077 0 Proceeds from sales of real estate owned......................... 40,000 40,000 95,000 Repayments on securities available for sale...................... 437,139 0 0 Repayments on mortgage-backed securities......................... 0 514,469 424,130 Purchases of securities held to maturity......................... (496,328) (1,508,047) (300,000) Purchases of mortgage-backed securities.......................... 0 (3,002,680) (1,455,195) Loans originated, net of repayments.............................. (3,368,654) (512,306) (3,828,340) Loans and participations purchased............................... (3,902,260) 0 (3,850,752) Capital expenditures............................................. (367,099) (77,823) (12,640) Purchase of Federal Home Loan Bank stock......................... (53,200) (19,900) (4,300) ------------ ----------- ----------- Net cash used in investing activities................... (4,259,277) (1,017,660) (8,435,743) ------------ ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Increase (decrease) in deposits, net............................. 5,435,528 (967,403) 5,013,703 Principal payments on capital lease obligation................... 0 0 (40,933) Advances from Federal Home Loan Bank............................. 16,850,000 7,000,000 3,000,000 Repayments of Federal Home Loan Bank advances.................... (18,016,666) (6,666,667) (1,500,000) Increase (decrease) in advance payments by borrowers for taxes and insurance.................................................. 24,147 (2,706) 57,075 Cash dividends paid.............................................. (59,953) 0 0 ------------ ----------- ----------- Net cash (used in) provided by financing activities..... 4,233,056 (636,776) 6,529,845 ------------ ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................................................... 99,857 (862,695) (1,059,872) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR..................... 813,479 1,676,174 2,736,046 ------------ ----------- ----------- CASH AND CASH EQUIVALENTS, END OF YEAR........................... $ 913,336 $ 813,479 $ 1,676,174 ============= ============ ============
The accompanying notes are an integral part of these statements. F-6 81 DOTHAN FEDERAL SAVINGS BANK NOTES TO FINANCIAL STATEMENTS JUNE 30, 1995 AND 1994 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES SECURITIES Securities designated as available for sale are reported at fair value. The unrealized difference between amortized cost and fair value on securities available for sale is excluded from earnings and is reported net of deferred taxes as a component of stockholders' equity. This caption includes securities that management intends to use as part of its asset/liability management strategy or that may be sold in response to changes in interest rates, changes in prepayment risk, liquidity needs, or for other purposes. Securities designated as held to maturity are reported at amortized cost, as the Bank has both the ability and positive intent to hold these securities to maturity. There are no securities classified as trading as of June 30, 1995 or 1994. Amortization of premium and accretion of discount are computed under the interest method. The adjusted cost of the specific security sold is used to compute realized gain or loss on the sale of securities. On June 30, 1994, Dothan Federal Savings Bank (the "Bank") adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity Securities." Initial adoption of SFAS No. 115 was accomplished by transferring certain securities previously shown as investment securities or mortgage-backed securities to the available for sale portfolio and had the effect of decreasing stockholders' equity by $127,861 at June 30, 1994; it had no effect on 1994 income. Prior to the adoption of SFAS No. 115, securities determined to be held on a long-term basis or until maturity were accounted for in a manner similar to securities held to maturity. LOANS RECEIVABLE Loans receivable are stated at unpaid principal balances, less the allowance for loan losses and net of deferred loan origination fees and premiums. An allowance is established for uncollectible interest on loans that are 60 days past due based on management's periodic evaluations. The allowance is established by a charge to interest income equal to all interest previously accrued, and income is subsequently recognized only to the extent that cash payments are received until, in management's judgment, the borrower's ability to make periodic interest and principal payments has been demonstrated, in which case the loan is returned to accrual status. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is maintained through provisions charged to expense at levels which management considers adequate to absorb losses inherent in the loan portfolio. The allowance is decreased by charge-offs, net of recoveries. Management's evaluation of the allowance includes a review of all loans for which full collectibility is not reasonably assured and considers, among other factors, prior years' loss experience, economic conditions, distribution of loans by risk class, and the estimated value of underlying collateral. Though management believes the allowance for loan losses to be adequate, ultimate losses may vary from these evaluations; however, the allowance is reviewed periodically and, as adjustments become necessary, they are reported in earnings in the periods in which they become known. During 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," which is effective for fiscal years beginning after December 15, 1994. SFAS No. 114 requires that impaired loans be valued based on the present value of those loans' estimated cash flows at each loan's effective interest rate or the loan's observable market price or the fair value of the underlying collateral. In October 1994, the F-7 82 DOTHAN FEDERAL SAVINGS BANK NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) FASB issued SFAS No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition and Disclosures", an amendment to SFAS No. 114. SFAS No. 118 amends SFAS No. 114 to allow a creditor to use existing methods for recognizing interest on an impaired loan. Management adopted SFAS Nos. 114 and 118 as of July 1, 1995; however, given the Bank's current loan portfolio composition, the impact of adoption was not material. LOAN ORIGINATION FEES, PREMIUMS, AND DISCOUNTS Loan origination fees, net of direct costs associated with originating or acquiring loans, are treated as an adjustment to the yield of the related loans using the interest method over the contractual term of the loans. Such adjustments are reflected in "Interest and fees on loans" in the accompanying statements of income. Loan commitment fees are recognized into income upon expiration of the commitment period, unless the commitment results in the loan being funded and maintained in the loan portfolio. Premiums paid and discounts received in connection with loans receivable are amortized to interest income over the lives of the loans using the interest method. LAND, BUILDINGS, AND EQUIPMENT Land, buildings, and equipment are carried at cost, net of accumulated depreciation. Depreciation is computed on the straight-line method over the estimated useful lives of the assets (40 years for buildings and 3 to 25 years for equipment). INTANGIBLE ASSETS Intangible assets, included in "Other Assets" in the accompanying statements of financial condition, consist of premiums paid to acquire the deposits of other financial institutions. These costs ($33,498 and $50,562 at June 30, 1995 and 1994, respectively) are being amortized using an accelerated method over an eight year period which approximates the expected deposit relationship lives. Amortization expense totaled $17,064, $20,565, and $24,065 in fiscal 1995, 1994, and 1993, respectively. INCOME TAXES The financial statements have been prepared on an accrual basis. Because some income and expense items are recognized in different periods for financial reporting purposes and for purposes of computing currently payable income taxes, a provision or credit for deferred income taxes is made for such temporary differences. Effective July 1, 1991, the Bank adopted the asset and liability approach for financial accounting and reporting of income taxes pursuant to SFAS No. 109, "Accounting for Income Taxes." No provision for income taxes was reflected in the statement of income for the year ended June 30, 1993 due to the utilization of net operating loss ("NOL") carryforwards. The Bank utilized all of its federal and state NOL carryforwards during fiscal 1994. CHANGE IN PAR VALUE On October 22, 1992, the Bank changed the par value of all authorized preferred and common stock from $1.00 per share to $.01 per share. F-8 83 DOTHAN FEDERAL SAVINGS BANK NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) STATEMENTS OF CASH FLOWS Cash and cash equivalents, for purposes of reporting cash flows, include cash on hand and in banks and interest-bearing deposits in banks.
1995 1994 1993 ---------- ---------- ---------- Supplemental cash flow information: Cash paid during the period for: Income taxes.......................................... $ 388,095 $ 4,513 $ 0 ========= ========= ========= Interest.............................................. $1,788,686 $1,420,516 $1,500,816 ========= ========= ========= Noncash transactions: Transfers of loans receivable to real estate owned.... $ 6,000 $ 0 $ 0 ========= ========= ========= Transfer of mortgage-backed and investment securities to securities available for sale at fair value...... $ 0 $5,713,879 $ 0 ========= ========= ========= Increase/(decrease) in unrealized net loss on securities available for sale, net of deferred tax provision/(benefit) of $44,961 and $(65,839), respectively........................................ $ (87,336) $ 127,861 $ 0 ========= ========= =========
EARNINGS PER SHARE Earnings per share have been calculated on the basis of the weighted average number of shares of common stock outstanding, which were 399,688 during fiscal years 1995, 1994, and 1993. FINANCIAL STATEMENT RECLASSIFICATION The financial statements for the prior years have been reclassified in certain instances in order to conform with the 1995 financial statement presentation. The reclassification did not change total assets or net income in the prior years. PENDING ACCOUNTING STANDARDS Financial Instruments In December 1991, the FASB issued SFAS No. 107, "Disclosures about Fair Values of Financial Instruments", adoption of which is required for fiscal years ending after December 15, 1995. In October 1994, the FASB issued SFAS No. 119, "Disclosure about Derivative Financial Instruments and Fair Value of Financial Instruments," adoption of which is required for fiscal years ending after December 15, 1995. The Bank has elected not to adopt the provisions of these statements before the required date. DISCLOSURE OF CERTAIN RISKS In December 1994, the Accounting Standards Division of the AICPA approved SOP 94-6, "Disclosure of Certain Significant Risks and Uncertainties." SOP 94-6 requires disclosures in the financial statements beyond those now being required or generally made in the financial statements about the risks and uncertainties existing as of the date of those financial statements in the following areas: nature of operations, use of estimates in the preparation of financial statements, certain significant estimates, and current vulnerability due to certain concentrations. SOP 94-6 is effective for financial statements issued for fiscal years ending after December 15, 1995. The Bank has elected not to adopt the provisions of SOP 94-6 before the required date. F-9 84 DOTHAN FEDERAL SAVINGS BANK NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) ACCOUNTING FOR IMPAIRMENT OF LONG-LIVED ASSETS In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 establishes accounting standards for evaluating the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. The Bank has elected not to adopt the provisions of SFAS No. 121 until the required date, though management does not believe that the adoption of SFAS No. 121 will have a significant impact on the Bank's financial position or on the results of its operations. MORTGAGE SERVICING RIGHTS In May 1995, the FASB issued SFAS No. 122, "Accounting for Mortgage Servicing Rights," an amendment to SFAS No. 65. SFAS No. 122 amends certain provisions of SFAS No. 65 to eliminate the accounting distinction between rights to service mortgage loans for others that are acquired through loan origination activities and those acquired through purchase transactions. Management does not intend to adopt the provisions of SFAS No. 122 before the required date. Based on the Bank's current operating activities, management does not believe that the adoption of this Statement will have a material impact on the Bank's financial condition or results of operations. 2. SECURITIES AVAILABLE FOR SALE AND SECURITIES HELD TO MATURITY The amortized historical cost, approximate fair value, and gross unrealized gains and losses of the Bank's securities available for sale and securities held to maturity at June 30, 1995 and 1994 were as follows:
SECURITIES AVAILABLE FOR SALE ------------------------------------------------------------------------------------------------ 1995 1994 ----------------------------------------------- ----------------------------------------------- AMORTIZED GROSS GROSS AMORTIZED GROSS GROSS HISTORICAL UNREALIZED UNREALIZED FAIR HISTORICAL UNREALIZED UNREALIZED FAIR COST GAIN (LOSS) VALUE COST GAIN (LOSS) VALUE ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- FHLB stock............... $ 340,300 $ 0 $ 0 $ 340,300 $ 287,100 $ 0 $ 0 $ 287,100 Mortgage-backed securities............. 4,701,892 6,416 (66,317) 4,641,991 5,320,479 10,740 (199,635) 5,131,584 Mutual Fund.............. 300,000 0 (1,502) 298,498 300,000 0 (4,805) 295,195 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- $5,342,192 $6,416 $ (67,819) $5,280,789 $5,907,579 $ 10,740 $ (204,440) $5,713,879 ========== ======== ========= ========== ========== ======== ========== ==========
SECURITIES HELD TO MATURITY ------------------------------------------------------------------------------------------------ 1995 1994 ----------------------------------------------- ----------------------------------------------- AMORTIZED GROSS GROSS AMORTIZED GROSS GROSS HISTORICAL UNREALIZED UNREALIZED FAIR HISTORICAL UNREALIZED UNREALIZED FAIR COST GAIN (LOSS) VALUE COST GAIN (LOSS) VALUE ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- U.S. Treasury securities... $1,498,130 $ 11,295 $ (4,735) $1,504,690 $2,507,212 $1,602 $ (22,798) $2,486,016 ---------- ---------- ---------- ---------- ---------- ---------- ---------- ---------- $1,498,130 $ 11,295 $ (4,735) $1,504,690 $2,507,212 $1,602 $ (22,798) $2,486,016 ========== ======== ======== ========== ========== ======== ========= ==========
The amortized historical cost and approximate fair value of securities available for sale and securities held to maturity at June 30, 1995 by contractual maturity, are shown below. Expected maturities will differ from F-10 85 DOTHAN FEDERAL SAVINGS BANK NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.
AVAILABLE FOR SALE HELD TO MATURITY ----------------------- ----------------------- AMORTIZED AMORTIZED HISTORICAL FAIR HISTORICAL FAIR COST VALUE COST VALUE ---------- ---------- ---------- ---------- Due in one year or less......................... $ 300,000 $ 298,498 $1,001,142 $ 996,407 Due after one year through five years........... 0 0 496,988 508,283 Due after five years through ten years.......... 4,701,892 4,641,991 0 0 ---------- ---------- ---------- ---------- 5,001,892 4,940,489 1,498,130 1,504,690 FHLB stock...................................... 340,300 340,300 0 0 ---------- ---------- ---------- ---------- $5,342,192 $5,280,789 $1,498,130 $1,504,690 ========= ========= ========= =========
Mortgage-backed securities totaling $934,227 have been pledged as collateral against certain large deposits at June 30, 1995. Deposits (public monies) associated with pledged mortgage-backed securities had an aggregate balance of $750,000 at June 30, 1995. Proceeds from sales of securities available for sale during 1995 were $184,508 with gross gains of $7,169 realized on the sales. There were no securities sales during fiscal 1994. 3. LOANS RECEIVABLE
1995 1994 ----------- ----------- Mortgage loans: Conventional loans: Construction loans, primarily on one-to-four family residences.................................................... $ 2,400,460 $ 3,670,870 Loans on existing property: Residential.................................................. 26,673,402 20,621,089 Commercial................................................... 1,940,483 2,657,103 FHA and VA loans............................................. 1,937,669 2,601,330 Other loans, primarily consumer and lines of credit................. 3,717,059 2,772,807 Less: Undisbursed portion of mortgage loans............................. (679,809) (1,879,760) Unearned loan fees................................................ (249,452) (282,972) Allowance for loan losses......................................... (255,722) (212,313) Net acquisition discount.......................................... (26,681) (31,628) ----------- ----------- Total loans receivable, net............................... $35,457,409 $29,916,526 ========== ==========
As a savings bank, the Bank has a credit concentration in residential mortgage loans. The majority of the Bank's customers are located in Dothan, Alabama, and the surrounding area. The ability of these borrowers to repay is highly dependent on local economic conditions. Loans receivable at June 30, 1995 and 1994 included $145,531 and $10,452, respectively, in loans that had been placed on nonaccrual status. Interest income recognized on the nonaccrual loans outstanding at June 30, 1995 and 1994 was $2,217 and $1,119, respectively, as compared to $11,184 and $1,340 of interest income in 1995 and 1994, respectively, that would have been recorded under the original terms of the loans. At June 30, 1995 and 1994, loans to key officers, directors and principal stockholders and their affiliates amounted to $894,331 and $831,373, respectively. In the opinion of management, related party loans are made on substantially the same terms, including interest rates and collateral, as comparable transactions with F-11 86 DOTHAN FEDERAL SAVINGS BANK NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) unrelated parties and do not involve more than normal risks of collectibility. During fiscal 1995, new loans totaled $613,939 and repayments were $550,981. An analysis of the Bank's allowance for loan losses for the years ended June 30, 1995 and 1994 is as follows:
1995 1994 -------- -------- Beginning balance.............................................. $212,313 $177,336 Provision...................................................... 60,000 60,000 Charge-offs.................................................... (16,591) (25,523) Recoveries..................................................... 0 500 -------- -------- Ending balance................................................. $255,722 $212,313 ======== ========
4. LAND, BUILDINGS, AND EQUIPMENT Land, buildings, and equipment, as reflected in the accompanying statements of financial condition at June 30, 1995 and 1994 consisted of the following:
1995 1994 ---------- --------- Land........................................................ $ 222,707 $ 222,707 Buildings................................................... 773,399 419,329 Furniture, fixtures and equipment........................... 232,205 293,173 Construction in progress.................................... 0 39,141 ---------- --------- 1,228,311 974,350 Less accumulated depreciation and amortization.............. (180,194) (202,981) ---------- --------- $1,048,117 $ 771,369 ========= =========
5. REAL ESTATE OWNED Real estate owned consists either of properties acquired through foreclosure and held pending sale or properties sold under mortgage loans to facilitate sale and accounted for under the deposit method. Real estate owned is carried at the lower of loan balance or fair value, less estimated costs of disposition. Subsequent to foreclosure, real estate owned is evaluated on an individual basis for changes in fair value. Future declines in fair value of the asset less costs of disposition below its carrying amount result in an increase in the valuation allowance account. Future increases in fair value of the asset less costs of disposition above its carrying amount reduce the valuation allowance account, but not below zero. Minor costs relating to holding and maintaining the property are expensed and amounts incurred to improve the property are capitalized. The amounts expensed in fiscal 1995, 1994, and 1993 were $2,142, $4,280, and $10,699, respectively. The amount capitalized in fiscal 1995 was $1,020. No amounts were capitalized in fiscal 1994 or 1993. Valuations are periodically performed by management and a provision for estimated losses on real estate is charged to earnings when such losses are anticipated. No property was held pending sale at June 30, 1995. Property held pending sale at June 30, 1994 consisted of residential property with a basis of $27,000 and no valuation allowance. There were no valuation allowances for real estate owned for the years ended June 30, 1995 and 1994 and there was no related activity in the valuation allowances. F-12 87 DOTHAN FEDERAL SAVINGS BANK NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 6. ACCRUED INTEREST AND DIVIDENDS RECEIVABLE Accrued interest and dividends receivable at June 30, 1995 and 1994 is summarized as follows:
1995 1994 -------- -------- Securities held to maturity.................................... $ 29,086 $ 52,378 Securities available for sale.................................. 31,353 28,748 Loans receivable............................................... 271,253 212,186 -------- -------- $331,692 $293,312 ======== ========
7. DEPOSITS The weighted average rate payable on all deposits at June 30, 1995 and 1994 was 5.48% and 4.10%, respectively. Deposits at June 30, 1995 and 1994 and the related range of interest rates payable for deposits outstanding at June 30, 1995 consisted of the following:
1995 1994 ----------- ----------- Statement savings, 3.0%................................... $ 1,522,588 $ 1,312,254 NOW accounts, 2.5% to 2.75%............................... 2,837,515 2,905,669 Money market accounts, 3.0% to 4.0%....................... 4,414,154 5,624,221 Certificates of deposit, 2.62% to 10.50%.................. 28,852,755 22,349,340 ----------- ----------- $37,627,012 $32,191,484 ========== ==========
Certificates of deposit above included $4,620,069 and $3,719,531, respectively, of certificates in excess of $100,000 at June 30, 1995 and 1994. At June 30, 1995 and 1994, scheduled maturities of certificates of deposit were as follows:
1995 1994 ----------- ----------- Within one year........................................... $16,507,873 $12,535,224 One to three years........................................ 12,141,196 8,629,291 Thereafter................................................ 203,686 1,184,825 ----------- ----------- $28,852,755 $22,349,340 ========== ==========
Interest expense on deposits consisted of the following:
1995 1994 1993 ---------- ---------- ---------- Statement savings.................................. $ 53,089 $ 24,852 $ 20,319 NOW accounts....................................... 58,338 53,240 49,201 Money market accounts.............................. 198,978 216,652 278,288 Certificates of deposit............................ 1,309,132 983,842 1,023,619 ---------- ---------- ---------- $1,619,537 $1,278,586 $1,371,427 ========= ========= =========
F-13 88 DOTHAN FEDERAL SAVINGS BANK NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) 8. FEDERAL HOME LOAN BANK ADVANCES Federal Home Loan Bank advances outstanding at June 30, 1995 and 1994 mature as follows:
INTEREST RATE 1995 1994 -------- ---------- ---------- July 8, 1994........................................... 6.70% $ 0 $ 500,000 September 28, 1995..................................... 4.25% 166,667 833,333 September 27, 1998..................................... 4.73% 2,500,000 2,500,000 ---------- ---------- $2,666,667 $3,833,333 ========= =========
The Bank is required by its blanket floating lien agreement with the Federal Home Loan Bank to maintain qualifying collateral for its advances in an amount at least equal to 175% of such advances. In addition, the Bank's investment in Federal Home Loan Bank stock is pledged as collateral on outstanding advances. In 1994, the Bank maintained a $3,000,000 line of credit with the Federal Home Loan Bank at a variable rate, which was 6.70% at June 30, 1994, which matured July 8, 1994. The amount outstanding under this line of credit at June 30, 1994 was $500,000 and is included in the outstanding advances disclosed above. 9. INCOME TAXES The provision for income taxes for the years ended June 30, 1995 and 1994 were as follows:
1995 1994 -------- -------- Current: Federal........................................................ $144,943 $173,000 State.......................................................... 15,465 25,000 -------- -------- 160,408 198,000 Deferred......................................................... (17,482) 80,125 -------- -------- Totals................................................. $142,926 $278,125 ======== ========
No provision for income taxes was recorded for the year ended June 30, 1993 due to utilization of net operating loss carryforwards (see Note 1). The differences between the provision for income taxes and the amount computed by applying the statutory federal income tax rate of 34% to income before taxes for the years ended June 30, 1995 and 1994 were as follows:
1995 1994 -------- -------- Expected income tax expense at federal tax rate.................. $122,445 $256,758 Add (deduct): Utilization of NOL carryforwards............................... 0 (78,452) State income tax, net of federal tax benefit................... 10,207 16,716 Restoration of deferred tax liability.......................... 0 75,583 Other, net..................................................... 10,274 7,520 -------- -------- Totals................................................. $142,926 $278,125 ======== ========
F-14 89 DOTHAN FEDERAL SAVINGS BANK NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The components of the net deferred tax liability as of June 30, 1995 and 1994 were as follows:
1995 1994 -------- -------- Deferred tax asset: Unrealized loss................................................ $ 20,878 $ 65,839 -------- -------- Deferred tax liability: FHLB stock dividend............................................ (21,852) (23,340) Depreciation................................................... (14,047) (10,786) Capital leases................................................. (29,332) (32,319) Other.......................................................... 2,588 (13,680) -------- -------- Total deferred tax liability........................... (62,643) (80,125) -------- -------- Net deferred tax liability............................. $(41,765) $(14,286) ======== ========
10. COMMITMENTS AND CONTINGENCIES FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK The Bank is party to financial instruments with off-balance sheet risk in the normal course of business, primarily to meet the financing needs of its customers. These financial instruments consisted of commitments to extend credit and amounted to $182,000 at June 30, 1995. The Bank's policies as to collateral and assumption of credit risk for off-balance sheet items are essentially the same as those for extension of credit to its customers. LITIGATION The Bank is a party to litigation and claims 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 financial statements. FDIC ASSESSMENTS The FDIC-SAIF assessments became effective January 1, 1990. The FDIC assessment rate was 20.8 basis points of insured deposits through December 31, 1990, and has been 23 basis points since January 1, 1991. However, significant debate has ensued in Congress and within the industry as to the disparity between bank and thrift deposit insurance premiums which arose during 1995 when bank premiums were reduced when the target capitalization of the Bank Insurance Fund ("BIF") was achieved. To eliminate and reduce the disparity and provide for the recapitalization of the Savings Association Insurance Fund ("SAIF"), a special recapitalization premium for SAIF deposits has been discussed approximating 85 basis points. No decision has been finalized as to the resolution of BIF/SAIF premium disparity or the fund recapitalization issue. In the event of an 85 basis point assessment, the Bank would incur approximately $320,000 in expense. 11. COMPENSATION AND BENEFITS During fiscal 1994, the Bank adopted a profit sharing plan and distributes funds earned to employees on a semiannual basis. Total distributions during 1995 related to this plan were $18,954, which are included in "Salaries and employee benefits" in the accompanying statements of income. The Bank also adopted a defined-contribution 401(k) plan, but does not contribute or match the employees' contributions. In December 1990 and November 1992, the FASB issued SFAS No. 106, "Accounting for Postretirement Benefits Other Than Pensions" and SFAS No. 112, "Employers' Accounting for Postemployment Benefits", respectively. The Bank does not offer these benefits, as defined, to its employees and, accordingly, F-15 90 DOTHAN FEDERAL SAVINGS BANK NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) SFAS No. 106 had no effect on the Bank's 1995 financial statements and SFAS No. 112 at the date of adoption will have no effect on the Bank's financial condition based on current activity. 12. REGULATION As a federally chartered savings bank, the Bank is required by its primary regulator, the Office of Thrift Supervision ("OTS"), to maintain capital sufficient to meet three requirements, as defined: (1) a tangible capital requirement equal to 1.5% of adjusted total assets; (2) a leverage or core capital requirement of 3% of adjusted total assets, though it is anticipated that most institutions will be required by the regulators to maintain capital of an additional 100 to 200 basis points; and (3) a risk-based capital requirement equal to 8% of risk-weighted assets, which were approximately $21,895,200 at June 30, 1995. Assets and off-balance sheet commitments are assigned a credit-risk weighting based upon their relative risk ranging from 0% for assets backed by the full faith and credit of the United States Government or that pose no credit risk to the Bank, to 100% for assets such as commercial loans, delinquent, or repossessed assets. The following is a reconciliation of the Bank's total stockholders' equity to the Bank's tangible, core, and risk-based capital available to meet its regulatory requirements:
JUNE 30, 1995 ------------- Stockholders' equity as reported in the accompanying financial statements............................................................ $ 3,897,910 Intangible assets required to be deducted............................... (33,498) Unrealized loss on debt securities available for sale................... 39,534 ------------- Tangible capital........................................................ 3,903,946 Required deductions..................................................... 0 ------------- Core capital............................................................ 3,903,946 General allowance for loan losses....................................... 135,322 ------------- Risk-based capital...................................................... $ 4,039,268 ==========
The following presents the Bank's capital levels and ratios compared to its minimum capital requirements:
AMOUNT PERCENTAGE ---------- ---------- Tangible capital, as defined................................... $3,903,946 8.74% Required minimum............................................... 669,946 1.50 ---------- ---------- Excess............................................... $3,234,000 7.24% ========= ======== Core capital, as defined....................................... $3,903,946 8.74% Required minimum (a)........................................... 1,339,893 3.00 ---------- ---------- Excess............................................... $2,564,053 5.74% ========= ======== Risk-based capital............................................. $4,039,268 18.45% Required minimum............................................... 1,751,616 8.00 ---------- ---------- Excess............................................... $2,287,652 10.45% ========= ========
- --------------- (a) The required minimum based on 5% would be $2,233,155, leaving an excess of $1,670,791. Capital requirements continue to be under study by the OTS. Management continues to monitor these requirements and contemplated changes and believes that the Bank will continue to exceed its regulatory minimum requirements. F-16 91 DOTHAN FEDERAL SAVINGS BANK NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) The Bank has not been required by the OTS to incorporate an interest rate risk component to the risk-based capital requirement. This regulation requires a deduction from risk-based capital based on an institution's exposure to interest rate risk. Management believes the Bank would continue to exceed its regulatory minimum requirements if the interest rate risk component is ever required. Effective December 19, 1992, the Bank became subject to additional capital standards established by the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"). These regulations established capital standards in five categories ranging from "critically undercapitalized" to "well capitalized," and defined "well capitalized" as at least 5% for core (leverage) capital and at least 10% for risk-based capital. Institutions with a core capital less than 4% or risk-based capital less than 8% are considered "undercapitalized," and subject to increasingly stringent prompt corrective action measures. The Bank's capital ratios above place it in the "well capitalized" category. 13. INTEREST RATE SENSITIVITY A portion of the Bank's interest earning assets are long-term fixed rate mortgage loans and mortgage-backed securities (approximately 79%), while its principal source of funds are savings deposits with maturities of three years or less (approximately 99%). Because of the short-term nature of the savings deposits, their cost generally reflects returns currently available in the market. Accordingly, the savings deposits have a high degree of interest rate sensitivity while the mortgage loan portfolio, to the extent of fixed rate loans, is relatively fixed and has much less sensitivity to changes in current market rates. Although these conditions are somewhat mitigated by the Bank's risk management strategies of selling long-term fixed rate loans and reinvesting in adjustable-rate mortgage-backed securities, changes in market interest rates tend to directly affect the level of net interest income. 14. SUBSEQUENT EVENT On January 22, 1996, the Bank entered into a definitive agreement for the acquisition of the Bank by The Colonial BancGroup, Inc. ("BancGroup"), in which BancGroup will acquire all of the outstanding stock of the Bank, consideration consisting of both shares of BancGroup's common stock and cash for an aggregate purchase price of approximately $5,200,000. This transaction is subject to, among other things, approval by the stockholders of the Bank and BancGroup and approval by the appropriate regulatory authorities. In connection with the pending acquisition, the Bank has entered into agreements with its president and chief executive officer and its vice president and controller pursuant to which each could receive cash payments following the merger, should they terminate employment with the Bank or BancGroup following the merger. Total payments possible under the agreements, if exercised, would approximate $54,000. F-17 92 DOTHAN FEDERAL SAVINGS BANK CONDENSED STATEMENTS OF FINANCIAL CONDITION SEPTEMBER 30, 1995 AND 1994
1995 1994 ----------- ----------- (UNAUDITED) ASSETS Cash................................................................ $ 2,643,133 $ 1,183,923 Securities available for sale....................................... 5,195,127 5,513,361 Securities held to maturity......................................... 3,247,629 1,503,949 Loans receivable.................................................... 35,442,901 31,962,520 Land, buildings, and equipment...................................... 1,050,925 941,994 Real estate owned................................................... 28,312 101,251 Accrued interest and dividends receivable........................... 334,761 276,592 Other assets........................................................ 140,738 141,503 ----------- ----------- $48,083,526 $41,625,093 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits............................................................ $41,042,314 $33,115,160 Federal Home Loan Bank advances..................................... 2,500,000 4,416,667 Advance payments by borrowers for taxes and insurance............... 228,118 191,633 Accrued interest payable............................................ 259,727 126,088 Income taxes payable Current........................................................... 15,465 68,850 Deferred.......................................................... 54,853 0 Accrued expenses and other liabilities.............................. 29,227 83,617 ----------- ----------- Total Liabilities......................................... $44,129,704 $38,002,015 ----------- ----------- Stockholders' Equity Preferred stock, 1,000,000 shares authorized, none issued, par value of $.01........................................................... $ 0 $ 0 Common Stock, 4,000,000 shares authorized, 399,688 issued and outstanding, par value of $.01.................................... 3,997 3,997 Paid-in Capital..................................................... 3,329,339 3,329,339 Retained Earnings................................................... 635,548 454,575 Unrealized loss on securities available for sale, net............... (15,062) (164,833) ----------- ----------- Total Stockholders' Equity................................ $ 3,953,822 $ 3,623,078 ----------- ----------- $48,083,526 $41,625,093 ========== ==========
The accompanying notes are an integral part of these statements. F-18 93 DOTHAN FEDERAL SAVINGS BANK CONDENSED STATEMENTS OF INCOME FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
THREE MONTHS ENDED SEPTEMBER 30, ----------------------- 1995 1994 -------- -------- (UNAUDITED) Interest Income: Loans.............................................................. $745,973 $653,140 Other investments.................................................. 135,088 103,080 -------- -------- Total interest income...................................... 881,061 756,220 -------- -------- Interest Expense Deposits........................................................... 556,372 347,319 Other Borrowings................................................... 30,782 45,747 -------- -------- Total interest expense..................................... 587,154 393,066 -------- -------- Net Interest income........................................ 293,907 363,154 Provision for possible loan losses................................... 15,000 15,000 -------- -------- Net interest income after provision for possible loan losses......... 278,907 348,154 -------- -------- Other Income: Other loan fees and charges........................................ 9,558 9,265 Demand deposit fees................................................ 8,522 6,949 Other income....................................................... 11,740 913 -------- -------- Total other income......................................... 29,820 17,127 -------- -------- Other Expenses: Salaries and employee benefits..................................... 110,936 120,538 Office building and equipment...................................... 30,753 37,107 Federal deposit insurance premiums................................. 20,100 18,659 Data processing.................................................... 16,212 18,373 Other expenses..................................................... 76,339 60,658 -------- -------- Total other expenses....................................... 254,340 255,335 -------- -------- Income before provision for income taxes................... 54,387 109,946 -------- -------- Provision for income taxes........................................... 23,938 43,263 -------- -------- Net Income................................................. $ 30,449 $ 66,683 ======== ======== Earnings Per Share................................................... $ 0.08 $ 0.17 ======== ========
The accompanying notes are an integral part of these statements. F-19 94 DOTHAN FEDERAL SAVINGS BANK CONDENSED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995
COMMON STOCK ------------------ UNREALIZED TOTAL NUMBER OF ADDITIONAL RETAINED GAIN/(LOSS), STOCKHOLDERS' SHARES AMOUNT PAID-IN CAPITAL EARNINGS NET EQUITY --------- ------ --------------- -------- ------------ ------------- Balance at June 30, 1995......................... 399,688 $3,997 $ 3,329,339 $605,099 $(40,525) $ 3,897,910 Net income....................................... 0 0 0 30,449 0 30,449 Change in unrealized loss on securities available for sale, net.................................. 0 0 0 0 25,463 25,463 --------- ------ --------------- -------- ------------ ------------- Balance at September 30, 1995.................... 399,688 $3,997 $ 3,329,339 $635,548 $(15,062) $ 3,953,822 ======== ====== =========== ======== ========= ==========
The accompanying notes are an integral part of these statements. F-20 95 DOTHAN FEDERAL SAVINGS BANK CONDENSED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
1995 1994 ----------- ----------- Cash Flows from Operating Activities: Net Income.................................................................. $ 30,449 $ 66,683 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation and amortization............................................. 19,360 17,479 Accretion of deferred income.............................................. (11,650) (18,991) Provision for losses on loans and real estate owned....................... 15,000 15,000 Loan fees deferred, net................................................... 13,634 13,982 Loss (gain) net, on sale of Loans......................................... 447 57 Change in assets and liabilities: (Decrease) Increase in accrued interest and dividends receivable........ (3,069) 16,720 Increase in other assets................................................ (69,573) (65,954) Increase (decrease) in current income taxes payable..................... 23,938 (129,150) Increase (decrease) in accrued expenses and other liabilities........... (13,311) 42,757 Increase in accrued interest payable.................................... 80,117 32,670 ----------- ----------- Net cash provided by (used in) operating activities.................. 85,342 (8,747) Cash flows from investing activities: Proceeds from maturities of securities held to maturity..................... 500,000 1,000,000 Proceeds from sales of loans................................................ 640,548 77,443 Repayments of securities available for sale................................. 122,448 143,136 Purchases of securities held to maturity.................................... (2,249,531) -- Loans originated, net of repayments......................................... (496,159) (1,120,354) Loans and participations purchased.......................................... (148,296) (1,015,750) Capital expenditures........................................................ (15,214) (182,027) ----------- ----------- Net cash used in investing activities................................ (1,646,204) (1,097,552) Cash flows from financing activities: Increase in deposits, net................................................... 3,415,302 923,676 Advances from Federal Home Loan Bank........................................ -- 4,850,000 Repayments of Federal Home Loan Bank advances............................... (166,667) (4,266,666) Increase in advance payments by borrowers for taxes and insurance........... 42,024 29,686 Cash dividends paid......................................................... -- (59,953) ----------- ----------- Net cash (used in) provided by financing activities.................. 3,290,659 1,476,743 ----------- ----------- Increase in cash and cash equivalents......................................... 1,729,797 370,444 Cash and cash equivalents, beginning of year.................................. 913,336 813,479 ----------- ----------- Cash and cash equivalents, end of year........................................ $ 2,643,133 $ 1,183,923 ============ ============ SUPPLEMENTAL CASH FLOW INFORMATION: Cash paid during the period for: Income taxes.............................................................. $ 0 $ 172,413 ============ ============ Interest.................................................................. $ 488,336 $ 360,396 ============ ============ Noncash transactions: Transfers of loans receivable to real estate owned........................ $ 0 $ 6,000 ============ ============ Increase/(decrease) in unrealized net loss on securities available for sale, net of deferred tax provision/(benefit) of $13,088 and $(20,304), respectively............................................................. $ (25,463) $ 36,972 ============ ============
The accompanying notes are an integral part of these statements. F-21 96 DOTHAN FEDERAL SAVINGS BANK NOTES TO CONDENSED FINANCIAL STATEMENTS SEPTEMBER 30, 1995 AND 1994 1. BASIS OF PRESENTATION The condensed financial statements were prepared by Dothan Federal Savings Bank (the "Bank") without audit, but in the opinion of management, reflect all adjustments necessary for the fair presentation of the Bank's financial position and results of operations for the three month periods ended September 30, 1995 and 1994. Results of operations for the interim 1995 period are not necessarily indicative of results expected for the full year. While certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted, the Bank believes that the disclosures herein are adequate to make the information presented not misleading. These condensed financial statements should be read in conjunction with the financial statements and the notes thereto included in the Bank's statements of financial condition for the year ended June 30, 1995. The accounting policies employed are the same as those shown in Note 1 to the statements of financial condition. 2. IMPLEMENTATION OF STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NOS. 114 AND 118 During 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan," which is effective for fiscal years beginning after December 15, 1994. SFAS No. 114 requires that impaired loans be valued based on the present value of those loans' estimated cash flows at each loan's effective interest rate or the loan's observable market price or the fair value of the underlying collateral. In October 1994, the FASB issued SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures", an amendment to SFAS No. 114. SFAS No. 118 amends SFAS No. 114 to allow a creditor to use existing methods for recognizing interest on an impaired loan. Management adopted SFAS Nos. 114 and 118 as of July 1, 1995; however, given the Bank's current loan portfolio composition, the impact of adoption was not material. 3. FDIC ASSESSMENTS The FDIC-SAIF assessments became effective January 1, 1990. The FDIC assessment rate was 20.8 basis points of insured deposits through December 31, 1990, and has been 23 basis points since January 1, 1991. However, significant debate has ensued in Congress and within the industry as to the disparity between bank and thrift deposit insurance premiums which arose during 1995 when bank premiums were reduced when the target capitalization of the Bank Insurance Fund ("BIF") was achieved. To eliminate or reduce the disparity and provide for the recapitalization of the Savings Association Insurance Fund ("SAIF"), a special recapitalization premium for SAIF deposits has been discussed approximating 85 basis points. No decision has been finalized as to the resolution of BIF/SAIF premium disparity or the fund recapitalization issue. In the event of an 85 basis point assessment, the Bank would incur approximately $320,000 in expense. 4. SUBSEQUENT EVENT On January 22, 1996, the Bank entered into a definitive agreement for the acquisition of the Bank by the Colonial BancGroup, Inc. ("BancGroup"), in which BancGroup will acquire all of the outstanding stock of the Bank, consideration consisting of both shares of BancGroup's common stock and cash for an aggregate purchase price approximating $5,200,000. This transaction is subject to, among other things, approval by the stockholders of the Bank and BancGroup and approval by the appropriate regulatory authorities. In connection with the pending acquisition, the Bank has entered into agreements with its president and chief executive officer and its vice president and controller, pursuant to which each could receive cash payments following the merger should they terminate employment with the Bank or BancGroup following the merger. Total payments possible under the agreements, if exercised, would approximate $54,000. F-22 97 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders Commercial Bancorp of Georgia, Inc. and Subsidiaries Lawrenceville, Georgia We have audited the accompanying consolidated balance sheet of Commercial Bancorp of Georgia, Inc. (formerly known as Commercial Bancorp of Gwinnett, Inc.) and Subsidiaries as of December 31, 1994, and the related consolidated statements of income, changes in stockholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of Commercial Bancorp of Georgia, Inc.'s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We audited the consolidated financial statements of Commercial Bancorp of Georgia, Inc. (formerly known as Commercial Bancorp of Gwinnett, Inc.) and Subsidiary as of December 31, 1994 and 1993, and for the three years then ended, and our reports dated January 19, 1995, except for the information presented in Note L for which the date is March 2, 1995, and January 25, 1994, expressed an unqualified opinion on those statements. We audited the consolidated financial statements of the former Commercial Bancorp of Georgia, Inc. and Subsidiary as of December 31, 1994, and for the year then ended, and our report dated March 10, 1995, expressed an unqualified opinion on those statements. The consolidated financial statements of the former Commercial Bancorp of Georgia, Inc. and Subsidiary as of December 31, 1993, and for the two years then ended, were audited by other auditors whose report, dated March 2, 1994, expressed an unqualified opinion on those statements. The consolidated financial statements of Commercial Bancorp of Georgia, Inc. (formerly known as Commercial Bancorp of Gwinnett, Inc.) as of December 31, 1994 and 1993, and for the three years then ended have been restated to reflect the 1995 pooling of interests with the former Commercial Bancorp of Georgia, Inc., as described in Note B of the consolidated financial statements. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits 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 restated 1994 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Commercial Bancorp of Georgia, Inc. (formerly known as Commercial Bancorp of Gwinnett, Inc.) and Subsidiaries as of December 31, 1994, and the results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. We previously audited and reported on the consolidated balance sheet of Commercial Bancorp of Georgia, Inc. (formerly known as Commercial Bancorp of Gwinnett, Inc.) as of December 31, 1993, and the related consolidated statements of income and cash flows for the two years then ended, prior to their restatement for the 1995 pooling of interests. Its contribution to total assets, revenues, and net income represented 33%, 30% and 59% of the respective restated totals. Separate consolidated financial statements of the former Commercial Bancorp of Georgia, Inc. included in the 1993 restated consolidated balance sheet and consolidated statements of income and cash flows for the two years then ended were audited and reported on separately by other auditors. We also audited the combination of the accompanying consolidated balance sheets and consolidated statements of income and cash flows as of and for the two years ended December 31, 1993, after restatement for the 1995 pooling of interests. In our opinion, such consolidated statements have been properly combined on the basis described in Note A of the notes to the consolidated financial statements. As discussed in Note A to the consolidated financial statements, the Company changed its method of accounting for investment securities in 1994 to adopt the provisions of Statement of Financial Accounting Standards No. 115. BRICKER & MELTON, P.A. January 19, 1995 Duluth, Georgia F-23 98 COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, --------------------------- 1994 1993 ------------ ------------ ASSETS Cash and due from banks (Note C).................................. $ 12,164,453 $ 8,066,046 Federal funds sold................................................ 14,610,000 19,187,000 Interest-bearing deposits in other banks.......................... 200,000 -- Investment securities held to maturity (market value of $18,226,280 and $8,879,489 for 1994 and 1993, respectively) (Note D)........................................................ 19,096,399 8,770,920 Investment securities available for sale (Note D)................. 7,311,800 11,600,058 Other investments................................................. 180,000 180,000 Loans, net (Notes E and K)........................................ 133,736,244 110,945,568 Loans held for sale............................................... 189,590 2,807,064 Premises and equipment, net (Note F).............................. 5,995,057 5,665,600 Other real estate (Note G)........................................ 1,480,417 1,377,730 Intangible assets, net............................................ 984,637 1,142,231 Accrued interest receivable....................................... 1,532,366 1,081,299 Other assets (Note I)............................................. 1,896,522 1,431,005 ------------ ------------ TOTAL ASSETS............................................ $199,377,485 $172,254,521 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits: Noninterest-bearing demand................................... $ 38,075,216 $ 25,777,835 Interest-bearing demand and money market..................... 46,423,500 45,428,567 Savings...................................................... 5,744,815 5,038,845 Time deposits of $100,000 or more............................ 18,766,716 18,603,150 Other time deposits.......................................... 69,253,881 57,206,396 ------------ ------------ Total Deposits.......................................... 178,264,128 152,054,793 ------------ ------------ Note payable (Note K)........................................ 50,000 -- Obligation under capital leases (Note F)..................... 160,692 289,190 Accrued interest payable..................................... 1,066,201 844,976 Other liabilities............................................ 1,104,624 879,474 ------------ ------------ TOTAL LIABILITIES....................................... 180,645,645 154,068,433 ------------ ------------ STOCKHOLDERS' EQUITY (Note L) Common stock -- $1 par value: 10,000,000 shares authorized, 1,856,711 shares issued...................................... 1,856,711 1,856,711 Surplus........................................................... 16,090,386 16,090,386 Retained earnings................................................. 1,236,769 538,991 Treasury stock, at cost, 30,000 shares............................ (300,000) (300,000) Market valuation reserve on investment securities available for sale (Note D)................................................... (152,026) -- ------------ ------------ TOTAL STOCKHOLDERS' EQUITY.............................. 18,731,840 18,186,088 ------------ ------------ Commitments and contingent liabilities (Note M) TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.............. $199,377,485 $172,254,521 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-24 99 COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, --------------------------------------- 1994 1993 1992 ----------- ----------- ----------- INTEREST INCOME Loans, including fees........................................... $12,517,671 $10,853,400 $ 8,309,263 Interest on investment securities............................... 1,238,857 1,136,767 1,402,108 Interest on federal funds sold.................................. 586,398 336,179 408,320 Interest on deposits in other banks............................. 4,295 -- 180,106 ----------- ----------- ----------- TOTAL INTEREST INCOME.................................... 14,347,221 12,326,346 10,299,797 ----------- ----------- ----------- INTEREST EXPENSE Interest-bearing demand and money market........................ 1,427,552 1,304,223 1,679,931 Savings......................................................... 162,809 118,444 147,770 Time deposits of $100,000 or more............................... 857,799 705,595 760,608 Other time deposits............................................. 2,978,769 2,635,520 2,192,853 Obligation under capital leases (Note F)........................ 12,171 14,970 22,308 Other (Notes J and K)........................................... 18,906 13,533 10,507 ----------- ----------- ----------- TOTAL INTEREST EXPENSE................................... 5,458,006 4,792,285 4,813,977 ----------- ----------- ----------- NET INTEREST INCOME...................................... 8,889,215 7,534,061 5,485,820 PROVISION FOR LOAN LOSSES (Note E)................................ 694,967 438,854 652,089 ----------- ----------- ----------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES...... 8,194,248 7,095,207 4,833,731 ----------- ----------- ----------- OTHER INCOME Service charges on deposit accounts............................. 918,899 671,802 519,022 Investment securities gains, net (Note D)....................... -- 66,912 64,613 Gains on sales of SBA loan participations....................... 526,400 529,942 522,615 Fees/gains on the origination/sale of mortgage loans............ 164,032 473,574 331,128 Loan servicing fees............................................. 254,723 185,962 162,166 Other income.................................................... 351,193 205,611 63,566 ----------- ----------- ----------- TOTAL OTHER INCOME....................................... 2,215,247 2,133,803 1,663,110 ----------- ----------- ----------- OTHER EXPENSE Salaries and employee benefits (Note J)......................... 4,518,188 4,045,739 3,358,945 Net occupancy and equipment expense (Note F).................... 1,403,746 1,237,045 1,004,812 Other real estate expense (Note G).............................. 308,872 142,030 143,007 Amortization expense............................................ 157,594 158,540 95,357 Other expense (Note O).......................................... 2,824,909 2,280,444 2,085,882 ----------- ----------- ----------- TOTAL OTHER EXPENSE...................................... 9,213,309 7,863,798 6,688,003 ----------- ----------- ----------- INCOME (LOSS) BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES..................... 1,196,186 1,365,212 (191,162) INCOME TAX EXPENSE (BENEFIT) (Note I)............................. 498,408 479,024 (45,345) ----------- ----------- ----------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES.................................. 697,778 886,188 (145,817) CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES FOR INCOME TAXES (Note I).................................................. -- 383,691 -- ----------- ----------- ----------- NET INCOME (LOSS)........................................ $ 697,778 $ 1,269,879 $ (145,817) ============ ============ ============ EARNINGS PER SHARE Before cumulative effect of change.............................. $ .38 $ .49 $ (.08) Cumulative effect of change..................................... -- .21 -- ----------- ----------- ----------- $ .38 $ .70 $ (.08) ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-25 100 COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 --------------------------------------------------------------------------- MARKET COMMON RETAINED VALUATION TREASURY STOCK SURPLUS EARNINGS RESERVE STOCK TOTAL ---------- ----------- ---------- --------- --------- ----------- BALANCE AT DECEMBER 31, 1991....... $1,856,711 $16,090,386 $ (585,071) $ -- $(300,000) $17,062,026 Net loss........................... -- -- (145,817) -- -- (145,817) ---------- ----------- ---------- --------- --------- ----------- BALANCE AT DECEMBER 31, 1992....... 1,856,711 16,090,386 (730,888) -- (300,000) 16,916,209 Net income......................... -- -- 1,269,879 -- -- 1,269,879 ---------- ----------- ---------- --------- --------- ----------- BALANCE AT DECEMBER 31, 1993....... 1,856,711 16,090,386 538,991 -- (300,000) 18,186,088 Net income......................... -- -- 697,778 -- -- 697,778 Market valuation adjustment........ -- -- -- (152,026) -- (152,026) ---------- ----------- ---------- --------- --------- ----------- BALANCE AT DECEMBER 31, 1994....... $1,856,711 $16,090,386 $1,236,769 $(152,026) $(300,000) $18,731,840 ========== ============ ========== ========== ========== ============
The accompanying notes are an integral part of these consolidated financial statements. F-26 101 COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, ------------------------------------------ 1994 1993 1992 ------------ ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss).......................................................... $ 697,778 $ 1,269,879 $ (145,817) Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting principles..................... -- (383,691) -- Provision for loan losses................................................ 694,967 438,854 652,089 Net accretion on investment securities................................... 58,068 149,280 190,443 Depreciation and amortization............................................ 656,940 631,128 517,462 Amortization of intangible assets........................................ 157,594 158,540 95,357 Provision for losses on other real estate................................ 231,939 27,751 51,904 Investment securities gains, net......................................... -- (66,912) (64,613) Deferred income tax benefit.............................................. (441,699) (63,025) (142,608) Gains on sales of SBA loans.............................................. (526,400) (529,942) (522,615) (Increase) decrease in interest receivable............................... (451,067) 32,917 (248,677) Increase in interest payable............................................. 221,225 195,113 123,815 (Increase) decrease in other assets...................................... 54,497 (86,398) (1,077,842) Increase (decrease) in other liabilities................................. 225,150 592,872 (424,550) ------------ ------------ ------------ NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES................... 1,578,992 2,366,366 (995,652) ------------ ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES (Increase) decrease in interest-bearing deposits in other banks.......... (200,000) 1,682,000 (1,236,115) Purchases of investment securities held to maturity...................... (6,590,000) (5,311,044) (17,883,140) Purchases of investment securities available for sale.................... (7,423,081) (10,305,683) (2,892,409) Proceeds from sales of investment securities............................. -- 6,150,146 5,677,073 Maturities of investment securities held to maturity..................... 2,956,286 3,496,175 1,986,816 Maturities of investment securities available for sale................... 4,731,165 6,326,704 -- Proceeds from sales of SBA loans......................................... 7,027,300 5,734,588 7,178,117 Loans originated or acquired, net of principal repayments................ (28,929,818) (21,064,155) (39,356,243) Proceeds from sale of premises and equipment............................. -- 39,241 -- Purchases of premises and equipment...................................... (986,397) (533,742) (1,373,801) Capital improvements to other real estate................................ (331,898) (97,378) (60,642) Proceeds from sales of other real estate................................. 1,558,021 1,512,170 328,944 ------------ ------------ ------------ NET CASH USED BY INVESTING ACTIVITIES.............................. (28,188,422) (12,370,978) (47,631,400) ------------ ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in federal funds purchased........................... -- (1,500,000) 1,500,000 Net increase in demand, money market and savings accounts................ 13,998,284 8,934,421 16,333,284 Time deposits accepted, net of repayments................................ 12,211,051 17,267,714 23,584,808 Reduction of capital lease obligation.................................... (128,498) (181,085) (195,181) Proceeds from short-term borrowing....................................... 50,000 -- -- ------------ ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES.......................... 26,130,837 24,521,050 41,222,911 ------------ ------------ ------------ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....................... (478,593) 14,516,438 (7,404,141) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR............................. 27,253,046 12,736,608 20,140,749 ------------ ------------ ------------ CASH AND CASH EQUIVALENTS AT END OF YEAR................................... $ 26,774,453 $ 27,253,046 $ 12,736,608 =========== =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH PAID Interest................................................................. $ 5,236,781 $ 4,656,511 $ 4,675,319 =========== =========== =========== Income taxes............................................................. $ 1,214,700 $ 289,500 $ 38,000 =========== =========== =========== SUPPLEMENTAL DISCLOSURES OF NONCASH FINANCING AND INVESTING ACTIVITIES Real estate acquired in settlement of loans.............................. $ 1,560,749 $ 504,323 $ 843,787 =========== =========== =========== Transfers of investment securities held to maturity...................... $ 9,286,388 $ -- $ -- =========== =========== =========== Transfers of investment securities available for sale.................... $ 2,553,851 $ 9,267,563 $ 3,405,571 =========== =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-27 102 COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 NOTE A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of Commercial Bancorp of Georgia, Inc. and subsidiaries conform to generally accepted accounting principles and to general practices within the banking industry. The following is a summary of the more significant of these policies. The financial statements have been prepared in conformity with generally accepted accounting principles. In preparing the financial statements, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the balance sheet and revenues and expenses for the period. Actual results could differ significantly from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate, for example, to the determination of the allowance for loan losses, the market valuation reserve on investment securities available for sale, and the valuation of other real estate acquired in connection with foreclosures or in satisfaction of loans. Management believes that the allowance for loan losses is adequate, the decline in market value of investment securities available for sale is temporary, and the valuation of other real estate is appropriate. While management uses available information to recognize losses on loans, future additions to the allowance may be necessary based on changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses and valuation of other real estate. Such agencies may require the recognition of additions to the allowance or valuation adjustments to other real estate based on their judgments about information available to them at the time of their examination. BASIS OF PRESENTATION The consolidated financial statements of Commercial Bancorp of Georgia, Inc. (formerly Commercial Bancorp of Gwinnett, Inc.) (Parent Company) and its wholly-owned subsidiary, Commercial Bank of Gwinnett, collectively known as the Company as of December 31, 1994 and 1993, and for the three years then ended have been restated to reflect the 1995 pooling of interests with the former Commercial Bancorp of Georgia, Inc. and Subsidiary as described in Note B. These consolidated financial statements include the accounts of both entities and their wholly-owned subsidiaries, Commercial Bank of Gwinnett and Commercial Bank of Georgia, collectively know as the Company. The stock of the Parent Company held by the former Commercial Bancorp of Georgia, Inc. has been treated as treasury stock. All other significant intercompany accounts and transactions have been eliminated in consolidation. INVESTMENT SECURITIES In 1992, Georgia segregated its investment securities portfolio into securities held to maturity and those available for sale. Investments in debt securities, for which management has both the ability and intent to hold to maturity, are carried at amortized cost. Investments in debt securities which management believes may be sold prior to maturity, in connection with changes in interest rates, prepayment risk, changes in the Company's liquidity or other similar factors, are classified in 1993 and 1992 as available for sale and are carried at the lower of aggregate cost or market. All Gwinnett investment securities in 1993 and 1992 are classified as held to maturity. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 115 (SFAS 115) on the accounting and reporting for investments in all debt securities and equity securities that have readily determinable fair values. SFAS 115 requires that investments are to be classified as held to maturity, available for sale or trading securities. Held to maturity securities are to be reported at amortized cost, while available for sale and trading securities are to be reported at fair value. The Company has adopted SFAS 115 in 1994 as required. F-28 103 COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) In 1994, investment securities held to maturity are reported at amortized cost. Investment securities available for sale are reported at fair value, with unrealized gains and losses reported as a separate component of stockholders' equity, net of the related tax effect. Other investments are reported at cost. Earnings are reported when interest is accrued or when dividends are received. Premium and discount on all investment securities are amortized (deducted) and accreted (added), respectively, to interest income on the effective yield method over the period to the maturity of the related securities. Premium and discount on mortgage-backed securities are amortized (deducted) and accreted (added), respectively, to interest income using a method which approximates a level yield over the period to maturity of the related securities taking into consideration assumed prepayment patterns. Gains or losses on disposition are computed by the specific identification method for all securities. LOANS Loans are reported at the gross amount outstanding less net deferred loan fees and a valuation allowance for loan losses. Interest income on all loans is recognized over the terms of the loans based on the unpaid daily principal amount outstanding. If the collectibility of interest appears doubtful, the accrual thereof is discontinued. Loan origination fees, net of direct loan origination costs, are deferred and recognized as income over the life of the related loan on a level-yield basis. The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 114 (SFAS 114) on accounting by creditors for impairment of a loan. SFAS 114, as amended by SFAS 118, requires that impaired loans be measured based on the present value of expected future cash flows discounted at the loan's effective interest rate, or at the loan's fair value if the loan is collateral dependent. The provisions of SFAS 114 are effective for the Company beginning in 1995. The adoption is not expected to have a significant adverse effect on the Company. Loans held for sale represent loans originated for sale by the Company in the secondary market and are reported at the lower of cost or market. Gains and losses on sales of loans and participating interests in loans are recognized at the time of sale, as determined by the difference between the net sales proceeds and the fair value of the loans sold. Discounts recorded to adjust the value of the portions of the loans retained to fair value are amortized to income over the life of the loan. ALLOWANCE FOR LOAN LOSSES The allowance for loan losses is established through a provision for loan losses charged to expense. The allowance represents an amount which, in management's judgment, will be adequate to absorb probable losses on existing loans that may become uncollectible. Management's judgment in determining the adequacy of the allowance is based on evaluations of the collectibility of loans and takes into consideration such factors as changes in the nature and volume of the loan portfolio, current economic conditions that may affect the borrower's ability to pay, overall portfolio quality and review of specific problem loans. Periodic revisions are made to the allowance when circumstances which necessitate such revisions become known. Recognized losses are charged to the allowance for loan losses, while subsequent recoveries are added to the allowance. PREMISES AND EQUIPMENT Premises and equipment are reported at cost less accumulated depreciation and amortization. For financial reporting purposes, depreciation and amortization are computed using primarily straight-line methods over the estimated useful lives of the assets. Capital lease assets are amortized over the shorter of the estimated useful lives of the assets or term of the related leases. Expenditures for maintenance and repairs are F-29 104 COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) charged to operations as incurred, while major renewals and betterments are capitalized. When property is disposed of, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in income. For Federal tax reporting purposes, depreciation and amortization are computed using primarily accelerated methods. OTHER REAL ESTATE Other real estate represents property acquired through foreclosure or in settlement of loans and is recorded at the lower of cost or fair value less estimated selling expenses and a valuation allowance for losses. The allowance represents an amount which, in management's judgement, will be adequate to absorb probable losses. Losses incurred in the acquisition of foreclosed properties are charged against the allowance for loan losses at the time of foreclosure. Provisions for subsequent devaluation of other real estate are charged against the current period's operations. Losses on disposal of other real estate are charged to the valuation allowance for losses. Costs associated with improving the property are capitalized to the extent fair value less estimated selling expenses is not exceeded. Holding costs for other real estate are expensed as incurred. ORGANIZATIONAL COSTS The expenses associated with the formation of the Company were capitalized as organizational costs and are being amortized on the straight-line method over five years. INTANGIBLE ASSETS Intangible assets, primarily arising from premiums paid in acquiring deposits of other financial institutions, are amortized on a straight-line basis over a period of 120 months. Certain legal and other costs incurred in connection with the acquisition of branch facilities and related deposits from other financial institutions have been capitalized and are amortized using the straight-line method over 60 months. INCOME TAXES The tax effect of transactions is recorded at current tax rates in the periods the transactions are reported for financial statement purposes. Deferred income taxes are established for the temporary differences between the financial reporting basis and the tax basis of the Company's assets and liabilities at enacted tax rates expected to be in effect when such amounts are realized or settled. The Company files its income tax returns on a consolidated basis. PENDING ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 107 (SFAS 107) which requires disclosure of current market value information related to certain assets and liabilities, both on- and off-balance sheet, and Statement of Financial Accounting Standards No. 119 (SFAS 119) which requires disclosures about derivative financial instruments. These pronouncements are not effective for the Company until 1995. The adoption of SFAS 107 and SFAS 119 is not expected to have a significant adverse effect on the Company. EARNINGS PER SHARE Earnings per share is based on the weighted average number of shares outstanding during the period (1,826,711 in 1994, 1993 and 1992). Stock options and warrants, as described in Note K, are considered to be common stock equivalents for purposes of calculating earnings per share. The effect of including these common stock equivalents in the earnings per share calculation for 1994, 1993 and 1992 is anti-dilutive. F-30 105 COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, cash and cash equivalents include cash on hand, amounts due from banks and federal funds sold. Generally, federal funds are purchased and sold for one-day periods. RECLASSIFICATIONS Certain reclassifications have been made in the 1993 and 1992 financial statements to conform with the 1994 presentation. NOTE B. BUSINESS COMBINATION AND RESTATEMENT OF FINANCIAL STATEMENTS On March 2, 1995, the former Commercial Bancorp of Georgia, Inc. merged with Commercial Bancorp of Gwinnett, Inc., and Commercial Bancorp of Gwinnett, Inc., the surviving entity, changed its name to Commercial Bancorp of Georgia, Inc. On September 30, 1995, Commercial Bank of Georgia merged with Commercial Bank of Gwinnett, and Commercial Bank of Gwinnett, the surviving entity, changed its name to Commercial Bank of Georgia. A total of 1,236,711 shares of Commercial Bancorp of Gwinnett, Inc. stock was issued for all of the issued and outstanding shares of the former Commercial Bancorp of Georgia, Inc. No cash, except for nominal dissenting shareholders and fractional shares, was paid in the transaction. The transaction was accounted for as a pooling of interests. The financial statements for all periods presented have been restated to include the financial position and results of operations of the former Commercial Bancorp of Georgia, Inc. The Company's consolidated financial data have been restated as follows:
FOR THE YEARS ENDED DECEMBER 31, --------------------------- 1994 1993 1992 ------ ------ ------ (IN THOUSANDS, EXCEPT FOR PER SHARE DATA) Net Interest Income: Commercial Bancorp of Gwinnett, before merger........... $2,989 $2,264 $1,655 Commercial Bancorp of Georgia........................... 5,901 5,270 3,831 ------ ------ ------ Total........................................... $8,890 $7,534 $5,486 ====== ====== ====== Net Income: Commercial Bancorp of Gwinnett, before merger........... $ 341 $ 752(1) $ (29) Commercial Bancorp of Georgia........................... 357 518 (117) ------ ------ ------ Total........................................... $ 698 $1,270 $ (146) ====== ====== ====== Net Income Per Share: Commercial Bancorp of Gwinnett, before merger........... $ .55 $ 1.21(1) $ (.05) Effect of restatement for Commercial Bancorp of Georgia.............................................. (.17) (.51) (.03) ------ ------ ------ Total........................................... $ .38 $ .70 $ (.08) ====== ====== ======
- --------------- (1) Includes a $383,691 ($.62 per share) increase in net income for cumulative effect of change in accounting principle for income taxes. F-31 106 COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE C. CASH AND DUE FROM BANKS A bank is required to maintain average reserve balances with the Federal Reserve Bank, on deposit with national banks or in cash. The Banks' reserve requirement at December 31, 1994, was approximately $1,048,000. The Banks maintained cash balances which were adequate to meet this requirement. NOTE D. INVESTMENT SECURITIES The carrying value and estimated market value of investment securities held to maturity are as follows at December 31:
1994 ------------------------------------------------- CARRYING UNREALIZED UNREALIZED MARKET VALUE GAINS LOSSES VALUE ----------- ---------- -------- ----------- U.S. Treasury securities................. $ 6,042,396 $ -- $262,964 $ 5,779,432 U.S. Government agencies and corporations........................... 7,558,899 -- 368,318 7,190,581 Mortgage-backed securities............... 4,300,822 -- 198,968 4,101,854 States and political subdivisions........ 894,312 -- 32,789 861,523 Other securities......................... 299,970 -- 7,080 292,890 ----------- ---------- -------- ----------- $19,096,399 $ -- $870,119 $18,226,280 ========== ======== ======== ==========
1993 ------------------------------------------------- CARRYING UNREALIZED UNREALIZED MARKET VALUE GAINS LOSSES VALUE ----------- ---------- -------- ----------- U.S. Treasury securities................. $ 1,003,955 $ 8,451 $ -- $ 1,012,406 U.S. Government agencies and corporations........................... 4,284,136 29,719 9,826 4,304,029 Mortgage-backed securities............... 3,482,829 85,104 4,879 3,563,054 ----------- ---------- -------- ----------- $ 8,770,920 $ 123,274 $ 14,705 $ 8,879,489 ========== ======== ======== ==========
The amortized cost and estimated market value of investment securities available for sale are as follows at December 31:
1994 ------------------------------------------------ AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ----------- ---------- -------- ---------- U.S. Treasury securities.................. $ 4,697,116 $ -- $110,703 $4,586,413 U.S. Government agencies and corporations............................ 1,247,515 -- 97,128 1,150,387 Mortgage-backed securities................ 1,597,510 -- 22,510 1,575,000 ----------- ---------- -------- ---------- $ 7,542,141 $ -- $230,341 $7,311,800 ========== ======== ======== =========
1993 --------------------------------------------------- AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ----------- ---------- ---------- ----------- U.S. Treasury securities................. $ 8,059,766 $ -- $ 40,890 $ 8,018,876 Mortgage-backed securities............... 2,941,961 15,164 8,726 2,948,399 Other securities......................... 598,331 5,024 3,394 599,961 ----------- ---------- ---------- ----------- $11,600,058 $ 20,188 $ 53,010 $11,567,236 ========== ======== ======== ==========
In conjunction with the adoption of SFAS 115 in 1994, Georgia transferred investment securities totaling $9,286,388 from available for sale to held to maturity. Gwinnett adopted SFAS 115 in 1994, and transferred F-32 107 COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) investment securities totaling $2,553,851 to available for sale. The unrealized loss on available for sale securities, net of the related deferred taxes of $78,315, is $152,026 at December 31, 1994, and is included as a separate component of stockholders' equity. The Government agency securities classified as held to maturity at December 31, 1994, with a market value of approximately $7,191,000, consist of Federal Home Loan Bank and Federal National Mortgage Association securities. Approximately $3,196,000 of these securities are derivative securities. These securities have maturities which range from 1996 through 1999 and have a current weighted-average net yield of 5.84%. The market value of these securities is generally affected positively by declining interest rates and negatively by increasing interest rates. In addition, the market value increases or decreases based on supply and/or demand for a particular type of security and various other factors. Presently, the market value of these securities is volatile due to the above interest and market factors. The carrying value and estimated market value of investment securities held to maturity and the amortized cost and estimated market value of investment securities available for sale at December 31, 1994, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations without call or prepayment penalties. Mortgage-backed securities have been allocated based on stated maturity dates after considering assumed prepayment patterns.
INVESTMENT SECURITIES INVESTMENT SECURITIES HELD TO MATURITY AVAILABLE FOR SALE ------------------------- ----------------------- CARRYING MARKET AMORTIZED MARKET VALUE VALUE COST VALUE ----------- ----------- ---------- ---------- Due in one year or less....................... $ 3,550,666 $ 3,464,541 $4,988,366 $4,923,950 Due after one year through five years......... 14,337,835 13,655,453 1,947,515 1,797,450 Due after five years through ten years........ 745,723 669,047 606,260 590,400 Due after ten years........................... 462,175 437,239 -- -- ----------- ----------- ---------- ---------- $19,096,399 $18,226,280 $7,542,141 $7,311,800 ========== ========== ========= =========
There were no sales of investment securities during 1994. Proceeds from sales of investment securities during 1993 and 1992 were $6,150,146 and $5,677,073, respectively, with gross gains of $66,912 and $64,920 and gross losses of $0 and $307, respectively, realized on those transactions. Investment securities with carrying values of $1,542,548 and $1,997,551 and approximate market values of $1,589,798 and $2,028,153 at December 31, 1994 and 1993, respectively, were pledged to secure public funds and certain other deposits as required by law. At December 31, 1994, the Company has no outstanding derivative financial instruments such as swaps, options, futures or forward contracts. F-33 108 COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE E. LOANS Major classifications of loans are as follows at December 31:
1994 1993 ------------ ------------ Commercial................................................ $ 56,853,272 $ 54,854,919 Real estate -- construction............................... 61,856,941 34,925,005 Consumer.................................................. 17,692,495 23,189,855 ------------ ------------ Total loans..................................... 136,402,708 112,969,779 Less: Net deferred loan fees.............................. (700,053) (611,479) Allowance for loan losses........................... (1,966,411) (1,412,732) ------------ ------------ Loans, net...................................... $133,736,244 $110,945,568 =========== ===========
Most of the Bank's business activity is with customers located within the Atlanta metropolitan area. As of December 31, 1994 and 1993, the Bank had a concentration of credit risk aggregating approximately $73,856,000 and $63,561,000, respectively, on loans secured by real estate. At December 31, 1994 and 1993, non-accrual loans totaled approximately $770,000 and $1,201,000, respectively. If such loans had been on a full-accrual basis, interest income would have been approximately $30,000 and $33,000 higher, respectively. At December 31, 1994 and 1993, renegotiated and/or restructured loans totaled approximately $1,026,000 and $1,308,000, respectively. The following is a summary of transactions in the allowance for loan losses for the years ended December 31:
1994 1993 1992 ---------- ---------- ---------- Balance, beginning of year......................... $1,412,732 $1,189,398 $ 764,334 Provision charged to expense....................... 694,967 438,854 652,089 Loans charged off.................................. (216,922) (247,345) (253,265) Recoveries of loans charged off.................... 75,634 31,825 26,240 ---------- ---------- ---------- Balance, end of year............................... $1,966,411 $1,412,732 $1,189,398 ========= ========= =========
NOTE F. PREMISES AND EQUIPMENT Premises and equipment are comprised of the following at December 31:
1994 1993 ---------- ---------- Land.......................................................... $1,453,814 $1,118,914 Buildings..................................................... 3,820,219 3,479,745 Leasehold improvements........................................ 454,641 446,623 Furniture, fixtures and equipment............................. 1,864,321 1,584,075 Capital lease obligations for furniture, fixtures and equipment................................................... 121,495 244,895 ---------- ---------- 7,714,490 6,874,252 Less: Accumulated depreciation and amortization............... (1,719,433) (1,208,652) ---------- ---------- $5,995,057 $5,665,600 ========= =========
The charge to operating expense for depreciation and amortization was $656,940, $631,128 and $517,462 in 1994, 1993 and 1992, respectively. F-34 109 COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Future minimum lease payments under capital lease obligations and the present value of the net minimum lease payments at December 31, 1994, are as follows:
YEAR AMOUNTS -------------------------------------------------------------------------- -------- 1995...................................................................... $133,230 1996...................................................................... 34,698 -------- Total minimum lease payments.................................... 167,928 Less amount representing interest......................................... (7,236) -------- Present value of net minimum lease payments............................... $160,692 ========
The Company leases office space under noncancelable operating lease agreements with remaining terms in excess of one year. Future minimum annual net rentals required under the terms of these operating leases at December 31, 1994, are as follows:
YEAR AMOUNTS -------------------------------------------------------------------------- -------- 1995...................................................................... $296,362 1996...................................................................... 242,249 1997...................................................................... 106,972 1998...................................................................... 44,376 1999...................................................................... 44,376 Thereafter................................................................ 148,704 -------- $883,039 ========
The Company leases certain portions of the main office building to unrelated tenants under operating leases. Minimum future lease rentals under noncancelable leases at December 31, 1994, are as follows:
YEAR AMOUNTS -------------------------------------------------------------------------- -------- 1995...................................................................... $ 94,796 1996...................................................................... 14,976 -------- Total minimum rentals........................................... $109,772 ========
Rental expense charged to operations was approximately $326,000, $339,000 and $229,000 in 1994, 1993 and 1992, respectively. Rental income of approximately $125,000, $123,000 and $107,000 for 1994, 1993 and 1992, respectively, is included as a reduction of net occupancy expense in the consolidated statements of income. NOTE G. OTHER REAL ESTATE The following is a summary of transactions in the valuation allowance for losses on other real estate for the year ended December 31:
1994 -------- Balance, beginning of year................................................ $ 4,000 Provision charged to expense.............................................. 231,939 Losses charged off........................................................ (35,939) -------- Balance, end of year...................................................... $200,000 ========
Net expenses of other real estate totaled $308,872, $142,030 and $143,007 for the years ended December 31, 1994, 1993 and 1992, respectively. F-35 110 COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE H. SHORT-TERM BORROWINGS The Banks utilize short-term borrowings as needed for liquidity purposes in the form of federal funds purchased. The Banks have unsecured lines of credit for federal funds purchased from other banks totaling $8,000,000 at December 31, 1994. NOTE I. INCOME TAXES The following are the components of income tax expense as provided for the years ended December 31:
1994 1993 1992 --------- -------- --------- Current income tax provision......................... $ 940,107 $542,049 $ 97,263 Deferred income tax benefit.......................... (441,699) (63,025) (142,608) --------- -------- --------- $ 498,408 $479,024 $ (45,345) ========= ======== =========
A reconciliation of income tax computed at the Federal statutory income tax rate to total income taxes is as follows for the years ended December 31:
1994 1993 1992 ---------- ---------- --------- Pretax income (loss)............................... $1,196,186 $1,365,212 $(191,162) ========= ========= ========= Income tax computed at Federal statutory rate...... $ 406,704 $ 464,172 $ (64,994) Increase (decrease) resulting from: Nondeductible expenses........................... 100,132 4,509 4,447 Other, net....................................... (8,428) 10,343 15,202 ---------- ---------- --------- $ 498,408 $ 479,024 $ (45,345) ========= ========= =========
The following summarizes the tax effects of temporary differences which comprise the net deferred tax assets at December 31:
1994 1993 ---------- -------- Allowance for loan losses...................................... $ 575,946 $326,958 Net operating loss carryforward................................ -- 64,730 Net deferred loan fees......................................... 275,416 207,876 Accumulated depreciation....................................... 108,268 58,492 Deferred compensation.......................................... 122,366 84,536 Other real estate.............................................. 110,222 1,360 Market valuation reserve....................................... 78,315 -- Other, net..................................................... 84,851 91,417 ---------- -------- $1,355,384 $835,369 ========= ========
At December 31, 1993, the Company had available net loss carryforwards of approximately $190,000 for financial reporting purposes which were fully utilized in 1994. The Company adopted Statement of Financial Accounting Standards No. 109 as of January 1, 1993. The cumulative effect on prior years of this change in accounting principles increased net income in 1993 by $383,691 and is reported separately in the consolidated statement of operations. NOTE J. SAVINGS AND DEFERRED COMPENSATION PLANS Georgia has established the Commercial Bank of Georgia 401(k) Savings Plan (Plan) for the benefit of eligible employees and their beneficiaries. Employees may elect to contribute up to 20% of their gross salaries F-36 111 COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) in 1994 and 1993 and 10% in 1992, excluding bonuses, to the Plan. Any matching contributions are made at the discretion of the Company. The Company made no contribution to the Plan in 1994, 1993 or 1992. Gwinnett has established the Commercial Bank of Gwinnett 401(k) Savings Plan (Plan) for the benefit of eligible employees and their beneficiaries. Employees may elect to contribute up to 15% of their gross salaries, excluding bonuses, to the Plan. Gwinnett may make an annual matching contribution equal to a percentage of the amount contributed by the employee. For the years ended December 31, 1994, 1993 and 1992, Gwinnett contributed $21,000, $10,000 and $0, respectively, to the Plan. The Company has established a deferred compensation plan for directors which provides for the deferral of fees for outside directors. The plan provides that amounts deferred are treated as if applied to purchase the number of shares of common stock of the Company that could have been purchased with the fees at the time of deferral. Participants generally will receive payment in a single cash distribution upon leaving the Board of Directors. Amounts expensed under the plan totaled $41,600, $27,150 and $31,350 in 1994, 1993 and 1992, respectively. The employment contract between the Company and the President established a retirement plan (Plan) for the benefit of the President. The Plan provides for a monthly benefit of $1,500 to be paid to the President commencing on his sixty-second birthday and continuing until his death. The Plan will remain in effect regardless of the President's employment status with the Company. For the years ended December 31, 1994, 1993 and 1992, the Company recorded total compensation expense of $17,531, $19,000 and $20,585, respectively, and interest expense of $8,917, $5,901 and $4,644, respectively, related to this Plan. An annuity contract was purchased by the Company to fund the Plan. At December 31, 1994, the annuity contract was valued at $132,062 and is included in other assets in the accompanying consolidated balance sheet. The employment contract between the Company and the President also established a supplemental deferred compensation benefit (Annuity) for the President. The agreement provides for a monthly benefit of $1,780 to be paid to the President commencing on his sixty-second birthday and continuing for a ten-year period provided the President remains in the Company's employ through April 25, 1996. For the years ended December 31, 1994, 1993 and 1992, the Company recorded compensation expense of $13,891, $15,049 and $16,308, respectively, and interest expense of $7,061, $7,450 and $5,863, respectively, related to this Annuity. NOTE K. RELATED PARTY TRANSACTIONS As of December 31, 1994 and 1993, the Banks had direct and indirect loans which aggregated $1,055,055 and $1,507,582, respectively, outstanding to or for the benefit of certain of the Company's officers, directors, and their related interests. During 1994, $295,428 of such loans were made and repayments totaled $747,955. These loans were made in the ordinary course of business in conformity with normal credit terms, including interest rates and collateral requirements prevailing at the time for comparable transactions with other borrowers. As of December 31, 1994, the Company had a $50,000 short-term unsecured note payable to a related party. The note is scheduled to mature in May 1995 and bears interest at two percentage points above The Wall Street Journal prime rate (10.5% at December 31, 1994). There were no such borrowings in 1993. NOTE L. STOCKHOLDERS' EQUITY The Georgia Board of Directors has approved an aggregate of 63,840 stock options to be issued to executive officers. No options were granted or exercised in 1994, 1993 or 1992. A total of 39,840 options with exercise prices ranging from $9.90 to $10.21 were outstanding at December 31, 1994. These options were earned based upon criteria relating to the Company's performance and are exercisable for a period of seven years after the date of grant at the book value of the Company's stock at the end of the most recent quarter immediately prior to the award of options. In the event of a change of control of the Company, all outstanding F-37 112 COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) options will be considered earned. These stock options were converted into stock options for the surviving entity's stock and represent options for 66,074 shares. The Gwinnett Board of Directors has approved an aggregate of 14,000 stock options to be issued to key employees. These options are earned based upon criteria established by a committee of the Company's Board of Directors relating to the Company's performance and are exercisable for a period of seven years after the date of grant at the greater of the market value of the Company's stock at the date of grant or $10 per share. Summarized Gwinnett options data for the year ended December 31, 1994, is as follows:
1994 1993 --------------------- --------------------- NUMBER OF PRICE PER NUMBER OF PRICE PER SHARES SHARE SHARES SHARE --------- --------- --------- --------- Options outstanding at beginning of year........ 11,500 $ 10.00 6,000 $ 10.00 Options granted................................. 1,000 10.00 5,500 10.00 Options exercised............................... -- -- -- -- Options canceled................................ -- -- -- -- --------- --------- --------- --------- Options outstanding at end of year.............. 12,500 $ 10.00 11,500 $ 10.00 ======== ======= ======== ======= Options available for grant at end of year...... 1,500 2,500 ======== ========
In connection with the Company's formation and initial stock offering, 255,000 non-transferable warrants were issued to organizing stockholders and certain officers. The warrants allow such individuals to purchase one additional share of common stock for each share purchased in connection with the initial offering and are exercisable for ten years from the date that Gwinnett commenced operations (July 27, 1990) at the greater of the Company's book value per common share as of the most recent quarter-end or $10 per share. At December 31, 1994 and 1993, all issued warrants were outstanding. The Company's current employment contract with the President and CEO of the Company provides for the right to receive cash payments based upon the appreciation in the value of the Company's common stock over time (Stock Appreciation Rights). This executive has been granted the right to receive a total of 13,565 units of Stock Appreciation Rights over three years beginning in 1990. The value of the units depends on the Bank's performance, as defined in the employment agreement, and the units are exercisable for a period of seven years after the date of grant. At December 31, 1994, all 13,565 units have been granted and none have been exercised. Georgia banking laws limit the amount of dividends which the Banks may pay to the Parent Company without obtaining prior approval from the Georgia Department of Banking and Finance. Such approval would be required if either (a) the Bank's ratio of equity capital to adjusted total assets is less than 6%; (b) the aggregate amount of dividends declared by the Bank exceeds 50% of net profits, after taxes but before dividends, for the previous calendar year; or (c) the percentage of the Bank's assets classified as doubtful as to repayment exceeds 80% of the Bank's equity capital. At December 31, 1994, total stockholder's equity of Georgia was $10,605,463 of which approximately $324,000 was available for dividends without prior approval or violation of regulatory capital requirements. Gwinnett can pay no dividends until its accumulated deficit is eliminated. The Banks paid no dividends in 1994 or 1993. The Banks are required to maintain certain capital ratios as defined by the regulatory authorities. At December 31, 1994, the Banks are required to have a minimum total risk-based capital ratio of 8% and a minimum leverage ratio of 4%. Georgia's total risk-based capital ratio at that date was 11.5%, and its leverage ratio was 7.7%. Gwinnett's risk-based capital ratio at that date was 12.7%, and its leverage ratio was 8.5%. F-38 113 COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE M. COMMITMENTS AND CONTINGENT LIABILITIES The Banks are party to financial instruments with off-balance-sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of these instruments reflect the extent of involvement the Banks have in particular classes of financial instruments. The Banks' exposure to credit loss in the event of nonperformance by the customer on the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual amounts of those instruments. The Banks use the same credit policies in making commitments and conditional obligations as they do for on-balance-sheet instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. At December 31, 1994 and 1993, unfunded commitments to extend credit were approximately $38,317,000 and $35,054,000, respectively. Standby letters of credit are conditional commitments issued by the Banks to guarantee the performance of a customer to a third party. Those guarantees are primarily issued to support public and private borrowing arrangements. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loans to customers. The Banks had approximately $1,184,000 and $1,607,000 in irrevocable standby letters of credit outstanding at December 31, 1994 and 1993, respectively. The Banks evaluate each customer's creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Banks upon extension of credit, is based on management's credit evaluation of the counterparty. Collateral varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties for those commitments on which collateral is deemed necessary. The Company is a defendant in certain legal actions arising from its normal business activities. Management believes that those actions are without merit or that the ultimate liability, if any, resulting from them will not materially affect the Company's financial position. F-39 114 COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) NOTE N. CONDENSED FINANCIAL INFORMATION OF COMMERCIAL BANCORP OF GEORGIA, INC. CONDENSED BALANCE SHEETS (PARENT ONLY)
DECEMBER 31, ------------------------- 1994 1993 ----------- ----------- ASSETS Cash on deposit with subsidiaries................................... $ 355,160 $ 1,154,794 Investment in subsidiaries.......................................... 16,697,895 15,154,701 Loans to related parties............................................ 31,000 125,803 Other real estate................................................... 936,436 1,167,885 Other assets........................................................ 795,584 622,266 ----------- ----------- TOTAL ASSETS.............................................. $18,816,075 $18,225,449 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Note payable...................................................... $ 50,000 $ -- Other liabilities................................................. 34,235 39,361 ----------- ----------- TOTAL LIABILITIES......................................... 84,235 39,361 ----------- ----------- STOCKHOLDERS' EQUITY Common stock...................................................... 1,856,711 1,856,711 Surplus........................................................... 16,090,386 16,090,386 Retained earnings................................................. 1,236,769 538,991 Treasury stock.................................................... (300,000) (300,000) Market valuation reserve on investment securities available for sale........................................................... (152,026) -- ----------- ----------- TOTAL STOCKHOLDERS' EQUITY................................ 18,731,840 18,186,088 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY................ $18,816,075 $18,225,449 ========== ==========
F-40 115 COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED STATEMENTS OF INCOME (PARENT ONLY)
FOR THE YEARS ENDED DECEMBER 31, ----------------------------------- 1994 1993 1992 ---------- ---------- --------- INCOME Interest income.......................................... $ 10,558 $ 5,670 $ 9,460 Other income............................................. -- 4,400 -- ---------- ---------- --------- TOTAL INTEREST INCOME............................ 10,558 10,070 9,460 ---------- ---------- --------- EXPENSE Merger expense........................................... 267,221 14,251 -- Other real estate expense................................ 227,147 91,731 84,232 Other expense............................................ 132,792 132,718 199,368 ---------- ---------- --------- TOTAL EXPENSE.................................... 627,160 238,700 283,600 ---------- ---------- --------- LOSS BEFORE INCOME TAXES AND EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES................................. (616,602) (228,630) (274,140) INCOME TAX BENEFIT............................... 134,678 64,103 55,732 ---------- ---------- --------- LOSS BEFORE EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES............................................. (481,924) (164,527) (218,408) EQUITY IN UNDISTRIBUTED EARNINGS OF SUBSIDIARIES................................... 1,179,702 1,387,121 72,591 ---------- ---------- --------- INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLES....................... 697,778 1,222,594 (145,817) Cumulative effect of change in accounting principles....... -- 47,285 -- ---------- ---------- --------- NET INCOME (LOSS).......................................... $ 697,778 $1,269,879 $(145,817) ========= ========= =========
F-41 116 COMMERCIAL BANCORP OF GEORGIA, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) CONDENSED STATEMENTS OF CASH FLOWS (PARENT ONLY)
FOR THE YEARS ENDED DECEMBER 31, -------------------------------------- 1994 1993 1992 ----------- ----------- ---------- CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss)...................................... $ 697,778 $ 1,269,879 $ (145,817) Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries.... (1,179,702) (1,387,121) (72,591) Provision for losses on other real estate........... 200,000 -- -- (Increase) decrease in other assets................. (78,515) (152,352) 50,835 Increase (decrease) in other liabilities............ (5,126) 39,361 -- ----------- ----------- ---------- NET CASH USED BY OPERATING ACTIVITIES................................... (365,565) (230,233) (167,573) ----------- ----------- ---------- CASH FLOWS FROM INVESTING ACTIVITIES Investment in subsidiaries............................. (515,518) -- 74,535 Proceeds from sales of other real estate............... 363,347 561,909 -- Capital improvements to other real estate.............. (331,898) (97,378) -- ----------- ----------- ---------- NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES................................... (484,069) 464,531 74,535 ----------- ----------- ---------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from note payable............................. 50,000 -- -- ----------- ----------- ---------- NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES................................... 50,000 -- -- ----------- ----------- ---------- NET INCREASE (DECREASE) IN CASH.......................... (799,634) 234,298 (93,038) CASH AT BEGINNING OF YEAR 1,154,794 920,496 1,013,534 ----------- ----------- ---------- CASH AT END OF YEAR...................................... $ 355,160 $ 1,154,794 $ 920,496 ========== ========== =========
NOTE O. SUPPLEMENTAL FINANCIAL DATA Components of other expense in excess of 1% of total interest income and other income for the years ended December 31, 1994, 1993 and 1992 are as follows:
1994 1993 1992 -------- -------- -------- Legal and professional fees (including merger related expenses)............................................ $641,420 $271,604 $302,649 FDIC assessment........................................ 350,559 302,211 247,591 Data processing fees................................... 214,957 182,988 138,254 Stationary and supplies................................ 196,004 199,658 170,777 Organizational expense................................. 9,888 168,428 105,745
F-42 117 COMMERCIAL BANCORP OF GEORGIA, INC. CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, DECEMBER 31, SEPTEMBER 30, DECEMBER 31, 1995 1994 1994 1993 ------------- ------------ ------------- ------------ (UNAUDITED) (IN THOUSANDS) ASSETS Cash and due from banks....................... $ 12,682 $ 12,165 $ 11,147 $ 8,066 Federal funds sold............................ 25,900 14,610 10,770 19,187 Investment securities: Held to maturity............................ 17,873 19,476 19,774 8,951 Available for sale.......................... 17,004 7,312 8,365 11,600 ------------- ------------ ------------- ------------ Total securities.............................. 34,877 26,788 28,139 20,551 Loans, net.................................... 141,014 133,926 128,360 113,753 Fixed assets.................................. 5,671 5,995 6,143 5,666 Other real estate owned....................... 1,446 1,481 2,343 1,378 Accrued interest receivable................... 1,707 1,532 1,425 1,081 Other assets.................................. 3,549 2,881 2,823 2,573 ------------- ------------ ------------- ------------ Total assets........................ $ 226,846 $199,378 $ 191,150 $172,255 ========== ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Deposits Noninterest bearing demand.................. $ 30,480 $ 38,075 $ 28,962 $ 25,778 Interest bearing demand and money market.... 48,929 46,423 48,405 45,429 Savings..................................... 5,086 5,745 5,875 5,039 Time deposits of $100,000 or more........... 25,215 18,767 19,404 18,603 Other time deposits......................... 93,197 69,254 67,601 57,206 ------------- ------------ ------------- ------------ Total deposits...................... 202,907 178,264 170,247 152,055 Obligations under capital leases.............. 57 161 194 289 Accrued interest payable...................... 1,662 1,066 1,032 845 Other liabilities............................. 1,602 1,155 1,007 880 ------------- ------------ ------------- ------------ Total liabilities............................. 206,228 180,646 172,480 154,069 ------------- ------------ ------------- ------------ STOCKHOLDERS' EQUITY Common stock- $1.00 par value; 10,000,000 shares authorized, 1,856,711 issued and 1,826,711 outstanding at Sept. 30, 1994 and 1995 and Dec. 31, 1994 and 1995............. 1,857 1,857 1,857 1,857 Surplus....................................... 16,090 16,090 16,090 16,090 Treasury stock, at cost....................... (300) (300) (300) (300) Market value on securities available for sale........................................ 25 (152) (93) -- Retained earnings............................. 2,946 1,237 1,116 539 ------------- ------------ ------------- ------------ Total stockholders' equity.......... 20,618 18,732 18,670 18,186 ------------- ------------ ------------- ------------ Total liabilities and stockholders' equity............................ $ 226,846 $199,378 $ 191,150 $172,255 ========== ========== ========== ==========
F-43 118 COMMERCIAL BANCORP OF GEORGIA, INC. CONSOLIDATED INCOME STATEMENT
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ----------------------- ----------------------- 1995 1994 1995 1994 ---------- ---------- ---------- ---------- (UNAUDITED) (IN THOUSANDS) Interest income Loans, including fees......................... $ 3,824 $ 3,118 $ 11,820 $ 8,840 Investment securities......................... 461 351 1,171 920 Federal funds sold............................ 435 169 886 453 ---------- ---------- ---------- ---------- Total interest income................. 4,720 3,638 13,877 10,213 Interest expense Deposits...................................... 2,321 1,408 6,089 3,871 Obligations under capital leases.............. 2 3 7 9 Other......................................... 0 13 1 13 ---------- ---------- ---------- ---------- Total interest expense................ 2,323 1,424 6,097 3,893 ---------- ---------- ---------- ---------- Net interest income............................. 2,397 2,214 7,780 6,320 Provision for loan losses....................... 189 113 633 404 ---------- ---------- ---------- ---------- Net interest income after provision for loan losses..................... 2,208 2,101 7,147 5,916 Other income Mortgage origination fees..................... 35 49 76 141 Gain on sale of loans......................... 231 104 304 322 Service charges on deposit accounts........... 220 258 702 667 Other income.................................. 365 224 777 501 ---------- ---------- ---------- ---------- Total other income.................... 851 635 1,859 1,631 Other expense Salary and employee benefits.................. 1,096 1,091 3,231 3,338 Net occupancy expense......................... 107 111 464 503 Furniture, fixtures and equipment expense..... 133 166 437 507 Other expense................................. 647 859 2,051 2,302 ---------- ---------- ---------- ---------- Total other expense................... 1,983 2,227 6,183 6,650 Income before income taxes...................... 1,076 509 2,823 897 Provision for income taxes...................... 424 146 1,114 320 ---------- ---------- ---------- ---------- Net income...................................... $ 652 $ 363 $ 1,709 $ 577 ========= ========= ========= ========= Earnings per share.............................. $ 0.36 $ 0.20 $ 0.94 $ 0.32 ========= ========= ========= ========= Weighted average shares outstanding............. 1,826,711 1,826,711 1,826,711 1,826,711 ========= ========= ========= =========
F-44 119 COMMERCIAL BANCORP OF GEORGIA, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 ------------------------------------------------------------ MARKET COMMON RETAINED VALUATION TREASURY STOCK SURPLUS EARNINGS RESERVE STOCK TOTAL ------ ------- -------- --------- -------- ------- (UNAUDITED) (IN THOUSANDS) Balance at December 31, 1994.............. $1,857 $16,090 $1,237 $(152) $ (300) $18,732 Net income................................ -- -- 1,709 -- -- 1,709 Market valuation adjustment............... -- -- -- 177 -- 177 ------ ------- -------- --------- -------- ------- Balance at September 30, 1995............. $1,857 $16,090 $2,946 $ 25 $ (300) $20,168 ====== ======= ====== ======= ====== =======
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 ------------------------------------------------------------ MARKET COMMON RETAINED VALUATION TREASURY STOCK SURPLUS EARNINGS RESERVE STOCK TOTAL ------ ------- -------- --------- -------- ------- (UNAUDITED) (IN THOUSANDS) Balance at December 31, 1993.............. $1,857 $16,090 $ 539 $ -- $ (300) $18,186 Net income................................ -- -- 577 -- -- 577 Market valuation adjustment............... -- -- -- (93) -- (93) ------ ------- -------- --------- -------- ------- Balance at September 30, 1994............. $1,857 $16,090 $1,116 $ (93) $ (300) $18,670 ====== ======= ====== ======= ====== =======
F-45 120 COMMERCIAL BANCORP OF GEORGIA, INC. CONDENSED CONSOLIDATED STATEMENT OF CASH FLOW FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
1995 1994 -------- -------- (IN THOUSANDS) Net cash provided by (used in) operating activities...................... $ 3,093 $ (456) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of investment securities...................................... 1,603 -- Maturities of investment securities.................................... (9,892) (6,592) Sales of investment securities......................................... -- (996) Loans originated or acquired, net of principal repayments.............. (7,721) (15,011) Purchases of premises and equipment.................................... (49) (1,003) Proceeds from sale of real estate...................................... 35 625 -------- -------- Net cash used in investing activities.................................. (16,024) (22,977) CASH FLOWS FROM FINANCING ACTIVITIES Net increase (decrease) in demand, money market and savings accounts... (5,748) 6,996 Time deposits accepted, net of repayments.............................. 30,391 11,196 Repayment of capital lease obligations................................. (104) (95) -------- -------- Net Cash Provided by Financing Activities.............................. 24,539 18,097 Net Increase (Decrease) in Cash and Cash Equivalents..................... 11,608 (5,336) Cash and Cash Equivalents at Beginning of Period......................... 26,974 27,253 -------- -------- Cash and Cash Equivalents at End of Period............................... $ 38,582 $ 21,917 ======== ======== Supplemental disclosure: Cash interest paid on deposits and borrowings.......................... $ 5,501 $ 3,717 -------- -------- Cash paid for income taxes............................................. $ 1,131 $ 904 -------- -------- Real estate acquired through foreclosure............................... $ 703 $ 1,254 -------- --------
F-46 121 COMMERCIAL BANCORP OF GEORGIA, INC. NOTES TO FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994 NOTE A. BASIS OF PRESENTATION The accompanying unaudited financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information. Accordingly, these statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. All such adjustments are of a normal recurring nature. Operating results for the nine month period ended September 30, 1995, are not necessarily indicative of the results that may be expected for the year ended December 31, 1995. For further information, refer to the audited financial statements and footnotes thereto included in the Bank's annual report to stockholders. NOTE B. BUSINESS COMBINATION AND RESTATEMENT OF FINANCIAL STATEMENTS On March 2, 1995, the former Commercial Bancorp of Georgia, Inc. merged with Commercial Bancorp of Gwinnett, Inc., and Commercial Bancorp of Gwinnett, Inc., the surviving entity, changed its name to Commercial Bancorp of Georgia, Inc. On September 30, 1995, Commercial Bank of Georgia merged with Commercial Bank of Gwinnett, and Commercial Bank of Gwinnett, the surviving entity, changed its name to Commercial Bank of Georgia. A total of 1,236,711 shares of Commercial Bancorp of Gwinnett, Inc. stock was issued for all of the issued and outstanding shares of the former Commercial Bancorp of Georgia, Inc. No cash, except for nominal dissenting shareholders and fractional shares, was paid in the transaction. The transaction was accounted for as a pooling of interests. The accompanying unaudited financial statements for all periods presented have been restated to include the financial position and results of operations of the former Commercial Bancorp of Georgia, Inc. NOTE C. SUPPLEMENTAL FINANCIAL DATA Components of other operating expense in excess of one percent of total interest and other income for the periods ended September 30, 1995 and 1994, are as follows:
NINE MONTHS ENDED SEPTEMBER 30, ------------------- 1995 1994 -------- -------- Legal and professional fees (including merger related expenses)...................................................... $244,171 $379,069 FDIC insurance assessment........................................ 204,993 260,759 Data processing fees............................................. 193,976 162,380 Stationery and supplies.......................................... 140,484 139,519
NOTE D. EARNINGS PER SHARE Earnings per share has been computed based on the weighted average number of common shares outstanding during the periods, which totaled 1,826,711 for the nine months ended September 30, 1995 and 1994. NOTE E. ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 121 (SFAS 121), "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Company is required to implement SFAS No. 121 by December 31, 1996. The provisions of SFAS 121 will require the Company to review long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If it is determined that an impairment loss has occurred based on expected future cash flows, the loss should be recognized in the income statement and certain disclosures regarding the impairment should be made in the financial F-47 122 COMMERCIAL BANCORP OF GEORGIA, INC. NOTES TO FINANCIAL STATEMENTS -- (CONTINUED) statements. The Company has not yet had sufficient time to evaluate the impact, if any, of the provisions of SFAS No. 121. NOTE F. ACCOUNTING FOR MORTGAGE SERVICING RIGHTS The Financial Accounting Standards Board has issued Statement of Financial Accounting Standards No. 122 (SFAS 122), "Mortgage Servicing Rights," as an amendment to SFAS 65. The Company is required to implement SFAS 122 by December 31, 1996. The provisions of SFAS 122 eliminate the accounting distinction between rights to service mortgage loans that are acquired through loan origination and those acquired through purchase. The cost of mortgage loans sold should be allocated to the mortgage servicing rights and the loans based on relative fair values. The adoption of SFAS No. 122 is not expected to have a significant impact on the Company. F-48 123 REPORT OF INDEPENDENT ACCOUNTANTS The Board of Directors Southern Banking Corporation and Subsidiary Altamonte Springs, Florida We have audited the accompanying consolidated balance sheets of Southern Banking Corporation and Subsidiary as of December 31, 1994 and 1993, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1994. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 Southern Banking Corporation and Subsidiary as of December 31, 1994 and 1993, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. As discussed in Note 2, effective January 1, 1994, the Company adopted Statement of Financial Accounting Standards No. 115, Accounting for Certain Investments in Debt and Equity Securities and as discussed in Note 6, the Company changed its method of accounting for income taxes in the period ended December 31, 1993. COOPERS & LYBRAND, LLP Orlando, Florida January 13, 1995 F-49 124 SOUTHERN BANKING CORPORATION AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS
DECEMBER 31, ------------------------------- 1994 1993 ------------ ------------ ASSETS Cash and cash equivalents: Cash and due from banks..................................... $ 13,590,206 $ 4,681,644 Federal funds sold.......................................... -- 7,430,000 ------------ ------------ Total cash and cash equivalents..................... 13,590,206 12,111,644 Interest-bearing deposits in banks............................ 1,305,057 1,581,426 Investment securities......................................... 34,735,130 14,373,579 Loans, net.................................................... 121,530,420 77,319,960 Premises and equipment, net................................... 5,028,758 2,817,884 Accrued interest receivable................................... 1,136,962 540,665 Goodwill...................................................... 2,211,876 -- Other assets.................................................. 1,823,409 888,919 ------------ ------------ Total assets........................................ $181,361,818 $109,634,077 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Deposits: Noninterest-bearing demand.................................. $ 36,665,552 $ 28,912,546 Interest-bearing: Demand................................................... 22,724,259 11,452,508 Savings.................................................. 43,022,947 28,431,252 Time, $100,000 and over.................................. 16,569,300 14,385,784 Other time............................................... 35,751,950 18,182,594 ------------ ------------ Total deposits...................................... 154,734,008 101,364,684 Federal funds purchased....................................... 12,000,000 -- Accrued interest payable...................................... 365,886 346,172 Other liabilities............................................. 526,443 484,735 ------------ ------------ Total liabilities................................... 167,626,337 102,195,591 Commitments and contingencies (Note 9) Stockholders' equity: Common stock, par value $1.00 per share; 10,000,000 shares authorized; 3,350,000 and 2,200,000 shares issued and outstanding in 1994 and 1993, respectively............... 3,350,000 2,200,000 Surplus..................................................... 7,382,042 3,397,677 Retained earnings........................................... 3,574,412 1,840,809 Unrealized loss on investment securities available for sale, net...................................................... (570,973) -- ------------ ------------ Total stockholders' equity.......................... 13,735,481 7,438,486 ------------ ------------ Total liabilities and stockholders' equity.......... $181,361,818 $109,634,077 =========== ===========
See accompanying notes to consolidated financial statements. F-50 125 SOUTHERN BANKING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, ---------------------------------------- 1994 1993 1992 ----------- ----------- ---------- Interest and fee income: Loans................................................ $ 8,793,436 $ 6,045,913 $4,619,947 Investment securities................................ 1,290,968 630,670 663,455 Interest-bearing deposits............................ 84,806 70,377 63,058 Federal funds sold................................... 156,966 184,026 215,255 ----------- ----------- ---------- Total interest and fee income................ 10,326,176 6,930,986 5,561,715 ----------- ----------- ---------- Interest expense: Deposits............................................. 2,894,899 2,047,577 1,999,165 ----------- ----------- ---------- Total interest expense....................... 2,894,899 2,047,577 1,999,165 ----------- ----------- ---------- Net interest income.......................... 7,431,277 4,883,409 3,562,550 Provision for loan losses 330,000 466,425 325,000 ----------- ----------- ---------- Net interest income after provision for loan losses..................................... 7,101,277 4,416,984 3,237,550 ----------- ----------- ---------- Other income: Service charges on deposit accounts.................. 1,061,899 664,047 340,763 Other income......................................... 231,722 214,109 295,966 ----------- ----------- ---------- Total other income........................... 1,293,621 878,156 636,729 ----------- ----------- ---------- Other expense: Salaries and wages................................... 2,332,796 1,643,898 1,317,440 Employee benefits.................................... 342,038 250,147 201,626 Net occupancy expense................................ 674,168 515,211 523,522 Equipment expense.................................... 296,650 207,418 176,819 Other noninterest expenses........................... 2,026,742 1,500,022 1,200,013 ----------- ----------- ---------- Total other expense.......................... 5,672,394 4,116,696 3,419,420 ----------- ----------- ---------- Income before income taxes and cumulative effect of change in accounting principle....................... 2,722,504 1,178,444 454,859 Income taxes........................................... 988,901 415,250 71,155 ----------- ----------- ---------- Income before cumulative effect of change in accounting principle............................................ 1,733,603 763,194 383,704 Cumulative effect of change in accounting principle.... -- 46,874 -- ----------- ----------- ---------- Net Income............................................. $ 1,733,603 $ 810,068 $ 383,704 ========== ========== ========= Net Income per common share............................ 0.64 0.37 0.18 ========== ========== ========= Weighted average shares outstanding.................... 2,704,109 2,200,000 2,115,739 ========== ========== =========
See accompanying notes to consolidated financial statements. F-51 126 SOUTHERN BANKING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992
UNREALIZED (LOSS) ON INVESTMENT SECURITIES TOTAL COMMON AVAILABLE RETAINED STOCKHOLDERS' STOCK SURPLUS FOR SALE EARNINGS EQUITY ---------- ---------- ---------- ---------- ------------- Balance, December 31, 1991.......... $2,111,112 $3,186,568 $ -- $ 647,037 $ 5,944,717 Issuance of Common Stock (44,444 shares sold at $6.75 per share)............................ 88,888 211,109 -- -- 299,997 Net Income.......................... -- -- -- 383,704 383,704 ---------- ---------- ---------- ---------- ------------- Balance, December 31, 1992.......... 2,200,000 3,397,677 -- 1,030,741 6,628,418 Net income.......................... -- -- -- 810,068 810,068 ---------- ---------- ---------- ---------- ------------- Balance, December 31, 1993.......... 2,200,000 3,397,677 -- 1,840,809 7,438,486 Adjustment to beginning balance for change in accounting principle, net of income taxes of $4,607..... -- -- (7,636) -- (7,636) Issuance of common stock (net of issuance costs of $40,635)........ 1,150,000 3,984,365 -- -- 5,134,365 Change in unrealized losses, net of income taxes of $344,200.......... -- -- (563,337) -- (563,337) Net income.......................... -- -- -- 1,733,603 1,733,603 ---------- ---------- ---------- ---------- ------------- Balance, December 31, 1994.......... $3,350,000 $7,382,042 $ (570,973) $3,574,412 $ 13,735,481 ========= ========= ========= ========= ==========
See accompanying notes to consolidated financial statements. F-52 127 SOUTHERN BANKING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31, ---------------------------------------------- 1994 1993 1992 ------------ ------------ ------------ Cash Flows from Operating Activities: Interest and fees received..................... $ 10,417,993 $ 5,977,885 $ 5,105,314 Service charges received....................... 1,061,899 664,047 346,763 Loan fees collected............................ 321,704 850,631 564,656 Other income received.......................... 136,654 200,359 191,658 Interest paid.................................. (2,992,982) (1,884,709) (2,033,778) Cash paid to suppliers and employees........... (5,058,693) (3,445,728) (3,059,479) Income taxes paid.............................. (1,281,284) (485,598) (6,025) ------------ ------------ ------------ Net cash provided by operating activities........................... 2,605,291 1,876,887 1,109,109 ------------ ------------ ------------ Cash Flows from Investing Activities: Proceeds from sales and maturities of investment securities....................... 4,173,181 8,114,067 4,171,788 Proceeds from maturities of interest-bearing deposits in banks........................... 400,000 300,000 500,000 Purchase of investment securities.............. (9,497,570) (13,487,394) (2,765,118) Purchase of interest-bearing deposits in banks....................................... -- (996,778) (286,484) Net increase in loans made to customers........ (20,946,882) (17,994,865) (19,566,510) Acquisition of Osceola National Bank........... (3,121,275) -- -- Purchase of premises and equipment............. (1,770,970) (1,324,129) (660,330) ------------ ------------ ------------ Net cash used in investing activities........................... (30,763,516) (25,389,099) (18,606,654) ------------ ------------ ------------ Cash Flows from Financing Activities: Net increase in demand deposits and savings accounts.................................... 13,750,315 22,525,126 11,102,615 Net increase (decrease) in time deposits....... (1,247,893) 751,746 3,518,852 Proceeds from (payments on) note payable....... -- (75,000) 75,000 Net increase in federal funds purchased........ 12,000,000 -- -- Net proceeds from the issuance of common stock....................................... 5,134,365 -- 299,997 ------------ ------------ ------------ Net cash provided by financing activities........................... 29,636,787 23,201,872 14,996,464 ------------ ------------ ------------ Net Increase (Decrease) in Cash and Cash Equivalents.................................... 1,478,562 (310,340) (2,501,081) Cash and Cash Equivalents: Beginning of year.............................. 12,111,644 12,421,984 14,923,065 ------------ ------------ ------------ End of year.................................... $ 13,590,206 $ 12,111,644 $ 12,421,984 =========== =========== ===========
See accompanying notes to consolidated financial statements. F-53 128 SOUTHERN BANKING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS -- (CONTINUED)
YEAR ENDED DECEMBER 31, ------------------------------------ 1994 1993 1992 ---------- ---------- ---------- Reconciliation of Net Income to Net Cash Provided by Operating Activities: Net income............................................ $1,733,603 $ 810,068 $ 383,704 ---------- ---------- ---------- Adjustments to reconcile net income to net cash provided by operating activities: Cumulative effect of change in accounting principle...................................... -- (46,874) -- Depreciation and amortization.................... 368,458 225,989 166,921 Losses (gains) on sales of investments........... 5,264 (13,750) (104,308) Net increase in allowance for loan losses........ 330,000 466,425 262,731 Amortization of premiums and accretion of discounts on investment securities............. 456,555 (1,321) (15,159) Increase in deferred loan fees................... 226,636 47,285 134,048 Decrease (increase) in accrued interest receivable..................................... (364,738) (148,433) 109,255 Decrease (increase) in other assets.............. 241,434 218,143 (76,331) (Decrease) increase in accrued interest payable........................................ (98,083) 162,868 (34,613) (Decrease) increase in other liabilities......... (293,838) 156,487 282,861 ---------- ---------- ---------- Total adjustments........................... 871,688 1,066,819 725,405 ---------- ---------- ---------- Net Cash Provided by Operating Activities.................. $2,605,291 $1,876,887 $1,109,109 ========= ========= =========
Supplemental Schedule of Noncash Investment and Financing Activities: In June 1994, the Board approved a two-for-one stock split of the Company's common stock. On July 3, 1992, Southern Banking Corporation exchanged 1,055,556 shares of its common stock with the shareholders of Southern Bank of Central Florida in a two-for-one stock exchange. See accompanying notes to consolidated financial statements. F-54 129 SOUTHERN BANKING CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1994, 1993 AND 1992 1. ORGANIZATION Southern Bank Corporation (the Company) is a bank holding company with a wholly-owned subsidiary, Southern Bank of Central Florida (the Bank), a state-chartered bank headquartered in Altamonte Springs, Florida. The Company commenced operations on August 29, 1988. As of December 31, 1994,the bank operates eight branches: four in Seminole County, two in Osceola County and two in Orange County. The Company's deposits are insured by the Federal Deposit Insurance Corporation. On September 30, 1994, the Bank acquired substantially all of the outstanding common stock of Osceola National Bank (ONB). The acquisition has been accounted for under the purchase method, whereby the purchase price of $6,069,000 has been allocated to the underlying assets and liabilities based on their respective fair values at the date of acquisition. A summary of the purchase price allocation as reflected in the accompanying Consolidated Balance Sheets is as follows: Cash and cash equivalents............................................... $ 2,948,000 Investment securities................................................... 16,542,000 Loans, net.............................................................. 23,820,000 Premises and equipment.................................................. 1,053,000 Goodwill................................................................ 2,242,000 Other assets............................................................ 784,000 Deposits................................................................ 40,867,000 Other liabilities....................................................... 453,000
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of the Company are in accordance with generally accepted accounting principles, and conform to general practices within the banking industry. Method of Consolidation. In consolidation, all significant intercompany accounts and transactions are eliminated. Cash and Cash Equivalents. Cash and cash equivalents include cash on hand, amounts due from banks, and federal funds sold. Investment Securities. Investment securities are carried at cost adjusted for amortization of premium and accretion of discount. Gains and losses on the sale of securities are computed by specific identification. Effective January 1, 1994, the Company adopted the provisions of Statement of Financial Accounting Standards No. 115 (SFAS No. 115), Accounting for Certain Investments in Debt and Equity Securities, that addresses the accounting and reporting for investments in marketable equity securities and for all investments in debt securities. SFAS No. 115 requires investments in debt and marketable equity securities to be classified in three categories and accounted for as follows: held to maturity (recorded at amortized cost), available for sale (recorded at fair value with unrealized gains and losses reported as a separate component of stockholder's equity), and trading securities (recorded at fair value with unrealized gains and losses included in earnings). In accordance with the Statement, prior period financial statements have not been restated to reflect the change in accounting principle. The cumulative effect of adopting SFAS No. 115 as of January 1, 1994 was a decrease in the opening balance of stockholders' equity of $7,636 (net of $4,607 in deferred income taxes) to reflect the unrealized losses on securities classified as available-for-sale that were previously classified as investment securities and carried at amortized cost. Loans and Allowance for Loan Losses. Interest on loans is accrued by the simple interest method. Loan origination fees and incremental costs are deferred and amortized over the life of the loans as a yield F-55 130 SOUTHERN BANKING CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) adjustment. The interest recognition methods produce relatively constant yields over the terms of the loans. Accrual of interest is discontinued on a loan when management believes, after considering economic and business conditions and collection efforts, that the borrower's financial condition is such that collection of interest is doubtful. The allowance for loan losses is maintained at a level determined to be adequate for potential loan losses and considers delinquencies, recent loss experience and the general condition of the loan portfolio, as well as prevailing and anticipated economic conditions. In May 1993, the FASB issued SFAS No. 114, Accounting by Creditors for Impairment of a Loan, which establishes new guidance for all creditors in determining allowances for credit losses related to certain loans. The standard requires impaired loans to be recorded using one of the following basis: the present value of expected future cash flows, the loan's observable market price, or the fair value of the collateral. This statement is effective for fiscal years beginning after December 31, 1994. The Company has elected not to implement SFAS No. 114 for 1994. The effect of this standard is not expected to be adverse or material. Premises and Equipment. Depreciable assets are stated at cost, less accumulated depreciation and amortization. Depreciation and amortization is provided on the straight-line basis over the estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred and major renewals and betterments are capitalized. Gains or losses are credited or charged to income upon disposition. Goodwill. The Bank recorded goodwill for the excess of the purchase price of Osceola National Bank over the estimated fair value of the net assets acquired. The goodwill is being amortized on a straight-line basis over 20 years. Amortization expense for 1994 was $30,541. Income Taxes. Income taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due plus deferred taxes resulting from temporary differences. Such temporary differences result from differences in the carrying value of assets and liabilities for tax and financial reporting purposes. The deferred tax assets and liabilities represent the future tax consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable for the period and the change during the period in deferred tax assets and liabilities. Net Income per Common Share. Net Income per common share has been computed using the weighted average number of shares outstanding during the year. 3. INVESTMENT SECURITIES The amortized cost and estimated market value of investments in debt securities at December 31, 1994 and 1993 were as follows:
DECEMBER 31, 1994 --------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ----------- ---------- ---------- ----------- Investments Held-to-Maturity: Federal Home Loan Bank and Federal Reserve Stock...................................... $ 694,300 $ -- $ -- $ 694,300 U.S. Treasury securities and obligations of U.S. Government corporations and agencies................................... 3,963,351 -- (105,823) 3,857,528
F-56 131 SOUTHERN BANKING CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
DECEMBER 31, 1994 --------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ----------- ---------- ---------- ----------- Mortgage-backed securities.................... 8,690,465 15,393 (303,798) 8,402,060 Obligations of states and political subdivisions............................... 3,282,476 -- (185,958) 3,096,518 ----------- ---------- ---------- ----------- $16,630,592 $ 15,393 $ (595,579) $16,050,406 ========== ======== ========= ========== Investments Available-for-Sale: U.S. Treasury securities and obligations of U.S. Government corporations and agencies................................... $12,917,751 $ 941 $ (403,886) $12,514,806 Mortgage-backed securities.................... 5,506,567 -- (384,120) 5,122,447 Obligations of states and political subdivisions............................... 100,000 -- (3,965) 96,035 Other debt securities......................... 500,000 -- (128,750) 371,250 ----------- ---------- ---------- ----------- $19,024,318 $ 941 $ (920,721) $18,104,538 ========== ======== ========= ==========
DECEMBER 31, 1993 --------------------------------------------------- GROSS GROSS ESTIMATED AMORTIZED UNREALIZED UNREALIZED MARKET COST GAINS LOSSES VALUE ----------- ---------- ---------- ----------- U.S. Treasury securities and obligations of U.S. Government corporations and agencies................................... $ 9,650,818 $ 17,190 $ (43,016) $ 9,624,992 Mortgage-backed securities.................... 2,615,552 22,328 (26,204) 2,611,676 Obligations of states and political subdivisions............................... 1,507,209 17,887 (7,013) 1,518,083 Other debt securities......................... 600,000 5,476 -- 605,476 ----------- ---------- ---------- ----------- $14,373,579 $ 62,881 $ (76,233) $14,360,227 ========== ======== ========= ==========
The amortized cost and estimated market value of investments in debt securities at December 31, 1994, by contractual maturity, are shown below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
AMORTIZED ESTIMATED COST MARKET VALUE ----------- ------------ Investments Held-to-Maturity: Due in one year or less....................................... $ 200,000 $ 198,818 Due after one year through five years......................... 3,994,398 3,861,022 Due after five years through ten years........................ 2,942,448 2,787,890 Due in more than ten years.................................... 108,981 106,316 ----------- ------------ 7,245,827 6,954,046 Federal Home Loan Bank and Federal Reserve Stock.............. 694,300 694,300 Mortgage-backed securities.................................... 8,690,465 8,402,060 ----------- ------------ $16,630,592 $ 16,050,406 ========== ========== Investments Available-For-Sale: Due in one year or less....................................... $ 2,506,656 $ 2,473,076 Due after one year through five years......................... 11,011,095 10,509,015 ----------- ------------ 13,517,751 12,982,091 Mortgage-backed securities.................................... 5,506,567 5,122,447 ----------- ------------ $19,024,318 $ 18,104,538 ========== ==========
F-57 132 SOUTHERN BANKING CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Proceeds from the sales and maturities of investments during 1994 and 1993 were $4,173,181 and $8,114,067, respectively. Net realized gains (losses) on the sale of investments during 1994, 1993 and 1992 were $(5,264), $13,750 and $104,308, respectively. Investment securities with book values of $1,505,226 and $2,019,300 at December 31, 1994 and 1993, respectively, and with market values of approximately $1,479,843 and $2,013,800 at December 31, 1994 and 1993, respectively, were pledged as collateral for public funds and treasury tax and loan deposits. 4. LOANS AND ALLOWANCE FOR LOAN LOSSES A summary of loan distribution at December 31, 1994 and 1993 follows:
DECEMBER 31, ---------------------------- 1994 1993 ------------ ----------- Commercial............................................... $ 32,148,230 $25,633,524 Mortgage................................................. 11,211,674 12,622,583 Real estate.............................................. 69,836,655 34,228,496 Installment.............................................. 10,120,846 5,942,271 ------------ ----------- 123,317,405 78,426,874 Overdrafts............................................... 297,396 42,175 Unearned discount........................................ (33,255) (15,180) Deferred loan fees....................................... (442,470) (233,909) ------------ ----------- 123,139,076 78,219,960 Allowance for loan losses (1,608,656) (900,000) ------------ ----------- $121,530,420 $77,319,960 =========== ==========
Changes in the allowance for loan losses follows:
YEAR ENDED DECEMBER 31, ----------------------- 1994 1993 ---------- -------- Allowance, beginning of year................................. $ 900,000 $639,860 ONB loan loss reserve at acquisition......................... 473,645 -- Provision charged to expense................................. 330,000 466,425 Recoveries on loans previously charged off................... -- 3,755 Loans charged off............................................ (94,989) (210,040) ---------- -------- Allowance, end of year....................................... $1,608,656 $900,000 ========= ========
Loans on which the accrual of interest has been discontinued or reduced, amounted to $199,614 and $43,241 at December 31, 1994 and 1993, respectively. If interest on those loans had been accrued, such income would have approximated $25,000, $2,500 and $3,798 for 1994, 1993 and 1992, respectively. F-58 133 SOUTHERN BANKING CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. PREMISES AND EQUIPMENT A summary of premises and equipment at December 31, 1994 and 1993 follows:
DECEMBER 31, ------------------------- 1994 1993 ---------- ---------- Land........................................................ $ 827,004 $ 527,004 Bank premises............................................... 2,433,116 1,449,630 Leasehold improvements...................................... 575,274 266,722 Furniture, fixtures and equipment........................... 2,066,183 1,109,430 ---------- ---------- 5,901,577 3,352,786 Less accumulated depreciation and amortization.............. (872,819) (534,902) ---------- ---------- $5,028,758 $2,817,884 ========= =========
Depreciation and amortization expense for premises and equipment for the years ended December 31, 1994, 1993 and 1992 was $337,917, $225,989 and $166,921, respectively. 6. INCOME TAXES Effective January 1, 1993, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 109, Accounting for Income Taxes. Under the provisions of SFAS 109, the Company elected not to restate the prior year. The financial effect of this statement has been reported in the 1993 statement of income as the cumulative effect of a change in accounting principle. The effect was a net increase in income of $46,874 and a corresponding increase in the net deferred tax asset as of December 31, 1993. The components of the net deferred tax asset recognized in the accompanying balance sheet at December 31, 1994 and 1993 are as follows:
YEAR ENDED DECEMBER 31, ------------------------- 1994 1993 ---------- ---------- Deferred tax asset.......................................... $ 969,684 $ 391,287 Deferred tax liability...................................... (104,046) (64,218) Valuation allowance......................................... -- -- ---------- ---------- $ 865,638 $ 327,069 ========= =========
The types of temporary differences between the tax bases of assets and liabilities and their financial statement reporting amounts are attributable principally to depreciation methods, loan loss provisions, and deferred loan fees. Reconciliations of the effective income tax rate and the statutory federal income tax rate are as follows:
YEAR ENDED DECEMBER 31, ----------------------- 1994 1993 1992 ---- ---- ----- Statutory federal income tax rate............................. 34.0% 34.0% 34.0% State taxes................................................... 2.3 1.9 2.9 Net operating loss utilized................................... -- -- (18.4) Other......................................................... -- (0.7) (2.9) ---- ---- ----- Effective income tax rate..................................... 36.3% 35.2% 15.6%
F-59 134 SOUTHERN BANKING CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The provision (benefit) for income taxes consists of the following:
YEAR ENDED DECEMBER 31, -------------------------------- 1994 1993 1992 ---------- -------- -------- Current: Federal............................................. $ 999,859 $456,679 $220,379 State............................................... 114,010 41,304 22,055 ---------- -------- -------- 1,113,869 497,983 242,434 ---------- -------- -------- Deferred: Federal............................................. (106,703) (74,752) (171,279) State............................................... (18,265) (7,981) -- ---------- -------- -------- (124,968) (82,733) (171,279) ---------- -------- -------- $ 988,901 $415,250 $ 71,155 ========= ======== ========
The Bank recognized the tax benefit of approximately $247,000 in net operating loss carryforwards for financial reporting purposes in the year ended December 31, 1992. As of December 31, 1992, the Bank had approximately $70,000 in net operating loss carryforwards and approximately $26,000 in alternative minimum tax credit carryforwards for financial reporting purposes. As of December 31, 1994 and 1993, the Bank had no income tax carryforwards or alternative minimum tax carryforward. 7. STOCK BASED COMPENSATION PLANS The Company's stock option plans adopted prior to December 31, 1992 authorize the granting of options for up to 160,000 shares of common stock to organizing directors and key officers and employees of the Company. Under the plans, options are granted at a price determined in each case by the committee of the Board of Directors, but shall not be less than one hundred (100%) percent of the fair market value of a share of common stock on the date the option is granted, the book value thereof or $5.825 per share, whichever is greater. Such options are exercisable over a period of ten years from the date of grant. During the year ended December 31, 1993, the Company adopted a stock option plan authorizing the granting of options of shares of common stock to directors and certain key employees of the Company. The total number of shares which may be issued under this plan and other plans adopted by the Company shall not exceed twenty percent (20%) of the Company's total authorized shares. Under the plan, the options are granted at a price determined in each case by the committee of the Board of Directors, but shall not be less than one hundred percent (100%) of the fair market value of the stock as of the date the option is granted or the par value of such shares, whichever is greater. Such options are exercisable over a period of ten years from the date of grant. F-60 135 SOUTHERN BANKING CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Information with respect to the Company's organizing director stock option plan is as follows:
NUMBER OF OPTION PRICE SHARES UNDER OPTION: SHARES PER SHARE --------------------------------------------------------------- --------- ------------ Outstanding at December 31, 1991............................... 216,000 $ 2.92 Granted........................................................ -- -- Exercised...................................................... -- -- Cancelled...................................................... -- -- --------- ------ Outstanding at December 31, 1992............................... 216,000 $ 2.92 Granted........................................................ -- -- Exercised...................................................... -- -- Cancelled...................................................... -- -- --------- ------ Outstanding at December 31, 1993............................... 216,000 $ 2.92 Granted........................................................ -- -- Exercised...................................................... -- -- Cancelled...................................................... -- -- --------- ------ Outstanding at December 31, 1994............................... 216,000 $ 2.92 ======== =========
Options exercisable at December 31, 1994, 1993 and 1992 are 216,000. Information with respect to the Company's employee incentive stock option plan is as follows:
NUMBER OF OPTION PRICE SHARES UNDER OPTION: SHARES PER SHARE ------------------------------------------------------------- --------- ------------- Outstanding at December 31, 1991............................. 104,000 $2.92 - $3.38 Granted...................................................... -- -- Exercised.................................................... -- -- Cancelled.................................................... -- -- --------- ------------- Outstanding at December 31, 1992............................. 104,000 $2.92 - $3.38 Granted...................................................... -- -- Exercised.................................................... -- -- Cancelled.................................................... -- -- --------- ------------- Outstanding at December 31, 1993............................. 104,000 $2.92- $3.38 Granted...................................................... -- -- Exercised.................................................... -- -- Cancelled.................................................... -- -- --------- ------------- Outstanding at December 31, 1994............................. 104,000 $2.92 - $3.38 ======== ===========
Options exercisable at December 31, 1994, 1993 and 1992 are 104,000. F-61 136 SOUTHERN BANKING CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Information with respect to the Company's director and key employee stock option plan is as follows:
NUMBER OF OPTION PRICE SHARES UNDER OPTION: SHARES PER SHARE ------------------------------------------------------------- --------- ------------- Granted...................................................... 584,000.. $3.04 Exercised.................................................... -- -- Cancelled.................................................... -- -- --------- ------------- Outstanding at December 31, 1993............................. 584,000 $3.04 Granted...................................................... 230,000 $4.50 Exercised.................................................... -- -- Cancelled.................................................... -- -- --------- ------------- Outstanding at December 31, 1994............................. 814,000 $3.04 - $4.50 ======== ===========
Options exercisable at December 31, 1994 and 1993 are 814,000 and 584,000, respectively. During 1994, the Company adopted an employee stock appreciation plan in which hypothetical investments in shares of the Company's common stock are awarded to key employees. The benefits vest over 5 years and are paid at the close of the vesting period based upon the appreciation of the shares between the date of grant and the exercise date. Under the plan, 79,000 shares were granted, none of which were exercised or cancelled as of December 31, 1994. Compensation expense pursuant to the plan was immaterial in 1994. 8. EMPLOYEE BENEFIT PLAN Effective January 1, 1993, the Company adopted a deferred savings plan under Internal Revenue Code Section 401(k), which covers substantially all of the Company's employees who meet minimum length of service requirements. Under the provisions of the plan, employees may contribute up to 15% of their compensation on a pre-tax basis. The Company matches the employee contribution 25% up to a maximum of 4%. The Company's contribution to the plan was $26,431 and $13,955 for the years ended December 31, 1994 and 1993, respectively. 9. COMMITMENTS AND CONTINGENCIES Lease Commitments -- The Bank leases several of its facilities under operating leases which expire at various periods through August, 1998. Future minimum lease payments, by year and in the aggregate, under all operating leases as of December 31, 1994 are as follows:
YEAR ENDING DECEMBER 31, ------------------------------------------------------------------------- 1995..................................................................... $ 392,490 1996..................................................................... 410,800 1997..................................................................... 277,355 1998..................................................................... 286,963 Thereafter............................................................... 271,545 ---------- $1,639,153 =========
Rent expense was approximately $385,000, $342,000 and $417,000 for 1994, 1993 and 1992, respectively. In November 1994, the Bank entered into an option for assignment of lease and purchase of fixed assets related to the leased property formerly known as the Orlando branch. As of December 31, 1994, this option has not been exercised by the sublessee. Financial Instruments with Off-Balance Sheet Risks. The Bank is a party to financial instruments with off-balance sheet risk in the normal course of its business to meet the financing needs of its customers and to F-62 137 SOUTHERN BANKING CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) reduce its own exposure to fluctuations in interest rates. These financial instruments include loan commitments and stand-by letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the financial statements. The Bank's exposure to credit loss in the event of nonperformance by the other party to its financial instrument for loan commitments and stand-by letters of credit is represented by the contracted amount of those instruments. The Bank uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments. At December 31, 1994 and 1993, the Bank has commitments to customers of approximately $1,877,000 and $928,000 for standby letters of credit and $33,162,000 and $17,948,000 for unfunded firm loan commitments, respectively. Since many of the loan commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Financial Instruments with Off-Balance Sheet Risks. The Bank has no significant concentration of credit risk with any individual counterparty to originate loans. Bank loan customers are principally closely-held businesses and residents concentrated in the central Florida area and as such, the debtors' ability to honor their contract is substantially dependent upon the general economic conditions of the region. The Bank evaluates each customer's credit worthiness on a case-by-case basis. It is the Bank's policy to obtain adequate collateral in accordance with internal lending guidelines on all loans. Unsecured loans are made based upon the judgment of Company management in accordance with authorized lending limits, Bank lending policies and credit criteria. Collateral on the Bank's loans depend on the nature of the loan, and are principally commercial and residential real property and other commercial tangible assets (inventory and equipment). It is the Bank's policy to perfect its interest in the collateral through the filing of mortgage deeds and uniform commercial code (UCC) filings, or taking physical possession of the collateral, if appropriate. Bank management believes it has access to collateral in the event of loan default to minimize its credit risk. Stand-by letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. The collateral varies for those commitments, but may include a certificate of deposit held by the Bank if collateral is deemed necessary. During 1994 and 1993, the Bank has approximately $35,594,000 and $17,514,000, respectively, in fixed rate loans with interest rates ranging from 5.5% to 18%, and $19,215,000 and $191,000, respectively, in variable rate loans with interest rate ceilings ranging from 9% to 18%. The Bank is required to maintain a minimum leverage capital ratio of Tier I capital, as defined, to total assets based upon the Company's ratings under the regulatory CAMEL rating system. Banks with CAMEL ratings of one are required to maintain a minimum leverage capital ratio of 3 percent. An additional 100 to 200 basis points are required for banks with CAMEL ratings other than one. The Bank must also maintain a ratio of total capital to risk-weighted assets of 8 percent, and a ratio Tier I capital to risk-weighted assets of 4 percent. 10. RETAINED EARNINGS The Company's retained earnings account at December 31, 1994 and 1993 includes $1,060,000 of initial paid-in capital. The payment of dividends by the Bank is subject to certain regulatory restrictions. F-63 138 SOUTHERN BANKING CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. RELATED-PARTY TRANSACTIONS Loans. Loans receivable from principal stockholders, directors, executive officers and companies in which they have a 10% or more beneficial interest aggregated approximately $3,672,000 and $4,006,000 at December 31, 1994 and 1993, respectively. Deposits. Deposits of principal stockholders directors executive officers and companies in which they have a 10% or more beneficial interest aggregated approximately $10,196,000 and $13,324,000 at December 31, 1994 and 1993, respectively. 12. SOUTHERN BANKING CORPORATION (PARENT COMPANY ONLY): Presented below are the financial statements of Southern Banking Corporation. BALANCE SHEETS
DECEMBER 31, ------------------------ 1994 1993 ----------- ---------- ASSETS Cash and cash equivalents............................................ $ 31,266 $ 12,312 Investment in subsidiary bank, Southern Bank of Central Florida*..... 13,645,379 7,382,421 Other assets......................................................... 58,836 43,753 ----------- ---------- Total assets............................................... $13,735,481 $7,438,486 ========== ========= STOCKHOLDERS' EQUITY Common Stock, par value $1.00 per share; 10,000,000 shares authorized; 3,350,000 and 2,111,112 shares issued and outstanding in 1994 and 1993, respectively..................................... $ 3,350,000 $2,200,000 Surplus.............................................................. 7,382,042 3,397,677 Retained earnings.................................................... 3,574,412 1,840,809 Unrealized loss on investments available for sale, net............... (570,973) -- ----------- ---------- Total stockholders' equity................................. $13,735,481 $7,438,486 ========== =========
- --------------- * Eliminated in consolidation. STATEMENTS OF INCOME AND RETAINED EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993 ----------- ---------- Equity in subsidiary's undistributed net income...................... $ 1,746,870 $ 831,515 Dividends received................................................... 10,000 Interest income...................................................... 4,184 -- Other expense........................................................ (41,489) (34,386) Income tax benefits.................................................. 14,038 12,939 ----------- ---------- Net income................................................. 1,733,603 810,068 Retained earnings, beginning of period............................... 1,840,809 1,030,741 ----------- ---------- Retained earnings, end of year....................................... $ 1,817,542 $1,840,809 ========== =========
F-64 139 SOUTHERN BANKING CORPORATION AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
1994 1993 ----------- --------- Operating activities: Net income......................................................... $ 1,733,603 $ 810,068 Adjustments to reconcile net income to net cash used by operating activities: Undistributed earnings of subsidiary............................ (1,746,870) (831,515) Amortization.................................................... 11,894 11,895 Increase in other assets........................................ (26,977) -- ----------- --------- Net cash provided by (used in) operating activities........ (28,350) (9,552) ----------- --------- Investing activities: Dividends received from bank....................................... -- 94,811 Investment in bank................................................. (5,087,061) -- ----------- --------- Net cash used in investing activities...................... (5,087,061) 94,811 ----------- --------- Financing activities: Proceeds from the issuance of common stock......................... 5,134,365 -- Retirement of note payable......................................... -- (75,780) ----------- --------- 5,134,365 (75,780) ----------- --------- Net cash provided (used in) by financing activities: Increase (decrease) in cash and cash equivalents................ 18,954 9,479 Cash and cash equivalents, beginning of year.................... 12,312 2,833 ----------- --------- Cash and cash equivalents, end of year.......................... $ 31,266 $ 12,312 ========== =========
F-65 140 SOUTHERN BANKING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION SEPTEMBER 30, 1995 AND 1994
1995 1994 ------------ ------------ (UNAUDITED) ASSETS Cash and due from banks........................................... $ 14,832,448 $ 18,933,933 Federal funds sold................................................ 9,500,000 2,485,000 Investment securities............................................. 34,844,191 36,132,691 Loans receivable, net............................................. 140,414,731 114,433,739 Loans receivable for sale, approximate market value of............ -- -- Federal Home Loan Bank stock, at cost............................. 544,300 -- Real estate acquired through foreclosure.......................... 155,690 274,890 Office properties and equipment, net.............................. 4,957,333 4,635,615 Accrued interest receivable....................................... 1,360,357 1,001,784 Other assets...................................................... 4,116,250 3,328,205 ------------ ------------ Total assets............................................ $210,725,300 $181,225,917 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Deposits.......................................................... $193,055,915 $167,083,155 Federal Home Loan Bank advances................................... -- -- Note payable...................................................... -- -- Advance payments by borrowers for property taxes and insurance.... -- -- Accrued expenses and other liabilities............................ 1,475,333 866,883 ------------ ------------ Total liabilities....................................... 194,531,248 167,950,038 ------------ ------------ Stockholders' Equity: Common stock, $1.00 par value, authorized 10,000,000 shares; issued and outstanding shares 3,362,000 at 09/30/95 and 3,350,000 at 09/30/94........................................... $ 3,362,000 $ 3,350,000 Additional paid-in capital........................................ 7,405,082 7,382,042 Net unrealized gain (loss) on AFS Securities...................... (117,075) (305,137) Retained earnings................................................. 5,544,045 2,848,974 ------------ ------------ Total stockholders' equity.............................. 16,194,052 13,275,879 ------------ ------------ Total liabilities and stockholders' equity.............. $210,725,300 $181,225,917 =========== ===========
F-66 141 SOUTHERN BANKING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENT OF INCOME FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
NINE MONTHS ENDED SEPTEMBER 30, ------------------------ 1995 1994 ----------- ---------- (UNAUDITED) INTEREST INCOME: Loans................................................................ $ 9,719,958 $5,140,656 Other investments.................................................... 2,106,102 942,136 ----------- ---------- Total interest income...................................... 11,826,060 6,082,701 ----------- ---------- INTEREST EXPENSE: Deposits............................................................. 4,357,928 1,810,335 Advance and other borrowings......................................... 73,819 -- ----------- ---------- Total Interest Expense..................................... 4,431,747 1,810,335 ----------- ---------- Net Interest Income........................................ 7,394,313 4,272,366 Provision for possible loan losses................................... 245,000 270,000 ----------- ---------- Net interest income after provision for possible loan losses......... 7,149,313 4,002,366 ----------- ---------- OTHER INCOME: Loan fees and service charges........................................ 1,918,009 1,338,395 Mortgage loan servicing fees......................................... 16,989 -- Gain on sale of loans................................................ -- -- Gain (loss) on sale of loan servicing................................ -- -- Gain (loss) on real estate acquired through foreclosure.............. (6,457) -- Gain (loss) on sale of securities.................................... (36,905) 34 Other operating income, net.......................................... 213,313 84,605 ----------- ---------- 2,104,949 1,423,034 ----------- ---------- GENERAL AND ADMINISTRATIVE EXPENSES: Compensation, payroll taxes, and fringe benefits..................... 2,966,570 1,700,273 Occupancy and equipment expense...................................... 1,023,285 607,136 Other................................................................ 2,147,577 1,441,580 ----------- ---------- Total general and administrative expenses.................. 6,137,432 3,748,989 ----------- ---------- Income before income taxes................................. 3,116,830 1,676,411 ----------- ---------- Income tax expense................................................... 1,147,200 668,515 ----------- ---------- Net income...................................................... $ 1,969,630 $1,007,896 ========== =========
F-67 142 SOUTHERN BANKING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
COMMON STOCK ------------------------- ADDITIONAL NET UNREALIZED TOTAL NUMBER OF PAID-IN RETAINED GAIN/LOSS STOCKHOLDERS' SHARES AMOUNT CAPITAL EARNINGS ON AFS EQUITY ------------ ---------- ---------- ---------- -------------- ------------- Balance at December 31, 1994............ 3,350,000 $3,350,000 $7,382,042 $3,574,415 $ (573,033) $ 13,733,424 Purchase and retirement of common stock............... 12,000 12,000 23,040 -- -- 35,040 MVA to AFS Securities.......... -- -- -- -- 455,958 455,958 Net income............ -- -- -- 1,969,630 -- 1,969,630 ------------ ---------- ---------- ---------- -------------- ------------- Balance at September 30, 1995............ 3,362,000 $3,362,000 $7,405,082 $5,544,045 $ (117,075) $ 16,194,052 =========== ========= ========= ========= =========== ==========
F-68 143 SOUTHERN BANKING CORPORATION AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, --------------------------- 1995 1994 ------------ ------------ Net cash provided (used) by operating activities.................. $ 2,989,436 $ (886,641) ------------ ------------ Cash flows from investing activities: Net (increase) decrease in investment securities................ 1,391,548 (20,655,041) Net increase in loans made to customers......................... (19,701,208) (37,978,062) Purchase of premises and equipment.............................. (294,482) (2,025,738) ------------ ------------ Net cash used in investing activities................... (18,604,142) (60,658,841) ------------ ------------ Cash flows from financing activities: Net increase in demand deposits and savings accounts............ 20,037,363 46,178,665 Net increase in time deposits................................... 18,284,545 19,539,806 Net decrease in federal funds purchased......................... (12,000,000) 0 Net proceeds from the issuance of common stock.................. 35,040 5,134,365 ------------ ------------ Net cash provided by financing activities............... 26,356,948 70,852,836 ------------ ------------ Net increase in cash and cash equivalents......................... 10,742,242 9,307,354 Cash and cash equivalents: beginning of year...................... 13,590,206 12,111,639 ------------ ------------ Cash and cash equivalents: September 30, 1995 and 1994............ 24,332,448 $ 21,418,993 ------------ ------------ Reconciliation of net income to net cash provided (used) by operating activities: Net income...................................................... 1,969,630 1,007,896 ------------ ------------ Adjustments to reconcile net income to net cash provided (used) by operating activities: Depreciation and amortization................................ 365,907 208,007 (Gains) losses on sales of investments....................... 36,905 (34) Net increase in allowance for loan losses.................... 106,677 660,048 Amortization of premiums and accretion of discounts on investment securities....................................... (34,543) 15,060 Increase (decrease) in deferred loan fees.................... (32,083) 204,236 Increase in accrued interest receivable...................... (223,395) (461,119) (Increase) decrease in other assets.......................... 217,331 (2,543,773) Increase (decrease) in accrued interest payable.............. 322,927 (20,180) Increase in other liabilities................................ 260,080 43,218 ------------ ------------ Total adjustments....................................... 1,019,806 (1,894,537) ------------ ------------ Net cash provided (used) by operating activities.................. $ 2,989,436 $ (886,641) =========== =========== Supplemental disclosures of cash flow information: Cash paid during the period for: Interest..................................................... $ 4,108,820 $ 1,830,515 ------------ ------------ Income taxes................................................. $ 1,005,189 $ 936,600 =========== =========== Supplemental disclosures of noncash investing activities: Loans receivable transferred to real estate acquired through foreclosure.................................................. $ 0 $ 274,890 =========== =========== Loan originations to finance the sale of real estate acquired through foreclosure.......................................... $ 0 $ 0 =========== ===========
F-69 144 APPENDIX A AGREEMENT AND PLAN OF MERGER BY AND AMONG THE COLONIAL BANCGROUP, INC., COLONIAL BANK AND DOTHAN FEDERAL SAVINGS BANK DATED AS OF JANUARY 22, 1996 145 TABLE OF CONTENTS
CAPTION PAGE - ------- ---- ARTICLE 1 -- NAME 1.1 Name.......................................................................... A-5 ARTICLE 2 -- MERGER -- TERMS AND CONDITIONS 2.1 Applicable Law................................................................ A-5 2.2 Corporate Existence........................................................... A-5 2.3 Articles of Incorporation and Bylaws.......................................... A-5 2.4 Resulting Corporation's Officers and Board.................................... A-6 2.5 Shareholder Approval.......................................................... A-6 2.6 Further Acts.................................................................. A-6 2.7 Effective Date and Closing.................................................... A-6 ARTICLE 3 -- CONVERSION OF BANK STOCK 3.1 Conversion of Bank Stock...................................................... A-6 3.2 Surrender of Bank Stock....................................................... A-7 3.3 Fractional Shares............................................................. A-7 3.4 Adjustments................................................................... A-7 3.5 Colonial Bank Stock........................................................... A-7 3.6 Dissenting Rights............................................................. A-7 ARTICLE 4 -- REPRESENTATIONS, WARRANTIES AND COVENANTS OF BANCGROUP 4.1 Organization.................................................................. A-8 4.2 Capital Stock................................................................. A-8 4.3 Financial Statements; Taxes................................................... A-8 4.4 No Conflict with Other Instrument............................................. A-9 4.5 Absence of Material Adverse Change............................................ A-9 4.6 Approval of Agreements........................................................ A-9 4.7 Tax Treatment................................................................. A-9 4.8 Title and Related Matters..................................................... A-9 4.9 Subsidiaries.................................................................. A-9 4.10 Contracts..................................................................... A-10 4.11 Litigation.................................................................... A-10 4.12 Compliance.................................................................... A-10 4.13 Registration Statement........................................................ A-10 4.14 Filings Incorporated by Reference............................................. A-10 4.15 Form S-4...................................................................... A-10 4.16 Disclosure.................................................................... A-10 4.17 Brokers....................................................................... A-11 ARTICLE 5 -- REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BANK 5.1 Organization.................................................................. A-11 5.2 Capital Stock................................................................. A-11 5.3 Subsidiaries.................................................................. A-11 5.4 Financial Statements; Taxes................................................... A-11 5.5 Absence of Certain Changes or Events.......................................... A-12 5.6 Title and Related Matters..................................................... A-13 5.7 Commitments................................................................... A-13 5.8 Charter and Bylaws............................................................ A-14 5.9 Litigation.................................................................... A-14 5.10 Material Contract Defaults.................................................... A-14
A-2 146
CAPTION PAGE - ------- ---- 5.11 No Conflict with Other Instrument............................................. A-14 5.12 Governmental Authorization.................................................... A-14 5.13 Absence of Regulatory Communications.......................................... A-14 5.14 Absence of Material Adverse Change............................................ A-14 5.15 Insurance..................................................................... A-14 5.16 Pension and Employee Benefit Plans............................................ A-15 5.17 Buy-Sell Agreement............................................................ A-15 5.18 Brokers....................................................................... A-15 5.19 Approval of Agreements........................................................ A-15 5.20 Disclosure.................................................................... A-15 5.21 Registration Statement........................................................ A-15 5.22 Loans; Adequacy of Allowance for Loan Losses.................................. A-16 5.23 Environmental Matters......................................................... A-16 5.24 Transfer of Shares............................................................ A-16 5.25 Collective Bargaining......................................................... A-16 5.26 Labor Disputes................................................................ A-16 5.27 Derivative Contracts.......................................................... A-16 ARTICLE 6 -- ADDITIONAL COVENANTS 6.1 Additional Covenants of BancGroup............................................. A-17 6.2 Additional Covenants of the Bank.............................................. A-17 ARTICLE 7 -- MUTUAL COVENANTS AND AGREEMENTS 7.1 Best Efforts; Cooperation..................................................... A-18 7.2 Press Release................................................................. A-19 7.3 Mutual Disclosure............................................................. A-19 7.4 Access to Properties and Records.............................................. A-19 ARTICLE 8 -- CONDITIONS TO OBLIGATIONS OF ALL PARTIES 8.1 Approval by Shareholders...................................................... A-19 8.2 Regulatory Authority Approval................................................. A-19 8.3 Litigation.................................................................... A-19 8.4 Registration Statement........................................................ A-19 8.5 Tax Opinion................................................................... A-20 ARTICLE 9 -- CONDITIONS TO OBLIGATIONS OF THE BANK 9.1 Representations, Warranties and Covenants..................................... A-20 9.2 Adverse Changes............................................................... A-20 9.3 Closing Certificate........................................................... A-20 9.4 Opinion of Counsel............................................................ A-21 9.5 Other Matters................................................................. A-21 9.6 Material Events............................................................... A-21 ARTICLE 10 -- CONDITIONS TO OBLIGATIONS OF BANCGROUP 10.1 Representations, Warranties and Covenants..................................... A-21 10.2 Adverse Changes............................................................... A-21 10.3 Closing Certificate........................................................... A-21 10.4 Opinion of Counsel............................................................ A-22 10.5 Controlling Shareholders...................................................... A-22 10.6 Other Matters................................................................. A-22 10.7 Material Events............................................................... A-22 ARTICLE 11 -- TERMINATION OF REPRESENTATIONS AND WARRANTIES......................... A-22 ARTICLE 12 -- NOTICES............................................................... A-23
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CAPTION PAGE - ------- ---- ARTICLE 13 -- AMENDMENT OR TERMINATION 13.1 Amendment..................................................................... A-23 13.2 Termination................................................................... A-23 13.3 Damages....................................................................... A-23 ARTICLE 14 -- DEFINITIONS........................................................... A-24 ARTICLE 15 -- MISCELLANEOUS 15.1 Expenses...................................................................... A-27 15.2 Benefit....................................................................... A-27 15.3 Governing Law................................................................. A-27 15.4 Counterparts.................................................................. A-27 15.5 Headings...................................................................... A-28 15.6 Severability.................................................................. A-28 15.7 Construction.................................................................. A-28 15.8 Return of Information......................................................... A-28 15.9 Equitable Remedies............................................................ A-28 15.10 Attorneys' Fees............................................................... A-28 15.11 No Waiver..................................................................... A-28 15.12 Remedies Cumulative........................................................... A-28 15.13 Entire Contract............................................................... A-28
A-4 148 AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of this the 22nd day of January 1996, by and among DOTHAN FEDERAL SAVINGS BANK, a federal savings bank ("Bank"), COLONIAL BANK ("Colonial Bank"), an Alabama state banking corporation, and THE COLONIAL BANCGROUP, INC. ("BancGroup"), a Delaware corporation. WITNESSETH WHEREAS, the Bank operates as a federal savings bank in Dothan, Alabama; and WHEREAS, BancGroup is a bank holding company with subsidiary banks in Alabama, Georgia and Tennessee; and WHEREAS, the Bank wishes to merge with Colonial Bank, a wholly-owned subsidiary of BancGroup; and WHEREAS, it is the intention of BancGroup, Colonial Bank and the Bank that such merger shall qualify for federal income tax purposes as a "reorganization" within the meaning of section 368(a) of the Code, as defined herein; NOW, THEREFORE, in consideration of the mutual covenants contained herein, the Parties hereto agree as follows: ARTICLE 1 NAME 1.1 Name. The name of the corporation resulting from the Merger shall be "Colonial Bank." ARTICLE 2 MERGER -- TERMS AND CONDITIONS 2.1 Applicable Law. On the Effective Date, the Bank shall be merged with and into Colonial Bank (herein referred to as the "Resulting Corporation" whenever reference is made to it as of the time of merger or thereafter). The Merger shall be undertaken pursuant to the provisions of and with the effect provided in the ABCA. The offices and facilities of the Bank and of Colonial Bank shall become the offices and facilities of the Resulting Corporation. 2.2 Corporate Existence. On the Effective Date, the corporate existence of the Bank and of Colonial Bank shall, as provided in the ABCA, be merged into and continued in the Resulting Corporation, and the Resulting Corporation shall be deemed to be the same corporation as the Bank and Colonial Bank. All rights, franchises and interests of the Bank and Colonial Bank, respectively, in and to every type of property (real, personal and mixed) and choses in action shall be transferred to and vested in the Resulting Corporation by virtue of the Merger without any deed or other transfer. The Resulting Corporation on the Effective Date, and without any order or other action on the part of any court or otherwise, shall hold and enjoy all rights of property, franchises and interests, including appointments, designations and nominations and all other rights and interests as trustee, executor, administrator, transfer agent and registrar of stocks and bonds, guardian of estates, assignee, and receiver and in every other fiduciary capacity and in every agency, and capacity, in the same manner and to the same extent as such rights, franchises and interests were held or enjoyed by the Bank and Colonial Bank, respectively, on the Effective Date. 2.3 Articles of Incorporation and Bylaws. On the Effective Date, the articles of incorporation and bylaws of the Resulting Corporation shall be the articles of incorporation and bylaws of Colonial Bank as they exist immediately before the Effective Date. A-5 149 2.4 Resulting Corporation's Officers and Board. The board of directors and the officers of the Resulting Corporation on the Effective Date shall consist of those persons serving in such capacities of Colonial Bank as of the Effective Date. 2.5 Shareholder Approval. This Agreement shall be submitted to the shareholders of the Bank at the Stockholders Meeting to be held as promptly as practicable consistent with the satisfaction of the conditions set forth in this Agreement. Upon approval by the requisite vote of the shareholders of the Bank as required by applicable Law and the Bank's stock charter and bylaws, this Agreement 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 the Bank or Colonial Bank, acquired as a result of the Merger, or (ii) otherwise to carry out the purposes of this Agreement, the Bank or Colonial Bank and its officers and directors shall execute and deliver all such proper deeds, assignments and assurances in law and do all acts necessary or proper to vest, perfect or confirm title to, and possession of, such property or rights in the Resulting Corporation and otherwise to carry out the purposes of this Agreement; and the proper officers and directors of the Resulting Corporation are fully authorized in the name of the Bank or Colonial Bank, or otherwise, to take any and all such action. 2.7 Effective Date and Closing. Subject to the terms of all requirements of Law and the conditions specified in this Agreement, the Merger shall become effective on the date specified in the Certificate of Merger to be issued by the Secretary of State of the State of Alabama (such time being herein called the "Effective Date"). The Closing shall take place at the offices of BancGroup, in Montgomery, Alabama, at 11:00 a.m. on the date that the Effective Date occurs or at such other place and time that the Parties may mutually agree. ARTICLE 3 CONVERSION OF BANK STOCK 3.1 Conversion of Bank Stock. (a) (i) On the Effective Date, and subject to sections 3.1(a)(ii), 3.3 and 3.6, each share of common stock of the Bank outstanding and held by the Bank's shareholders (the "Bank Stock"), shall be converted into shares of BancGroup Common Stock and cash (the "Merger Consideration") as specified below. Unless specified otherwise by a holder of Bank Stock in accordance with section 3.1(a)(ii), each outstanding share of Bank Stock on the Effective Date shall be converted into the number of shares, or such fractions of a share (subject to section 3.3 hereof), of BancGroup Common Stock which shall be equal to $2,600,000 divided by the total number of shares of Bank Stock outstanding, divided in turn by the Market Value. The Market Value shall represent the per share market value of the BancGroup Common Stock at the Effective Date and shall be determined by calculating the average of the closing prices of the Common Stock of BancGroup as reported by the NYSE on each of the ten (10) trading days ending on the trading day immediately preceding the Effective Date. In addition, BancGroup will pay an aggregate of $2,600,000 in cash for the outstanding shares of Bank Stock, with the amount of cash to be paid for each one share of Bank Stock equal to $2,600,000 divided by the number of shares of Bank Stock outstanding. (ii) A holder of Bank Stock may, prior to the Stockholders Meeting, file a written election form (an "Election Form") with the Bank specifying whether such holder prefers to have the Merger Consideration paid to such holder in shares of BancGroup Common Stock only, cash only, or a proportion of cash and BancGroup Common Stock that is other than 50% for each, provided that, notwithstanding any elections made pursuant to such Election Forms, the aggregate number of shares of BancGroup Common Stock to be distributed in the Merger shall equal 50% of the total Merger Consideration and the aggregate amount of cash to be paid in the Merger shall equal 50% of the total Merger Consideration. Elections made shall apply to all shares of record of Bank Stock held by a record holder making the election. If the aggregate amount of cash to be paid in the Merger is less than 50% of the Merger Consideration based upon the Election Forms which have been properly filed, then a sufficient amount of additional cash shall be distributed pro rata to all A-6 150 stockholders of the Bank who have not elected to receive 100% of the Merger Consideration in cash, regardless of whether such stockholders have filed an Election Form, so that the aggregate amount of Merger Consideration to be paid in cash in the Merger will equal 50%, and the number of shares of BancGroup Common Stock otherwise required to be distributed shall be reduced pro rata as to all stockholders who have not elected to receive 100% of the Merger Consideration in cash. If the aggregate amount of cash to be paid in the Merger is greater than 50% of the Merger Consideration based upon the Election Forms which have been properly filed, then a sufficient amount of cash shall be distributed pro rata to all stockholders of the Bank who have not elected to receive 100% of the Merger Consideration in BancGroup Common Stock, regardless of whether such stockholders have filed an Election Form, so that the aggregate amount of Merger Consideration to be paid in cash in the Merger will equal 50%, and the number of shares of BancGroup Common Stock otherwise required to be distributed shall be increased pro rata as to all stockholders who have not elected to receive 100% of the Merger Consideration in BancGroup Common Stock. For purposes of this section 3.1(a), and in accordance with section 3.6, cash to be paid to holders exercising dissenter's rights of appraisal under section 3.6 hereof shall be included as part of the Merger Consideration for determining the amount of cash to be paid under section 3.1(a). Interest will not be paid on any cash to be paid as part of the Merger Consideration. 3.2 Surrender of Bank Stock. After the Effective Date, each holder of an outstanding certificate or certificates which prior thereto represented shares of Bank Stock who is entitled to receive BancGroup Common Stock shall be entitled, upon surrender to BancGroup of their certificate or certificates representing shares of Bank Stock, 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 Bank Stock so surrendered shall have been converted, such certificates to be of such denominations and registered in such names as such holder may reasonably request. Until so surrendered and exchanged, each such outstanding certificate which, prior to the Effective Date, represented shares of Bank Stock and which is to be converted into BancGroup Common Stock shall for all purposes evidence ownership of the BancGroup Common Stock into and for which such shares shall have been so converted, except that no dividends or other distributions with respect to such BancGroup Common Stock shall be made until the certificates previously representing shares of Bank Stock shall have been properly tendered. 3.3 Fractional Shares. No fractional shares of BancGroup Common Stock shall be issued, and each holder of shares of Bank Stock having a fractional interest arising upon the conversion of such shares into shares of BancGroup Common Stock shall, at the time of surrender of the certificates previously representing Bank Stock, be paid by BancGroup an amount in cash equal to the Market Value of such fractional share. 3.4 Adjustments. In the event that prior to the Effective Date BancGroup Common Stock shall be changed into a different number of shares or a different class of shares by reason of any recapitalization or reclassification, stock dividend, combination, stock split, or reverse stock split of the Common Stock, an appropriate and proportionate adjustment shall be made in the number of shares of BancGroup Common Stock into which the Bank Stock shall be converted. 3.5 Colonial Bank Stock. The shares of common stock of Colonial Bank 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 the Bank who shall not have voted in favor of this Agreement and has complied with the applicable procedures set forth in the regulations of the Office of Thrift Supervision, relating to rights of dissenting shareholders, shall be entitled to receive payment for the fair value of his Bank Stock. If after the Effective Date a dissenting shareholder of the Bank fails to perfect, or effectively withdraws or loses, his right to appraisal and payment for his shares of Bank Stock, BancGroup shall issue and deliver the consideration to which such holder of shares of Bank Stock is entitled under Section 3(a) (without interest) upon surrender of such holder of the certificate or certificates representing shares of Bank Stock held by him. The $2,600,000 figure stated in section 3.1(a) used for calculating the cash to be distributed to holders of Bank Stock shall be reduced by an amount that equals the number of shares of Bank Stock properly exercising dissenting rights of appraisal under this section multiplied by $13.01. A-7 151 ARTICLE 4 REPRESENTATIONS, WARRANTIES AND COVENANTS OF BANCGROUP BancGroup represents, warrants and covenants to and with the Bank 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 on the condition (financial or other), earnings, business, affairs, Assets, properties, prospects or results of operations of BancGroup or of BancGroup and its Subsidiaries taken as a whole. 4.2 Capital Stock. (a) The authorized capital stock of BancGroup consists of (A) 44,000,000 shares of Common Stock, $2.50 par value per share, of which as of September 30, 1995, 12,267,143 shares were validly issued and outstanding, fully paid and nonassessable and are not subject to preemptive rights, (B) and 1,000,000 shares of Preference Stock, $2.50 par value per share, none of which are issued and outstanding. The shares of Common Stock to be issued upon the Merger are duly authorized and, when so issued, will be validly issued and outstanding, fully paid and nonassessable. (b) The authorized capital stock of each Subsidiary of BancGroup is duly authorized, validly issued and outstanding, fully paid and nonassessable, and each Subsidiary is wholly owned, directly or indirectly, by BancGroup. 4.3 Financial Statements; Taxes. (a) BancGroup has delivered to the Bank true and complete copies of the following financial statements of BancGroup (together with related opinions of auditors, as appropriate). (i) Consolidated balance sheets as of December 31, 1993, and December 31, 1994, and for the nine months ending September 30, 1995; (ii) Consolidated statements of operations for each of the three years ended December 31, 1992, 1993 and 1994, and for the nine months ending September 30, 1995; (iii) Consolidated statements of cash flows for each of the three years ended December 31, 1992, 1993 and 1994, and for the nine months ending September 30, 1995; and (iv) Consolidated statements of changes in shareholders' equity for the three years ended December 31, 1992, 1993 and 1994, and for the nine months ending September 30, 1995. All such financial statements are in all material respects in accordance with the books and records of BancGroup and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated, all as more particularly set forth in the notes to such statements. Each of the consolidated balance sheets presents fairly as of its date the consolidated financial condition of BancGroup and its Subsidiaries. Except as and to the extent reflected or reserved against in such balance sheets (including the notes thereto), BancGroup did not have, as of the dates of such balance sheets, any material Liabilities or obligations (absolute or contingent) of a nature customarily reflected in a balance sheet or the notes thereto, other than Liabilities (including reserves) in the amount set forth in such balance sheets and the notes thereto. The statements of consolidated income, shareholders' equity and changes in consolidated financial position present fairly the results of operations and changes in financial position of BancGroup and its Subsidiaries for the periods indicated. (b) All Tax returns required to be filed by or on behalf of BancGroup have been timely filed (or requests for extensions therefor have been timely filed and granted and have not expired), and all returns filed are complete and accurate in all material respects. All Taxes shown on said 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 A-8 152 for which BancGroup may at said 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, or both) under any material 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 any material portion of their Assets may be bound; will not conflict with any provision of the restated certificate of incorporation or bylaws of BancGroup or the articles of incorporation or bylaws of any of its Subsidiaries; and will not violate any provision of any Law, regulation, judgment or decree binding on them or any of their Assets. 4.5 Absence of Material Adverse Change. Since the date of the most recent balance sheet provided under section 4.3(a)(i) above, there have been no events, changes or occurrences which have had or are reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on BancGroup. 4.6 Approval of Agreements. The board of directors of BancGroup has, or will have prior to the Effective Date, approved this Agreement and the transactions contemplated by it and have, or will have prior to the Effective Date, authorized the execution and delivery by BancGroup of this Agreement. 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. Subject to the conditions stated herein, this Agreement represents a legal, valid and binding obligation of BancGroup and Colonial Bank, enforceable against BancGroup and Colonial Bank in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar Laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought). 4.7 Tax Treatment. Colonial Bank will acquire, pursuant to the Merger, substantially all of the properties of the Bank within the meaning of Treasury Regulations Section 1.368-2(b)(2). BancGroup and Colonial Bank have no intention to sell or otherwise dispose of any of the Assets of the Bank acquired pursuant to the Merger. Colonial Bank shall continue the Bank's historic business and shall use a significant portion of the Bank's historic business assets in a business, all within the meaning of Treasury Regulations Section 1.368-1(d). BancGroup controls Colonial Bank with the meaning of section 368(c) of the Code. 4.8 Title and Related Matters. BancGroup has good and marketable title to all the properties, interests in properties and Assets, real and personal, reflected in the most recent balance sheet referred to in section 4.3(a), or acquired after the date of such balance sheet (except properties, interests and Assets sold or otherwise disposed of since such date, in the ordinary course of business), free and clear of all mortgages, Liens, pledges, charges or encumbrances except (i) mortgages and other encumbrances referred to in the notes of such balance sheet, (ii) liens for current Taxes not yet due and payable and (iii) such imperfections of title and easements as do not materially detract from or interfere with the present use of the properties subject thereto or affected thereby, or otherwise materially impair present business operations at such properties. To the Knowledge of BancGroup, the material structures and equipment of BancGroup comply in all material respects with the requirements of all applicable Laws. 4.9 Subsidiaries. Each Subsidiary of BancGroup has been duly incorporated and is validly existing as a corporation in good standing under the Laws of the jurisdiction of its incorporation (which, in the case of Colonial Bank, is the State of Alabama) and each Subsidiary has been duly qualified as a foreign corporation A-9 153 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 by-laws 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 in the condition, financial or otherwise, or in the general affairs, management, stockholders' equity or results of operations of BancGroup and its Subsidiaries considered as one enterprise, or which is likely to materially and adversely affect the properties or Assets thereof or which is likely to materially affect the consummation of the transactions contemplated by this Agreement; all pending legal or governmental proceedings to which BancGroup or any Subsidiary is a party or of which any of their properties is the subject which are not described in the Registration Statement, including ordinary routine litigation incidental to the business, are, considered in the aggregate, not material; and neither BancGroup nor any of its Subsidiaries have any contingent obligations which could be considered material to BancGroup and its Subsidiaries considered as one enterprise which are not disclosed in the Registration Statement as it may be amended or supplemented. 4.12 Compliance. BancGroup and its Subsidiaries in the conduct of their businesses are to the Knowledge of BancGroup in material compliance with all material federal, state or local Laws applicable to their or the conduct of their businesses. 4.13 Registration Statement. At the time the Registration Statement becomes effective and at the time of the Stockholders' Meeting, the Registration Statement, including the Proxy Statement which shall constitute a part thereof, will comply in all material respects with the requirements of the 1933 Act and the rules and regulations thereunder, will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall not apply to statements in or omissions from the Proxy Statement made in reliance upon and in conformity with information furnished in writing to BancGroup by the Bank or any of its representatives expressly for use in the Proxy Statement or information included in the Proxy Statement regarding the business of the Bank, its operations, Assets and capital. 4.14 Filings Incorporated by Reference. 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 Disclosure. No representation or warranty, or any statement or certificate furnished or to be furnished to the Bank by BancGroup, contains or will contain any untrue statement of a material fact, or omits A-10 154 or will omit to state a material fact necessary to make the statements contained in this Agreement or in any such statement or certificate not misleading. 4.17. Brokers. All negotiations relative to this Agreement and the transactions contemplated by this Agreement have been carried on by BancGroup directly with the Bank and without the intervention of any other person, either as a result of any act of BancGroup, or otherwise, in such manner as to give rise to any valid claim against BancGroup for a finder's fee, brokerage commission or other like payment except for the services of Steven Johnson & Associates. ARTICLE 5 REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE BANK The Bank represents, warrants and covenants to and with BancGroup, as follows: 5.1 Organization. The Bank is a federal savings bank duly organized, validly existing and in good standing under the Laws of the United States and the regulations of the Office of Thrift Supervision and has all requisite corporate 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 on the condition (financial or other) earnings, business, affairs, Assets, properties, prospects or results of operations of the Bank. 5.2 Capital Stock. (i) As of September 30, 1995, the authorized capital stock of the Bank consisted of 4,000,000 shares of common stock, $.01 par value per share, 399,688 shares of which are issued and outstanding. All of such shares which are outstanding are duly authorized, validly issued, fully paid and nonassessable and not subject to preemptive rights. The Bank has no shares of its common stock subject to exercise under any stock option. The Bank does not have any other arrangements or commitments obligating it to issue shares of its capital stock or any securities convertible into or having the right to purchase shares of its capital stock. 5.3 Subsidiaries. (a) The Bank has no Subsidiaries. (b) The Bank does not own directly or indirectly any equity interest in any bank, corporation or other entity, except in a fiduciary capacity. 5.4 Financial Statements; Taxes. (a) The Bank has delivered to BancGroup true and complete copies of the following financial statements of the Bank (together with related opinions of auditors, as appropriate): (i) Statements of financial condition as of June 30, 1994 and 1995 and for the six months ending September 30, 1995; (ii) Statements of income for each of the three years ended June 30, 1993, 1994 and 1995 and for the six months ending September 30, 1995; (iii) Statements of cash flows for each of the three years ending June 30, 1993, 1994 and 1995, and for the six months ending September 30, 1995; and (iv) Statements of changes in equity capital for each of the three years ended June 30, 1993, 1994, and 1995 and for the six months ending September 30, 1995. All of the foregoing financial statements are in all material respects in accordance with the books and records of the Bank. Each of the balance sheets of the Bank presents fairly as of its date the financial condition of the Bank. Except as and to the extent reflected or reserved against in such balance sheets (including the notes thereto), the Bank did not have, as of the date of such balance sheets, any material Liabilities or obligations (absolute or contingent) of a nature customarily reflected in a balance sheet or the notes thereto, other than Liabilities (including reserves) in the amount set forth in such balance sheets and the notes thereto. The statements of income, stockholders' equity and changes in financial position present fairly the results of operation of the Bank for the periods indicated. A-11 155 (b) All Tax returns required to be filed by or on behalf of the Bank have been timely filed (or requests for extensions therefor have been timely filed and granted and have not expired), and all returns filed are complete and accurate in all material respects. All Taxes shown on said 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 the Bank, sufficient in all material respects for the payment of all unpaid federal, state, county, local, foreign and other Taxes (including any interest or penalties) of the Bank accrued for or applicable to the period ended on the dates thereof, and all years and periods prior thereto and for which the Bank may at said 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 the Bank, threatened by any taxing authority which is likely to result in a material Tax Liability, no material unpaid Tax deficiencies or additional liability of any sort have been proposed by any governmental representative and no agreements for extension of time for the assessment of any material amount of Tax have been entered into by or on behalf of the Bank. The Bank has not executed an extension or waiver of any statute of limitations on the assessment or collection of any Tax due that is currently in effect. (c) The Bank 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). The Bank 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. Since the date of the most recent balance sheet provided under section 5.4(a)(i) above, the Bank has not (i) 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 issued as director's qualifying shares; (ii) except as disclosed on Schedule 5.5(ii), borrowed or agreed to borrow any funds or incurred, or become 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) except as may be reasonable and necessary in connection with the Merger, 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; (iv) 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, any of its outstanding securities; (v) except in the ordinary course of business, sold or transferred, or agreed to sell or transfer, any of its Assets, property or rights or canceled, or agreed to cancel, any debts or claims; (vi) 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, property or rights or requiring the consent of any party to the transfer and assignment of any of its Assets, property or rights; (vii) suffered any Losses or waived any rights of value which in the aggregate are material; (viii) 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; A-12 156 (ix) except as disclosed on Schedule 5.5(ix) 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; (x) 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; (xi) except as set forth on Schedule 5.5(xi), 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; (xii) 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; (xiii) entered into any other material transaction other than in the ordinary course of business; or (xiv) agreed in writing, or otherwise, to take any action described in clauses (i) through (xiii) above. Between the date hereof and the Effective Date, the Bank, without the express written approval of BancGroup, will not do any of the things listed in clauses (i) through (xiii) of this section 5.5 except as permitted therein or as contemplated in this Agreement. 5.6 Title and Related Matters. (a) Title. The Bank has good and marketable title to all the properties, interest in properties and Assets, real and personal, reflected in the most recent balance sheet referred to in section 5.4(a)(i), or acquired after the date of such balance sheet (except properties, interests and Assets sold or otherwise disposed of since such date, in the ordinary course of business), free and clear of all mortgages, Liens, pledges, charges or encumbrances except (i) mortgages and other encumbrances referred to in the notes to such balance sheet, (ii) Liens for current Taxes not yet due and payable and (iii) such imperfections of title and easements as do not materially detract from or interfere with the present use of the properties subject thereto or affected thereby, or otherwise materially impair present business operations at such properties. To the Knowledge of the Bank, the material structures and equipment of the Bank, 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 the Bank, either as lessor or lessee. (c) Personal Property. Schedule 5.6(c) sets forth a depreciation schedule of the Bank's fixed Assets as of December 31, 1994. (d) Computer Hardware and Software. Schedule 5.6(d) contains a description of all agreements relating to data processing computer software and hardware now being used in the business operations of the Bank. The Bank is not aware of any defects, irregularities or problems with any of its computer hardware or software which renders such hardware or software unable to satisfactorily perform the tasks and functions to be performed by them in the business of the Bank. 5.7 Commitments. Except as set forth in Schedule 5.7, the Bank is not 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 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 A-13 157 commitment which is material to the business, operations, property, prospects or Assets or to the condition, financial or otherwise, of the Bank. Complete and accurate copies of all Contracts, plans and other items so listed have been made or will be made available to BancGroup for inspection. Prior to the Effective Date, the Bank will not enter into or amend any Contract, agreement or other instrument of any of the types listed in this section without giving five days prior written notice to BancGroup, provided that such notice shall not impair BancGroup's right to determine whether such action which is the subject of such notice constitutes a Material Adverse Effect under section 10.2 hereof. 5.8 Charter and Bylaws. Schedule 5.8 contains true and correct copies of the Bank's federal stock charter and bylaws, including all amendments thereto, as currently in effect. There will be no changes in such charter or bylaws prior to the Effective Date, without the prior written consent of BancGroup. 5.9 Litigation. There is no Litigation (whether or not purportedly on behalf of the Bank) pending or, to the Knowledge of the Bank, threatened against or affecting (nor is the Bank aware of any facts which could 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 the business operations, properties or Assets or in the condition, financial or otherwise, of the Bank, and the Bank is not 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 the business operations, properties or Assets or in the condition, financial or otherwise, of such party. To the Knowledge of the Bank, the Bank has complied in all material respects with all material applicable Laws including those imposing Taxes, or 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 in the business operations, properties or Assets or in the condition, financial or otherwise, of the Bank. 5.10 Material Contract Defaults. The Bank is not in Default in any material respect under the terms of any 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 the Bank and, to the Knowledge of the Bank, there is no event which, with notice or lapse of time, or both, may be or become an event of Default under any such 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 or constitute a Default (without regard to the giving of notice or the passage of time, or both) under any term or provision of any Contract, indenture, mortgage, deed of trust or other material agreement or instrument to which the Bank is a party or its Assets may be bound and will not conflict with any provision of the stock charter or bylaws of the Bank. 5.12 Governmental Authorization. The Bank has all licenses, franchises, permits and other governmental authorizations that, to the Knowledge of the Bank, are or will be legally required to enable the Bank to conduct its business in all material respects as now conducted by the Bank. 5.13 Absence of Regulatory Communications. The Bank is not subject to, nor has the Bank 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 the Bank. 5.14 Absence of Material Adverse Change. 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 the Bank. 5.15 Insurance. The Bank has in effect insurance coverage and bonds with reputable insurers which, in respect to amounts, types and risks insured, management of the Bank reasonably believes to be adequate for A-14 158 the type of business conducted by such company. The Bank is not liable for any material retroactive premium adjustment. All insurance policies and bonds are valid, enforceable and in full force and effect, and the Bank has not received any notice of a premium increase or cancellation with respect to any of its insurance policies or bonds. Within the last three years, the Bank has not 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 the Bank at all times from the date hereof to the Effective Date. 5.16 Pension and Employee Benefit Plans. (a) To the Knowledge of the Bank, all employee benefit plans of the Bank have been established in compliance with, and such plans have been operated in material compliance with, all applicable Laws. Except as set forth on Schedule 5.16, the Bank has no pension or other retirement plan or any other plan or agreement subject to ERISA or Section 401 of the Code, and no unfunded Liabilities exist with respect to any employee benefit plan, past or present. To the Knowledge of the Bank, no employee benefit plan, any trust created thereunder or any trustee or administrator thereof has engaged in a "prohibited transaction," as defined in section 4975 of the Code, which may have a Material Adverse Effect on the condition, financial or otherwise, of the Bank. (b) The Bank has no reason to believe that any amount payable to any employee of the Bank will fail to be deductible for federal income tax purposes by virtue of Section 280G of the Code and regulations thereunder. 5.17 Buy-Sell Agreement. The Bank is not aware of any agreement among any of its shareholders granting to any person or persons a right of first refusal in respect of the sale, transfer, or other disposition of shares of outstanding securities by any shareholder of the Bank, any similar agreement or any voting agreement or voting trust in respect of any such shares. 5.18 Brokers. All negotiations relative to this Agreement and the transactions contemplated by this Agreement have been carried on by the Bank directly with BancGroup and without the intervention of any other person, either as a result of any act of the Bank, or otherwise, in such manner as to give rise to any valid claim against the Bank for a finder's fee, brokerage commission or other like payment, except for the services of Steven Johnson & Associates. 5.19 Approval of Agreements. The board of directors of the Bank has approved this Agreement and the transactions contemplated by this Agreement and has authorized the execution and delivery by the Bank of this Agreement. Subject to the matters referred to in section 8.2, the Bank has full power, authority and legal right to enter into this Agreement, and, upon appropriate vote of the shareholders of the Bank in accordance with this Agreement, the Bank shall have full power, authority and legal right to consummate the transactions contemplated by this Agreement. Subject to the conditions set forth herein, this Agreement represents a legal, valid, and binding obligation of the Bank, enforceable against the Bank in accordance with its terms (except in all cases as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium, or similar Laws affecting the enforcement of creditors' rights generally and except that the availability of the equitable remedy of specific performance or injunctive relief is subject to the discretion of the court before which any proceeding may be brought). 5.20 Disclosure. No representation or warranty, nor any statement or certificate furnished or to be furnished to BancGroup by the Bank, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements contained in this Agreement or in any such statement or certificate not misleading. 5.21 Registration Statement. At the time the Registration Statement becomes effective and at the time of the 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 A-15 159 apply to statements in or omissions from the Proxy Statement relating to descriptions of the business of the Bank, its Assets, properties, operations, and capital stock or to information furnished by the Bank or its representatives expressly for inclusion in the Proxy Statement. 5.22 Loans; Adequacy of Allowance for Loan Losses. All reserves for loan losses shown on the most recent financial statements furnished by the Bank are adequate in all material respects, and the Bank has no Knowledge of any fact which is likely to require a future material increase in the provision for loan losses or a material decrease in the loan loss reserve reflected in such financial statements. Each loan reflected as an Asset on the financial statements of the Bank is the legal, valid and binding obligation of the obligor of each loan, enforceable in accordance with its terms subject to the effect of bankruptcy, insolvency, reorganization, moratorium, or other similar laws relating to creditors' rights generally and to general equitable principles. Except as disclosed on Schedule 5.22, the Bank does not have in its portfolio any loan exceeding its legal lending limit, and the Bank has no known significant delinquent, substandard, loss, or nonperforming loans. 5.23 Environmental Matters. To the Knowledge of the Bank, the Bank is in compliance with all Laws, and other governmental requirements relating to the generation, management, handling, transportation, treatment, disposal, storage, delivery, discharge, release or emission of any waste, pollution, or toxic, hazardous or other substance (the "Environmental Laws"), and the Bank has no Knowledge that the Bank has not complied with all regulations and requirements promulgated by the Occupational Safety and Health Administration that are applicable to the Bank. To the Knowledge of the Bank, there is no Litigation proceeding, suit or investigation pending or threatened with respect to any violation or alleged violation of the Environmental Laws. To the Knowledge of the Bank, with respect to properties or Assets of or owned by the Bank, 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 be 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 the Bank. The Bank has no Knowledge of any facts which might suggest that the Bank has engaged in any management practice with respect to any of its past or existing borrowers which could reasonably be expected to subject the Bank 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 the Bank, the Bank has not 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, licenses, and other authorizations which are required under any Environmental Law. 5.24 Transfer of Shares. The Bank has no Knowledge of any plan or intention on the part of the Bank's shareholders to sell or otherwise dispose of any of the BancGroup Common Stock to be received by them in the Merger that would reduce such shareholders' ownership to a number of shares having, in the aggregate, a fair market value of less than fifty (50%) percent of the total fair market value of Bank common stock outstanding immediately before the Merger. 5.25 Collective Bargaining. There are no labor contracts, collective bargaining agreements, letters of understanding or other arrangements, formal or informal, between the Bank and any union or labor organization covering any of the Bank's employees and none of said employees are represented by any union or labor organization. 5.26 Labor Disputes. The Bank is in material compliance with all federal and state laws respecting employment and employment practices, terms and conditions of employment, wages and hours. The Bank is not and has not been engaged in any unfair labor practice, and, to the Knowledge of the Bank, no unfair labor practice complaint against the Bank is pending before the National Labor Relations Board. Relations between management and the employees are amicable and there have not been, nor to the Knowledge of the Bank are there presently, any attempts to organize employees, nor to the Knowledge of the Bank are there plans for any such attempts. 5.27 Derivative Contracts. The Bank is not a party to and has not agreed to enter into a swap, forward, future, option, cap, floor or collar financial contract, or any other interest rate or foreign currency protection A-16 160 contract or derivative security not included in the Bank's financial statements delivered under section 4.3 hereof which is a financial derivative contract (including various combinations thereof). ARTICLE 6 ADDITIONAL COVENANTS 6.1 Additional Covenants of BancGroup. BancGroup covenants to and with the Bank as follows: (a) Registration Statement and Other Filings. BancGroup shall prepare and file with the SEC the Registration Statement on Form S-4 (or such other form as may be appropriate) and all amendments and supplements thereto, in form reasonably satisfactory to the Bank and its counsel, with respect to the Common Stock to be issued pursuant to this Agreement. BancGroup shall use reasonable good faith efforts to prepare all necessary filings with any Agencies which may be necessary for approval to consummate the transactions contemplated by this Agreement. (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 the Bank: (i) As soon as practicable and in any event within forty-five (45) days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, consolidated statements of operations of BancGroup for such period and for the period beginning at the commencement of the fiscal year and ending at the end of such quarterly period, and a consolidated statement of financial condition of BancGroup as of the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding periods ending in the preceding fiscal year, subject to changes resulting from year-end adjustments; (ii) Promptly upon receipt thereof, copies of all audit reports submitted to BancGroup by independent auditors in connection with each annual, interim or special audit of the books of BancGroup made by such accountants; (iii) As soon as practicable, copies of all such financial statements and reports as it shall send to its stockholders and of such regular and periodic reports as BancGroup may file with the SEC or any other Agency; and (iv) With reasonable promptness, such additional financial data as the Bank may reasonably request. (d) No Control of the Bank by BancGroup. Notwithstanding any other provision hereof, until the Effective Date, the authority to establish and implement the business policies of the Bank shall continue to reside solely in the Bank's officers and board of directors. (e) Listing. Prior to the Effective Date, BancGroup shall use its reasonable efforts to list the shares of BancGroup Common Stock to be issued in the Merger on the NYSE or other quotations system on which such shares are primarily traded. 6.2 Additional Covenants of the Bank. The Bank covenants to and with BancGroup as follows: (a) Operations. The Bank will conduct its business in a proper and prudent manner and will use its best efforts to maintain its relationships with its depositors, customers and employees. The Bank will not 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 the Bank permit the occurrence of any change or event which would render any of the representations and warranties in Article 5 hereof untrue in any material respect at and as of the Effective Date with the same effect as though such representations and warranties had been made at and as of such Effective Date. A-17 161 (b) Stockholders Meeting; Best Efforts. The Bank 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. Until the termination of this Agreement, neither the Bank nor any of the Bank's directors or officers (or any person representing any of the foregoing) shall solicit or encourage inquiries or proposals with respect to, furnish any information relating to or participate in any negotiations or discussions concerning, any acquisition or purchase of all or of a substantial portion of the Assets of, or of a substantial equity interest in, the Bank or any business combination involving the Bank other than as contemplated by this Agreement. The Bank will notify BancGroup immediately if any such inquiries or proposals are received by the Bank, if any such information is requested from the Bank, or if any such negotiations or discussions are sought to be initiated with the Bank, and the Bank shall instruct the Bank's officers, directors, agents or affiliates or their subsidiaries to refrain from doing any of the above; provided, however, that nothing contained herein shall be deemed to prohibit any officer or director of the Bank from fulfilling his fiduciary duty or from taking any action that is required by Law; and provided further that nothing in the foregoing proviso clause shall be deemed a waiver by BancGroup that any action taken by the Bank pursuant to such proviso constitutes a breach of this Agreement. (d) Director Voting. The members of the Board of Directors of the Bank agree to support publicly the Merger, and the Bank shall on the date of execution of this Agreement obtain an agreement from each of its directors substantially in the form set forth in Exhibit A. (e) Financial Statements. The Bank shall furnish to BancGroup: (i) As soon as practicable and in any event within 30 days after the end of each quarterly period in each fiscal year, consolidated statements of operations of the Bank for such period and for the period beginning at the commencement of the fiscal year and ending at the end of such quarterly period, and a consolidated statement of financial condition of the Bank as of the end of such quarterly period, setting forth in each case in comparative form figures for the corresponding periods ending in the preceding fiscal year, subject to changes resulting from year-end adjustments; (ii) Promptly upon receipt thereof, copies of all audit reports submitted to the Bank by independent auditors in connection with each annual, interim or special audit of the books of the Bank 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 the Bank may file with the SEC or any other Agency; and (iv) With reasonable promptness, such additional financial data as BancGroup may reasonably request. ARTICLE 7 MUTUAL COVENANTS AND AGREEMENTS 7.1 Best Efforts; Cooperation. Subject to the terms and conditions herein provided, BancGroup and the Bank each agrees to use its best efforts promptly to take, or cause to be taken, all actions and do, or cause to be done, all things necessary, proper or advisable under applicable Laws or otherwise, including, without limitation, promptly making required deliveries of stockholder lists and stock transfer reports and attempting to obtain all necessary Consents and waivers and regulatory approvals, 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 A-18 162 as stock transfer agents for the Party, the other Parties requiring information which is reasonably available from such Party. 7.2 Press Release. Each Party hereto agrees that, unless approved by the other Parties in advance, such Party will not make any public announcement, issue any press release or other publicity or confirm any statements by any person not a party to this Agreement concerning the transactions contemplated hereby. Notwithstanding the foregoing, each Party hereto reserves the right to make any disclosure if such Party, in its reasonable discretion, deems such disclosure required by Law. In that event, such Party shall provide to the other Party the text of such disclosure sufficiently in advance to enable the other Party to have a reasonable opportunity to comment thereon. 7.3 Mutual Disclosure. Each Party hereto agrees to promptly furnish to each other Party hereto its public disclosures and filings not precluded from disclosure by Law including but not limited to call reports, Form 8-K, Form 10-Q and Form 10-K filings, Y-2 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 each of the other Parties full access to the properties, 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. ARTICLE 8 CONDITIONS TO OBLIGATIONS OF ALL PARTIES The obligations of BancGroup and the Bank to cause the transactions contemplated by this Agreement to be consummated shall be subject to the satisfaction, in the sole discretion of the Party relying upon such conditions, on or before the Effective Date of all the following conditions, except as such Parties may waive such conditions in writing: 8.1 Approval by Shareholders. At the Stockholders Meeting, this Agreement and the matters contemplated by this Agreement shall have been duly approved by the vote of the holders of not less than the requisite number of the issued and outstanding voting securities of the Bank as is required by applicable Law and the Bank's stock charter and by-laws. 8.2 Regulatory Authority Approval. Orders, Consents and approvals, in form and substance reasonably satisfactory to BancGroup and the Bank shall have been entered by the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation and other appropriate bank regulatory Agencies (i) granting the authority necessary for the consummation of the transactions contemplated by this Agreement and (ii) satisfying all other requirements prescribed by Law. 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, as amended, and 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. A-19 163 8.5 Tax Opinion. An opinion of Miller, Hamilton, Snider & Odom, counsel to BancGroup, shall have been received in form and substance reasonably satisfactory to the Bank and BancGroup to the effect that (i) the Merger will constitute a "reorganization" within the meaning of section 368 of the code; (ii) no gain or loss will be recognized by the Bank; (iii) no gain or loss will be recognized to the shareholders of the Bank who receive shares of BancGroup Common Stock except to the extent of any taxable "boot" received by such persons from BancGroup, and except to the extent of any dividends received from the Bank prior to the Effective Date; (iv) the basis of the BancGroup Common Stock received in the Merger will be equal to the sum of the basis of the shares of Bank common stock exchanged in the Merger and the amount of gain, if any, which was recognized by the exchanging Bank shareholder, including any portion treated as a dividend, less the value of taxable boot, if any, received by such shareholder in the Merger; (v) the holding period of the BancGroup Common Stock will include the holding period of the shares of Bank common stock exchanged therefor if such shares of bank common stock were capital assets in the hands of the exchanging Bank shareholder; and (vi) cash received by a Bank stockholder in lieu of a fractional share interest of BancGroup 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 would otherwise be entitled to receive and will qualify as capital gain or loss (assuming the Bank common stock was a capital asset in his hands as of the Effective Date). ARTICLE 9 CONDITIONS TO OBLIGATIONS OF THE BANK The obligations of the Bank to cause the transactions contemplated by this Agreement to be consummated shall be subject to the satisfaction on or before the Effective Date of all the following conditions except as the Bank may waive such conditions in writing: 9.1 Representations, Warranties and Covenants. Notwithstanding any investigation made by or on behalf of the Bank, all representations and warranties of BancGroup contained in this Agreement shall be true in all material respects on and as of the Effective Date as if such representations and warranties were made on and as of such Effective Date, and BancGroup shall have performed in all material respects all agreements and covenants required by this Agreement to be performed by it on or prior to the Effective Date. 9.2 Adverse Changes. There shall have been no changes after the date of the most recent balance sheet provided under section 4.3(a)(i) hereof in the results of operations (as compared with the corresponding period of the prior fiscal year), Assets, Liabilities, financial condition or affairs of BancGroup which in their total effect constitute a Material Adverse Effect, nor shall there have been any material changes in the Laws governing the business of BancGroup or which would impair the rights of the Bank or its stockholders pursuant to this Agreement. 9.3 Closing Certificate. In addition to any other deliveries required to be delivered hereunder, the Bank shall have received a certificate from the President or a Vice President and from the Secretary or Assistant Secretary of BancGroup dated as of the Closing certifying that: (a) the Board of Directors of BancGroup has duly adopted resolutions (copies of which shall be attached to such certificate) 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 and or otherwise against, by or affecting BancGroup or the business, prospects, A-20 164 condition (financial or otherwise), or Assets of BancGroup or which would prevent the performance of this Agreement or the transactions contemplated by this Agreement or declare the same unlawful or cause the recision thereof; (e) to such persons' knowledge, the Proxy Statement delivered to the Bank's stockholders, 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 the Bank for inclusion in such Proxy Statement); and (f) the conditions set forth in this Article 9 insofar as they relate to BancGroup have been satisfied. 9.4 Opinion of Counsel. The Bank shall have received an opinion of Miller, Hamilton, Snider & Odom, L.L.C. counsel to BancGroup, dated as of the Closing, in form reasonably satisfactory to the Bank, as to matters set forth in Exhibit B hereto. 9.5 Other Matters. There shall have been furnished to such counsel for the Bank certified copies of such corporate records of BancGroup and copies of such other documents as such counsel may reasonably have requested for such purpose. 9.6 Material Events. There shall have been no determination by the board of directors of the Bank that the transactions contemplated by this Agreement have become impractical because of any state of war, national emergency, declaration of a banking moratorium in the United States or a general suspension of trading on the NYSE or any other major stock exchange. 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 by the Bank on or before the Effective Date 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 the Bank contained in this Agreement shall be true in all material respects on and as of the Effective Date as if such representations and warranties were made on and as of the Effective Date, and the Bank shall have performed in all material respects all agreements and covenants required by this Agreement to be performed by it on or prior to the Effective Date. 10.2 Adverse Changes. There shall have been no changes after the date of the most recent balance sheet provided under section 5.4(a)(i) hereof in the results of operations (as compared with the corresponding period of the prior fiscal year), Assets, Liabilities, financial condition, or affairs of the Bank which constitute a Material Adverse Effect, nor shall there have been any material changes in the Laws governing the business of the Bank which would impair BancGroup's rights pursuant to this Agreement. 10.3 Closing Certificate. In addition to any other deliveries required to be delivered hereunder, BancGroup shall have received a certificate from the President or Vice President and from the Secretary or Assistant Secretary of the Bank dated as of the Closing certifying that: (a) the Board of Directors has duly adopted resolutions (copies of which shall be attached to such certificate) 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 the Bank have duly adopted resolutions (copies of which shall be attached to such certificate) 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; A-21 165 (c) each person executing this Agreement on behalf of the Bank is an officer of the Bank holding the office or offices specified therein and the signature of each person set forth on such certificate is his or her genuine signature; (d) the charter documents of the Bank and the bank referenced in section 5.8 hereof were 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 the Bank's stockholders, 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 any information concerning or provided by BancGroup for inclusion in such Proxy Statement); and (f) the conditions set forth in this Article 10 insofar as they relate to the Bank have been satisfied. 10.4 Opinion of Counsel. BancGroup shall have received an opinion of Lee & McInish, counsel to the Bank, dated as of the Closing, in form reasonably satisfactory to BancGroup, as to matters set forth in Exhibit C hereto. 10.5 Controlling Shareholders. Each shareholder of the Bank who may be an "affiliate" of the Bank, within the meaning of Rule 145 of the general rules and regulations under the 1933 Act shall have executed and delivered a commitment and undertaking 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. The Bank recognizes and acknowledges that Common Stock issued to such persons may bear a legend evidencing the undertakings described above. 10.6 Other Matters. There shall have been furnished to counsel for BancGroup certified copies of such corporate records of the Bank and copies of such other documents as such counsel may reasonably have requested for such purpose. 10.7 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, national emergency, declaration of a banking moratorium in the United States or a general suspension of trading on the NYSE or any other major stock exchange. ARTICLE 11 TERMINATION OF REPRESENTATIONS AND WARRANTIES All representations and warranties provided in Articles 4 and 5 of this Agreement, except for those of sections 4.2(a) and 4.7, or in any closing certificate provided 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 section 7.2, Article 11 and Article 15, and any applicable definitions of Article 14, shall survive. Items disclosed in the Exhibits and Schedules attached hereto are incorporated into this Agreement and form a part of the representations, warranties, covenants or agreements to which they relate. Information provided in such Exhibits and Schedules is provided only in response to the specific section of this Agreement which calls for such information. A-22 166 ARTICLE 12 NOTICES All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given at the time given or mailed, first class postage prepaid: (a) If to the Bank to Charles Williams, P.O. Box 6886, Dothan, Alabama 36302, facsimile (334) 794-8036, with copies to William C. Carn, III, Lee & McInish, 238 West Main Street, P.O. Box 1665, Dothan, Alabama 36301, facsimile (334) 794-8342, or as may otherwise be specified by the Bank in writing to BancGroup. (b) If to BancGroup, to W. Flake Oakley, IV, One Commerce Street, Suite 800, Montgomery, Alabama, 36104, facsimile (334) 240-6040, with a copy to Michael D. Waters, Miller, Hamilton, Snider & Odom, One Commerce Street, Suite 802, Montgomery, Alabama 36104, facsimile (334) 265-4533, or as may otherwise be specified in writing by BancGroup to the Bank. ARTICLE 13 AMENDMENT OR TERMINATION 13.1 Amendment. This Agreement may be amended by the mutual consent of BancGroup, Colonial Bank and the Bank before or after approval of the transactions contemplated herein by the shareholders of the Bank. 13.2 Termination. This Agreement may be terminated at any time prior to or on the Effective Date whether before or after action thereon by the shareholders of the Bank, as follows: (a) by the mutual consent of the respective boards of directors of the Bank and BancGroup; (b) by the board of directors of either Party (provided that the terminating Party is not then in material breach of any representation, warranty, covenant, or other agreement contained in this Agreement) in the event of a 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 the Bank; (c) by the board of directors of either Party (provided that the terminating Party is not then in material breach of any representation, warranty, covenant, or other agreement contained in this Agreement) in the event of a material breach by the other Party of any covenant or agreement contained in this Agreement which cannot be or has not been cured within thirty (30) days after the giving of written notice to the breaching Party of such breach, or if any of the conditions to the obligations of such Party contained in this Agreement shall not have been satisfied in full; or (d) by the board of directors of BancGroup or the Bank if all transactions contemplated by this Agreement shall not have been consummated on or prior to December 31, 1996, 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). 13.3 Damages. In the event of termination pursuant to section 13.2, the Bank and BancGroup shall not be liable for damages for any breach of warranty or representation contained in this Agreement made in good faith, and, in that case, the expenses incurred shall be borne as set forth in section 15.1 hereof. A-23 167 ARTICLE 14 DEFINITIONS The following terms, which are capitalized in this Agreement, shall have the meanings set forth below for the purpose of this Agreement: ABCA The Alabama Business Corporation Act, and to the extent applicable, the Alabama Banking Code. 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, the NYSE and the SEC. Agreement Shall mean this Agreement and Plan of Merger and the Exhibits and Schedules delivered pursuant hereto and incorporated herein by reference. Assets Of a Person shall mean all of the assets, properties, businesses and rights of such Person of every kind, nature, character and description, whether real, personal or mixed, tangible or intangible, accrued or contingent, or otherwise relating to or utilized in such Person's business, directly or indirectly, in whole or in part, whether or not carried on the books and records of such Person, and whether or not owned in the name of such Person or any Affiliate of such Person and wherever located. BancGroup The Colonial BancGroup, Inc., a Delaware corporation with its principal offices in Montgomery, Alabama. Bank Dothan Federal Savings Bank, a federal savings bank with offices in Dothan, Alabama. Bank Stock Shares of Common stock, par value $.01 per share, of the Bank. Closing The closing of the transactions contemplated hereby as described in section 2.7 of this Agreement. Common Stock BancGroup's Common Stock authorized and defined in the restated certificate of incorporation of BancGroup, as amended. Code The Internal Revenue Code of 1986, as amended. Consent Any consent, approval, authorization, clearance, exemption, waiver, or similar affirmation by any Person pursuant to any Contract, Law, Order, or Permit. Contract Any written or oral agreement, arrangement, authorization, commitment, contract, indenture, instrument, lease, obligation, plan, practice, restriction, understanding or undertaking of any kind or character, or other document to which any Person is a party or that is binding on any Person or its capital stock, Assets or business. Default Shall mean (i) any breach or violation of or default under any Contract, Order or Permit, (ii) any occurrence of any event that with the passage of time or the giving of notice or both would constitute a breach or violation of or default under any Contract, Order or Permit, or (iii) any occurrence of any event that with or without the passage of time or the A-24 168 giving of notice would give rise to a right to terminate or revoke, change the current terms of, or renegotiate, or to accelerate, increase, or impose any Liability under, any Contract, Order or Permit. Effective Date Means the date and time at which the Merger becomes effective as defined in section 2.7 hereof. Election Form A written election filed pursuant to section 3.1(a)(i) 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. Exhibits A through C, inclusive, shall mean the Exhibits so marked, copies of which are attached to this Agreement. Such Exhibits are hereby incorporated by reference herein and made a part hereof, and may be referred to in this Agreement and any other related instrument or document without being attached hereto. GAAP Generally Accepted Accounting Principles. Knowledge Means the knowledge of the Chairman, President, Chief Financial Officer, Chief Accounting Officer, Chief Credit Officer, General Counsel or any Senior or Executive Vice President of BancGroup, in the case of knowledge of BancGroup, or of the Bank, in the case of knowledge of the Bank. Law Any code, law, ordinance, regulation, reporting or licensing requirement, rule, or statute applicable to a Person or its Assets, Liabilities or business, including those promulgated, interpreted or enforced by any Agency. Liability Any direct or indirect, primary or secondary, liability, indebtedness, obligation, penalty, cost or expense (including costs of investigation, collection and defense), deficiency, guaranty or endorsement of or by any Person (other than endorsements of notes, bills, checks, and drafts presented for collection or deposit in the ordinary course of business) of any type, whether accrued, absolute or contingent, liquidated or unliquidated, matured or unmatured, or otherwise. Lien Any conditional sale agreement, default of title, easement, encroachment, encumbrance, hypothecation, infringement, lien, mortgage, pledge, reservation, restriction, security interest, title retention or other security arrangement, or any adverse right or interest, charge, or claim of any nature whatsoever of, on, or with respect to any property or property interest, other than (i) Liens for current property Taxes not yet due and payable, (ii) for depository institution Subsidiaries of a Party, pledges to secure deposits and other Liens incurred in the ordinary course of the banking business, and (iii) Liens in the form of easements and restrictive covenants on real property which do not materially adversely affect the use of such property by the current owner thereof. Litigation Any action, arbitration, complaint, criminal prosecution, governmental or other examination or investigation, hearing, inquiry, administrative or other proceeding relating to or affecting a Party, its business, its Assets (including Contracts related to it), or the transactions contemplated by this Agreement. A-25 169 Loan Property Any property owned by the Party in question or by any of its Subsidiaries or in which such Party or Subsidiary holds a security interest, and, where required by the context, includes the owner or operator of such property, but only with respect to such property. Loss Any and all direct or indirect payments, obligations, recoveries, deficiencies, fines, penalties, interest, assessments, losses, diminution in the value of Assets, damages, punitive, exemplary or consequential damages (including, but not limited to, lost income and profits and interruptions of business), liabilities, costs, expenses (including without limitation, reasonable attorneys' fees and expenses, and consultant's fees and other costs of defense or investigation), and interest on any amount payable to a third party as a result of the foregoing. Market Value Shall be the market value of BancGroup Common Stock as determined in section 3.1 hereof. 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, business, or results of operations of such Party and its Subsidiaries, taken as a whole, or (ii) the ability of such Party to perform its obligations under this Agreement or to consummate the Merger or the other transactions contemplated by this Agreement provided that "material adverse impact" shall not be deemed to include the impact of (x) changes in banking and similar laws of general applicability or interpretations thereof by courts or governmental authorities, (y) changes in generally accepted accounting principles or regulatory accounting principles generally applicable to banks and their holding companies, and (z) the Merger and compliance with the provisions of this Agreement on the operating performance of the Parties. Merger The merger of the Bank with Colonial Bank as contemplated in this Agreement. Merger Consideration The consideration to be paid by BancGroup for a share of Bank Stock under section 3.1(a). 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 the Bank, Colonial Bank or BancGroup, and "Parties" shall mean collectively the Bank, Colonial Bank and BancGroup. Permit Any federal, state, local, and foreign governmental approval, authorization, certificate, easement, filing, franchise, license, notice, permit, or right to which any Person is a party or that is or may be binding upon or inure to the benefit of any Person or its securities, Assets or business. A-26 170 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 the Bank to solicit the approval of its stockholders of the transactions contemplated by this Agreement, which shall include the prospectus of BancGroup relating to the issuance of the BancGroup Common Stock to the shareholders of the Bank. Registration Statement The registration statement on Form S-4, or such other appropriate form, to be filed with the SEC by BancGroup, and which has been agreed to by the Bank, to register the shares of BancGroup Common Stock offered to stockholders of the Bank pursuant to this Agreement, including the Proxy Statement. Resulting Corporation Colonial Bank, as the surviving corporation resulting from the Merger. SEC United States Securities and Exchange Commission. Stockholders Meeting The special meeting of stockholders of the Bank called to approve the transactions contemplated by this Agreement. Subsidiaries Shall mean all those corporations, banks, associations, or other entities of which the entity in question owns or controls 5% or more of the outstanding equity securities either directly or through an unbroken chain of entities as to each of which 5% or more of the outstanding equity securities is owned directly or indirectly by its parent; provided, however, there shall not be included any such entity acquired through foreclosure or any such entity the equity securities of which are owned or controlled in a fiduciary capacity. Tax or Taxes Means any federal, state, county, local, foreign, and other taxes, assessments, charges, fares, and impositions, including interest and penalties thereon or with respect thereto. 1933 Act The Securities Act of 1933, as amended. 1934 Act The Securities Exchange Act of 1934, as amended. ARTICLE 15 MISCELLANEOUS 15.1 Expenses. Each Party hereto shall bear its own legal, auditing, trustee, investment banking, regulatory and other expenses in connection with this Agreement and the transactions contemplated hereby, except that BancGroup will pays the costs of filing fees for the Registration Statement and any applications filed with Agencies seeking approval of the Merger. 15.2 Benefit. This Agreement shall inure to the benefit of and be binding upon the Bank, Colonial Bank and BancGroup, and their respective successors. 15.3 Governing Law. 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. A-27 171 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 said term or provision shall remain valid and in effect in any other circumstances or situation. 15.7 Construction. Use of the masculine pronoun herein shall be deemed to refer to the feminine and neuter genders and the use of singular references shall be deemed to include the plural and vice versa, as appropriate. No inference in favor of or against any Party shall be drawn from the fact that such Party or such Party's counsel has drafted any portion of this Agreement. 15.8 Return of Information. In the event of termination of this Agreement prior to the Effective Date, each Party shall return to the other, without retaining copies thereof, all confidential or non-public documents, work papers and other materials obtained from the other Party in connection with the transactions contemplated in this Agreement and shall keep such information confidential, not disclose such information to any other person or entity, and not use such information in connection with its business. 15.9 Equitable Remedies. The parties hereto agree that, in the event of a breach of this Agreement by either Party, the other Party may be without an adequate remedy at law owing to the unique nature of the contemplated transactions. In recognition thereof, in addition to (and not in lieu of) any remedies at law that may be available to the non-breaching Party, the non-breaching Party shall be entitled to obtain equitable relief, including the remedies of specific performance and injunction, in the event of a breach of this Agreement by the other Party, and no attempt on the part of the non-breaching Party to obtain such equitable relief shall be deemed to constitute an election of remedies by the non-breaching Party that would preclude the non-breaching Party from obtaining any remedies at law to which it would otherwise be entitled. 15.10 Attorneys' Fees. If any Party hereto shall bring an action at law or in equity to enforce its rights under this Agreement (including an action based upon a misrepresentation or the breach of any warranty, covenant, agreement or obligation contained herein), the prevailing Party in such action shall be entitled to recover from the other Party its costs and expenses incurred in connection with such action (including fees, disbursements and expenses of attorneys and costs of investigation). 15.11 No Waiver. No failure, delay or omission of or by any Party in exercising any right, power or remedy upon any breach or Default of any other Party shall impair any such rights, powers or remedies of the Party not in breach or Default, nor shall it be construed to be a wavier of any such right, power or remedy, or an acquiescence in any similar breach or Default; nor shall any waiver of any single breach or Default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Party of any provisions of this Agreement must be in writing and be executed by the Parties to this Agreement and shall be effective only to the extent specifically set forth in such writing. 15.12 Remedies Cumulative. All remedies provided in this Agreement, by law or otherwise, shall be cumulative and not alternative. 15.13 Entire Contract. This Agreement and the documents and instruments referred to herein constitute the entire contract between the parties to this Agreement and supersede all other understandings with respect to the subject matter of this Agreement. A-28 172 IN WITNESS WHEREOF, the Bank, Colonial Bank and BancGroup have caused this Agreement to be signed by their respective duly authorized officers as of the date first above written. ATTEST: DOTHAN FEDERAL SAVINGS BANK BY: Charles A. Wilson BY: William M. Lee ITS: President ITS: Chairman (CORPORATE SEAL) ATTEST: COLONIAL BANK BY: Teresa R. Skipper BY: W. Flake Oakley ITS: Secretary ITS: Chief Financial Officer (CORPORATE SEAL) ATTEST: THE COLONIAL BANCGROUP, INC. BY: Teresa R. Skipper BY: W. Flake Oakley ITS: Assistant Secretary ITS: Chief Financial Officer (CORPORATE SEAL)
A-29 173 APPENDIX B OTS REGULATION REGARDING DISSENTERS' RIGHTS OF APPRAISAL SEC. 552.14 DISSENTER AND APPRAISAL RIGHTS. (a) Right to demand payment of fair or appraised value. Except as provided in paragraph (b) of this section, any stockholder of a Federal stock association combining in accordance with sec. 552.13 of this part shall have the right to demand payment of the fair or appraised value of his stock: Provided, That such stockholder has not voted in favor of the combination and complies with the provisions of paragraph (c) of this section. (b) Exceptions. No stockholder required to accept only qualified consideration for his or her stock shall have the right under this section to demand payment of the stock's fair or appraised value, if such stock was listed on a national securities exchange or quoted on the National Association of Securities Dealers' Automated Quotation System ("NASDAQ") on the date of the meeting at which the combination was acted upon or stockholder action is not required for a combination made pursuant to sec. 552.13(h)(2) of this part. "Qualified consideration" means cash, shares of stock of any association or corporation which at the effective date of the combination will be listed on a national securities exchange or quoted on NASDAQ, or any combination of such shares of stock and cash. (c) Procedure-(1) Notice. Each constituent Federal stock association shall notify all stockholders entitled to rights under this section, not less than twenty days prior to the meeting at which the combination agreement is to be submitted for stockholder approval, of the right to demand payment of appraised value of shares, and shall include in such notice a copy of this section. Such written notice shall be mailed to stockholders of record and may be part of management's proxy solicitation for such meeting. (2) Demand for appraisal and payment. Each stockholder electing to make a demand under this section shall deliver to the Federal stock association, before voting on the combination, a writing identifying himself or herself and stating his or her intention thereby to demand appraisal of and payment for his or her shares. Such demand must be in addition to and separate from any proxy or vote against the combination by the stockholder. (3) Notification of effective date and written offer. Within ten days after the effective date of the combination, the resulting association shall: (i) Give written notice by mail to stockholders of constituent Federal stock associations who have complied with the provisions of paragraph (c)(2) of this section and have not voted in favor of the combination, of the effective date of the combination; (ii) Make a written offer to each stockholder to pay for dissenting shares at a specified price deemed by the resulting association to be the fair value thereof; and (iii) Inform them that, within sixty days of such date, the respective requirements of paragraphs (c)(5) and (c)(6) of this section (set out in the notice) must be satisfied. The notice and offer shall be accompanied by a balance sheet and statement of income of the association the shares of which the dissenting stockholder holds, for a fiscal year ending not more than sixteen months before the date of notice and offer, together with the latest available interim financial statements. (4) Acceptance of offer. If within sixty days of the effective date of the combination the fair value is agreed upon between the resulting association and any stockholder who has complied with the provisions of paragraph (c)(2) of this section, payment therefor shall be made within ninety days of the effective date of the combination. (5) Petition to be filed if offer not accepted. If within sixty days of the effective date of the combination the resulting association and any stockholder who has complied with the provisions of paragraph (c)(2) of this section do not agree as to the fair value, then any such stockholder may file a petition with the Office, with a copy by registered or certified mail to the resulting association, demanding a determination of the fair market B-1 174 value of the stock of all such stockholders. A stockholder entitled to file a petition under this section who fails to file such petition within sixty days of the effective date of the combination shall be deemed to have accepted the terms offered under the combination. (6) Stock certificates to be noted. Within sixty days of the effective date of the combination, each stockholder demanding appraisal and payment under this section shall submit to the transfer agent his certificates of stock for notation thereon that an appraisal and payment have been demanded with respect to such stock and that appraisal proceedings are pending. Any stockholder who fails to submit his or her stock certificates for such notation shall no longer be entitled to appraisal rights under this section and shall be deemed to have accepted the terms offered under the combination. (7) Withdrawal of demand. Notwithstanding the foregoing, at any time within sixty days after the effective date of the combination, any stockholder shall have the right to withdraw his or her demand for appraisal and to accept the terms offered upon the combination. (8) Valuation and payment. The Director shall, as he or she may elect, either appoint one or more independent persons or direct appropriate staff of the Office to appraise the shares to determine their fair market value, as of the effective date of the combination, exclusive of any element of value arising from the accomplishment or expectation of the combination. Appropriate staff of the Office shall review and provide an opinion on appraisals prepared by independent persons as to the suitability of the appraisal methodology and the adequacy of the analysis and supportive data. The Director after consideration of the appraisal report and the advice of the appropriate staff shall, if he or she concurs in the valuation of the shares, direct payment by the resulting association of the appraised fair market value of the shares, upon surrender of the certificates representing such stock. Payment shall be made, together with interest from the effective date of the combination, at a rate deemed equitable by the Director. (9) Costs and expenses. The costs and expenses of any proceeding under this section may be apportioned and assessed by the Director as he or she may deem equitable against all or some of the parties. In making this determination the Director shall consider whether any party has acted arbitrarily, vexatiously, or not in good faith in respect to the rights provided by this section. (10) Voting and distribution. Any stockholder who has demanded appraisal rights as provided in paragraph (c)(2) of this section shall thereafter neither be entitled to vote such stock for any purpose nor be entitled to the payment of dividends or other distributions on the stock (except dividends or other distribution payable to, or a vote to be taken by stockholders of record at a date which is on or prior to, the effective date of the combination): Provided, That if any stockholder becomes unentitled to appraisal and payment of appraised value with respect to such stock and accepts or is deemed to have accepted the terms offered upon the combination, such stockholder shall thereupon be entitled to vote and receive the distributions described above. (11) Status. Shares of the resulting association into which shares of the stockholders demanding appraisal rights would have been converted or exchanged, had they assented to the combination, shall have the status of authorized and unissued shares of the resulting association. B-2 175 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS. Pursuant to section 145 of the Delaware General Corporation Law, as amended, and the Restated Certificate of Incorporation of the Registrant, officers, directors, employees, and agents of the Registrant are entitled to indemnification against liabilities incurred while acting in such capacities on behalf of the Registrant, including reimbursement of certain expenses. In addition, the Registrant maintains an officers and all of its directors insurance policy pursuant to which officers and directors of the Registrant are entitled to indemnification against certain liabilities, including reimbursement of certain expenses, and the Registrant has indemnity agreements with certain officers and all of its directors pursuant to which such persons may be indemnified by the Registrant against certain liabilities, including expenses. ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. (a) The following is a list of exhibits that are included in Part II of the Registration Statement. Such exhibits are separately indexed elsewhere in the Registration Statement. DESCRIPTION Exhibit 2 Plan of acquisition, reorganization, arrangement, liquidation of successor: Agreement and Plan of Merger by and among The Colonial BancGroup, Inc., Colonial Bank and Dothan Federal Savings Bank, dated as of January 22, 1996, included in the Prospectus portion of this Registration Statement at Appendix A and incorporated herein by reference. Exhibit 3 Articles of Incorporation and Bylaws: (A) Restated Certificate of Incorporation of the Registrant, filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K, dated February 21, 1995, and incorporated herein by reference. (B) Bylaws of the Registrant, filed as Exhibit 4.2 to the Registrant's Current Report on Form 8-K, dated February 21, 1995, and incorporated herein by reference. II-1 176 Exhibit 4 Instruments defining the rights of security holders: (A) Article 4 of the Restated Certificate of Incorporation of the Registrant filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K, dated February 21, 1995, and incorporated herein by reference. (B) Article II of the Bylaws of the Registrant filed as Exhibit 4.2 to the Registrant's Current Report on Form 8-K, dated February 21, 1995, and incorporated herein by reference. (C) Dividend Reinvestment and Class A Common Stock Purchase Plan of the Registrant dated January 15, 1986, and Amendment No. 1 thereto dated as of June 10, 1986, filed as Exhibit 4(C) to the Registrant's Registration Statement on Form S-4 (File No. 33-07015), effective July 15, 1986, and incorporated herein by reference. Exhibit 5 Opinion of Miller, Hamilton, Snider & Odom, L.L.C., as to certain Delaware law issues of the securities being registered. Exhibit 8 Tax Opinion of Miller, Hamilton, Snider & Odom, L.L.C. Exhibit 10 Material Contracts: (A)(1) Second Amendment and Restatement of 1982 Incentive Stock Plan of the Registrant, filed as Exhibit 4-1 to the Registrant's Registration Statement on Form S-8 (Commission Registration No. 33-41036), effective June 4, 1991, and incorporated herein by reference. (A)(2) Second Amendment and Restatement to 1982 Nonqualified Stock Option Plan of the Registrant filed as Exhibit 4-2 to the Registrant's Registration Statement on Form S-8 (Commission Registration No. 33-41036), effective June 4, 1991, and incorporated herein by reference). (A)(3) 1992 Incentive Stock Option Plan of the Registrant, filed as Exhibit 4-1 to Registrant's Registration Statement on Form S-8 (File No. 33-47770), effective May 8, 1992, and incorporated herein by reference. (A)(4) 1992 Nonqualified Stock Option Plan of the Registrant, filed as Exhibit 4-2 to Registrant's Registration Statement on Form S-8 (File No. 33-47770), effective May 8, 1992, and incorporated herein by reference. (B)(1) Residential Loan Funding Agreement between Colonial Bank and Colonial Mortgage Company dated January 18, 1988, included as Exhibit 10(B)(1) to 177 the Registrant's Registration Statement as Form S-4, file no. 33-52952, and incorporated herein by reference. (B)(2) Loan Agreement between the Registrant and SunBank, National Association, dated August 29, 1995. (C)(1) The Colonial BancGroup, Inc. First Amended and Restated Restricted Stock Plan for Directors, as amended, included as Exhibit 10(C)(1) to the Registrant's Registration Statement as Form S-4, file no. 33-52952, and incorporated herein by reference. (C)(2) The Colonial BancGroup, Inc., Stock Bonus and Retention Plan, included as Exhibit 10(C)(2) to the Registrant's Registration Statement as Form S-4, file no. 33-52952, and incorporated herein by reference. (D) Stock Purchase Agreement dated as of July 20, 1994, by and among The Colonial BancGroup, Inc., Colonial Bank, The Colonial Company, Colonial Mortgage Company, and Robert E., James K. and Thomas H. Lowder, included as Exhibit 2 in Registrant's registration statement on Form S-4, Registration No. 33-83692 and incorporated herein by reference. (E) Agreement and Plan of Merger between The Colonial BancGroup, Inc., and Commercial Bancorp of Georgia, Inc., dated as of December 21, 1995. (F) Amended and Restated Agreement and Plan of Merger between The Colonial BancGroup, Inc. and Southern Banking Corporation dated as of February 15, 1996. Exhibit 13 Registrant's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995, June 30, 1995 and September 30, 1995, and incorporated herein by reference. Exhibit 21 List of subsidiaries of the Registrant. Exhibit 23 Consents of experts and counsel: (A) Consent of Coopers & Lybrand, L.L.P. (B) Consent of Miller, Hamilton, Snider & Odom, L.L.C. (C) Consent of Arthur Andersen, L.L.P. 178 (D) Consent of Bricker & Melton, P.A. (E) Consent of Coopers & Lybrand, L.L.P. (F) Consent and report of Price Waterhouse LLP Exhibit 24 Power of Attorney. Exhibit 99 Additional exhibits: (A) Form of Proxy of Dothan Federal Savings Bank (B) Election Form (for Merger Consideration) (b) Financial Statement Schedules The financial statement schedules required to be included pursuant to this Item are not included herein because they are not applicable or the required information is shown in the financial statements or notes thereto. ITEM 22. UNDERTAKINGS. (a) The undersigned hereby undertakes as follows as required by Item 512 of Regulation S-K: (1) That prior to any public reoffering of the securities registered hereunder through use of a prospectus which is a part of this Registration Statement, by any person or party who is deemed to be an underwriter within the meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus will contain the information called for by the applicable registration form with respect to reofferings by persons who may be deemed underwriters, in addition to the information called for by the other Items of the applicable form. (2) That every prospectus (i) that is filed pursuant to paragraph (1) immediately above, or (ii) that purports to meet the requirements of section 10(a)(3) of the Act and is used in connection with an offering of securities subject to Rule 415, will be filed as a part of an amendment to the Registration Statement and will not be used until such amendment is effective, and that, for purposes of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new Registration Statement relating to such securities offered therein, and the offering of such 179 securities at that time shall be deemed to be the initial bona fide offering thereof. (3) Insofar as indemnification for liabilities arising under the Act may be permitted to directors, officers, and controlling persons of the Registrant, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. (b) The undersigned Registrant hereby undertakes to respond to requests for information that is incorporated by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of such request, and to send the incorporated documents by first class mail or other equally prompt means. This includes information contained in documents filed subsequent to the effective date of the Registration Statement through the date of responding to the request. (c) The undersigned Registrant hereby undertakes to supply by means of a post-effective amendment all information concerning a transaction, and the company being acquired involved therein, that was not the subject of and included in the Registration Statement when it became effective. (d) The undersigned Registrant hereby undertakes: (1) To file, during any period in which offers or sales are being made, a post-effective amendment to this Registration Statement: (i) To include any prospectus required by section 10(a)(3) of the Securities Act of 1933; (ii) To reflect in the prospectus any facts or events arising after the effective date of the Registration Statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the Registration Statement; 180 (iii) To include any material information with respect to the plan of distribution not previously disclosed in the Registration Statement or any material change to such information in the Registration Statement; Provided, however, that paragraphs (d)(1)(i) and (d)(1)(ii) do not apply if the information required to be included in a post-effective amendment by those paragraphs is contained in periodic reports filed by the Registrant pursuant to section 13 or section 15(d) of the Exchange Act that are incorporated by reference in the Registration Statement. (2) That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. (3) To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. (e) The undersigned Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act of 1933, each filing of the Registrant's annual report pursuant to section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing of an employee benefit plan's annual report pursuant to section 15(d) of the Securities Exchange Act of 1934) that is incorporated by reference in the Registration Statement shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. 181 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Montgomery, Alabama, on the 20th day of February, 1996. THE COLONIAL BANCGROUP, INC. By: /s/ Robert E. Lowder -------------------------- Robert E. Lowder Its Chairman of the Board of Directors, Chief Executive Officer, and President Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed below by the following persons in the capacities and on the dates indicated.
SIGNATURES TITLE DATE /s/ Robert E. Lowder Chairman of the Board ** - --------------------------- of Directors, President Robert E. Lowder and Chief Executive Officer /s/ W. Flake Oakley, IV Chief Financial ** - --------------------------- Officer, Secretary W. Flake Oakley, IV and Treasurer (Principal Financial Officer and Principal Accounting Officer) * Director ** - --------------------------- Young J. Boozer
182 * Director ** - --------------------------- William Britton * Director ** - --------------------------- Jerry J. Chesser * Director - --------------------------- Augustus K. Clements, III * Director ** - --------------------------- Robert C. Craft Director - --------------------------- Patrick F. Dye * Director ** - --------------------------- Clinton O. Holdbrooks * Director ** - --------------------------- D. B. Jones * Director ** - --------------------------- Harold D. King
183 * Director ** - --------------------------- John Ed Mathison * Director ** - --------------------------- Milton E. McGregor * Director ** - --------------------------- John C. H. Miller, Jr. * Director ** - --------------------------- Joe D. Mussafer * Director ** - --------------------------- William E. Powell * Director ** - --------------------------- Jack H. Rainer * Director ** - --------------------------- Frances E. Roper * Director ** - --------------------------- Ed V. Welch
184 * The undersigned, acting pursuant to a power of attorney, has signed this Registration Statement on Form S-4 for and on behalf of the persons indicated above as such persons' true and lawful attorney-in-fact and in their names, places and stead, in the capacities indicated above and on the date indicated below. /s/ W. Flake Oakley, IV - --------------------------- W. Flake Oakley, IV Attorney-in-Fact ** Dated: February 20, 1996 185 EXHIBIT INDEX
EXHIBIT PAGE - ------- ---- Exhibit 2 Plan of acquisition, reorganization, arrangement, liquidation of successor: Agreement and Plan of Merger by and among The Colonial BancGroup, Inc., Colonial Bank, and Dothan Federal Savings Bank, dated as of January 22, 1996, included in the Prospectus portion of this registration statement at Appendix A and incorporated herein by reference. Exhibit 3 Articles of Incorporation and Bylaws: (A) Restated Certificate of Incorporation of the Registrant, filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K, dated February 21, 1995, and incorporated herein by reference. (B) Bylaws of the Registrant, as amended, filed as Exhibit 4.2 to the Registrant's Current Report on Form 8-K, dated February 21, 1995, and incorporated herein by reference. Exhibit 4 Instruments defining the rights of security holders: (A) Article 4 of the Restated Certificate of Incorporation of the Registrant filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K, dated February 21, 1995, and incorporated herein by reference. (B) Article II of the Bylaws of the Registrant filed as Exhibit 4.2 to the Registrant's Current Report on Form 8-K, dated February 21, 1995, and incorporated herein by reference. (C) Dividend Reinvestment and Class A Common Stock Purchase Plan of the Registrant dated January 15, 1986, and Amendment No. 1 thereto dated as of June 10, 1986, filed as Exhibit 4(C) to the Registrant's Registration Statement on Form S-4 (File No. 33-07015), effective July 15, 1986, and incorporated herein by reference.
186 Exhibit 5 Opinion of Miller, Hamilton, Snider & Odom, L.L.C. as to certain Delaware law issues of the securities being registered. Exhibit 8 Tax Opinion of Miller, Hamilton, Snider & Odom, L.L.C. Exhibit 10 Material Contracts: (A)(1) Second Amendment and Restatement of 1982 Incentive Stock Plan of the Registrant, filed as Exhibit 4-1 to the Registrant's Registration Statement on Form S-8 (Commission Registration No. 33-41036), effective June 4, 1991, and incorporated herein by reference. (A)(2) Second Amendment and Restatement to 1982 Nonqualified Stock Option Plan of the Registrant filed as Exhibit 4-2 to the Registrant's Registration Statement on Form S-8 (Commission Registration No. 33- 41036), effective June 4, 1991, and incorporated herein by reference). (A)(3) 1992 Incentive Stock Option Plan of the Registrant, filed as Exhibit 4-1 to Registrant's Registration Statement on Form S-8 (File No. 33-47770), effective May 8, 1992, and incorporated herein by reference. (A)(4) 1992 Nonqualified Stock Option Plan of the Registrant, filed as Exhibit 4-2 to Registrant's Registration Statement on Form S-8 (File No. 33-47770), effective May 8, 1992, and incorporated herein by reference. (B)(1) Residential Loan Funding Agreement between Colonial Bank and Colonial Mortgage Company dated January 18, 1988, included as Exhibit 10(B)(1) to the Registrant's Registration Statement as Form S-4, file no. 33-52952, and incorporated herein by reference. (B)(2) Loan Agreement between the Registrant and SunBank, National Association, dated August 29, 1995. (C)(1) The Colonial BancGroup, Inc. First Amended and Restated Restricted Stock Plan for Directors, as amended, included as Exhibit 10(C)(1) to the Registrant's Registration Statement as
187 Form S-4, file no. 33-52952, and incorporated herein by reference. (C)(2) The Colonial BancGroup, Inc., Stock Bonus and Retention Plan, included as Exhibit 10(C)(2) to the Registrant's Registration Statement as Form S-4, file no. 33-52952, and incorporated herein by reference. (D) Stock Purchase Agreement dated as of July 20, 1994, by and among The Colonial BancGroup, Inc., Colonial Bank, The Colonial Company, Colonial Mortgage Company, and Robert E., James K. and Thomas H. Lowder, included as Exhibit 2 in Registrant's registration statement on Form S-4, Registration No. 33-83692 and incorporated herein by reference. (E) Agreement and Plan of Merger between The Colonial BancGroup, Inc., and Commercial Bancorp of Georgia, Inc., dated as of December 21, 1996. (F) Amended and Restated Agreement and Plan of Merger between The Colonial BancGroup, Inc. and Southern Banking Corporation dated as of February 15, 1996. Exhibit 13 Registrant's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995, June 30, 1995, and September 30, 1995, and incorporated herein by reference. Exhibit 21 List of subsidiaries of the Registrant. Exhibit 23 Consents of experts and counsel: (A) Consent of Coopers & Lybrand, L.L.P. (B) Consent of Miller, Hamilton, Snider & Odom, L.L.C. (C) Consent of Arthur Andersen, L.L.P. (D) Consent of Bricker & Melton, P.A. (E) Consent of Coopers & Lybrand, L.L.P. (F) Consent and report of Price Waterhouse LLP Exhibit 24 Power of Attorney.
188 Exhibit 99 Additional exhibits: (A) Form of Proxy of Dothan Federal Savings Bank (B) Election Form (For Merger Consideration)
EX-5 2 OPINION OF MILLER, HAMILTON, SNIDER & ODOM 1 EXHIBIT 5 (On Miller, Hamilton, Snider & Odom, L.L.C. Letterhead) February 8, 1996 Montgomery Office The Colonial BancGroup, Inc. P. O. Box 1108 Montgomery, AL 36101 Re: Registration Statement on Form S-4 relating to the issuance of shares of Common Stock of The Colonial BancGroup, Inc., in connection with the acquisition by merger of Dothan Federal Savings Bank ("Merger") Gentlemen: We are familiar with the proceedings taken and proposed to be taken by The Colonial BancGroup, Inc., a Delaware corporation (the "Company"), in connection with the proposed issuance by the Company of shares of its Common Stock, par value of $2.50 per share, in connection with the Merger and in accordance with an Agreement and Plan of Merger, dated as of January 22, 1996 (the "Agreement"), by and between the Company, Colonial Bank and Dothan Federal Savings Bank. We have also acted as counsel for the Company in connection with the preparation and filing with the Securities and Exchange Commission under the Securities Act of 1933, of the Registration Statement on Form S-4 referred to in the caption above. In this connection we have reviewed such documents and matters of law as we have deemed relevant and necessary as a basis for the opinions expressed herein. Upon the basis of the foregoing, we are of the opinion that: (i) The Company is a corporation duly organized and existing under the laws of the State of Delaware; 2 The Colonial BancGroup February 8, 1996 Page 2 (ii) The shares of Common Stock of the Company referred to above, to the extent actually issued pursuant to the Agreement will, when so issued, be duly and validly authorized and issued and will be fully paid and nonassessable shares of Common Stock of the Company; (iii) Under the laws of the State of Delaware, no personal liability attaches to the ownership of the shares of Common Stock of the Company. We hereby consent to the filing of this opinion as an exhibit to the above-referenced registration statement. In consenting to the inclusion of our opinion in the Registration Statement, we do not thereby admit that we are a person whose consent is required pursuant to Section 7 of the Securities Act of 1933, as amended. Sincerely yours, MILLER, HAMILTON, SNIDER & ODOM, L.L.C. By: /s/ Michael D. Waters --------------------------------- Michael D. Waters MDW/lwb EX-8 3 TAX OPINION OF MILLER, HAMILTON, SNIDER & ODOM 1 EXHIBIT 8 [On Miller, Hamilton, Snider & Odom, L.L.C. Letterhead] February 8, 1996 Montgomery Office Dothan Federal Savings Bank 1962 West Main Street Dothan, Alabama 36302 Re: Tax Opinion Gentlemen: We have acted as counsel to The Colonial BancGroup, Inc., a Delaware corporation ("BancGroup"), in connection with the merger (the "Merger") of Dothan Federal Savings Bank (the "Bank") with and into BancGroup's wholly-owned subsidiary, Colonial Bank ("Colonial Bank"), pursuant to the Agreement and Plan of Merger, dated as of January 22, 1996 (the "Agreement") by and between BancGroup, Colonial Bank and the Bank. This opinion is being rendered to you pursuant to paragraph 8.5 of the Agreement. In rendering this opinion, we have relied upon the facts, which are not restated herein, but rather, as they have been presented to us in the Agreement, and in a preliminary joint proxy statement-prospectus of the Bank, Colonial Bank and BancGroup to be filed with the Securities and Exchange Commission. We have assumed, with your consent, that the facts presented to us provide an accurate and complete description of the facts and circumstances concerning the proposed transaction. Any changes to the facts, representations, or documents referred to in this opinion may affect the conclusions stated herein. In connection with this opinion, we have assumed, with your consent, the following: (1) BancGroup does not plan to sell or otherwise dispose of any of the stock of 2 February 8, 1996 Page 2 Colonial Bank or to liquidate Colonial Bank after the Merger. (2) Colonial Bank will continue the historic business of the Bank or will use a significant portion of the historic business assets of the Bank in a business. (3) The Bank has no knowledge of any plan or intention on the part of its shareholders to sell or otherwise dispose of the BancGroup common stock to be received by them that would reduce their holdings to a number of shares having, in the aggregate, a fair market value of less than fifty percent of the total fair market value of the Bank common stock outstanding immediately before the Merger. (4) As a result of the Merger, each share of the issued and outstanding Bank common stock will be converted into the right to receive BancGroup common stock. (5) No fractional shares will be issued in the Merger. In the event fractional shares result in the exchange, the Bank shareholders entitled to fractional shares will be paid cash by BancGroup for their fractional shares. (6) The fair market value of the BancGroup common stock to be received by the Bank shareholders will be approximately equal to the fair market value of the Bank stock exchanged therefor. (7) The proposed Merger will be effected for substantial non-tax business purposes. (8) Colonial Bank will acquire at least 90% of the fair market value of the net assets and at least 70% of the fair market value of the gross assets held by the Bank immediately prior to the Merger. For purposes of this representation, Bank assets used to pay its reorganization expenses, and all redemptions and distributions (except for regular, normal dividends) made by the Bank immediately preceding the Merger and all payments to dissenters, if any, will be included as assets of the Bank held immediately prior to the Merger. (9) The Bank is not under the jurisdiction of a court in a Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Internal Revenue Code of 1986, as amended (the "Code"). On the basis of the foregoing and our consideration of such other matters as we have considered necessary, we advise you that, in our opinion, for federal income tax purposes: (1) The merger of the Bank with and into Colonial Bank in accordance with the terms of the Agreement will constitute a reorganization within the meaning of Sections 368(a)(1)(A) and 368 (a)(2)(D) of the Code. The Bank, Colonial Bank and BancGroup will 3 February 8, 1996 Page 3 each be a "party to a reorganization" under Section 368(b) of the Code. (2) No gain or loss will be recognized by the Bank upon the transfer of its assets and liabilities to Colonial Bank. Sections 357(a) and 361(a) of the Code. (3) A Bank shareholder who exchanges shares of Bank stock for a combination of BancGroup common stock and cash as described in the Agreement shall recognize gain, if any, but in an amount not in excess of the sum of such cash received. The amount of the gain realized will be the excess of (a) the sum of (i) the amount of cash received and (ii) the fair market value of the shares of BancGroup common stock received, over (b) the tax basis of the shares of Bank stock exchanged therefore. No loss shall be recognized. Sections 356(a)(1), (c). (4) Any gain recognized by a shareholder of the Bank will be characterized as a capital gain if the Bank stock is a capital asset in the hands of such shareholder and the receipt of the cash does not have "the effect of the distribution of a dividend" within the meaning of Section 356 (a)(2) of the Code as interpreted by the United States Supreme Court in Commissioner v. Clark, 489 U.S. 726 (1989). Pursuant to Clark, it will be assumed that BancGroup issued all stock to each of the Bank shareholders and then BancGroup redeemed a portion of such stock for the amount of cash that was actually issued. If that hypothetical redemption satisfies any of the tests of Section 302(b) of the Code, the hypothetical redemption will be treated as an exchange. Otherwise, the receipt of the cash will be treated as a dividend under Section 356(a)(2) of the Code. In the present case, the Bank shareholders should be able to satisfy one or more of the tests of Section 302(b) of the Code. However, the application of such provisions is dependent upon each shareholders' facts and circumstances and is affected by the attribution rules of Section 318 of the Code. Consequently, shareholders should seek independent tax advice as to the tax effect of the Merger, including the receipt of the cash, to them. (5) A dissenting Bank shareholder, who is not deemed to own any shares of BancGroup under the constructive ownership rules of Section 318 of the Code (see the discussion below of Section 318 of the Code), and who receives only cash in exchange for his shares of Bank stock, will recognize gain or loss equal to the difference between the amount of cash received and the shareholder's basis in the shares of Bank stock surrendered. Section 1001 of the Code. Such gain or loss will be capital gain or loss if the shares are capital assets in the hands of the shareholder. (6) The constructive ownership rules of Section 318 of the Code apply in determining whether the receipt of cash has "the effect of the distribution of a dividend" and whether a dissenting Bank shareholder who actually has received all cash is deemed to have received a combination of cash and BancGroup common stock. Under these rules, shares subject to options and shares owned (or, in some cases, constructively owned) by members of the shareholder's family, and by related entities (such as corporations, partnerships, 4 February 8, 1996 Page 4 trusts, and estates) in which the shareholder, a member of his family, or a related entity has an interest may be counted as owned by the shareholder. Similarly, an entity may be treated as owning shares owned by related persons or entities (such as shareholders, partners, or beneficiaries). (7) The tax basis of the BancGroup common stock received by a Bank shareholder will be the same as the adjusted tax basis of the shares of Bank stock exchanged, decreased by the amount of cash received and increased by the amount treated as a dividend and the amount of gain recognized on the exchange. Section 358(a)(1) of the Code. (8) The holding period of the BancGroup common stock received by a Bank shareholder will include the holding period of the shares of Bank stock exchanged therefor if such shares were capital assets in the hands of the exchanging shareholder. Section 1223(1) of the Code. (9) Cash received in lieu of a fractional share interest in BancGroup common stock will be treated as received in payment for such interest. Rev. Rul. 66-365, 1966 - 2 C.B. 116. The shareholder will recognize gain or loss equal to the difference between the cash received and the basis of such fractional share interest. (10) Payment of cash for fractional shares should not effect the classification of the Merger as a reorganization under Section 368(a) of the Code, even though the total amount of cash paid in the Merger may exceed 50% of the total consideration paid. Though the IRS specifies for advance ruling purposes that no more than 50% of the total consideration may consist of cash or property other than the acquiring corporation's stock, that position is not a rule of substantive law and courts have held that Merger transactions qualified as reorganizations with cash and non-stock payments of greater than 50%. In the present case, the total cash consideration should be only slightly greater than 50% of the total consideration and the merger should not fail to qualify as a reorganization under Section 368(a) of the Code as a result of cash payments to holders of fractional shares. Very truly yours, /s/ MILLER, HAMILTON, SNIDER & ODOM, L.L.C. EX-10.(B)(2) 4 LOAN AGREEMENT W/SUNBANK DATED 8/29/96 1 EXHIBIT 10(B)(2) ================================================================================ LOAN AGREEMENT By and Between THE COLONIAL BANCGROUP, INC. (the Company) AND SUN BANK NATIONAL ASSOCIATION (the Bank) August 29, 1995 ================================================================================ 2 TABLE OF CONTENTS (The Table of Contents for this Loan Agreement is for convenience of reference only and is not intended to define, limit or describe the scope or intent of any provisions of this Loan Agreement.)
PAGE ---- ARTICLE ONE DEFINITIONS AND ACCOUNTING TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 SECTION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 SECTION 1.2 Accounting Terms; Testing of Financial Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 SECTION 1.3 Subsidiary Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ARTICLE TWO AMOUNT AND TERM OF THE LOAN . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 2.1 The Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 2.2 Interest on The Note . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 SECTION 2.3 Prepayment of the Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 SECTION 2.4 Calculation of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 2.5 Place of Payment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 2.6 Set-Off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 SECTION 2.8 Application of Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 3.1 Organization, Corporate Powers, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 3.2 Authorization of Loan, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 SECTION 3.3 Tax Returns and Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 3.4 Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 3.5 Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SECTION 3.6 Changes in Financial Conditions; Adverse Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 3.7 Litigation, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 3.8 Principal Place of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 3.9 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 3.10 Title to Properties and Assets, Liens, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 SECTION 3.11 Outstanding Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 3.12 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 3.13 Regulation G, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 ARTICLE FOUR COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 4.1 Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 SECTION 4.2 Negative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 ARTICLE FIVE CONDITIONS OF LENDING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 5.1 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 5.2 No Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 5.3 Loan Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 SECTION 5.4 Supporting Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3
PAGE ---- ARTICLE SIX EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 ARTICLE SEVEN RIGHTS UPON DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 7.1 Acceleration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 SECTION 7.2 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 7.3 Other Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 7.4 Uniform Commercial Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 ARTICLE EIGHT MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 8.1 Cumulative Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 8.2 Amendments, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 8.3 Addresses for Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 SECTION 8.4 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 8.5 Survival of Representations and Warranties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 8.6 Time of the Essence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 8.7 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 8.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 8.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 SECTION 8.10 Conflict . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 8.11 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 8.12 Cross Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 8.13 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 8.14 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 SECTION 8.15 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 8.16 No Third Party Beneficiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 8.17 Waiver of Jury Trial . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 8.18 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 SECTION 8.19 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 LIST OF SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . . 27
4 LOAN AGREEMENT THIS LOAN AGREEMENT is made and entered into this 29th day of August, 1995, by and between: THE COLONIAL BANCGROUP, INC., a Delaware corporation, Post Office Box 1108, Montgomery, Alabama 36192 (hereinafter referred to as the "Company"); and SUN BANK, NATIONAL ASSOCIATION, a national banking association, 200 South Orange Avenue, P.O. Box 3833, Orlando, Florida 32802 (hereinafter referred to as the "Bank"). W I T N E S S E T H: WHEREAS, the Company has requested the Bank to extend a line of credit loan to it up to the maximum principal amount of $15,000,000; and WHEREAS, the Bank is willing to make such loan upon the terms and conditions set forth in this Agreement; NOW, THEREFORE, for and in consideration of the above premises and the mutual covenants and agreements contained herein, the Company and the Bank agree as follows: ARTICLE ONE DEFINITIONS AND ACCOUNTING TERMS SECTION 1.1 Definitions. For the purposes of this Agreement, the following terms shall have the respective meanings specified in this Section 1.1 (such meanings to be equally applicable to both the singular and plural forms of the terms defined): "Agreement" shall mean this Loan Agreement as originally executed by the parties hereto and all permitted amendments, modifications and restatements hereof. "Average Total Assets" shall mean twenty-five percent (25%) of the aggregate sum of the Company's consolidated total assets as indicated on the Company's four (4) most recent quarterly financial statements submitted pursuant to Section 4.1 hereof. "Banking Day" shall mean any day other than a Saturday, Sunday or Day on which commercial banks are authorized to close under the laws of State of Florida. 5 "Collateral" shall mean one hundred percent (100%) of all of the issued and outstanding shares of common stock of all present and future Subsidiaries of the Company. "Day" shall mean a calendar day, unless the context indicates otherwise. "Default Rate" shall mean the lesser of (i) twenty-five percent (25%) per annum or (ii) the highest rate of interest permitted from time to time by applicable law. "Dollars" shall mean lawful money of the United States of America. "Due Date" shall mean the date any payment of principal or interest is due and payable on the Loan or Note. "Event of Default" shall mean an event of default specified in Article Six of this Agreement. "GAAP" shall mean generally accepted accounting principles consistently applied to the particular item. "Interest Period" shall mean any interest period applicable to the Loan as determined pursuant to Section 2.2 hereof. "Interest Rate" shall mean the applicable interest rate as determined pursuant to Section 2.2 hereof; provided, however, the Interest Rate shall never exceed the maximum rate allowed by law from time to time. "Interest Rate Determination Date" shall mean each date for calculating the LIBOR for purposes of determining the interest rate in respect of an Interest Period. The Interest Rate Determination Date shall be the Banking Day prior to the first Day of the related Interest Period. "LIBOR" shall mean, with respect to any Interest Period, the thirty (30) Day, sixty (60) Day, ninety (90) Day or one hundred eighty (180) Day LIBOR Rate (in accordance with the length of the designated Interest Period) in effect on the Interest Rate Determination Date as published from time to time in Telerate or such other publication as may be designated by the Bank from time to time. "Liabilities" shall mean all liabilities and obligations of the Company, all as determined in accordance with GAAP. "Loan" shall mean the revolving line of credit loan made by the Bank to the Company pursuant to the terms of this Agreement. 5 6 "Loan Documents" shall mean this Agreement, the Note, the First Amendment to Pledge Agreement, and all of the other documents, agreements, certificates, schedules, notes, statements and opinions, however described, referenced herein or executed or delivered pursuant hereto or in connection with or arising with the Loan or the transactions contemplated by this Agreement. "Margin Securities" shall mean any margin securities within the meaning of Regulation G of the Board of Governors of the Federal Reserve System (12 C.F.R. Part 207). "Maturity Date" shall mean (i) August 29, 1997 or (ii) the earlier occurrence of an Event of Default. "Net Income" shall mean, for any period, the aggregate of the net income of the Company, determined in accordance with GAAP. "Net Loans" shall mean the sum of Company's (i) total loans less unearned income, (ii) Other Real Estate and (iii) repossessions, less (iv) mortgages held for sale in the ordinary course of business. "Non-accrual Loans" shall mean loans in which the accrual of interest has been discontinued due to a deterioration in the financial condition of any borrower. "Nonperforming Assets" shall mean the sum of the Company's (i) Non-accrual Loans, (ii) Other Real Estate, (iii) Restructured Loans and (iv) repossessions. "Nonperforming Assets to Net Loans Ratio" shall mean the ratio of Company's Nonperforming Assets to its Net Loans calculated as set forth in Section 1.2 of this Agreement. "Note" shall mean the Company's promissory note evidencing the Loan together with all amendments, modifications, supplements or renewals thereto or thereof. "Obligations", with respect to the Company, shall mean, individually and collectively, all payment and performance duties, obligations and liabilities of the Company to the Bank, however and whenever incurred, acquired or evidenced, whether primary or secondary, direct or indirect, absolute or contingent, sole or joint and several, or due or to become due, including, without limitation, all such duties, obligations and liabilities of the Company to the Bank, under and pursuant to the Loan Documents and all renewals, modifications or extensions of any thereof. "Other Real Estate" shall mean real estate acquired by the Company or any of the Subsidiaries as a result of a deterioration in the financial position of any borrower. 6 7 "Person" shall mean any individual, joint venturer, partnership, firm, corporation, trust, unincorporated organization or other organizational entity, or a governmental body or any department or agency thereof, and shall include both the singular and the plural. "Pledge Agreement" shall mean, collectively, that certain Pledge Agreement dated August 6, 1993 and that certain First Amendment to Pledge Agreement dated of even date herewith executed by the Company in favor of the Bank pledging the Collateral, together with all amendments and modifications thereof. "Primary Capital" shall mean the sum of Company's (i) total equity capital, (ii) allowance for loan and lease losses and (iii) minority interests in consolidated Subsidiaries. "Primary Capital to Total Assets Ratio" shall mean the ratio of Company's Primary Capital to its total assets calculated as set forth in Section 1.2 of this Agreement. "Principal Place of Business" shall mean the principal place of business and the headquarters of the Company at which all of its records are kept which is noted in the preamble of this Agreement. "Restructured Loans" shall mean loans classified as restructured on the Company financial statements, in accordance with the requirements of the Federal Deposit Insurance Corporation. "Return on Assets Ratio" shall mean the ratio of Company's Net Income for the current quarter and preceding three (3) quarters to its Average Total Assets calculated as set forth in Section 1.2 of this Agreement. "Subsidiary" or "Subsidiaries" shall mean, individually or collectively, as the context may require, any national or state banking association, corporation or other entity whose assets and income are at any time includible in the financial statements of the Company in accordance with GAAP, and shall include subsidiaries of a Subsidiary. "UCC" shall mean the Florida Uniform Commercial Code, Chapters 671 to 680, inclusive. SECTION 1.2 Accounting Terms; Testing of Financial Ratios. All accounting terms used herein shall be construed in accordance with GAAP and all financial data submitted pursuant to this Agreement shall be prepared in accordance with GAAP. In the event of ambiguities in GAAP, the more conservative principle or interpretation shall be used. All financial ratios and covenants contained herein shall be tested quarterly, as at the end of each fiscal quarter of the Company, commencing with the fiscal quarter ending as at June 30, 1995. Compliance with such ratios and 7 8 covenants shall be tested on a "rolling four (4) quarters" basis by calculating the average of each such ratio for the most recently ended fiscal quarter and the three (3) fiscal quarters immediately preceding the most recently ended fiscal quarter. SECTION 1.3 Subsidiary Compliance. Whenever the term "Company" is used throughout this Agreement, it shall mean to include, if applicable in the context as so used, the Subsidiaries such that the Company and each of the Subsidiaries shall perform, be in compliance with or otherwise discharge the applicable term or condition of this Agreement. ARTICLE TWO AMOUNT AND TERM OF THE LOAN SECTION 2.1 The Loan. Upon the execution hereof and the Company's compliance with the terms of Article Five hereof, the Bank shall extend to the Company, subject to the terms and conditions set forth in this Agreement, a revolving line of credit loan in the maximum principal amount of Fifteen Million Dollars ($15,000,000.00). During the term of the Loan, and provided the Loan is not in default, the sums borrowed under the Note may from time to time be repaid, in full or in part, and thereafter reborrowed. SECTION 2.2 Interest on The Note. The Loan shall be evidenced by the Note and shall be due and payable in accordance with and as required by Section 2.7. The Note shall bear interest from the date thereof on the unpaid principal balance thereof from time to time outstanding as follows: (a) The Interest Rate for each Interest Period shall be: (i) floating at the Prime Rate; or (ii) floating at one and one-half (1 1/2) percentage points (i.e., 150 basis points) in excess of the thirty (30) Day, sixty (60) Day, ninety (90) Day, one hundred twenty (120) Day or one hundred eighty (180) Day LIBOR; or (iii) fixed at one and one-half (1 1/2) percentage points (i.e., 150 basis points) in excess of the annual yield on the highest yielding United States Treasury issue maturing in the calendar month closest to the maturity date of the Note, as published in the Wall Street Journal on the fifth (5th) Banking Day prior to selection of this rate. 8 9 (b) The Interest Rate set forth in a) (i) and (iii) above, shall be selected by the Company for thirty (30) day Interest Periods only. (c) The Interest Rate set forth in a) (ii) above, shall be determined with reference to the LIBOR for the Interest Period selected. (d) The Company shall give the Bank notice (in writing or by telephone confirmed in writing) of the selection of the applicable Interest Rate at least five (5) Banking Days prior to the end of the next preceding Interest Period. If the Company does not so provide notice to the Bank of the selection of any Interest Rate, then the Company's selection for the immediately preceding Interest Period shall carry over until changed by the Company in accordance with the procedure contained in this Article 2.2. (e) Each Interest Period shall commence on the Day on which the next preceding Interest Period expires unless any Interest Period would otherwise expire on a Day which is not a Banking Day, in which event it shall be extended to expire on the next succeeding Banking Day; provided, that if any Interest Period would otherwise expire on a Day which is not a Banking Day, but is a day of the month after which no further Banking Day occurs in that month, that Interest Period shall expire on the next preceding Banking Day. Any Interest Period which begins on the last Banking Day of a calendar month (or on a day for which there is no numerically corresponding day on the calendar month at the end of such Interest Period) shall end on the last Banking Day of a calendar month. (f) As soon as practicable after 11:00 a.m. (Orlando, Florida time) on each Interest Rate Determination Date, the Bank shall determine (which determination shall, absent manifest error, be final, conclusive and binding upon all parties) the Interest Rate which shall apply for the next succeeding Interest Period and shall promptly give notice thereof (in writing or by telephone confirmed in writing) to the Company. From and after the Due Date, interest shall accrue on the unpaid principal balance of the Loan and on all accrued but unpaid interest thereon, or on such defaulted payment, from the Due Date at the Default Rate. Such interest shall continue to accrue until the date of payment in full of all principal and accrued but unpaid interest of such defaulted payment, if applicable. SECTION 2.3 Prepayment of the Loan. The Company may prepay all or any part of the principal amount of the Loan outstanding; provided, however, that each permitted partial prepayment shall be applied to the reduction of the Loan, in such manner as the Bank may, in its sole discretion, elect and, further provided, that on the date of the prepayment, there shall exist no Default and all 9 10 accrued but unpaid interest on the amount of the prepayment through the prepayment date, whether or not due and payable, shall be paid in full prior to any prepayment. Each prepayment other than full payment shall be made prior to 2:00 p.m. (Orlando time) on the date of the prepayment, and shall be made on a Banking Day in immediately available funds. Any prepayment made by the Company shall be applied to amounts due under the Loan in such manner as the Bank may designate in its absolute discretion. SECTION 2.4 Calculation of Interest. Any interest due on the Loan or any other Obligations shall be calculated on the basis of a year containing 365 Days. The interest due on any date for payment of interest hereunder shall be that interest to the extent accrued as of midnight on the last Day immediately prior to that interest payment date. Notwithstanding anything herein or in any Loan Document to the contrary, the sum of all interest and all other amounts deemed interest under Florida or other applicable law which may be collected by the Bank hereunder shall not exceed the maximum lawful interest rate permitted by such law from time to time. The Bank and the Company intend and agree that under no circumstance shall the Company be required to pay interest on the Loan or on any other Obligations at a rate in excess of the maximum interest rate permitted by applicable law from time to time, and in the event any such interest is received or charged by the Bank in excess of that rate, the Company shall be entitled to an immediate refund of any such excess interest by a credit to and payment toward the unpaid balance of the Loan (such credit to be considered to have been made at the time of the payment of the excess interest) with any excess interest not so credited to be immediately paid to the Company by the Bank. SECTION 2.5 Place of Payment. All payments by the Company under the Loan Documents shall be made to the Bank at its banking house at Orlando, Florida, in lawful money of the United States of America and in immediately available funds. SECTION 2.6 Set-Off. The Company hereby grants to the Bank a lien on, and a security interest in, the deposit balances, accounts, items, certificates of deposit and monies of the Company in the possession of or on deposit with the Bank to secure and as collateral for the payment and performance of the Obligations. Upon default, the Bank may at any time and from time to time, without demand or notice, appropriate and set-off against and apply the same to the Obligations when and as due and payable. SECTION 2.7 Payment of Note. The Company shall pay the Note together with interest at the rate determined in accordance with Section 2.2 as follows: (a) Interest on the unpaid principal amount of the Note shall be payable quarterly on the last Day of each quarter during the term of this Agreement, commencing September 30, 1995 and 10 11 continuing on the same Day of each and every succeeding quarter during the term hereof until the Maturity Date. (b) The outstanding principal balance of the Loan, together with all accrued but unpaid interest, shall be payable in full on the Maturity Date. SECTION 2.8 Application of Payments. All payments made on the Note shall be applied first to interest accrued to the date of payment and next to the unpaid principal balance; provided, however, in the event an Event of Default occurs, payments shall be applied first to any costs or expenses, including attorneys fees, that the Bank may incur in exercising its rights under the Loan Documents, as the Bank may determine. ARTICLE THREE REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Bank that: SECTION 3.1 Organization, Corporate Powers, Etc. (a) The Company (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, (ii) has all requisite power and authority, corporate and otherwise, to own its properties and assets and to carry on its business as now conducted and proposed to be conducted, (iii) is duly qualified to do business and is in good standing in every jurisdiction in which the character of its properties or assets owned or the nature of its activities conducted makes such qualification necessary, and (iv) has the corporate power and authority to execute and deliver, and to perform its obligations under this Agreement, the Note, the Pledge Agreement and the other Loan Documents. (b) Each Subsidiary (i) is a duly organized, validly existing corporation and in good standing under the laws of the United States of America in the jurisdiction in which formed, (ii) has all requisite power and authority, corporate and otherwise, to own its properties and assets and to carry on its business as now conducted and proposed to be conducted, (iii) is duly qualified to do business and is in good standing in every jurisdiction in which the character of its properties or assets owned or the nature of its activities conducted makes such qualification necessary, and (iv) has the corporate power and authority to execute and deliver, and to perform its obligations under those Loan Documents to which it is a party. SECTION 3.2 Authorization of Loan, Etc. The execution, delivery and performance of the Loan Documents by the Company (a) 11 12 have been duly authorized by all requisite corporate action (no shareholder action being required pursuant to applicable law) and (b) will not (i) violate (1) any provision of law, any governmental rule or regulation, any order of any court or other agency of government or the Articles of Incorporation or bylaws of the Company or (2) any provision of any indenture, agreement or other instrument to which the Company is a party or by which it or any of its properties or assets are bound, (ii) be in conflict with, result in a breach of or constitute (with due notice or lapse of time or both) a default under any such indenture, agreement or other instrument, or (iii) result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of the Company other than as permitted by the terms hereof. SECTION 3.3 Tax Returns and Payments. All federal, state and local tax returns and reports of the Company required to be filed have been filed, and all taxes, assessments, fees and other governmental charges upon the Company, or upon any of its properties, assets, incomes or franchises, which are due and payable in accordance with such returns and reports, have been paid, other than those presently (a) payable without penalty or interest, or (b) contested in good faith and by appropriate and lawful proceedings prosecuted diligently. The aggregate amount of the taxes, assessments, charges and levies so contested is not material to the condition (financial or otherwise) and operations of the Company. The charges, accruals, and reserves on the books of the Company in respect of federal, state and local taxes for all fiscal periods to date are adequate and the Company knows of no other unpaid assessment for additional federal, state or local taxes for any such fiscal period or of any basis therefor. SECTION 3.4 Agreements. (a) The Company is not a party to any agreement, indenture, lease or instrument or subject to any charter or other corporate restriction or any judgment, order, writ, injunction, decree, rule or regulation materially and adversely affecting its business, properties, assets, operations or condition (financial or otherwise). There are no unrealized losses with respect to any such agreement, indenture, lease or instrument. (b) The Company is not in default in the performance, observance or fulfillment of any of the material obligations, covenants or conditions contained in any material agreement or instrument to which it is a party. SECTION 3.5 Financial Statements. The Company has furnished the Bank with its financial statements as of December 31, 1994. Such financial statements are true and correct in all material respects. There has been no material adverse change in the business, condition or operations (financial or otherwise) of 12 13 the Company and the Subsidiaries taken as a whole since the date of the financial statements referred to above. SECTION 3.6 Changes in Financial Conditions; Adverse Developments. From the date of the annual financial statements referenced in Section 3.5 hereof, to the date of this Agreement, there has been no change in the properties, assets, liabilities, financial condition, business, operations, affairs or prospects of the Company and the Subsidiaries from that set forth or reflected in the Company's most recent federal income tax return or in the fiscal year-end financial statements referred to in Section 3.5. other than changes in the ordinary course of business, including acquisitions, none of which have been, either in any case or in the aggregate, materially adverse. SECTION 3.7 Litigation, Etc. Except as noted in the financial statements there are no actions, proceedings or investigations pending or threatened, against the Company or affecting the Company (or any basis therefor known to the Company) which, either in any case or in the aggregate, might result in any material adverse change in the financial condition, business, prospects, affairs or operations of the Company or in any of its properties or assets, or in any material impairment of the right or ability of the Company to carry on its operations as now conducted or proposed to be conducted, or in any material liability on the part of the Company and none which questions the validity of this Agreement, the Note, the Pledge Agreement or any of the other Loan Documents or of any action taken or to be taken in connection with the transactions contemplated hereby or thereby. SECTION 3.8 Principal Place of Business. The Principal Place of Business of the Company is at the address noted in the preamble of this Agreement. SECTION 3.9 Consents and Approvals. No authorization, license, consent, approval, or undertaking is required under any applicable law in connection with the execution, delivery and performance by the Company of this Agreement, the Note or any of the other Loan Documents. SECTION 3.10 Title to Properties and Assets, Liens, Etc. The Company has good and marketable title to its respective real properties other than properties which it leases and good title to all of its other personal property and assets including, but not limited to the Collateral, subject to no encumbrances, liens, security interests or other rights of third parties except as previously disclosed to the Bank in the financial statements provided to the Bank. The Company enjoys peaceful and undisturbed possession of all leases necessary in any material respect for the operation of its properties and assets, none of which contains any unusual or burdensome provisions which might materially affect or 13 14 impair the operation of such properties and assets. All such leases are valid and subsisting and are in full force and effect. SECTION 3.11 Outstanding Debt. On the date hereof, the Company has no outstanding indebtedness except as reflected on the financial statements of the Company which have been provided to the Bank. SECTION 3.12 Subsidiaries. The only presently existing Subsidiaries of the Company are those listed on Exhibit "A" attached hereto. SECTION 3.13 Regulation G, Etc. The Company does not own any Margin Securities. Neither the Company nor the Subsidiaries nor any agent acting on behalf of the Company or the Subsidiaries has taken any action that might cause this Agreement or the Loan Documents to violate Regulation G, T, U or X or any other regulation of the Board of Governors of the Federal Reserve System or to violate the Securities Act of 1933 or the Securities Act of 1934, in each case as the same is now in effect or as the same may hereafter be in effect. ARTICLE FOUR COVENANTS OF THE COMPANY SECTION 4.1 Affirmative Covenants. The Company covenants, for so long as any of the principal amount of or interest on the Note is outstanding and unpaid or any duty or obligation of the Company or the Bank hereunder or under any other Obligation remains unpaid or unperformed, as follows: (a) Accounting; Financial Statements; Etc. The Company will deliver to the Bank copies of each of the following: (i) As soon as practicable and in any event within forty-five (45) Days after the end of each quarterly period during the term of this Agreement, financial statements, all in reasonable detail and certified by the Chief Financial Officer of the Company; (ii) As soon as practicable and in any event within ninety (90) Days after the end of each fiscal year, year end audited financial statements (consisting of profit and lose statement, balance sheet and report on changes in stockholders equity) that are reviewed by a certified public accountant acceptable to the Bank, all in reasonable detail and certified by the Chief Financial Officer of the Company; (iii) Promptly upon the preparation thereof, copies of all quarterly call reports submitted by the Subsidiaries to the appropriate federal regulatory agency; 14 15 (iv) Promptly upon transmission thereof, copies of all such financial statements, proxy statements, notices, and reports as it shall send to its stockholders and of all registration statements (with exhibits) and all reports which it is or may be required to file with the Securities and Exchange Commission or any governmental body or agency succeeding to the functions of such Commission; (v) Promptly upon receipt thereof, a copy of each other report submitted to the Company or any Subsidiary by independent accountants in connection with any annual, interim or special audit made by them of the books of the Company or any Subsidiary; (vi) With reasonable promptness, such other data and information as from time to time may be reasonably required by the Bank. (b) Inspection. The Company will permit the Bank or Bank's designated representative to (i) visit any place of business, (ii) inspect its properties, (iii) inspect and make extracts from the Company's books and records, and (iv) discuss the affairs, finances and accounts of the Company with the officers of the Company, all at such reasonable times and as often as may reasonably be requested. (c) Maintenance of Corporate Existence; Compliance with Laws. The Company shall at all times preserve and maintain in full force and effect its corporate existence, powers, rights, licenses, permits and franchises in the jurisdiction of its incorporation; continue to conduct and operate its business substantially as conducted and operated during the present and preceding fiscal year of the Company; operate in full compliance with all applicable laws, statutes, regulations, certificates of authority and orders in respect of the conduct of its business; and qualify and remain qualified as a foreign corporation in each jurisdiction in which such qualification is necessary or appropriate in view of its business and operations. (d) Notice of Default. The Company shall immediately notify the Bank in writing upon the happening, occurrence or existence of any Event of Default, or any event or condition which with the passage of time or giving of notice, or both, would constitute an Event of Default, and shall provide the Bank with such written notice, a detailed statement by a responsible officer of the Company of all relevant facts and the action being taken or proposed to be taken by the Company with respect thereto. (e) Maintenance of Properties. The Company shall maintain or cause to be maintained in good repair, working order and condition all properties used or useful in its businesses and from time to time will make or cause to be made all appropriate 15 16 repairs, renewals, improvements and replacements thereof so that the businesses carried on in connection therewith may be properly and advantageously conducted at all times. The Company will not do or permit any act or thing which might impair the value or commit or permit any waste of its properties or any part thereof (other than acts of nature beyond their control), or permit any unlawful occupation, business or trade to be conducted on or from any of its properties. To the extent the Company leases any of its places of business, it shall maintain and keep current at all times all leases for said places of business. (f) Notice of Suit, Proceedings, Adverse Change. The Company shall promptly give the Bank notice in writing (a) of all threatened or actual actions or suits (at law or in equity) and of all threatened or actual investigations or proceedings by or before any court, arbitrator or any governmental department, commission, board, bureau, agency or other instrumentality, state, federal or foreign, affecting the Company or its Subsidiaries, the rights or other properties of the Company or its Subsidiaries, (i) which involves potential liability of the Company in an amount of $2,500,000 or more, or (ii) which the Company believes in good faith is likely to materially and adversely affect the financial condition of the Company or to impair the right or ability of the Company to carry on its businesses as now conducted or to pay the Obligations or perform the duties under the Loan Documents; (b) of any material adverse change in the condition (financial or otherwise) of the Company; (c) of any seizure or levy upon any part of the properties of the Company or its Subsidiaries under any process or by a receiver and (d) of any memorandum of understanding, cease and desist order or similar action taken by any state or federal regulatory against the Company or any of its Subsidiaries. (g) Execution and Delivery of Loan Documents. The Company shall execute and deliver to the Bank all Loan Documents (to be executed by the Company) as and when requested by the Bank. (h) Insurance. The Company shall timely procure and maintain and comply with such insurance and policies of insurance (including without limitation public liability insurance) as may be required by law and such other insurance including, but not limited to, coverage of real property and improvements, to such extent and against such hazards and liabilities, as is customarily maintained by companies similarly situated, or as the Bank may from time to time reasonably request, and, if requested by the Bank, to furnish to the Bank a certificate of said insurance and further providing for thirty (30) Days notice to the Bank prior to any material amendment, expiration or cancellation. (i) Debts and Taxes and Liabilities. Except for indebtedness, obligations, taxes, assessments, governmental charges and claims, the amount or validity of which is contested by the 16 17 Company in good faith and by appropriate and lawful proceedings prosecuted diligently (the aggregate amount of which items shall not be material to the condition (financial or otherwise) and operations of the Company), the Company shall pay and discharge (i) all of its indebtedness and obligations in accordance with their terms and before they shall become in default, (ii) all taxes, assessments and governmental charges or levies imposed upon it or upon its income and profits or against its properties, prior to the date on which penalties attach thereto, and (iii) all lawful claims which, if unpaid, might become a lien or charge upon any of its properties. The Company shall also set aside and/or pay as and when due all monies required to be set aside and/or paid by any federal, state or local statute or agency in regard to F.I.C.A., withholding, sales or excise or other similar taxes. (j) Notification of Change of Name or Business. The Company shall notify the Bank of each change in the name of the Company and of each change of the location of any place of business and the office where the records of the Company are kept, and, in such case, shall execute such documents as the Bank may reasonably request to reflect said change of name or change of location, as the case may be; provided, however, the Principal Place of Business of the Company and the office where the records of the Company are kept may not be kept out of or removed from Montgomery County, Alabama without the prior written consent of the Bank. (k) Financial Covenants. As at the end of each of the Company's fiscal quarters, commencing with the fiscal quarter ending September 30, 1993, the Company shall comply with the following financial covenants: (i) The Company shall maintain a Primary Capital to Total Assets Ratio of at least 0.065 to 1.0, or shall maintain total risk-based capital of at least 10.0%; and (ii) The Company shall maintain a Return on Assets Ratio of at least (A) 0.009 to 1.0 through its fiscal year ending in 1995 and (B) 0.0095 to 1.0 thereafter; and (iii) The Company shall maintain a Nonperforming Assets to Net Loans Ratio of less than 0.015 to 1.0. Compliance with each of the financial covenants contained in this Section 4.1(k) shall be calculated in the manner set forth in Section 1.2 of this Agreement. SECTION 4.2 Negative Covenants. The Company covenants, for so long as any of the principal amount of or interest on the Note is outstanding and unpaid or any Obligation remains unpaid or unperformed, as follows: 17 18 (a) Sale of Assets. The Company will not sell, lease, assign, transfer, convey or otherwise dispose of its assets or properties, tangible or intangible, without prior written notice to the Bank other than the sale of mortgages in the usual course of business, or permit any of its Subsidiaries to do the same; provided, however, in the event the Company or any of its Subsidiaries propose to sell certain real estate equities which it or they now or at any time during the term hereof own or acquire in connection with conducting its or their respective business operations, the Bank shall not unreasonably withhold approval with respect to the sale of any such real estate equities, such prior notice shall not be required for assets having a book value of less than $1,000,000 per transaction. (b) Acquisition or Mergers. During the term of this Agreement, the Company shall notify the Bank in writing of any Company acquisition, merger or consolidation with any other Person, provided however, the Company shall not, without the Bank's prior written consent, which consent shall not be unreasonably withheld, become a party to a merger or consolidation with any other Person in which the Company is not the surviving entity. (c) Fiscal Year. The Company will not change its fiscal year ending December 31, without reasonable notice to the Bank. (d) Changes in Business. The primary business of the Company will not change from that conducted by it on the date of this Agreement without the consent of the Bank. (e) Other Agreements. The Company will not enter into any arrangements, contractual or otherwise, which would materially and adversely affect its duties or the rights of the Bank under the Loan Documents, or which is inconsistent with or limits or abrogates the Loan Documents. (f) Additional Indebtedness. The Company and/or any Subsidiary shall not create or assume any liability for money borrowed or the equivalent in excess of the aggregate amount of $10,000,000.00 during the term of this Agreement, except for real estate assets pledged to the Federal Home Loan Bank Board of Atlanta in the usual course of business, the indebtedness permitted by this Agreement, indebtedness that is subordinated to the Obligations and indebtedness that results from the sale of commercial paper or similar short term borrowings that arise in the normal and ordinary course of business. 18 19 ARTICLE FIVE CONDITIONS OF LENDING The obligations of the Bank to lend hereunder and to make any Advance from time to time are subject to the following conditions precedent: SECTION 5.1 Representations and Warranties. The representations and warranties set forth in the Loan Documents are true and correct on and as of the date hereof, and on the date of each Advance or disbursement hereunder. SECTION 5.2 No Default. On the date hereof and on the date of each Advance or disbursement, the Company shall be in compliance with all the terms and provisions set forth in the Loan Documents on its part to be observed or performed, and no Event of Default nor any event that, upon notice or lapse of time or both, would constitute such an Event of Default, shall have occurred and be continuing at such time. SECTION 5.3 Loan Documents. The Company shall have delivered or caused to be delivered to the Bank, in fully executed form, all the Loan Documents, in form and substance satisfactory to the Bank, as the Bank may request and all of the Loan Documents shall be in full force and effect. SECTION 5.4 Supporting Documents. On or prior to the date hereof, the Bank shall have received the following supporting documents, all of which shall be satisfactory in form and substance to the Bank: (a) a certificate or certificates, dated as of the date hereof, of (i) the Secretary or any Assistant Secretary of the Company certifying (A) that attached thereto is a true and correct copy of certain resolutions adopted by the Board of Directors of the Company authorizing the execution, delivery and performance of the Loan Documents and the performance of the obligations of the Company and the borrowings thereunder, which resolutions have not been altered or amended in any respect, and remain in full force and effect at all times since their adoption; (B) that attached thereto is a true and correct copy of the Certificate of Incorporation of the Company, and that such Certificate of Incorporation has not been altered or amended, and no other charter documents have been filed, since the date of the filing of the last amendment thereto or other charter document as indicated on the certificate of the Secretary of State of the State of Florida or other appropriate public official in any other state of incorporation attached thereto; (C) that attached thereto is a true and correct copy of the Bylaws of the Company and that such Bylaws are in full force and effect and no amendment thereto is pending which would in any way affect the ability of the Company to enter 19 20 into and perform the obligations contemplated hereby; and (D) the incumbency and signatures of the officers of the Company signing the Loan Documents and any report, certificate, letter or other instrument or document furnished by the Company in connection therewith, and (ii) another authorized officer of the Company certifying the incumbency and signature of the Secretary or Assistant Secretary of the Company; and (b) a certificate or certificates of the Delaware Secretary of State or other appropriate public official in any other state of incorporation, dated as of a recent date, as to the good standing of the Company. ARTICLE SIX EVENTS OF DEFAULT SECTION 6.1 Events of Default. The following each and all are Events of Default hereunder: (a) Monetary Default. If the Company shall default in any payment of the principal of or interest on the Loan when and as the same shall become due and payable, whether at maturity, by acceleration at the discretion of the Bank or otherwise; or (b) Non-Monetary Default. If the Company or any of the Subsidiaries shall default in the performance of or compliance with any term or covenant contained in the Loan Documents which default or non-compliance shall continue and not be cured within ten (10) Days of the occurrence thereof; or (c) Third Party Default. If the Company or any Subsidiary shall suffer a material default in the performance of any agreement with any Person other than the Bank; or (d) Misrepresentation. If any representation or warranty made in writing by or on behalf of the Company or any Subsidiary or in any other Loan Document shall prove to have been false or incorrect in any material respect on the date as of which made or reaffirmed; or (e) Dissolution. Any order, judgment, or decree is entered in any proceedings against Company or any Subsidiary decreeing the dissolution of Company or any Subsidiary and such order, judgment, or decree remains unstayed and in effect for more than thirty (30) days; or (f) Default Under Pledge Agreement. If the Company fails to fulfill or comply with the terms of the Pledge Agreement or there shall be a default under the Pledge Agreement. 20 21 (g) Bankruptcy, Failure to Pay Debts, Etc. If the Company or any Subsidiary shall admit in writing its inability, or be generally unable, to pay its debts as they become due or shall make an assignment for the benefit of creditors, file a petition in bankruptcy, petition or apply to any tribunal for the appointment of a custodian, receiver or trustee for the Company or any Subsidiary or a substantial part of assets, or shall commence any proceeding under any bankruptcy, reorganization, arrangement, readjustment of debt, dissolution or liquidation law or statute of any jurisdiction, whether now or hereafter in effect, or if there shall have been filed any such petition or application, or any such proceeding shall have been commenced against the Company or any Subsidiary, in which an order for relief is entered or which remains undismissed for a period of thirty (30) Days or more, or the Company or any Subsidiary by any act or omission shall indicate its consent to, approval of or acquiescence in any such petition, application, or proceeding or order for relief or the appointment of a custodian, receiver or any trustee for the Company or any Subsidiary or any substantial part of any of its properties, or shall suffer any such custodianship, receivership or trusteeship to continue undischarged for a period of thirty (30) Days or more; or (h) Fraudulent Conveyance. The Company or any Subsidiary shall have concealed, removed, or permitted to be concealed or removed, any part of its properties, with intent to hinder, delay or defraud its creditors or any of them, or made or suffered a transfer of any of its properties which may be fraudulent under any bankruptcy, fraudulent conveyance or similar law, or shall have made any transfer of its properties to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid, or shall have suffered or permitted, while insolvent, any creditor to obtain a lien upon any of its properties through legal proceedings or distraint which is not vacated within thirty (30) Days from the date thereof. ARTICLE SEVEN RIGHTS UPON DEFAULT Upon the occurrence or continuing of any Event of Default, the Bank shall have and may exercise any or all of the rights set forth herein (provided, however, the Bank shall be under no duty or obligation to do so): SECTION 7.1 Acceleration. To declare the indebtedness evidenced by the Note and all other Obligations to be forthwith due and payable, whereupon the Note and all other Obligations shall become forthwith due and payable, both as to principal and interest, without presentment, demand, protest or any other notice or grace period of any kind, all of which are hereby expressly waived, anything contained herein or in the Note or in such other 21 22 Obligations to the contrary notwithstanding, and, upon such acceleration, the unpaid principal balance and accrued interest upon the Note shall from and after such date of acceleration bear interest at the Default Rate. SECTION 7.2 Right of Setoff. To exercise its right of setoff as permitted under Section 2.6. SECTION 7.3 Other Rights. To exercise such other rights as may be permitted under any of the Loan Documents or applicable law. SECTION 7.4 Uniform Commercial Code. To exercise from time to time any and all rights and remedies of a secured creditor under the UCC and any and all rights and remedies available to it under any other applicable law. ARTICLE EIGHT MISCELLANEOUS SECTION 8.1 Cumulative Remedies. The remedies provided in this Agreement and in the Loan Documents are cumulative and not exclusive of any remedies provided by law or in equity. Upon an Event of Default, the Bank may elect to exercise any one or more of such remedies and such election shall not waive or cause the Bank to have elected not to subsequently exercise any other such remedies available to it under the Agreement or any Loan Document. SECTION 8.2 Amendments, Etc. No amendment, modification, termination or waiver of any provision of this Agreement, the Note or the other Loan Documents, nor consent to any departure by the Company therefrom, shall in any event be effective unless the same shall be in writing and signed by the Bank, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. SECTION 8.3 Addresses for Notices, Etc. All notices, requests, demands and other communications provided for hereunder shall be in writing and shall be deemed to have been given (i) in the case of delivery, when addressed to the other party and delivered to the address set forth below, (ii) in the case of mailing, three (3) Days after said notice has been deposited in the United States Mails, postage prepaid, by certified or return mail, and addressed to the other party as set forth below, and (iii) in all of the cases, when received by the other party. The address at which notices may be sent under this Section 8.3 are the following: If to the Company: THE COLONIAL BANCGROUP, INC. Post Office Box 1108 Montgomery, Alabama 36192 Attention: W. Flake Oakley CFO 22 23 If to the Bank: SUN BANK, NATIONAL ASSOCIATION 200 South Orange Avenue Post Office Box 3833 Orlando, Florida 32802-3833 Attention: Michael D. Reynolds Vice President With a copy to: A. Guy Neff, Esq. Maguire, Voorhis & Wells, P.A. P.O. Box 633 Orlando, FL 32802 Any party may at any time change the address to which notices may be sent under this Section by the giving of notice of such change to the other party in the manner set forth herein. SECTION 8.4 Applicable Law. This Agreement, and each of the Loan Documents and transactions contemplated herein (unless specifically stipulated to the contrary in such document) shall be governed by and interpreted in accordance with the laws of the State of Florida. SECTION 8.5 Survival of Representations and Warranties. All representations, warranties, covenants and agreements contained herein or made in writing by the Company in connection herewith shall survive the execution and delivery of this Agreement, the Note and the other Loan Documents and be true and correct during the term of the Loan. SECTION 8.6 Time of the Essence. Time is of the essence of this Agreement, the Note and the other Loan Documents. SECTION 8.7 Headings. The headings in this Agreement are intended to be for convenience of reference only, and shall not define or limit the scope, extent or intent or otherwise affect the meaning of any portion hereof. SECTION 8.8 Severability. In case any one or more of the provisions contained in this Agreement, the Note or the other Loan Documents shall for any reason be held to be invalid, illegal or unenforceable in any respect, the same shall not affect any other provision of this Agreement, the Note or the other Loan Documents, but this Agreement, the Note and the other Loan Documents shall be construed as if such invalid or illegal or unenforceable provision had never been contained therein; provided, however, in the event said matter would in the reasonable opinion of the Bank adversely effect the rights of the Bank under any or all of the Loan Documents, the same shall be an Event of Default. SECTION 8.9 Counterparts. This Agreement may be executed in any number of counterparts, all of which taken together shall 23 24 constitute one and the same instrument and any of the parties hereto may execute this Agreement by signing any such counterpart. SECTION 8.10 Conflict. In the event any conflict arises between the terms of this Agreement and the terms of any other Loan Document, the Bank shall have the option of selecting which conditions shall govern the loan relationship evidenced by this Agreement and, if the Bank does not so indicate, the terms of this Agreement shall govern in all instances-of such conflict. SECTION 8.11 Term. The term of this Agreement shall be for such period of time until the Loan and Note have been repaid in full, the Company has no further right to request any Advance on the Loan and all Obligations have been paid to the Bank in full. SECTION 8.12 Cross Defaults. A default under any Loan Document, including a default under this Agreement, shall be and constitute a default under each and every Loan Document, including this Agreement. A default under any other obligation of the Company or any of its affiliates to the Bank shall be and constitute a default under this Loan and a default under this Loan shall be and constitute a default under all other obligations of the Company or any of its affiliates to the Bank. SECTION 8.13 Expenses. The Company agrees, whether or not the transactions hereby contemplated shall be consummated, to pay, and save Bank harmless against liability for the payment of, all out-of-pocket expenses arising in connection with this transaction, all taxes, together in each case with interest and penalties, if any, and any income tax payable by Bank in respect of any reimbursement therefor, which may be payable in respect of the execution, delivery and performance of this Agreement or the execution, delivery, acquisition and performance of any Note issued under or pursuant to this Agreement (excepting only any tax on or measured by net income of Bank determined substantially in the same manner, other than the rate of tax, as net income is presently determined under the Federal Internal Revenue Code), and the reasonable fees and expenses of any special counsel to Bank in connection with this Agreement and any subsequent modification or enforcement thereof or consent thereunder including, without limitation, attorneys fees and court costs incurred in any legal proceeding whether at the trial or appellate level or in any bankruptcy proceeding. The obligations of Company under this Section 8.13 shall survive the payment of any Note. SECTION 8.14 Successors and Assigns. All covenants and agreements in this Agreement contained by or on behalf of either of the parties hereto shall bind and inure to the benefit of the respective successors and assigns of the parties hereto whether so expressed or not; provided, however, this clause shall not by itself authorize any delegation of duties by the Company or any 24 25 other assignment which may be prohibited by the terms and conditions of this Agreement. SECTION 8.15 Further Assurances. The Company shall, from time to time, execute such additional documents as may reasonably be requested by the Bank or the counsel, to carry out and fulfill the intent and purpose of this Agreement and the Loan Documents. SECTION 8.16 No Third Party Beneficiaries. The parties intend that this Agreement is solely for their benefit and no Person not a party hereto shall have any rights or privileges under this Agreement whatsoever either as the third party beneficiary or otherwise. SECTION 8.17 WAIVER OF JURY TRIAL. THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY, AFTER CAREFUL CONSIDERATION AND AN OPPORTUNITY TO SEEK LEGAL ADVICE, WAIVES ITS RIGHT TO HAVE A TRIAL BY JURY IN RESPECT OF ANY LITIGATION ARISING OUT OF OR IN ANY WAY CONNECTED WITH ANY OF THE PROVISIONS OF THIS AGREEMENT, THE NOTE, THE PLEDGE AGREEMENT OR ANY OTHER LOAN DOCUMENT EXECUTED IN CONJUNCTION WITH THE LOAN EVIDENCED BY THIS AGREEMENT. SECTION 8.18 No Waiver. No failure or delay on the part of the Bank in exercising any right, power or remedy hereunder, or under the Note or the other Loan Documents shall operate as a waiver thereof, nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder or thereunder. SECTION 8.19 Entire Agreement. Except as otherwise expressly provided, this Agreement and the other Loan Documents embody the entire agreement and understanding between the parties hereto and supersede all prior agreements and understandings relating to the subject matter hereof. IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed, sealed and delivered, as applicable, by their duly authorized officers on the day and year first above written. COMPANY: WITNESSES: THE COLONIAL BANCGROUP, INC. - ------------------------- By: ------------------------------- Name: W. FLAKE OAKLEY -------------------- Secretary - ------------------------- (CORPORATE SEAL) Name: -------------------- 25 26 SUN BANK, NATIONAL ASSOCIATION - ------------------------- By: ------------------------------ Name: Michael D. Reynolds -------------------- Vice President - ------------------------- Name: -------------------- 26 27 EXHIBIT A LIST OF SUBSIDIARIES Colonial Bank The Colonial BancGroup Building Corporation 27 EX-10.(E) 5 AGREEMENT AND PLAN OF MERGER DATED 12/21/96 1 EXHIBIT 10(E) AGREEMENT AND PLAN OF MERGER THIS AGREEMENT AND PLAN OF MERGER is made and entered into and is effective as of the 21st day of December, 1995 (the "Agreement"), by and among The Colonial BancGroup, Inc., a Delaware corporation ("Acquiror"), and Commercial Bancorp of Georgia, Inc., a Georgia corporation ("CBG"). Certain capitalized terms used herein shall have the meanings ascribed to such terms in Appendix A hereto. W I T N E S S E T H: WHEREAS, Acquiror owns all of the issued and outstanding shares of capital stock of Colonial Bank; and WHEREAS, CBG is a one-bank holding company that owns all of the issued and outstanding capital stock of Commercial Bank; and WHEREAS, the Boards of Directors of Acquiror, and CBG have approved the merger of CBG with and into Acquiror (the "Merger") upon the terms and subject to the conditions set forth herein; NOW, THEREFORE, in consideration of the mutual representations, warranties, covenants and agreements, and upon and subject to the terms and the conditions hereinafter set forth, the parties do hereby agree as follows: ARTICLE I THE MERGER 1.01 The Merger. Upon the terms and subject to the conditions of this Agreement and in accordance with applicable law, at the Effective Time (as defined in Section 1.02 below) CBG shall be merged with and into Acquiror and the separate existence of CBG shall thereupon cease. Acquiror shall be the surviving corporation in the Merger (hereinafter sometimes referred to as the "Surviving Corporation") and the name of the Surviving Corporation shall be "The Colonial BancGroup, Inc." As a result of the Merger, Commercial Bank will become a wholly-owned subsidiary of Acquiror. 1.02 Effective Time of the Merger. The Merger shall become effective at the time (the "Effective Time") specified in the Certificate of Merger to be issued by the Secretary of State of the State of Delaware. The filing of the Certificate of Merger shall be made simultaneously with or as soon as possible following the closing of the transactions contemplated by this Agreement in accordance with Article XII hereof. It is the intent of the parties hereto that the Effective Time shall be within five business days from the date of the last required approval and the expiration of any applicable waiting periods or as soon 2 as practicable thereafter. 1.03 Further Acts. If, at any time after the Effective Time, the Surviving 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 Surviving Corporation, title to and possession of any property or right of CBG or Acquiror, acquired as a result of the Merger, or (ii) otherwise to carry out the purposes of this Agreement, CBG or Acquiror and its officers and directors shall execute and deliver all such proper deeds, assignments and assurances in law and do all reasonable acts necessary or proper to vest, perfect or confirm title to, and possession of, such property or rights in the Surviving Corporation and otherwise to carry out the purposes of this Agreement; and the proper officers and directors of the Surviving Corporation are fully authorized in the name of CBG or Acquiror, or otherwise, to take any and all such action. ARTICLE II THE SURVIVING CORPORATION 2.01 Articles of Incorporation. The Certificate of Incorporation of Acquiror in effect immediately prior to the Effective Time, shall be the Certificate of Incorporation of the Surviving Corporation after the Effective Time until otherwise amended or repealed. 2.02 Bylaws. The Bylaws of Acquiror in effect immediately prior to the Effective Time, shall be the Bylaws of the Surviving Corporation after the Effective Time until otherwise amended or repealed. 2.03 Directors and Officers of the Surviving Corporation. The directors of Acquiror in office immediately prior to the Effective Time shall serve as the directors of the Surviving Corporation following the Effective Time. The officers of Acquiror in office immediately prior to the Effective Time shall serve as the officers of the Surviving Corporation following the Effective Time. ARTICLE III CONVERSION OF SHARES 3.01 Conversion of Shares. Subject to the provisions of this Article III, at the Effective Time, by virtue of the Merger and without any action on the part of Acquiror, Colonial Bank, CBG, Commercial Bank, or the stockholders of any of the foregoing, the shares of the constituent corporations shall be converted as follows: (a) Each share of capital stock of Acquiror (the "Acquiror Capital Stock"), including the Common Stock, $2.50 par value per share of Acquiror ("Acquiror Common Stock"), and any associated rights to acquire Acquiror Capital Stock, issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding from and after the Effective Time. 3 (b) Each share of Common Stock of Colonial Bank issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding from and after the Effective Time. (c) Each share of Common Stock, $1.00 par value per share, of CBG ("CGB Common Stock") issued and outstanding at the Effective Time (other than treasury stock or shares held by Acquiror which shares shall be canceled) shall cease to be outstanding and shall, by virtue of the Merger and without any action on the part of the holder thereof, be converted into and exchanged for the right to receive the number of shares of Acquiror Common Stock equal to $21.07 divided by the Market Value (subject to appropriate adjustment in the event of a stock split, stock dividend or recapitalization or other similar event applicable to shares of Acquiror Common Stock prior to the Effective Time) (the "Exchange Ratio") upon surrender of the certificate representing such shares of CBG Common Stock. The Market Value shall represent the per share market value of the Acquiror Common Stock at the Effective Time and shall be equal to the average of the Daily Average Value (as defined below) of the Acquiror Common Stock as reported by The New York Stock Exchange ("NYSE") on the thirty (30) trading days ending on the trading day immediately preceding the Effective Time. The Daily Average Value on each trading day shall be the average of the high and low sales price of the Acquiror Common Stock for such trading day as reported by the NYSE. (d) Each share of Common Stock of Commercial Bank issued and outstanding immediately prior to the Effective Time shall remain issued and outstanding from and after the Effective Time and shall be wholly owned by the Surviving Corporation. 3.02 Anti-Dilution Provisions. In the event Acquiror changes the number of shares of Acquiror Common Stock issued and outstanding prior to the Effective Time as a result of a stock split, stock dividend, or similar recapitalization with respect to such stock and the record date therefor (in the case of a stock dividend) or the effective date thereof (in the case of a stock split or similar recapitalization for which a record date is not established) shall be prior to the Effective Time, the Market Value and, as a result, the Exchange Ratio shall be proportionately adjusted to reflect such stock split, stock dividend or other recapitalization. 3.03 Fractional Shares. Notwithstanding any other provision of this Agreement, each holder of shares of CBG Common Stock exchanged pursuant to the Merger who would otherwise have been entitled to receive a fraction of a share of Acquiror Common Stock (after taking into account all certificates delivered by such holder) shall receive, in lieu thereof, cash (without interest) in an amount equal to such fractional part of a share of Acquiror Common Stock multiplied by the Market Value. No such holder will be entitled to dividends, voting rights, or any other rights as a stockholder in respect of any fractional shares. 3.04 Conversion of Stock Options, Warrants and Stock Appreciation Rights. (a) At the Effective Time, all rights with respect to CBG Common Stock pursuant to stock options, stock purchase warrants or similar rights, including rights under contracts with employees of Commercial Bank (collectively, "CBG Options"), granted by 4 CBG or Commercial Bank, which are outstanding at the Effective Time, whether or not exercisable, shall be converted into and become rights with respect to Acquiror Common Stock, and Acquiror shall assume each CBG Option, in accordance with the terms of the agreement or plan by which it is evidenced, except that from and after the Effective Time, (i) each CBG Option assumed by Acquiror may be exercised solely for shares of Acquiror Common Stock, (ii) the number of shares of Acquiror Common Stock subject to such CBG Option shall be equal to the number of shares of CBG Common Stock subject to such CBG Option immediately prior to the Effective Time multiplied by the Exchange Ratio, and (iii) the per share exercise price under each such CBG Option shall be adjusted by dividing the per share exercise price under each such CBG Option by the Exchange Ratio and rounding up to the nearest cent. Notwithstanding the provisions of clause (ii) of the preceding sentence, Acquiror shall not be obligated to issue any fraction of a share of Acquiror Common Stock upon exercise of CBG Options and any fraction of a share of Acquiror Common Stock that otherwise would be issued upon the exercise of a converted CBG Option shall represent the right to receive a cash payment upon exercise of such converted CBG Option equal to the product of such fraction and the difference between the market value of one share of Acquiror Common Stock at the time of exercise of such Option and the per share exercise price of such CBG Option as adjusted pursuant to clause (iii) of the preceding sentence. The market value of one share of Acquiror Common Stock at the time of exercise of a CBG Option shall be the last sale price of such common stock on the NYSE (as reported by The Wall Street Journal or, if not reported thereby, any other authoritative source selected by Acquiror) on the last trading day preceding the date of exercise. As soon as practicable after the Effective Time, Acquiror shall file a registration statement on Form S-3 or Form S-8, as the case may be (or any successor or other appropriate forms), with respect to the shares of Acquiror Common Stock subject to such options and shall use its reasonable best efforts to maintain the effectiveness of such registration statement (and maintain the current status of the prospectus or prospectuses contained therein) for so long as such CBG Options remain outstanding. Schedule 3.04(a) lists the names of all persons holding CBG Options, the number of shares of CBG Common Stock issuable upon exercise of such CBG Options and the per share exercise price of such CBG Options. As soon as practicable after the Effective Time, Acquiror shall deliver to the holders of each CBG Option an appropriate notice setting forth such holder's rights pursuant to such CBG Option following the Merger. At or prior to the Effective Time, Acquiror shall take all corporate action necessary to reserve for issuance sufficient shares of Acquiror Common Stock for delivery upon the exercise of CBG Options assumed by it in accordance with this Section 3.04. (b) At the Effective Time, all obligations of CBG or Commercial Bank under stock appreciation rights or similar rights, including rights under the Commercial Bancorp of Georgia, Inc. and Commercial Bank of Georgia Deferred Compensation Plan for Directors, as amended, the Commercial Bancorp of Georgia, Inc., Commercial Bank of Georgia and Commercial Bank of Gwinnett 1995 Deferred Compensation Plan for Directors (such plans are referred to herein collectively as the "Deferred Compensation Plans") and under contracts with employees of CBG or Commercial Bank (such stock appreciation rights and similar rights are referred to as "CBG Stock Appreciation Rights"), granted by 5 CBG or Commercial Bank shall be assumed by Acquiror. Within ten (10) days following the Effective Time, Acquiror shall pay to each holder of CBG Stock Appreciation Rights cash equal to the value of such holder's CBG Stock Appreciation Right(s) determined in accordance with the terms of the plan or agreement under which such rights were granted except that, solely for purposes of determining the amount of cash to be paid to participants in the Deferred Compensation Plans, each Stock Unit (as defined in the respective Deferred Compensation Plan) credited to a participant's account under the Deferred Compensation Plans shall be deemed to have a value of $21.07 without regard to the fair market value of the CBG Common Stock on the immediately preceding Valuation Date (as defined in the Deferred Compensation Plans). Schedule 3.04(b) sets forth the names of all persons holding CBG Stock Appreciation Rights, the number of units of stock appreciation rights and the current method of determining the value of such stock appreciation rights. 3.05 Exchange Procedures. Promptly after the Effective Time, Acquiror shall cause the exchange agent selected by Acquiror (the "Exchange Agent") to mail to the former stockholders of CBG appropriate transmittal materials. After the Effective Time, each holder of shares of CBG Common Stock issued and outstanding at the Effective Time shall surrender the certificate or certificates representing such shares to the Exchange Agent and shall promptly upon surrender thereof receive in exchange therefor the consideration provided in Section 3.01 of this Agreement, together with all undelivered dividends or distributions in respect of such shares (without interest thereon) pursuant to Section 3.06 of this Agreement. To the extent required by Section 3.03 of this Agreement, each holder of shares of CBG Common Stock issued and outstanding at the Effective Time also shall receive, upon surrender of the certificate or certificates representing such shares, cash in lieu of any fractional share of Acquiror Common Stock to which such holder may be otherwise entitled (without interest). Acquiror shall not be obligated to deliver the consideration to which any former holder of CBG Common Stock is entitled as a result of the Merger until such holder surrenders such holder's certificate or certificates representing the shares of CBG Common Stock for exchange as provided in this Section 3.05. The certificate or certificates of CBG Common Stock so surrendered shall be duly endorsed as the Exchange Agent may require. Any other provision of this Agreement notwithstanding, neither Acquiror, the Surviving Corporation nor the Exchange Agent shall be liable to a holder of CBG Common Stock for any amounts paid or property delivered in good faith to a public official pursuant to any applicable abandoned property law. 3.06 Rights of Former CBG Stockholders. At the Effective Time, the stock transfer books of CBG shall be closed as to holders of CBG Common Stock immediately prior to the Effective Time and no transfer of CBG Common Stock by any such holder shall thereafter be made or recognized. Until surrendered for exchange in accordance with the provisions of Section 3.05 of this Agreement, each certificate theretofore representing shares of CBG Common Stock shall from and after the Effective Time represent for all purposes only the right to receive the consideration provided in Sections 3.01 and 3.03 of this Agreement in exchange therefor. Whenever a dividend or other distribution is declared by Acquiror on the Acquiror Common Stock, the record date for which is at or after the Effective Time, the declaration shall include dividends or other distributions on all shares issuable pursuant to this Agreement, but beginning 60 days after the Effective Time no 6 dividend or other distribution payable to the holders of record of Acquiror Common Stock as of any time subsequent to the Effective Time shall be delivered to the holder of any certificate representing shares of CBG Common Stock issued and outstanding at the Effective Time until such holder surrenders such certificate for exchange as provided in Section 3.05 of this Agreement. However, upon surrender of such CBG Common Stock certificate, both the Acquiror Common Stock certificate (together with all such undelivered dividends or other distributions without interest) and any undelivered dividends and cash payments to be paid for fractional share interests (without interest) shall be delivered and paid with respect to each share represented by such certificate. 3.07 Dissenters' Rights. Notwithstanding Section 3.01, no outstanding share of CBG Common Stock shall be converted into or represent a right to receive any shares of Acquiror Common Stock pursuant to Section 3.01 if the holder thereof has demanded and perfected his demand for payment of the fair value of such share in accordance with the applicable provisions of Article 13 of the Georgia Business Corporation Code (the "Dissenter Provisions") and has not effectively withdrawn or lost his right to such payment. All such shares of CBG Common Stock shall represent only the rights granted with respect to such shares pursuant to the Dissenter Provisions. CBG shall give notice to Acquiror upon receipt by CBG of any written demands for payment of the fair value of CBG Common Stock and of withdrawals of such demands and any other written communications provided in accordance with or pursuant to the Dissenter Provisions (any stockholder duly making such a demand being hereinafter called a "Dissenting Stockholder"). Acquiror shall have the right to participate in all negotiations and proceedings with respect to any Dissenting Stockholder. CBG agrees that it will not, except with the prior consent of Acquiror, make any determination of fair value or any payment with respect to, or settle or offer to settle any matter arising out of, any dissent. Each Dissenting Stockholder, if any, who becomes entitled to payment for his shares of CBG Common Stock pursuant to the Dissenter Provisions shall receive payment therefor from Acquiror (but only after the amount thereof shall have been agreed upon or finally determined pursuant to the Dissenter Provisions) and such dissenting shares of CBG Common Stock shall be canceled. If any holder of shares of CBG Common Stock who demands payment of the fair value of his shares under the Dissenter Provisions shall effectively withdraw or lose (through failure to perfect or otherwise) his right to such payment at any time, the shares of CBG Common Stock of such holder shall be converted into a right to receive the consideration set forth in Section 3.01 hereof. ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CBG CBG represents and warrants to Acquiror as follows: 4.01 Organization. CBG is a corporation validly existing and in good standing under the laws of the State of Georgia. CBG has all requisite corporate power and authority to 7 carry on and conduct its business as now being conducted and to own, lease or operate its material properties and assets. CBG is duly qualified as a foreign corporation, and is in good standing, in each state and foreign jurisdiction where the character of its assets or the nature or conduct of its business requires it to be so qualified except for such states and jurisdictions in which the failure to be so qualified will not have a Material Adverse Effect on CBG. 4.02 Power and Authority. CBG has the corporate power and authority necessary to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, have been duly and validly authorized by all necessary corporate action on the part of CBG (subject to receipt of appropriate approval by the stockholders of CBG). Subject to such stockholder approval, this Agreement constitutes CBG's legal, valid and binding obligation, enforceable against CBG in accordance with its terms. 4.03 Capitalization. (a) The authorized capital stock of CBG consists of (i) 10,000,000 shares of CBG Common Stock, of which 1,826,708 shares are issued and outstanding (not including shares reserved for issuance upon the exercise of CBG Options) and 35,000 shares were held as treasury shares as of the date of this Agreement, and (ii) 10,000,000 shares of serial preferred stock, $1.00 par value per share, none of which are issued and outstanding. All of the issued and outstanding shares of capital stock of CBG are duly and validly issued and outstanding and are fully paid and nonassessable under the Georgia Business Corporation Code. None of the outstanding shares of capital stock of CBG has been issued in violation of any preemptive rights of the current or past stockholders of CBG. CBG has reserved 348,351 shares of CBG Common Stock for issuance upon the exercise of outstanding CBG Options. (b) Except as set forth in Schedule 4.03(b) hereto, there are no outstanding subscriptions, options, calls, contracts, commitments, understandings, restrictions, arrangements, rights or warrants, including any right of conversion or exchange under any outstanding security, instrument or other agreement, obligating CBG to issue, deliver or sell, or cause to be issued, delivered or sold, additional shares of the capital stock of CBG or obligating CBG to grant, extend or enter into any such agreement or commitment. 4.04 Subsidiaries. CBG has no direct or indirect Subsidiaries other than Commercial Bank, which is a commercial bank duly organized, validly existing and in good standing under the laws of the State of Georgia and has the corporate power and authority necessary for it to own, lease and operate its assets and properties and to carry on its business as it is now being conducted. Commercial Bank is qualified to do business, and is in good standing, in each jurisdiction in which the properties owned, leased or operated by it or the nature of the business conducted by it makes such qualification necessary except for jurisdictions in which the failure to so qualify would not have a Material Adverse Effect on CBG. Commercial Bank is an "insured institution" as defined in the Federal Deposit 8 Insurance Act and applicable regulations thereunder, and its deposits are insured by the Bank Insurance Fund to the extent permitted by applicable law. All of the outstanding shares of capital stock of Commercial Bank are validly issued, fully paid, nonassessable and free of preemptive rights and are owned by CBG free and clear of any liens, claims, encumbrances, security interests, equities, charges and options of any nature whatsoever. There are no subscriptions, options, warrants, rights, calls, contracts, proxies or other commitments, understandings, restrictions or arrangements relating to the issuance, sale, voting, transfer, ownership or other rights with respect to any shares of capital stock of Commercial Bank, including any right of conversion or exchange under any outstanding security, instrument or agreement. 4.05 Information Supplied for Use in Registration Statement. Written information supplied by CBG to Acquiror and designated specifically for use in the Registration Statement (as hereinafter defined) or any amendment or supplement thereto, 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. The Registration Statement on Form S-4 including the Proxy Statement/Prospectus set forth therein, to be filed by Acquiror with the Commission in connection with the registration under the Securities Act of 1933, as amended (the "Securities Act"), of the Acquiror Common Stock, as amended at the time it becomes effective and as thereafter amended, is referred to herein as the "Registration Statement." The Proxy Statement/Prospectus in the form included in the Registration Statement at the time it becomes effective and at the time it is delivered to the stockholders of CBG is referred to herein as the "Proxy Statement/Prospectus." 4.06 Financial Statements. (a) CBG has filed and made available to Acquiror all forms, reports, and documents filed by CBG with the Commission since December 31, 1994 (collectively the "CBG SEC Reports"). The CBG SEC Reports (i) at the time filed, complied in all material respects with the applicable requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated in such CBG SEC Reports or necessary in order to make the statements in such CBG SEC Reports, in light of the circumstances under which they were made, not misleading in any material respects. (b) Schedule 4.06(b) contains (i) the audited consolidated balance sheets (including related notes and schedules) of CBG as of December 31, 1994, the related audited consolidated statements of income, retained earnings, and cash flows (including related notes and schedules) for each of the three years in the period ended December 31, 1994 (the "Audited Financial Statements"); and (ii) the unaudited consolidated balance sheet (including related notes and schedules) of CBG as of September 30, 1995, the related unaudited consolidated statements of income, retained earnings, and cash flows (including related notes and schedules), for the three and nine month periods then ended (such 9 unaudited consolidated financial statements hereinafter are referred to as the "Interim Financial Statements," and the Interim Financial Statements and the Audited Financial Statements are referred to collectively as the "CBG Financial Statements"). The Audited Financial Statements present fairly in all material respects the consolidated financial position of CBG and the results of its operations as of the respective dates and for the respective periods covered by the Audited Financial Statements. The Audited Financial Statements have been prepared in accordance with generally accepted accounting principles ("GAAP") or regulatory accounting principles applicable to banks and bank holding companies applied on a consistent basis. The Interim Financial Statements have been prepared in accordance with GAAP or regulatory accounting principles applicable to banks and bank holding companies (in each case as applicable to interim unaudited financial statements) and present fairly in all material respects the consolidated financial position of CBG and the results of its operations as of the respective dates and for the respective periods covered by the Interim Financial Statements, subject to normal and recurring year-end adjustments which are not expected to be material in amount. (c) Since September 30, 1995, except as disclosed in the CBG Financial Statements, the CBG and SEC Reports or in Schedule 4.06(c) hereto, there have been no events, changes, or occurrences which have had, or will have, a Material Adverse Effect on CBG. 4.07 No Undisclosed Liabilities. Except as reflected and reserved against in the CBG Financial Statements, or disclosed in the notes thereto, or as shown in Schedule 4.07, neither CBG nor Commercial Bank has incurred since September 30, 1995 any material liability or obligation which will have a Material Adverse Effect on CBG, except for liabilities and obligations incurred by CBG or Commercial Bank in the ordinary course of its business. Except as set forth in Schedule 4.07, since September 30, 1995, neither CBG nor Commercial Bank has incurred or paid any material liability or obligation which would have a Material Adverse Effect on CBG except for liabilities and obligations incurred by CBG or Commercial Bank in the ordinary course of its business. 4.08 No Violation of Law. Each of CBG and Commercial Bank has in effect all Permits necessary for it to carry on its business as now conducted, except for those Permits the absence of which will not have a Material Adverse Effect on CBG, and there has occurred no Default under any such Permit, other than defaults which will not have a Material Adverse Effect on CBG. Except as disclosed in Schedule 4.08 hereto, neither CBG nor Commercial Bank: (a) to the knowledge of CBG, is in violation of any Laws, Orders, or Permits applicable to its business or employees conducting its business, except for violations which will not have a Material Adverse Effect on CBG; and (b) since January 1, 1994, has received any notification or communication from any agency or department of federal, state, or local government or any Agency or the staff thereof (i) asserting that CBG or Commercial Bank is not in compliance with any of the Laws or Orders which such governmental authority or Agency enforces, where such noncompliance will have a Material Adverse Effect on CBG, (ii) threatening to revoke any 10 Permits, the revocation of which will have a Material Adverse Effect on CBG or (iii) requiring CBG or Commercial Bank to enter into or consent to the issuance of a cease and desist order, formal agreement, directive, commitment, or memorandum of understanding, or to adopt any Board resolution or similar undertaking, which restricts materially the conduct of its business, or relates to its capital adequacy, its credit or reserve policies, its management, or the payment of dividends. 4.09 Assets. (a) Except as disclosed in Schedule 4.09 hereto or as disclosed or reserved against in the CBG Financial Statements, CBG and Commercial Bank have good and marketable title, free and clear of all Liens, to all of their respective material Assets reflected in CBG's most recent balance sheet referred to in Section 4.06. (b) Schedule 4.09(b) sets forth a list and description of all material real and personal property owned or leased by CBG or Commercial Bank, either as lessor or lessee. (c) Except as disclosed in Schedule 4.09(c) hereto, there are presently no claims pending under any policies of insurance and no notices have been given by CBG or Commercial Bank under such policies. 4.10 Indebtedness. Schedule 4.10 sets forth a complete and accurate list and description of all instruments or other documents relating to any direct or indirect indebtedness for borrowed money of CBG and Commercial Bank (other than deposit liabilities), as well as indebtedness by way of lease-purchase arrangements, guarantees, undertakings on which others rely in extending credit and all conditional sales contracts, chattel mortgages and other security arrangements with respect to personal property used or owned by CBG or Commercial Bank. CBG has made available to Acquiror a true, correct and complete copy of each of the items listed in Schedule 4.10. 4.11 Litigation. Except as set forth in Schedule 4.11 or in the CBG SEC Reports, there are no claims, suits, actions or known investigations, indictments or informations, proceedings or arbitrations, grievances or other procedures (including grand jury investigations, actions or proceedings, and product liability and workers' compensation suits, actions or proceedings) of which CBG has received notice pending or, to the knowledge of CBG, threatened in writing, before any court, commission, arbitration tribunal, or judicial, governmental or administrative department, body, agency, administrator or official, grand jury, or any other forum for the resolution of grievances, against CBG or Commercial Bank or involving any of its property or business which, if determined adversely to CBG or Commercial Bank, would have a Material Adverse Effect on CBG. There are no judgments, orders, writs, injunctions, decrees or known indictments or informations, grand jury subpoenas or civil investigative demands, plea agreements, stipulations or awards (whether rendered by a court, commission, arbitration tribunal, or judicial, governmental or administrative department, body, agency, administrator or official, grand jury or any other forum for the resolution of grievances) against or relating to CBG or Commercial Bank or involving any of its property or business. 11 4.12 Employees. Schedule 4.12 sets forth the names and current compensation (broken down by category, e.g., salary, bonus, commission) of all employees of CBG and Commercial Bank. Other than as set forth in Schedule 4.12 or as contemplated by this Agreement, neither CBG nor Commercial Bank is a party to any employment or other contracts with any of its employees. 4.13 Employee Benefits. (a) To the knowledge of CBG, all employee benefit plans of CBG and Commercial Bank have been established in compliance with, and such plans have been operated in material compliance with, all applicable laws. Except as set forth on Schedule 4.13, neither CBG nor Commercial Bank sponsors or otherwise maintains a "pension plan" within the meaning of section 3(2) of ERISA or any other retirement plan other than the CBG 401(k) 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. Schedule 4.13 includes a copy of the Internal Revenue Service determination letter respecting the CBG 401(k) plan. To the knowledge of CBG, no employee benefit plan, any trust created thereunder nor 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 CBG. (b) CBG has no reason to believe that any amount payable to any employee of CBG or Commercial Bank will fail to be deductible for federal income tax purposes by virtue of Section 280G of the Code and regulations thereunder. 4.14 Collective Bargaining. There are no labor contracts, collective bargaining agreements, letters of understanding or other arrangements, formal or informal, between CBG or Commercial Bank and any union or labor organization covering any of CBG's or Commercial Bank's employees and none of said employees are represented by any union or labor organization. 4.15 Labor Disputes. CBG and Commercial Bank are in material compliance with all federal and state laws respecting employment and employment practices, terms and conditions of employment, wages and hours. CBG and Commercial Bank are not and have not been engaged in any unfair labor practice, and, to the knowledge of CBG, no unfair labor practice complaint against CBG or Commercial Bank is pending before the National Labor Relations Board. Relations between management and the employees are amicable and there have not been, nor to the knowledge of CBG are there presently, any attempts to organize employees, nor to the knowledge of CBG are there plans for any such attempts. 4.16 Bank Accounts. Schedule 4.16 sets forth a complete and accurate list of each bank or financial institution in which CBG or Commercial Bank has an account or safe deposit box (giving the address and account numbers) and the names of the persons authorized to draw thereon or to have access thereto. 4.17 Environmental Requirements. To the knowledge of CBG, except as disclosed in 12 Schedule 4.17, neither CBG nor Commercial Bank owns any property (including other real estate owned but excluding any property in which CBG or Commercial Bank has only a security interest), which is in violation of any federal or state law, regulation, or treaty relating to the storage, handling, transportation, treatment or disposal of hazardous substances (as defined in 42 U.S.C. Section 9601) or hazardous materials (as defined by any federal or state law or regulation) or other waste products, which violation will result in or have a Material Adverse Effect on CBG, and CBG and Commercial Bank have received all permits, licenses or other approvals as may be required of and under applicable federal and state environmental laws and regulations to conduct its respective business as currently conducted, except where the failure to have such permits, licenses or other approvals will not have a Material Adverse Effect on CBG. CBG and Commercial Bank are in compliance in all material respects with the terms and conditions of any such permit, license or approval, and has not received any notices or claims that it is a responsible party or a potentially responsible party in connection with any claim or notice asserted pursuant to 42 U.S.C. Section 9601 et. seq. or any state superfund law except where such failure to comply with the terms and conditions of any such permit, license or approval will not have a Material Adverse Effect on CBG. CBG and Commercial Bank have complied in all material respects with applicable laws and regulations with respect to the disposal of all of its hazardous substances, hazardous materials and other waste products. 4.18 Contracts and Commitments. Except as set forth in Schedule 4.18 or in the CBG SEC Reports and contracts made in the ordinary course of business: (a) Neither CBG nor Commercial Bank has any agreement or contract that is material to its business, operations or prospects other than those agreements which have been furnished to Acquiror; (b) Neither CBG nor Commercial Bank has any outstanding material agreement or contract, written or oral, with any officer, employee, agent, consultant, advisor, or broker that is not cancelable by CBG or Commercial Bank, on notice of not longer than thirty (30) days and without liability, penalty or premium of any kind; and (c) Except as noted in Schedule 4.10 and except for negotiable instruments in the process of collection, neither CBG nor Commercial Bank has any power of attorney outstanding or any material contract, commitment or liability (whether absolute, accrued, contingent or otherwise), as guarantor, surety, co-signer, endorser, co-maker or indemnitor in respect of the contract or commitment of any other person, corporation, partnership, joint venture, association, organization or other entity. 4.19 No Conflict. The execution and delivery of this Agreement by CBG and Commercial Bank, the consummation of the transactions contemplated herein by CBG and Commercial Bank, and the performance of the covenants and agreements of CBG and Commercial Bank herein, subject to fulfillment of the conditions set forth in this Agreement, will not, with or without the giving of notice or the lapse of time, or both, (i) violate or conflict with any of the provisions of any charter document or bylaw of CBG or Commercial Bank; or (ii) conflict with or result in a breach or default under or cause termination of any term or condition of any material mortgage, indenture, contract, license, permit, instrument, or other material agreement, document or instrument to which CBG or 13 Commercial Bank is a party or by which CBG or Commercial Bank or its properties may be bound which breach, default or violation would cause a Material Adverse Effect to CBG; or (iii) violate any provision of law, statute, regulation, court order or ruling of any governmental authority to which CBG or Commercial Bank is a party or by which it or its properties may be bound and which violation would have a Material Adverse Effect on CBG. 4.20 Agreements in Full Force and Effect. All material contracts, agreements, plans, leases, policies and licenses to which CBG or Commercial Bank is a party and which are described in the Proxy Statement/Prospectus and/or referred to, or required to be referred to, in any Schedule delivered hereunder are valid and binding, and are in full force and effect in all material respects and are enforceable in accordance with their material terms, except to the extent that the validity or enforceability thereof may be limited by bankruptcy, insolvency, reorganization or other similar laws affecting creditors' rights generally. 4.21 Required Consents and Approvals. Other than the approval of the consummation of the Merger by CBG's stockholders and by applicable bank regulatory agencies, no Consent or approval is required by virtue of the execution hereof by CBG or Commercial Bank or the consummation of any of the transactions contemplated herein by CBG or Commercial Bank the failure of which to obtain would have a Material Adverse Effect on CBG or on the transactions contemplated by this Agreement. 4.22 Absence of Certain Changes and Events. Except as set forth in Schedule 4.22 or in the ordinary course of business, since September 30, 1995, CBG and Commercial Bank, taken as a whole, have not : (a) suffered any damage or destruction adversely and materially affecting CBG; (b) made any declaration, setting aside or payment of any dividend or other distribution of assets (whether in cash, stock or property) with respect to its capital stock, or any direct or indirect redemption, purchase or other acquisition of such stock, or otherwise made any payment of cash or any transfer of other assets; (c) suffered any material adverse change in its working capital, assets, liabilities, financial condition or business prospects other than as a result of this Agreement and the transactions contemplated hereby; (d) suffered any material adverse change in the collectibility of its loan portfolio not subject to loan loss reserves; (e) except for customary increases based on term of service, performance or regular promotion of employees, increased (or announced any increase in) the compensation payable or to become payable to any employee, or increased (or announced any increase in) any bonus, insurance, pension or other employee benefit plan, payment or arrangement for such employees, or entered into or amended any employment, consulting, severance or similar agreement; 14 (f) incurred, assumed or guaranteed any liability or obligation (absolute, accrued, contingent or otherwise) other than in the ordinary course of business consistent with past practice or in connection with this transaction; (g) paid, discharged, satisfied or renewed any claim, liability or obligation other than payment in the ordinary course of business consistent with past practice; (h) permitted any of its assets to be subjected to any Lien; (i) waived any material claims or rights; (j) sold, transferred or otherwise disposed of any of its material Assets, except in the ordinary course of business consistent with past practice; (k) made any material capital expenditure or investment except in the ordinary course of business consistent with past practice; (l) made any change in any material method, practice or principle of financial or tax accounting; (m) managed working capital components, including cash, loans, deposits and other current liabilities in a fashion inconsistent in any material respect with past practice, including failing to make all budgeted and other normal capital expenditures, repairs, improvements and dispositions; (n) paid, loaned, advanced, sold, transferred or leased any asset to any employee, except for normal compensation involving salary and benefits and except for loans to officers and directors; (o) issued or sold any of its capital stock (other than pursuant to the exercise of any CBG Options) or issued any warrant, option or other right to purchase shares of its capital stock, or any security convertible into its capital stock; (p) received notice that any of its substantial customers has terminated or intends to terminate its deposit or lending relationship with Commercial Bank other than in the ordinary course of business, which termination would have a Material Adverse Effect on CBG; (q) failed to operate its business in the ordinary course in all material respects; (r) except in the ordinary course of business, made or permitted any amendment or termination of any material contract, agreement or license to which it is a party if such amendment or termination would have a Material Adverse Effect on CBG; or (s) agreed in writing, or otherwise, to take any action described in this Section. 15 4.23 Tax Matters. (a) Definitions. For purposes of this Agreement, the term "Taxes" shall mean all taxes, however denominated, including any interest, penalties or other additions to tax that may become payable in respect thereof, imposed by any federal, territorial, state, local or foreign government or any agency or political subdivision of any such government, which taxes shall include, without limiting the generality of the foregoing, all income or profits taxes (including, but not limited to, federal income taxes and state income taxes), payroll and employee withholding taxes, unemployment insurance, social security taxes, sales and use taxes, ad valorem taxes, excise taxes, franchise taxes, gross receipts taxes, business license taxes, occupation taxes, real and personal property taxes, stamp taxes, environmental taxes, transfer taxes, workers' compensation, PBGC premiums and other governmental charges, and other obligations of the same or of a similar nature to any of the foregoing, which CBG or Commercial Bank is required to pay, withhold or collect. (b) Returns Filed and Taxes Paid. (i) All Tax returns required to be filed by or on behalf of CBG or Commercial Bank have been duly filed on a timely basis and such Tax returns are true, complete and correct in all material respects; (ii) all Taxes shown to be payable on the returns or on subsequent assessments with respect thereto have been paid in full on a timely basis, and no other Taxes are payable by CBG and Commercial Bank with respect to items or periods covered by such returns (whether or not shown on or reportable on such returns) or with respect to any period prior to the date of this Agreement; (iii) CBG and Commercial Bank have withheld and paid over all Taxes required to have been withheld and paid over, and complied with all information reporting and backup withholding requirements, including maintenance of required records with respect thereto, in connection with amounts paid or owing to any employee, creditor, independent contractor, or other third party; and (iv) there are no liens on any of the assets of CBG or Commercial Bank with respect to Taxes, other than liens for Taxes not yet due and payable. (c) Tax Deficiencies; Audits; Statutes of Limitations. (i) The Tax returns of CBG and Commercial Bank have never been audited by a government or taxing authority, nor is any such audit in process, pending or, to the knowledge of CBG, threatened; (ii) no deficiencies exist or have been asserted or are expected to be asserted with respect to Taxes of CBG or Commercial Bank and neither CBG nor Commercial Bank has received notice that it has not filed a Tax return or paid Taxes required to be filed or paid by it; (iii) neither CBG nor Commercial Bank is a party to any action or proceeding for assessment or collection of Taxes, nor has such event been asserted or, to the knowledge of CBG, threatened against CBG or Commercial Bank; (iv) no waiver or extension of any statute of limitations is in effect with respect to Taxes or Tax returns of CBG or Commercial Bank; (v) CBG and Commercial Bank have disclosed on its federal income tax returns all positions taken therein that could give rise to a "substantial understatement of income tax" within the meaning of Section 6662 of the Code; and (vi) neither CBG nor Commercial Bank has made an application or request (either in writing or verbally, formally or informally) to the Internal Revenue Service to change methods of accounting or taxable year. (d) Tax Sharing Agreements. Except as otherwise disclosed in Schedule 4.23(d), 16 neither CBG nor Commercial Bank is (or have they ever been) a party to any tax sharing agreement. 4.24 Loan Loss Reserves. Commercial Bank's allowances for possible loan losses is reasonably adequate as of the date hereof in all material respects based upon the classification of the outstanding loans to provide for all anticipated losses, net of recoveries related to loans previously charged-off, on loans outstanding as of the date hereof. 4.25 Brokers. Except for services provide for CBG by The Robinson-Humphrey Company, Inc., all negotiations relative to this Agreement and the transactions contemplated hereby have been carried on by CBG directly with Acquiror and without intervention of any other person, either as a result of any act of CBG or Commercial Bank, or otherwise, in such manner as to give rise to any valid claim against CBG or Commercial Bank for a finder's fee, brokerage commission or other like payment. 4.26 Derivative Contracts. Neither CBG nor Commercial Bank 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 the CBG Financial Statements which is a financial derivative contract (including various combinations thereof). 4.27 Material Contract Defaults. Neither CBG nor Commercial Bank is in default in any material respect under the terms of any contract, agreement, lease or other commitment which is material to the business, operations, properties or Assets, or the condition, financial or otherwise, of such company and which default will have a Material Adverse Effect on CBG and, to the knowledge of CBG, there is no event which, with notice or lapse of time, or both, may be or become an event of default under such material contract, agreement, lease or other commitment in respect of which reasonable steps have not been taken to prevent such a default from occurring. 4.28 Insurance. Schedule 4.28 sets forth a list of all insurance policies and bonds in effect for CBG or Commercial Bank. All such insurance policies and bonds are valid, enforceable and in full force and effect, and neither CBG nor Commercial Bank has received any notice of a premium increase or cancellation with respect to any of such insurance policies or bonds. Since January 1, 1994, to the knowledge of CBG, neither CBG nor Commercial Bank has been refused any insurance coverage which it has sought or applied for, and CBG has no knowledge that existing insurance coverage cannot be renewed as and when the same shall expire, upon terms and conditions as favorable in all material respects 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 such company at all times from the date hereof to the Effective Time. To the knowledge of CBG, there are no pending or threatened claims against CBG's or Commercial Bank's director's and officer's liability insurance policy. 4.29 Buy-Sell Agreement. To the knowledge of CBG, there are no agreements among 17 any of its shareholders granting to any person or persons a right of first refusal in respect of the sale, transfer, or other disposition of shares of outstanding securities by any shareholder of CBG (other than in connection with the pledge of such shares), any similar agreement or any voting agreement or voting trust in respect of any such shares. 4.30 Transfer of Shares. CBG has not received written notice of any plan or intention on the part of CBG's shareholders to sell or otherwise dispose of any of the Acquiror Common Stock to be received by them in the Merger that would reduce such shareholders' aggregate ownership to a number of shares having, in the aggregate, a fair market value of less than fifty (50%) percent of the total fair market value of CBG common stock outstanding immediately before the Merger. ARTICLE V REPRESENTATIONS AND WARRANTIES OF ACQUIROR AND COLONIAL BANK Acquiror hereby represents and warrants to CBG as follows: 5.01 Organization. Acquiror is a corporation validly existing and in good standing under the laws of the State of Delaware. Colonial Bank has been duly incorporated and is validly existing as a commercial bank under the laws of the State of Alabama. Each of Acquiror and its Subsidiaries has all requisite corporate power and authority to carry on and conduct its respective business as now being conducted and to own, lease or operate its material properties and assets. Acquiror and each of its Subsidiaries is duly qualified as a foreign corporation, and is in good standing, in each state (including, in the case of Acquiror, the State of Georgia) and foreign jurisdiction where the character of its assets or the nature or conduct of its business requires it to be so qualified except for such states and jurisdictions in which the failure to be so qualified will not have a Material Adverse Effect on Acquiror. 5.02 Power and Authority. Acquiror has the corporate power and authority necessary to execute, deliver and perform its obligations under this Agreement and to consummate the transactions contemplated hereby. The execution, delivery and performance of this Agreement, and the consummation of the transactions contemplated hereby, have been duly and validly authorized by all necessary corporate action on the part of Acquiror. This Agreement constitutes Acquiror's legal, valid and binding obligation, enforceable against Acquiror in accordance with its terms. 5.03 Authorized and Outstanding Stock. The authorized Acquiror Capital Stock and the number of issued and outstanding shares thereof as of the date hereof is set forth in Schedule 5.03 hereto. All of such issued and outstanding shares of capital stock of Acquiror are duly and validly issued and outstanding and are fully paid and nonassessable. The shares of Acquiror Common Stock to be issued and delivered to the stockholders of CBG pursuant to the Merger have been duly reserved for issuance and, upon issuance to the stockholders of CBG pursuant to the terms of this Agreement, will be validly issued, fully paid and nonassessable. All issuances of the capital stock of Acquiror have been, and the issuance of shares to the stockholders of CBG will be, in compliance with all applicable 18 agreements and all applicable laws, including federal and state securities laws, and all taxes thereon have been paid. 5.04 No Conflict. The execution and delivery of this Agreement by Acquiror and Colonial Bank, the consummation of the transactions contemplated herein by Acquiror and Colonial Bank, and the performance of the covenants and agreements of Acquiror and Colonial Bank, subject to the fulfillment of the conditions to Acquiror's and Colonial Bank's obligations set forth in this Agreement, will not, with or without the giving of notice or the lapse of time, or both, (i) violate or conflict with any of the provisions of any charter document or bylaws of Acquiror or Colonial Bank; (ii) violate, conflict with or result in breach or default under or cause termination of any term or condition of any material mortgage, indenture, contract, license, permit, instrument, or other material agreement, document or instrument to which Acquiror or any of its Subsidiaries is a party or by which Acquiror or any of its Subsidiaries or any of their properties may be bound which breach, default or violation would cause a Material Adverse Effect on Acquiror; or (iii) violate any provision of law, statute, rule, regulation, court order, judgment or decree, or ruling of any governmental authority, to which Acquiror or Colonial Bank is a party or by which Acquiror or Colonial Bank or their properties may be bound. 5.05 Financial Statements. (a) Acquiror has filed and made available to CBG all forms, reports and documents required to be filed by Acquiror with the Commission since December 31, 1994, other than registration statements on Form S-8 (collectively, the "Acquiror SEC Reports"). The Acquiror SEC Reports (i) at the time filed, complied in all material respects with the applicable requirements of the Securities Act and the Exchange Act, as the case may be, and (ii) did not at the time they were filed (or if amended or superseded by a filing prior to the date of this Agreement, then on the date of such filing) contain any untrue statement of a material fact or omit to state a material fact required to be stated in such Acquiror SEC Reports or necessary in order to make the statements in such Acquiror SEC Reports, in light of the circumstances under which they were made, not misleading. (b) Each of the financial statements of Acquiror (including, in each case, any related notes) contained in the Acquiror SEC Reports, including any Acquiror SEC Reports filed after the date of this Agreement until the Effective Time (collectively, the "Acquiror Financial Statements"), complied as to form in all material respects with the applicable published rules and regulations of the Commission with respect thereto, was prepared in accordance with GAAP applied on a consistent basis throughout the periods involved (except as may be indicated in the notes to such financial statements or, in the case of unaudited statements, as permitted by Form 10-Q of the Commission), and fairly presented the consolidated financial position of Acquiror and its Subsidiaries as at the respective dates and the consolidated results of its operations and cash flows for the periods indicated, except that the unaudited interim financial statements were or are subject to normal and recurring year-end adjustments which were not or are not expected to be material in amount. 19 (c) Since September 30, 1995, except as disclosed in the Acquiror SEC Reports, there have been no events, changes or occurrences which have had, or will have, a Material Adverse Effect on Acquiror. 5.06 No Material Changes. Neither Acquiror nor any of its Subsidiaries has sustained, directly or indirectly, since September 30, 1995, any material loss or interference with its business. Except as set forth on Schedule 5.06, since September 30, 1995, there has not been any change in the capital stock or long-term debt of Acquiror or any of its Subsidiaries, or any material adverse change, or any development involving a prospective material adverse change, in or affecting the collectibility of the loan portfolio of Acquiror or its Subsidiaries or in or affecting the general affairs, management, financial position, stockholders' equity, assets, results of operations or prospects of Acquiror or any of its subsidiaries, whether or not arising in the ordinary course of business. Except as disclosed in the notes to the latest audited consolidated financial statements of Acquiror included in the Acquiror SEC Reports or on Schedule 5.06, neither Acquiror nor any of its subsidiaries has incurred or undertaken any liability or obligation, direct, indirect or contingent, which is material to the business or condition (financial or other) of Acquiror, except for liabilities or obligations incurred in the ordinary course of business. 5.07 Required Consents and Approvals. Other than the approval of the consummation of the Merger by applicable bank regulatory agencies, no consent or approval is required by virtue of the execution hereof by Acquiror or Colonial Bank or the consummation of any of the transactions contemplated herein by Acquiror or Colonial Bank. 5.08 No Undisclosed Liabilities. Except as and to the extent reflected and adequately reserved against in the financial statements included in the Acquiror SEC Reports, neither Acquiror nor any subsidiary of Acquiror has any material liability or obligation whatsoever, whether accrued, absolute, contingent or otherwise. 5.09 No Violation of Law. Neither Acquiror nor any subsidiary of Acquiror, to its knowledge, is, has been and will be (by virtue of any past or present action, omission to act, contract to which it is a party or any occurrence or state of facts whatsoever) in violation of any applicable local, state or federal law, ordinance, regulation, order, injunction or decree, or any other requirement of any governmental body, agency or authority or court binding on any of them, or relating to their property or business or their advertising, sales or pricing practices (including, without limitation, any banking laws or regulations, antitrust laws or regulations, and the statutes, rules and regulations commonly referred to as the Environmental Protection Act, the Americans With Disabilities Act, and the statutes and regulations of any state or other jurisdiction in which Acquiror or any of its Subsidiaries does business), nor will Acquiror or any of its Subsidiaries hereafter suffer or incur any material loss, liability, penalty or expense (including, without limitation, attorneys' fees) by virtue of any such violation. 20 5.10 Litigation. Other than as disclosed in the Acquiror SEC Reports, the are no charges, suits, actions, investigations of a material nature pending or threatened against Acquiror or any of its Subsidiaries. 5.11 Securities and Exchange Commission Matters. On the effective date of the Registration Statement, at all times subsequent thereto and including the closing date and when any post-effective amendment to the Registration Statement becomes effective or any amendment or supplement to the Prospectus is filed with the Commission, the Registration Statement and the Proxy Statement/Prospectus (as amended or as supplemented), including the financial statements included or incorporated by reference in the Proxy Statement/Prospectus, did or will comply with all applicable provisions of the Securities Act, the Exchange Act, the rules and regulations of the Commission under the Securities Act and the Exchange Act (collectively, the "Rules and Regulations"), and will contain all statements required to be stated therein in accordance with the Securities Act, the Exchange Act, and the Rules and Regulations. On the effective date of the Registration Statement and when any post-effective amendment to the Registration Statement becomes effective, no part of the Registration Statement, the Proxy Statement/Prospectus, any such amendment or supplement or any documents incorporated therein by reference did or will contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary in order to make the statements therein not misleading. At the effective date of the Registration Statement, the date the Proxy Statement/Prospectus or any amendment or supplement to the Proxy Statement Prospectus is filed with the Commission and at the Effective Time the Proxy Statement/Prospectus did not or will not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. The foregoing representations and warranties in this Section 5.11 do not apply to any statements or omissions made in reliance on and in conformity with information relating to CBG furnished in writing to Acquiror by CBG specifically for inclusion in the Registration Statement or Proxy Statement/Prospectus or any amendment or supplement thereto. Any documents or filings that are incorporated by reference, when they were or shall be filed with the Commission, as the case may be, complied or will comply in all material respects with the requirements of the Securities Act, or the Exchange Act, as applicable, and the Rules and Regulations. 5.12 Loan Loss Reserves. Acquiror's allowances for possible loan losses is reasonably adequate as of the date hereof in all material respects to provide for all anticipated losses based on the classification of such loans, net of recoveries related to loans previously charged-off, on loans outstanding as of the date hereof. 5.13 Assets. Except as disclosed in the Acquiror SEC Reports or as disclosed or reserved against in the Acquiror Financial Statements, Acquiror and its Subsidiaries have good and marketable title, free and clear of all Liens, to all of their respective material Assets reflected in Acquiror's most recent balance sheet referred to in Section 5.05. 21 5.14 Tax Matters. (a) Returns Filed and Taxes Paid. (i) All Tax returns required to be filed by or on behalf of Acquiror and any of its Subsidiaries have been duly filed on a timely basis and such Tax returns are true, complete and correct in all material respects; (ii) all Taxes shown to be payable on the returns or on subsequent assessments with respect thereto have been paid in full on a timely basis, and no other Taxes are payable by Acquiror or its Subsidiaries with respect to items or periods covered by such returns (whether or not shown on or reportable on such returns) or with respect to any period prior to the date of this Agreement; (iii) Acquiror and its Subsidiaries have withheld and paid over all Taxes required to have been withheld and paid over, and complied with all information reporting and backup withholding requirements, including maintenance of required records with respect thereto, in connection with amounts paid or owing to any employee, creditor, independent contractor, or other third party; and (iv) there are no liens on any of the assets of Acquiror or its Subsidiaries with respect to Taxes, other than liens for Taxes not yet due and payable. (b) Tax Deficiencies; Audits; Statutes of Limitations. (i) No deficiencies exist or have been asserted or are expected to be asserted with respect to Taxes of Acquiror or any of its Subsidiaries and neither Acquiror nor any of its Subsidiaries has received notice that it has not filed a Tax return or paid Taxes required to be filed or paid by it; (ii) neither Acquiror nor any of its Subsidiaries is a party to any action or proceeding for assessment or collection of Taxes, nor has such event been asserted or, to the knowledge of Acquiror, threatened against Acquiror or any of its Subsidiaries; (iii) no waiver or extension of any statute of limitations is in effect with respect to Taxes or Tax returns of Acquiror or any of its Subsidiaries; (iv) Acquiror and its Subsidiaries have disclosed on its federal income tax returns all positions taken therein that could give rise to a "substantial understatement of income tax" within the meaning of Section 6662 of the Code; and (v) neither Acquiror nor any of its Subsidiaries has made an application or request (either in writing or verbally, formally or informally) to the Internal Revenue Service to change methods of accounting or taxable year. 5.15 Tax Treatment. Acquiror has no present plans to sell or otherwise dispose of any of the Assets of CBG, or to liquidate any Subsidiaries (except that Acquiror may merge Commercial Bank into a subsidiary of Acquiror), subsequent to the Merger and Acquiror intends to continue the historic business of CBG. 5.16 Employee Benefits. To the knowledge of Acquiror, all employee benefit plans of Acquiror and each of its Subsidiaries have been established in compliance with, and such plans have been operated in material compliance with, all applicable laws. Except as set forth on Schedule 5.16, neither Acquiror nor any of its Subsidiaries sponsors or otherwise maintains a "pension plan" within the meaning of section 3(2) of ERISA or any other retirement plan other than the Acquiror 401(k) 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 Acquiror, no employee benefit plan, any trust created thereunder nor any trustee or administrator thereof has engaged in a 22 "prohibited transaction," as defined in section 4975 of the Code, which may have a Material Adverse Effect on Acquiror. 5.17 Environmental Requirements. To the knowledge of Acquiror, except as disclosed in Schedule 5.17, neither Acquiror nor any of its Subsidiaries owns any property (including other real estate owned but excluding any property in which Acquiror or any of its Subsidiaries has only a security interest), which is in violation of any federal or state law, regulation, or treaty relating to the storage, handling, transportation, treatment or disposal of hazardous substances (as defined in 42 U.S.C. Section 9601) or hazardous materials (as defined by any federal or state law or regulation) or other waste products, which violation will result in or have a Material Adverse Effect on Acquiror, and Acquiror and its Subsidiaries have received all permits, licenses or other approvals as may be required of and under applicable federal and state environmental laws and regulations to conduct its respective business as currently conducted, except where the failure to have such permits, licenses or other approvals will not have a Material Adverse Effect on Acquiror. Acquiror and its Subsidiaries are in compliance in all material respects with the terms and conditions of any such permit, license or approval, and has not received any notices or claims that it is a responsible party or a potentially responsible party in connection with any claim or notice asserted pursuant to 42 U.S.C. Section 9601 et. seq. or any state superfund law except where such failure to comply with the terms and conditions of any such permit, license or approval will not have a Material Adverse Effect on Acquiror. Acquiror and its Subsidiaries have complied in all material respects with applicable laws and regulations with respect to the disposal of all of its hazardous substances, hazardous materials and other waste products. 5.18 Derivative Contracts. Neither Acquiror nor any of its Subsidiaries 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 the Acquiror Financial Statements which is a financial derivative contract (including various combinations thereof). 5.19 Material Contract Defaults. Neither Acquiror nor any of its Subsidiaries is in default in any material respect under the terms of any contract, agreement, lease or other commitment which is material to the business, operations, properties or Assets, or the condition, financial or otherwise, of such company and which default will have a Material Adverse Effect on Acquiror and, to the knowledge of Acquiror, there is no event which, with notice or lapse of time, or both, may be or become an event of default under such material contract, agreement, lease or other commitment in respect of which reasonable steps have not been taken to prevent such a default from occurring. 23 ARTICLE VI COVENANTS OF CBG 6.01 Pre-Closing Operations of CBG. CBG hereby covenants and agrees that, except as consented to in writing by Acquiror, pending the Closing, CBG and Commercial Bank will operate and conduct its business only in the ordinary course consistent in all material respects with prior practices. Pursuant thereto and not in limitation of the foregoing, from and after the date hereof: (a) CBG and Commercial Bank shall manage its working capital, including cash, loans, other current assets, deposits and other current liabilities, in a fashion consistent in all material respects with past practice. (b) CBG and Commercial Bank shall maintain its physical Assets in their present state of repair (ordinary wear and tear excepted). (c) CBG and Commercial Bank shall not take any of the following actions after the date of this Agreement without the prior written consent of Acquiror, which consent shall not be unreasonably withheld, conditioned or delayed: (i) Incur any additional debt obligation or other obligation for borrowed money in excess of an aggregate of $25,000 except in the ordinary course of the business consistent in all material respects with past practices (which shall include, for Commercial Bank, creation of deposit liabilities, purchases of federal funds, advances from the Federal Reserve Bank, and entry into repurchase agreements fully secured by U.S. government or agency securities), or impose or suffer the imposition, on any asset of CBG or Commercial Bank of any Lien or permit any such Lien to exist (other than in connection with deposits, repurchase agreements, bankers acceptances, "treasury tax and loan" accounts established in the ordinary course of business, the satisfaction of legal requirements in the exercise of trust powers, and Liens in effect as of the date hereof); (ii) Mortgage, pledge or subject to Liens any assets having a value of $25,000 or more in the aggregate; except Liens that exist as of the date of this Agreement; (iii) Except for purchases of U.S. Treasury securities or U.S. Government agency securities, which in either case have maturities of three years or less, purchase any securities or make any material investment, either by purchase of stock or securities, contributions to capital, asset transfers, or purchase of any assets, in any Person, or otherwise acquire direct or indirect control over any Person, other than in connection with (i) foreclosures in the ordinary course of business, or (ii) acquisitions of control by Commercial Bank in its fiduciary capacity; (iv) Except as set forth in Schedule 4.12, increase (or announce any increase of) any salaries, wages or employee benefits, modify, alter or amend any CBG Options or hire any new employees with individual salaries in excess of $35,000 (except to replace existing employees) other than in the ordinary course of business consistent in all material respects with past practice; (v) Amend any charter document or bylaw; 24 (vi) Issue or sell any of its capital stock (other than upon exercise of outstanding CBG Options or warrants), redeem, purchase or otherwise acquire any shares of its capital stock, or make any other change in its issued and outstanding capital stock, or, except as set forth in Schedule 6.01(c)(vi), issue any warrant, option or other right to purchase shares of its capital stock or any security convertible into its capital stock, or declare any dividends or make any other distribution with respect to its capital stock; (vii) Adjust, split, combine or reclassify any capital stock of CBG or issue or authorize the issuance of any other securities in respect of or in substitution for shares of CBG Common Stock, or sell, lease, mortgage or otherwise dispose of or otherwise encumber any shares of capital stock of Commercial Bank; (viii) Incur, assume or guarantee any obligation or liability for borrowed money, or exchange, refund or renew any outstanding indebtedness of CBG or Commercial Bank in such a manner as to reduce the principal amount of such indebtedness or increase the interest rate or balance outstanding other than in the ordinary course of business consistent in all material respects with past practice; (ix) Amend or terminate any material agreement, excluding loan contracts but including any insurance policy, in force on the date hereof; (x) Except as set forth in Schedule 6.01(c)(x), enter into or amend any employment contract or agreement between any CBG or Commercial Bank and any person (unless such amendment is required by applicable law) that CBG or Commercial Bank does not have the unconditional right to terminate without liability (other than liability for services already rendered) at any time on or after the Effective Time; (xi) Adopt any new employee benefit plan of CBG or Commercial Bank or make any material change in or to any existing employee benefit plans of CBG or Commercial Bank other than any such change that is required by law or that, in the opinion of counsel, is necessary or advisable to maintain the tax qualified status of any such plan; or (xii) Make any material changes in financial or tax accounting methods, principles or practices except as may be appropriate to conform to changes in applicable law or regulatory accounting requirements or GAAP. 6.02 Access. From the date of this Agreement through the Closing Date, CBG and Commercial Bank shall (i) provide Acquiror and its respective designees (officers, employees, counsel, accountants, and other authorized representatives who shall be bound by Section 8.03 hereof) with such information as Acquiror may from time to time reasonably request with respect to CBG and Commercial Bank and the transactions contemplated by this Agreement; (ii) provide Acquiror and its designees reasonable access during regular business hours and upon reasonable notice to the books, records, offices, personnel, counsel, accountants and actuaries of CBG and Commercial Bank as Acquiror or its designees may from time to time reasonably request; and (iii) permit Acquiror and its designees to make 25 such inspections thereof as Acquiror may reasonably request. Any investigation shall be conducted in such a manner so as not to interfere unreasonably with the operation of the business of CBG and Commercial Bank. 6.03 Interim Financials. As promptly as practicable after each regular accounting period subsequent to September 30, 1995 and prior to the Closing Date, CBG will deliver to Acquiror periodic financial reports concerning CBG and Commercial Bank in the form which it customarily prepares for its internal purposes and, if available, unaudited statements of the financial position of CBG and Commercial Bank as of the last day of each accounting period and unaudited statements of income and cash flows of CBG and Commercial Bank for the period then ended. 6.04 Meeting of Stockholders. As soon as practicable following the execution of this Agreement, CBG shall call a meeting of its stockholders to be held after the effective date of the Registration Statement for the purpose of considering and voting upon the Merger. 6.05 Notice of Breach or Potential Breach or Adverse Change. CBG shall promptly notify Acquiror of any change, circumstance or event which would cause any of the representations or warranties made by CBG and Commercial Bank pursuant to this Agreement to be untrue as of the date hereof or at the Closing or which prevents CBG and Commercial Bank from complying with any of its obligations hereunder. 6.06 Director Voting. CBG shall on the date of execution of this Agreement, or as soon as practicable thereafter, obtain an agreement from each of its directors substantially in the form set forth in Exhibit A. ARTICLE VII COVENANTS OF ACQUIROR Acquiror hereby covenants and agrees as follows: 7.01 Access. From the date of this Agreement through the Closing Date, Acquiror and Colonial Bank shall (i) provide CBG and its designees (officers, employees, counsel, accountants, actuaries, and other authorized representatives) with such information as CBG and Commercial Bank may from time to time reasonably request with respect to Acquiror and its Subsidiaries and the transactions contemplated by this Agreement; (ii) provide CBG and its designees access during regular business hours and upon reasonable notice to the books, records, offices, personnel, counsel, accountants and actuaries of Acquiror and its Subsidiaries, as CBG or its designees may from time to time reasonably request; and (iii) permit CBG and its designees to make such inspections thereof as CBG may reasonably request. Any investigation shall be conducted in such a manner so as not to interfere unreasonably with the operation of the business of Acquiror and its Subsidiaries. 7.02 Interim Financials. As promptly as practicable after each quarterly accounting period subsequent to September 30, 1995 and prior to the Closing Date, Acquiror will 26 deliver to CBG periodic financial reports in the form which it customarily prepares for its internal purposes and, if available, Acquiror will deliver to CBG unaudited statements of the consolidated financial position of Acquiror as of the last day of each accounting period and unaudited consolidated statements of income and cash flow of Acquiror for the period then ended. 7.03 Notice of Breach or Potential Breach or Adverse Change. Acquiror shall promptly notify CBG of any change, circumstance or event which would cause any of the representations or warranties made by Acquiror or Colonial Bank pursuant to this Agreement to be untrue as of the date hereof or at the Closing or which prevents Acquiror or Colonial Bank from complying with any of its obligations hereunder. 7.04 New York Stock Exchange Listing. Acquiror shall cause the shares of Acquiror Common Stock to be issued in the Merger to be listed for trading on the NYSE on or before the Effective Time. 7.05 Employee Benefit Matters. At the Effective Time, all employees of CBG or Commercial Bank shall, at Acquiror's option, either (i) remain employees of Commercial Bank or become employees of the Surviving Corporation or its Subsidiaries ("Retained Employees") or (ii) be entitled to severance benefits in accordance with [Colonial Bank's] severance policy as of the date of this Agreement. All Retained Employees shall be entitled, to the extent permitted by applicable law, to participate in all benefit plans of Acquiror and/or Colonial Bank to the same extent as Colonial Bank employees. Retained Employees shall be allowed to participate as of the Effective Time in the medical and dental benefits plans of Acquiror and/or Colonial Bank as new employees of Colonial Bank with a waiver of the any waiting period and of any pre-existing condition limitations. To the extent permitted by applicable law, the period of service with CBG and Commercial Bank of all Retained Employees shall be recognized for vesting and eligibility purposes under Colonial Bank's benefit plans. In addition, if the Effective Time falls within an annual period of coverage under any group health plan or group dental plan of the Surviving Corporation or its Subsidiaries, each Retained Employee shall be given credit for covered expenses paid by that employee under the comparable employee benefit plans of CBG and Commercial Bank during the applicable coverage period through the Effective Time towards the satisfaction of any deductible limitation and out-of-pocket maximum that may apply under the group health plan or group dental plan of the Surviving Corporation and its Subsidiaries. 7.06 Georgia Board of Directors. Effective as of the Effective Time, Acquiror shall cause to be elected to the Board of Directors of Commercial Bank certain of the current directors of CBG who shall be agreed upon by Acquiror and CBG prior to the Effective Time. 27 ARTICLE VIII COVENANTS OF THE PARTIES Acquiror and CBG hereby covenant to and agree with one another as follows: 8.01 Approvals of Third Parties; Satisfaction of Conditions to Closing. Acquiror, Colonial Bank, CBG and Commercial Bank will use their reasonable efforts, and will cooperate with one another, to secure all necessary consents, approvals, authorizations and exemptions from governmental agencies and other third parties, including, without limitation, all consents required by Sections 9.05 and 9.06 hereof. In connection therewith, Acquiror shall promptly prepare and file applications with all regulatory authorities having jurisdiction over the transactions contemplated by this Agreement seeking the requisite consents and approvals to such transactions. Acquiror, Colonial Bank, CBG and Commercial Bank will use their reasonable, good faith efforts to cause or obtain the satisfaction of the conditions specified in Article X. Acquiror and Colonial Bank will use their reasonable, good faith efforts to cause or obtain the satisfaction of the conditions specified in Article IX. 8.02 Preparation of Registration Statement and the Proxy Statement/Prospectus. Acquiror and CBG shall promptly prepare the Proxy Statement/Prospectus and Acquiror shall promptly prepare and file with the Commission the Registration Statement, in which the Proxy Statement/Prospectus will be included. Each of CBG and Acquiror shall use all reasonable efforts to file the Registration Statement on or before February 9, 1995 (or such later date as is mutually agreed by the parties hereto) and to have the Registration Statement declared effective under the Securities Act as promptly as practicable after such filing. Acquiror shall also take any action (other than qualifying to do business in any jurisdiction in which it is now not so qualified) required to be taken under any applicable state securities laws in connection with the issuance of the Acquiror Common Stock in the Merger. 8.03 Confidentiality. In connection with this Agreement, the parties may have access to information which is nonpublic, confidential or proprietary in nature. All of such information, in whole or in part, together with any analyses, compilations, studies or other documents prepared by any party, which contain or otherwise reflect any such information is hereinafter referred to as the "Information". Each party hereby agrees that the Information will be kept confidential and shall not, without the prior mutual written consent of the parties, be disclosed, in any manner whatsoever, in whole or in part, and shall not be used by any party following the termination of this Agreement. Each party agrees to transmit the Information only to its respective employees and representatives who need to know the Information and who shall agree to be bound by the terms and conditions of this Agreement. In any event, each party shall be responsible for any breach of this Agreement by its respective employees or representatives. If the transactions contemplated hereunder are not consummated, the parties shall return the Information to the other promptly upon request and no party shall retain any copies. In the event any party becomes legally compelled to disclose any of the Information, such party will provide to the other parties prompt notice so that each other party may seek a protective order or other appropriate remedy and/or waive compliance with the provisions of this Agreement. In the event that such protective order or other remedy is not obtained, or compliance with the provisions of this Agreement is waived, a party will furnish only that portion of the Information which 28 is legally required, and to the extent requested by the other party, will exercise its best efforts to obtain a protective order or other reliable assurance that confidential treatment will be accorded the Information. The term "Information" does not include information which (i) was known to any party about another party prior to its disclosure, provided that such information was lawfully obtained or developed, (ii) becomes generally available to the public other than as a result of a disclosure by a party in violation of this Agreement, or (iii) becomes available from a source other than a party to this Agreement, if the source is not bound by a confidentiality agreement and such source lawfully obtained such information. 8.04 Press Releases. Prior to the Effective Time, CBG and Acquiror shall consult with each other as to the form and substance of any press release or other public disclosure related to this Agreement or to transactions contemplated hereby; provided that nothing in this Section 8.04 shall be deemed to prohibit any party hereto from making any disclosure which its counsel deems necessary or advisable in order to satisfy such party's disclosure obligations imposed by law. ARTICLE IX CONDITIONS TO OBLIGATIONS OF CBG Each of the obligations of CBG to be performed hereunder shall be subject to the satisfaction (or waiver by CBG) at or prior to the Effective Time of the covenants of Acquiror set forth herein and of each of the following conditions: 9.01 Representations and Warranties True at Closing Date. Each of Acquiror's and Colonial Bank's representations and warranties contained in this Agreement shall be true in all material respects on and as of the Closing Date with the same force and effect as though made on and as of such date; Acquiror and Colonial Bank shall have complied in all material respects with the covenants and agreements set forth herein to be performed or complied with by them on or before the Effective Time; and Acquiror and Colonial Bank shall have delivered to CBG and Commercial Bank a certificate in form and substance reasonably satisfactory to CBG confirming such matters and such other matters as may be reasonably requested by CBG. 9.02 Litigation. There shall not be any litigation or threat of Litigation against any party hereto (a) challenging the validity or legality of this Agreement or (b) seeking damages in respect of or seeking to restrain or invalidate the transactions contemplated by this Agreement which, in the judgment of CBG, based upon advice of counsel, would have a Material Adverse Effect on Acquiror, Colonial Bank, CBG, Commercial Bank or the consummation of the transactions contemplated by this Agreement. 9.03 Opinion of Counsel. CBG and Commercial Bank shall have received from counsel to Acquiror an opinion, dated as of the Closing Date, in form and substance reasonably satisfactory to CBG and its counsel. 29 9.04 Tax Opinion. CBG and Commercial Bank shall have received from Miller, Hamilton, Snider & Odom, L.L.C., counsel to Acquiror, an opinion in form and substance reasonably satisfactory to CBG and its counsel 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 CBG or Commercial Bank in connection with the Merger, (iii) no gain or loss will be recognized by the shareholders of CBG who receive shares of Acquiror Common Stock in the Merger except to the extent of any taxable "boot" received by such persons from Acquiror, and except to the extent of any dividends received from CBG prior to the Effective Time, (iv) the tax basis of the Acquiror Common Stock received by such shareholders from Acquiror in connection with the Merger will be equal to the sum of the tax basis of their shares of CBG Common Stock exchanged in the Merger and the amount of gain, if any, which was recognized by the exchanging CBG 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 Acquiror Common Stock will include the holding period of the shares of CBG Common Stock exchanged therefor if such shares of CBG Common Stock were capital assets in the hands of the exchanging CBG shareholder, and (vi) cash received by a CBG shareholder in lieu of a fractional share interest of Acquiror Common Stock will be treated as having been received as a distribution in full payment in exchange for the fractional share interest of Acquiror Common Stock which he would otherwise be entitled to receive and will qualify as capital gain or loss (assuming the CBG Common Stock was a capital asset in his hands as of the Effective Time). 9.05 Documents Satisfactory in Form and Substance. All agreements, certificates, opinions and other documents delivered by Acquiror or Colonial Bank to CBG and Commercial Bank hereunder or in connection herewith shall be in form and substance satisfactory to counsel for CBG and Commercial Bank, in the exercise of such counsel's reasonable judgment. 9.06 Required Governmental Approvals. All governmental authorizations, consents and approvals necessary for the valid consummation of the transactions contemplated hereby shall have been obtained and shall be in full force and effect. All applicable governmental pre-acquisition filing, information furnishing and waiting period requirements shall have been met or such compliance shall have been waived by the governmental authority having authority to grant such waivers. 9.07 Stockholder Approval. This Agreement and the transactions contemplated hereby shall have been approved and adopted by the affirmative vote of the holders of a majority of the outstanding shares of CBG Common Stock entitled to vote thereon. 9.08 Absence of Adverse Facts. No fact, event or condition shall exist, or shall be reasonably likely to occur or has occurred that (a) has had a Material Adverse Effect on, or which may be reasonably foreseen to have a Material Adverse Effect on Acquiror or the consummation of the transactions contemplated by this Agreement which has not been waived by CBG (in the exercise of its sole and exclusive discretion), (b) would be materially adverse to the interests of CBG or its stockholders, or (c) would render the transactions 30 contemplated by this Agreement impractical because of any material event including but not limited to a state of war, national emergency, banking moratorium or general suspension of trading on the NYSE, or other national securities exchange. 9.09 Fairness Opinion. CBG shall have received from The Robinson-Humphrey Company, Inc. a letter in form and substance satisfactory to CBG which provides that this Agreement and the transactions contemplated thereby are fair to the stockholders of CBG from a financial point of view. ARTICLE X CONDITIONS TO OBLIGATIONS OF ACQUIROR The obligations of Acquiror to be performed hereunder shall be subject to the satisfaction (or waiver by Acquiror) on or before the Effective Time of each of the Covenants of CBG set forth herein and of each of the following conditions: 10.01 Representations and Warranties True at Closing Date. Each of the representations and warranties of CBG and Commercial Bank contained in this Agreement shall be true in all material respects on and as of the Closing Date with the same force and effect as though made on and as of such date; CBG and Commercial Bank shall have performed and complied in all respects with the covenants and agreements set forth herein to be performed or complied with by CBG or Commercial Bank on or before the Effective Time; and CBG and Commercial Bank shall have delivered to Acquiror and Colonial Bank a certificate in form and substance reasonably satisfactory to Acquiror confirming such matters and confirming such other matters as may be reasonably requested by Acquiror. 10.02 No Material Change. Other than changes relating to, or resulting from, the existence of, or the terms of, this Agreement and the transactions contemplated hereby, including any related loss of employees or customers of CBG or Commercial Bank, neither Acquiror nor any of its Subsidiaries shall have suffered any material adverse change since September 30, 1995 in its business, operations, prospects, financial condition, working capital, assets, liabilities (absolute, accrued, contingent or otherwise), reserves or operations. 10.03 Litigation. There shall not be any litigation or threat of litigation against any party hereto (a) challenging the validity or legality of this Agreement or (b) seeking damages in respect of or seeking to restrain or invalidate the transactions contemplated by this Agreement which, in the judgment of either Acquiror or Colonial Bank, would have a material adverse effect on Acquiror, Colonial Bank, Commercial Bank or the consummation of the transactions contemplated by this Agreement. 10.04 Required Governmental Approvals. All governmental authorizations, consents and approvals necessary for the valid consummation of the transactions contemplated hereby shall have been obtained and shall be in full force and effect. All applicable governmental pre-acquisition filing, information furnishing and waiting period requirements 31 shall have been met or such compliance shall have been waived by the governmental authority having authority to grant such waivers. 10.05 Opinion of Counsel to CBG. Acquiror shall have received from counsel to CBG an opinion, dated the Closing Date, in form and substance reasonably satisfactory to Acquiror, and its counsel. 10.06 Documents Satisfactory in Form and Substance. All agreements, certificates, opinions and other documents delivered by CBG and Commercial Bank to Acquiror and Colonial Bank hereunder shall be in form and substance satisfactory to counsel for Acquiror, in the exercise of such counsel's reasonable judgment. 10.07 Accountants' Letters. Acquiror and Colonial Bank shall have received a letter from CBG's independent accountants with respect to the financial, accounting and statistical data regarding CBG and Commercial Bank set forth in the Registration Statement dated within five days prior to the Closing Date. 10.08 Limitation on Dissenting Stockholders. All periods for notification of demands by Dissenting Stockholders pursuant to the Dissenter Provisions shall have expired. Neither CBG, Commercial Bank, Acquiror nor Colonial Bank shall have received notification of demands from Dissenting Stockholders who hold an aggregate of ten percent (10%) or more of the outstanding CBG Common Stock. 10.09 Controlling Shareholders. Each shareholder of CBG who may be an "affiliate" of CBG within the meaning of Rule 145 of the Rules and Regulations under the Securities Act shall have executed and delivered to Acquiror a commitment and undertaking to the effect that such person shall not make a "distribution" (within the meaning of Rule 145) of the Acquiror Common Stock which he receives upon the Effective Time and that such Acquiror Common Stock will be held subject to all applicable provisions of the Securities Act and the rules and regulations of the Commission thereunder. 10.10 Pooling of Interests. Acquiror 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. ARTICLE XI INDEMNIFICATION 11.01 Indemnification. (a) Acquiror shall, and shall cause the Surviving Corporation to, indemnify, defend, and hold harmless the present and former directors, officers, employees and agents of the CBG and Commercial Bank (each an "Indemnified Party") against all Liabilities arising out of or in connection with actions or omissions, or alleged actions or omissions, occurring at or prior to the Effective Time or alleged to have occurred at or prior to the 32 Effective Time (including the transactions contemplated by this Agreement) to the full extent provided in the Articles of Incorporation of CBG in effect immediately prior to the Effective Time. (b) If Acquiror or the Surviving Corporation or any of their successors or assigns shall consolidate with or merge into any other entity and shall not be the continuing or surviving entity of such consolidation or merger or shall transfer all or substantially all of its assets to any person or entity, then and in each case, proper provision shall be made so that the successors and assigns of Acquiror or Surviving Corporation, as the case may be, shall assume the obligations set forth in this Article XI. (c) The provisions of this Article XI are intended to be for the benefit of, and enforceable by, each Indemnified Party, his or her heirs and representatives. (d) In addition to the foregoing provisions of this Section 11.01, Acquiror shall purchase from a reputable insurance company director and officer liability insurance that will provide "tail" liability insurance coverage during the two year period following the Closing for the benefit of all of the current directors and officers of CBG and/or Commercial Bank, which coverage shall provide substantially the same coverage for such persons as CBG's and Commercial Bank's existing director and officer insurance policy. In the event such insurance policy is not available from any insurance company, Acquiror shall not be required to comply with this subsection (d). Acquiror shall not be required to purchase such a policy if the annual premium exceeds two times the annual premiums currently paid by CBG or Commercial Bank. ARTICLE XII CLOSING 12.01 Closing Date. Subject to the satisfaction or waiver of the conditions set forth herein, the consummation of the Merger (the "Closing") shall take place at 10:00 a.m. on June 28, 1996 in the offices of Long, Aldridge & Norman, Suite 5300, One Peachtree Center, 303 Peachtree Street, Atlanta, Georgia, or on such other date or at such other time and place as the parties shall agree (the "Closing Date"). ARTICLE XIII TERMINATION PRIOR TO CLOSING 13.01 Termination of Agreement. This Agreement may be terminated at any time prior to the Closing: (a) By the mutual written consent of Acquiror and CBG; (b) By CBG in writing, without liability, if Acquiror or Colonial Bank shall (i) fail 33 to perform in any material respect its agreements contained herein required to be performed by it on or prior to the Closing Date, or (ii) materially breach any of its representations, warranties or covenants contained herein, which failure or breach is not cured within thirty (30) days after CBG and Commercial Bank has notified Acquiror or Colonial Bank of its intent to terminate this Agreement pursuant to this subparagraph (b); (c) By Acquiror or in writing, without liability, if CBG shall (i) fail to perform in any material respect its agreements contained herein required to be performed by it on or prior to the Closing Date, or (ii) materially breach any of its representations, warranties or covenants contained herein, which failure or breach is not cured within thirty (30) days after Acquiror has notified CBG of its intent to terminate this Agreement pursuant to this subparagraph (c). (d) By either Acquiror or CBG in writing, without liability, if there shall be any order, writ, injunction or decree of any court or governmental or regulatory agency binding on Acquiror, Colonial Bank, CBG or Commercial Bank, which prohibits or restrains Acquiror, Colonial Bank, CBG or Commercial Bank from consummating the transactions contemplated hereby, provided that Acquiror, Colonial Bank, CBG or Commercial Bank shall have used their reasonable, good faith efforts to have any such order, writ, injunction or decree lifted, and the same shall not have been lifted within 30 days after entry, by any such court or governmental or regulatory agency; (e) By either Acquiror or CBG, in writing, without liability, if for any reason the Closing has not occurred by September 30, 1996; (f) By either Acquiror or CBG if any event has occurred which would have a Material Adverse Effect on any other party to this Agreement or their respective Subsidiaries; (g) By Acquiror or CBG in the event that any conditions precedent to the obligations of such party to consummate the transactions contemplated hereby cannot be satisfied or fulfilled by September 30, 1996. 13.02 Termination of Obligations. Termination of this Agreement pursuant to this Article XIII shall terminate all obligations of the parties hereunder; provided, however, that termination pursuant to subparagraphs (b) or (c) of Section 13.01 hereof shall not relieve a defaulting or breaching party from any liability to the other party hereto for knowing or willful defaults or breaches. ARTICLE XIV EXPENSES 14.01 Expenses. Acquiror, Colonial Bank, CGB and Commercial Bank each agrees to pay its own fees and expenses incurred in connection with the transactions contemplated 34 by this Agreement. The Surviving Corporation shall pay the fees and expenses of The Robinson-Humphrey Company, Inc. in connection with the transactions contemplated hereby. ARTICLE XV MISCELLANEOUS 15.01 Survival. The representations and warranties of Acquiror, Colonial Bank, CBG and Commercial Bank contained herein or in any certificate or other document delivered pursuant hereto or in connection herewith shall not survive the Closing. 15.02 Entire Agreement. This Agreement (including the Schedules) constitutes the sole understanding of the parties with respect to the subject matter hereof; provided, however, that this provision is not intended to abrogate any other written agreement between the parties executed with or after this Agreement. 15.03 Amendment. No amendment, modification or alteration of the terms or provisions of this Agreement shall be binding unless the same shall be in writing and duly executed by the parties hereto. 15.04 Parties Bound by Agreement; Successors and Assigns. The terms, conditions and obligations of this Agreement shall inure to the benefit of and be binding upon the parties hereto and the respective successors and assigns thereof. 15.05 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original and all of which shall constitute the same instrument. 15.06 Headings. The headings of the Sections and paragraphs of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction thereof. 15.07 Modification and Waiver. Any of the terms or conditions of this Agreement may be waived in writing at any time by the party which is entitled to the benefits thereof. No waiver of any of the provisions of this Agreement shall be deemed to or shall constitute a waiver of any other provision hereof (whether or not similar). 15.08 Notices. Any notice, request, instruction or other document to be given hereunder by any party hereto to any other party hereto shall be in writing and delivered personally or sent by registered or certified mail (including by overnight courier or express mail service), postage or fees prepaid, 35 if to CBG or Commercial Bank, to: Commercial Bancorp of Georgia, Inc. 390 Crogan Street Lawrenceville, Georgia 30245 Attention: Richard Sikes, President and Chief Executive Officer with a copy to: Long, Aldridge & Norman Suite 5300 303 Peachtree Street Atlanta, Georgia 30308 Attention: David M. Calhoun if to Acquiror or Colonial Bank, to: W. Flake Oakley, IV Chief Financial Officer One Commerce Street, Suite 800 Montgomery, Alabama 36104 with a copy to: Miller, Hamilton, Snider & Odem One Commerce Street, Suite 802 Montgomery, Alabama 36104 Attention: Michael D. Waters or at such other address for a party as shall be specified by like notice. Any notice which is delivered personally in the manner provided herein shall be deemed to have been duly given to the party to whom it is directed upon actual receipt by such party or the office of such party. Any notice which is addressed and mailed in the manner herein provided shall be conclusively presumed to have been duly given to the party to which it is addressed at the close of business, local time of the recipient, on the fourth business day after the day it is so placed in the mail or, if earlier, the time of actual receipt. 15.09 Governing Law. This Agreement is executed by the parties in, and shall be construed in accordance with and governed by the laws of, the State of Georgia without giving effect to the principles of conflicts of law thereof. 15.10 Acquisition Proposals. From and after the date of this Agreement and until any termination pursuant to Article XIII, CBG and Commercial Bank shall not (and shall use its best efforts to ensure that its directors and officers shall not), directly or indirectly, solicit or encourage any inquiries or proposals from any Person (other than Acquiror a Subsidiary 36 thereof) or (ii) knowingly furnish any information about or with respect to CBG or its Subsidiaries or participate in any negotiations or discussions concerning any acquisition, merger, combination or sale of a significant amount of assets of CBG or Commercial Bank (collectively, a "Business Combination"); except in a situation in which a majority of the full Board of Directors of CBG has determined upon advice of counsel that such Board has a fiduciary duty to consider and respond to a bona fide proposal by a third party, regardless of whether such proposal was directly or indirectly received as a result of conduct sought to be prohibited by this Section 15.10. Upon the occurrence of such determination by the Board of Directors of CBG, such Board shall provide written notice of its determination and intention to consider such proposal to Acquiror at least two business days before responding to the proposal or providing any information with respect to CBG or Commercial Bank in response to the proposal, indicating the material terms of such proposal; provided, however, that if such proposal by its terms requires a response in a shorter period, CBG shall provide such notice, information and undertaking to Acquiror as promptly as practicable in the circumstances. Notwithstanding the foregoing, nothing in this Section 15.10 relating to fiduciary duties shall preclude an action by Acquiror against CBG for breach by CBG of any other provision of this Agreement provided that this sentence shall not confir upon Acquiror any additional rights other than such rights as it otherwise would have pursuant to such other provisions of this Agreement. 15.11 No Third-Party Beneficiaries. With the exception of the parties to this Agreement and the Indemnified Parties, there shall exist no right of any person to claim a beneficial interest in this Agreement or any rights occurring by virtue of this Agreement. 15.12 "Including." Words of inclusion shall not be construed as terms of limitation herein, so that references to "included" matters shall be regarded as non-exclusive, non-characterizing illustrations. 15.13 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 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 said term or provision shall remain valid and in effect in any other circumstances or situation. 15.14 Return of Information. In the event of termination of this Agreement prior to the Effective Time, 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. 15.15 Equitable Remedies. The parties hereto agree that, in the event of a breach of 37 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. 15.16 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 waiver of any such right, power or remedy, or an acquiescence in any similar breach or default; nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any provisions of this Agreement must be in writing and be executed by the parties to this Agreement and shall be effective only to the extent specifically set forth in such writing. 15.18 Remedies Cumulative. All remedies provided in this Agreement, by law or otherwise, shall be cumulative and not alternative. 38 IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be duly executed on its behalf as of the date indicated on the first page hereof. ATTEST: COLONIAL BANCGROUP, INC. By: /s/ Walter Thompson ----------------------------- Title: Senior Vice President -------------------------- By: /s/ W. Flake Oakley, IV ------------------------------------ W. Flake Oakley, IV Chief Financial Officer ATTEST: COMMERCIAL BANCORP OF GEORGIA, INC. By: /s/ John P. Hopkins ----------------------------- Title: Secretary -------------------------- By: /s/ Richard Sikes ------------------------------------ Richard Sikes President and Chief Executive Officer 39 APPENDIX A DEFINITIONS (a) The following terms, which are capitalized in the Agreement, shall have the meanings set forth below for the purpose of the Agreement: "Acquiror " shall mean The Colonial BancGroup, Inc., a Delaware corporation with its principal offices in Montgomery, Alabama. "Acquiror Common Stock" shall mean Acquiror's Common Stock, $2.50 par value per share, authorized and defined in the Restated Certificate of Incorporation of Acquiror, as amended. "Agency" or "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, all state regulatory agencies having jurisdiction over the parties to the Agreement and their respective Subsidiaries, and the Commission. "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 party shall mean all of the assets, properties, and rights of such party 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 party's business, directly or indirectly, in whole or in part, whether or not carried on the books and records of such party, and whether or not owned in the name of such party or any Subsidiary of such party and wherever located. "CBG" shall mean Commercial Bancorp of Georgia, Inc., a Georgia corporation with its principal offices in Georgia. "CBG Common Stock" shall mean CBG's Common Stock, $1.00 par value per share, authorized and defined in the Articles of Incorporation of CBG. "Closing" shall mean the closing of the transactions contemplated hereby as described in Section 12.01 of the Agreement. "Code" shall mean the Internal Revenue Code of 1986, as amended. "Commercial Bank" shall mean Commercial Bank of Georgia, a Georgia state chartered commercial bank with its home office in Georgia. 40 "Commission" shall mean the United States Securities and Exchange Commission. "Consent" shall mean any consent, approval, authorization, clearance, exemption, waiver, or similar affirmation by any Person pursuant to any Contract, Law, Order or Permit. "Contract" shall mean any material written or oral agreement, arrangement, authorization, commitment, contract, indenture, instrument, lease or obligation, of any kind or character, or other material agreement 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 material 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 material breach or violation of or default under any Contract, Order or Permit, or (iii) any occurrence of any event that with or without the passage of time or the giving of notice would give rise to a right to terminate or revoke, change the current terms of, or renegotiate, or to accelerate, increase, or impose any liability under, any Contract, Order or Permit. "Effective Time" shall mean the date and time at which the Merger becomes effective as defined in Section 1.02 of the Agreement. "ERISA" shall mean the Employee Retirement Income Security Act of 1974, as amended. "Exchange Act" shall mean the Securities Exchange Act of 1934, as amended. "GAAP" shall mean generally accepted accounting principles as applicable to banks and their holding companies. "Knowledge" shall mean, in the case of CBG or Commercial Bank, the actual knowledge of the Chairman of the Board, President, Chief Financial Officer and Chief Credit Officer of CBG or Commercial Bank and, in the case of Acquiror or Colonial Bank, means the knowledge of the Chairman, President, Chief Financial Officer, Chief Accounting Officer, Chief Credit Officer or any Senior or Executive Vice President of Acquiror or it Subsidiaries. "Law" shall mean any code, law, ordinance, regulation, reporting or licensing requirement, rule, or statute applicable to a Person or its Assets, liabilities or business, including those promulgated, interpreted or enforced by any Agency. "Liability" shall, unless otherwise defined, mean any direct or indirect, primary or secondary, liability, indebtedness, obligation, penalty, cost or expense (including costs of investigation, collection and defense), deficiency, guaranty or endorsement of or by any Person (other than endorsements of notes, bills, checks, and drafts presented for collection or deposit in the ordinary course of business) of any type, whether accrued, absolute or contingent, liquidated or unliquidated, matured or unmatured, or otherwise. 41 "Lien" shall mean any conditional sale agreement, default or title, easement, encroachment, encumbrance, hypothecating, infringement, lien, mortgage, pledge, reservation, restriction, security interest, title retention or other security arrangement, or any adverse right or interest, charge, or claim of any nature whatsoever of, on, or with respect to, any property or property interest, other than (i) Liens for current property taxes not yet due and payable, (ii) for depository institution Subsidiaries of a party, pledges to secure deposits and other Liens incurred in the ordinary course of the banking business, and (iii) Liens in the form of easements, restrictive covenants and other encumbrances on real property which do not materially adversely affect the use of such property by the current owner thereof. "Litigation" shall mean any action, arbitration, complaint, criminal prosecution, governmental or other examination or investigation, hearing, inquiry, administrative or other proceeding relating to or affecting a party, its business, its Assets (including Contracts related to it), or the transactions contemplated by this Agreement. The term "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" with respect to any party shall mean an event, change or occurrence which has a material adverse impact on (i) the financial position, business or results or operations of such party and its Subsidiaries, taken as a whole, or (ii) the ability of such party to perform its obligations under this Agreement or to consummate the Merger or the other transactions contemplated by this Agreement, provided that "material adverse impact" shall not be deemed to include the impact of (x) changes in banking and similar laws of general applicability or interpretations thereof by courts or governmental authorities, (y) changes in GAAP or regulatory accounting principles generally applicable to banks and their holding companies, (y) actions or omissions of a party (or any of its Subsidiaries) taken with the prior written consent of the other party in contemplation of the transactions contemplated hereby, (z) the effect of this Agreement, including compliance with this Agreement, on the operating performance of the parties, including expenses incurred by the parties in connection with this Agreement and the loss of employees and/or customers of a party as a result of this Agreement and the transactions contemplated thereby. "Merger" shall mean the merger of CBG with Acquiror as contemplated in this Agreement. "NYSE" shall mean The New York Stock Exchange. "Order" shall mean 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. "Permit" shall mean any federal, state, local, and foreign governmental approval, authorization, certificate, easement, filing, franchise, license, notice, permit, or right to which 42 any Person is a party or that is or may be binding upon or inure to the benefit of any Person or its securities, Assets or business. "Person" shall mean 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/Prospectus" shall mean the proxy statement/prospectus used by CBG to solicit the approval of its stockholders of the transactions contemplated by this Agreement and used by Acquiror in connection with the issuance of the Acquiror Common Stock to the stockholders of CBG. "Registration Statement" shall mean the registration statement on Form S-4, or such other appropriate form, to be filed with the Commission by Acquiror, and which has been agreed to by CBG, to register the shares of Acquiror Common Stock offered to stockholders of CBG pursuant to this Agreement, including the Proxy Statement/Prospectus). "Resulting Corporation" shall mean the Acquiror as the surviving corporation resulting from the Merger. "Securities Act" shall mean the Securities Act of 1933, as amended. "Subsidiaries" shall mean 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. (b) The following terms shall have the meanings ascribed to such terms in the Section of the Agreement referenced below:
Term Section ---- ------- "Acquiror Capital Stock" 3.01 "Acquiror Financial Statements" 5.05(b) "Acquiror SEC Reports" 5.05(a) "Audited Financial Statements" 4.06(b) "CBG Financial Statements" 4.06(b) "CBG Option" 3.04(a) "CBG SEC Reports" 4.06(a) "CBG Stock Appreciation Rights" 3.04(b) "Dissenter Provisions" 3.07
43 "Dissenting Stockholder" 3.07 "Exchange Agent" 3.05 "Exchange Ratio" 3.01(c) "Indemnified Party" 11.01(a) "Interim Financial Statements" 4.06(b) "Market Value" 3.01(c) "Retained Employees" 7.05 "Rules and Regulations" 3.11 "Surviving Corporation" 1.01 "Taxes" 4.23(a)
EX-10.(F) 6 AMENDED & RESTATED AGREEMENT & PLAN OF MERGER 1 EXHIBIT 10(F) AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER BY AND BETWEEN THE COLONIAL BANCGROUP, INC., AND SOUTHERN BANKING CORPORATION DATED AS OF FEBRUARY 15, 1996 2 TABLE OF CONTENTS
CAPTION PAGE - ------- ---- ARTICLE 1 -- NAME 1.1 Name . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ARTICLE 2 -- MERGER -- TERMS AND CONDITIONS 2.1 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.2 Corporate Existence . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 2.3 Articles of Incorporation and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.4 Resulting Corporation's Officers and Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.5 Shareholder Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.6 Further Acts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2.7 Effective Date and Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 ARTICLE 3 -- CONVERSION OF SOUTHERN STOCK 3.1 Conversion of Southern Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 3.2 Surrender of Southern Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.3 Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.4 Adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 3.5 BancGroup Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3.6 Dissenting Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ARTICLE 4 -- REPRESENTATIONS, WARRANTIES AND COVENANTS OF BANCGROUP 4.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4.2 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 4.3 Financial Statements; Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 4.4 No Conflict with Other Instrument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.5 Absence of Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.6 Approval of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 4.7 Tax Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.8 Title and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.9 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.10 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.11 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9 4.12 Compliance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.13 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.14 SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4.15 Form S-4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3 4.16 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.17 Government Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.18 Absence of Regulatory Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 4.19 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 ARTICLE 5 -- REPRESENTATIONS, WARRANTIES AND COVENANTS OF SOUTHERN 5.1 Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 5.2 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.3 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.4 Financial Statements; Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 5.5 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 5.6 Title and Related Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 5.7 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 5.8 Charter and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 5.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 5.10 Material Contract Defaults . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.11 No Conflict with Other Instrument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.12 Governmental Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.13 Absence of Regulatory Communications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.14 Absence of Material Adverse Change . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 5.15 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.16 Pension and Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.17 Buy-Sell Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 5.18 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.19 Approval of Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.20 Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.21 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.22 Loans; Adequacy of Allowance for Loan Losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 5.23 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 5.24 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 5.25 Collective Bargaining . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 5.26 Labor Disputes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 5.27 Derivative Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 ARTICLE 6 -- ADDITIONAL COVENANTS 6.1 Additional Covenants of BancGroup . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 6.2 Additional Covenants of Southern . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 ARTICLE 7 -- MUTUAL COVENANTS AND AGREEMENTS 7.1 Best Efforts; Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 7.2 Press Release . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
4 7.3 Mutual Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 7.4 Access to Properties and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 ARTICLE 8 -- CONDITIONS TO OBLIGATIONS OF ALL PARTIES 8.1 Approval by Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 8.2 Regulatory Authority Approval . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 8.3 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 8.4 Registration Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 8.5 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 8.6 Market Value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 ARTICLE 9 -- CONDITIONS TO OBLIGATIONS OF SOUTHERN 9.1 Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 9.2 Adverse Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 9.3 Closing Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 9.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 9.5 Comfort Letter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 9.6 Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 9.7 NYSE Listing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 9.8 Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 ARTICLE 10 -- CONDITIONS TO OBLIGATIONS OF BANCGROUP 10.1 Representations, Warranties and Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 10.2 Adverse Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 10.3 Closing Certificate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 10.4 Opinion of Counsel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 10.5 Controlling Shareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 10.6 Other Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 10.7 Dissenters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 10.8 Pooling of Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 10.9 Material Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE 11 -- TERMINATION OF REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 ARTICLE 12 -- NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 ARTICLE 13 -- AMENDMENT OR TERMINATION 13.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 13.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 13.3 Damages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
5 ARTICLE 14 -- DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 ARTICLE 15 -- MISCELLANEOUS 15.1 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 15.2 Benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 15.3 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 15.4 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 15.5 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 15.6 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 15.7 Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 15.8 Return of Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 15.9 Equitable Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 15.10 Attorneys' Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 15.11 No Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 15.12 Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 15.13 Entire Contract . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
6 AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF MERGER is made and entered into as of this the 15th day of February 1996, by and between SOUTHERN BANKING CORPORATION ("Southern"), a Florida corporation, and THE COLONIAL BANCGROUP, INC. ("BancGroup"), a Delaware corporation. This Agreement replaces and supersedes in its entirety the Agreement and Plan of Merger dated as of January 25, 1996 by and between BancGroup and Southern (the "original agreement"), except that whenever a section of this Agreement refers to a Schedule or Exhibit, the Schedule or Exhibit provided with the original agreement in response to the comparable section of the original agreement shall be deemed to have also been provided pursuant to this Agreement. WITNESSETH WHEREAS, Southern operates as a bank holding company for its wholly owned subsidiary, Southern Bank of Central Florida (the "Bank"), with its principal office in Orlando, Florida; and WHEREAS, BancGroup is a bank holding company with subsidiary banks in Alabama, Georgia and Tennessee; and WHEREAS, Southern wishes to merge with BancGroup; and WHEREAS, it is the intention of BancGroup and Southern 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, Southern shall be merged with and into BancGroup (herein referred to as the "Resulting Corporation" whenever reference is made to it as of the time of merger or thereafter). The Merger shall be undertaken pursuant to the provisions of and with the effect provided in the DGCL and the FBCA. The offices and facilities of Southern 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 Southern and of BancGroup shall, as provided in the DGCL and the FBCA, be merged into and continued in the Resulting Corporation, and the Resulting Corporation shall be deemed to be the same corporation as Southern and BancGroup. All rights, franchises and interests 7 of Southern 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 Southern and BancGroup, respectively, on the Effective Date. 2.3 ARTICLES OF INCORPORATION AND BYLAWS. On the Effective Date, the certificate of incorporation and bylaws of the Resulting Corporation shall be the restated certificate of incorporation and bylaws of BancGroup as they exist immediately before the Effective Date. 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 SHAREHOLDER APPROVAL. This Agreement shall be submitted to the shareholders of Southern 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 Southern as required by applicable Law, this Agreement 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 Southern or BancGroup, acquired as a result of the Merger, or (ii) otherwise to carry out the purposes of this Agreement, Southern or 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 Southern 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"). The Closing shall take place at the offices of BancGroup, in Montgomery, Alabama, at 11:00 a.m. on the date that 8 the Effective Date occurs or at such other place and time that the Parties may mutually agree. ARTICLE 3 CONVERSION OF SOUTHERN STOCK 3.1 CONVERSION OF SOUTHERN STOCK. (a) On the Effective Date, and subject to sections 3.3 and 3.6, each share of common stock of Southern outstanding and held by Southern's shareholders (the "Southern Stock"), shall be converted into .3919 of a share of BancGroup Common Stock (i.e., the "Exchange Ratio"). Shares of Southern common stock that may be issued pursuant to the exercise of options under Southern's stock option plans (the "Southern Options") shall be converted as provided in section 3.1(b). (b)(i) Southern shall cancel and exchange all Southern Options outstanding at the Effective Date as to which, at least five days prior to the Effective Date, the holders thereof have consented in writing to the cancellation and conversion thereof. In exchange therefor, Southern shall distribute shares of BancGroup common stock as determined below. BancGroup shall issue such shares of BancGroup common stock to Southern for delivery to the holders of Southern Options on the Effective Date. Notwithstanding the foregoing, Southern Options granted pursuant to the 1989 Employee Incentive Stock Option Plan (the "ISOs") may not be exchanged for shares of BancGroup common stock pursuant to this section but shall be converted into BancGroup options pursuant to section 3.1(b)(ii). The number of shares of BancGroup Common Stock to be issued in exchange for the cancellation of the Southern Options, excluding the ISOs, is set forth in the following table:
BancGroup Shares Number of Shares Subject Exercise Price Conversion To Be Issued for To Southern Options Per Share Rate Southern Options - ------------------------------------------------------------------------------------------------------------------------ 204,000 $2.92 .2965 60,486 584,000 $3.04 .2926 170,878 230,000 $4.50 .2448 56,304 - ------------------------------------------------------------------------------------------------------------------------ 1,018,000 287,668 --------- -------
No fractions of shares of BancGroup Common Stock shall be issued and fractions shall be exchanged for cash in accordance with section 3.3 hereof. As of the date hereof, the number of shares of common stock of Southern outstanding and held of record is 3,362,000 and the number of shares subject to Southern Options, including the ISOs, is 1,112,000. Assuming no Southern Options are exercised prior to the Effective Date, and all Southern Options other than the ISOs are converted in accordance with this section 3.1(b)(i), the number of shares of BancGroup Common Stock to be issued in the Merger shall be 1,605,235. Schedule 3.1(b) hereto sets forth the names of all persons holding Southern Options, the number of shares of Southern common stock subject to such options and the exercise price per share for such options. (b)(ii) On the Effective Date, BancGroup shall assume all Southern Options outstanding as to which the holders thereof have not consented to the cancellation and 9 conversion thereof as provided by section 3.1(b)(i) and each such option shall represent the right to acquire BancGroup Common Stock on substantially the same terms applicable to the Southern Options except as specified below in this section. The number of shares of BancGroup Common Stock to be issued pursuant to such options shall equal the number of shares of Southern common stock subject to such Southern Options multiplied by .3919. The exercise price for the acquisition of BancGroup Common Stock shall be the exercise price for each share of Southern common stock subject to such options divided by .3919. Assuming that none of the holders of the Southern Options consent to the cancellation and conversion thereof as provided by Section 3.1(b)(i), then the Southern Options would be converted into BancGroup Options with the following terms:
Number of Number of Shares of Shares of Southern BancGroup CommonStock Common Stock Currently to be Subject Subject to Current to New Adjusted Southern Exercise BancGroup Exercise Expiration Options Price Options Price Date - ---------------------------------------------------------------------------------------------------------- 268,000 $2.92 105,029 $ 7.45 March 14, 1999 584,000 $3.04 228,870 $ 7.76 April 21, 2003 30,000 $3.38 11,757 $ 8.62 March 14, 1999 230,000 $4.50 90,137 $11.48 October 5, 2004 - --------------------------------------------------------------------------------------------------------------------- 1,112,000 435,793
Notwithstanding the foregoing, no fractions of shares of BancGroup Common Stock shall be issued upon exercise of such options and any fraction of a share of BancGroup Common Stock that would otherwise be issued upon the exercise of such options shall be converted into cash upon the exercise of such option in an amount equal to the product of such fraction and the difference between the market value of one share of BancGroup Common Stock at the time of exercise of such option and the per share exercise price of such option. The market value of one share of BancGroup Common Stock at the time of exercise of such options shall be the closing sales price of BancGroup Common Stock on the NYSE on the last trading day preceding the date of exercise. As soon as practicable after the Effective Date, BancGroup shall file at its expense a registration statement with the SEC on Form S-8 or other appropriate form with respect to the shares of BancGroup Common Stock to be issued pursuant to such options and shall use its reasonable best efforts to maintain the effectiveness of such registration statement for so long as such options remain outstanding. Such shares shall also be registered or qualified for sale under the securities laws of any state in which registration or qualification is necessary. 10 3.2 SURRENDER OF SOUTHERN STOCK. After the Effective Date, each holder of an outstanding certificate or certificates which prior thereto represented shares of Southern Stock who is entitled to receive BancGroup Common Stock shall be entitled, upon surrender to BancGroup of their certificate or certificates representing shares of Southern Stock, 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 Southern 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 Southern Stock and which is to be converted into BancGroup Common Stock shall for all purposes evidence ownership of the BancGroup Common Stock into and for which such shares shall have been so converted, except that no dividends or other distributions with respect to such BancGroup Common Stock shall be made until the certificates previously representing shares of Southern 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 Southern 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 Southern Stock, be paid by BancGroup an amount in cash equal to the market value of such fractional share. For this purpose, "market value" shall mean the average of the closing prices of BancGroup Common Stock on each of the 20 trading days ending on the trading day immediately prior to the Effective Date as reported by the NYSE. 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 Common Stock, an appropriate and proportionate adjustment shall be made in the number of shares of BancGroup Common Stock into which the Southern Stock and Southern Options shall be converted, and the market values stated in section 8.6 hereof shall be appropriately adjusted. 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 Southern who shall not have voted in favor of this Agreement and who has complied with the applicable procedures set forth in the FBCA, relating to rights of dissenting shareholders, shall be entitled to receive payment for the fair value of his Southern Stock. If after the Effective Date a dissenting shareholder of Southern fails to perfect, or effectively withdraws or loses, his right to appraisal and payment for his shares of Southern Stock, BancGroup shall issue and deliver the consideration to which such holder of shares of Southern Stock is entitled under Section 3.1 (without interest) upon surrender of such holder of the certificate or certificates representing shares of Southern Stock held by him. 11 ARTICLE 4 REPRESENTATIONS, WARRANTIES AND COVENANTS OF BANCGROUP BancGroup represents, warrants and covenants to and with Southern 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 on the condition (financial or other), earnings, business, affairs, Assets, properties, prospects or results of operations of BancGroup or of BancGroup and its Subsidiaries taken as a whole. 4.2 CAPITAL STOCK. (a) The authorized capital stock of BancGroup consists of (A) 44,000,000 shares of Common Stock, $2.50 par value per share, of which as of September 30, 1995, 12,267,143 shares were validly issued and outstanding, fully paid and nonassessable and are not subject to preemptive rights, 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 Common Stock to be issued upon 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 Southern. (b) The authorized capital stock of each Subsidiary of BancGroup is validly issued and outstanding, fully paid and nonassessable, and each Subsidiary is wholly owned, directly or indirectly, by BancGroup. 4.3 FINANCIAL STATEMENTS; TAXES. (a) BancGroup has delivered to Southern copies of the following financial statements of BancGroup. (i) Consolidated balance sheets as of December 31, 1993, and December 31, 1994, and for the nine months ending September 30, 1995; (ii) Consolidated statements of operations for each of the three years ended December 31, 1992, 1993 and 1994, and for the nine months ending September 30, 1995; (iii) Consolidated statements of cash flows for each of the three years ended December 31, 1992, 1993 and 1994, and for the nine months ending September 30, 1995; and 12 (iv) Consolidated statements of changes in shareholders' equity for the three years ended December 31, 1992, 1993 and 1994, and for the nine months ending September 30, 1995. All such financial statements are in all material respects in accordance with the books and records of BancGroup and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated, all as more particularly set forth in the notes to such statements. Each of the consolidated balance sheets presents fairly as of its date the consolidated financial condition of BancGroup and its Subsidiaries. Except as and to the extent reflected or reserved against in such balance sheets (including the notes thereto), BancGroup did not have, as of the dates of such balance sheets, any material Liabilities or obligations (absolute or contingent) of a nature customarily reflected in a balance sheet or the notes thereto, other than Liabilities (including reserves) in the amount set forth in such balance sheets and the notes thereto. The statements of consolidated income, shareholders' equity and changes in consolidated financial position present fairly the results of operations and changes in financial position of BancGroup and its Subsidiaries for the periods indicated. The foregoing representations, insofar as they relate to the unaudited interim financial statements of BancGroup for the nine months ended September 30, 1995, 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 said 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 said 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 indenture, mortgage, deed of trust or other material agreement or instrument to which BancGroup or 13 any of its Subsidiaries is a party or by which they or their Assets may be bound; will not conflict with any provision of the restated certificate of incorporation or bylaws of BancGroup or the articles of incorporation or bylaws of any of its Subsidiaries; and will not violate any provision of any Law, regulation, judgment or decree binding on them or any of their Assets. 4.5 ABSENCE OF MATERIAL ADVERSE CHANGE. Since the date of the most recent balance sheet provided under section 4.3(a)(i) above, there have been no events, changes or occurrences which have had or are reasonably likely to have, individually or in the aggregate, a Material Adverse Effect on BancGroup. 4.6 APPROVAL OF AGREEMENTS. The board of directors of BancGroup has, or will have prior to the Effective Date, approved this Agreement and the transactions contemplated by it and have, 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 Southern, or to liquidate any Subsidiaries, subsequent to the Merger, and BancGroup intends to continue the historic business of Southern. 4.8 TITLE AND RELATED MATTERS. BancGroup has good and marketable title to all the properties, interests in properties and Assets, real and personal, reflected in the most recent balance sheet referred to in section 4.3(a), or acquired after the date of such balance sheet (except properties, interests and Assets sold or otherwise disposed of since such date, in the ordinary course of business), free and clear of all mortgages, Liens, pledges, charges or encumbrances except (i) mortgages and other encumbrances referred to in the notes of such balance sheet, (ii) liens for current Taxes not yet due and payable and (iii) such imperfections of title and easements as do not materially detract from or interfere with the present use of the properties subject thereto or affected thereby, or otherwise materially impair present business operations at such properties. To the Knowledge of BancGroup, the material structures and equipment of BancGroup comply in all material respects with the requirements of all applicable Laws. 4.9 SUBSIDIARIES. Each Subsidiary of BancGroup has been duly incorporated and is validly existing as a corporation in good standing under the Laws of the jurisdiction of its incorporation and each Subsidiary has been duly qualified as a foreign corporation to transact business and is in good standing under the Laws of each other jurisdiction in which it owns or leases properties, or conducts any business so as to require such qualification and in which the failure to be duly qualified could have a Material Adverse Effect upon 14 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 by-laws 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 in the condition, financial or otherwise, or in the general affairs, management, stockholders' equity or results of operations of BancGroup and its Subsidiaries considered as one enterprise, or which is likely to materially and adversely affect the properties or Assets thereof or which is likely to materially affect or delay the consummation of the transactions contemplated by this Agreement; all pending legal or governmental proceedings to which BancGroup or any Subsidiary is a party or of which any of their properties is the subject which are not described in the Registration Statement, including ordinary routine litigation incidental to the business, are, considered in the aggregate, not material; and neither BancGroup nor any of its Subsidiaries have any contingent obligations which could be considered material to BancGroup and its Subsidiaries considered as one enterprise which are not disclosed in the Registration Statement as it may be amended or supplemented. 4.12 COMPLIANCE. BancGroup and its Subsidiaries, in the conduct of their businesses, are to the Knowledge of BancGroup, in material compliance with all material federal, state or local Laws applicable to their or the conduct of their businesses. 4.13 REGISTRATION STATEMENT. At the time the Registration Statement becomes effective and at the time of the Stockholders' Meeting, the Registration Statement, including the Proxy Statement which shall constitute a part thereof, will comply in all material respects with the requirements of the 1933 Act and the rules and regulations thereunder, will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided, however, that the representations and warranties in this subsection shall not apply to statements in or omissions from the Proxy Statement made in reliance upon and in conformity with information furnished in writing to BancGroup by Southern or any of its representatives expressly for use in the Proxy 15 Statement or information included in the Proxy Statement regarding the business of Southern, its operations, Assets and capital. 4.14 SEC FILINGS. (a) BancGroup has heretofore delivered to Southern copies of BancGroup's: (i) Annual Report on Form 10-K for the fiscal year ended December 31, 1994; (ii) 1994 Annual Report to Shareholders; (iii) Quarterly Reports on Form 10-Q for the fiscal quarters ended March 31, 1995, June 30, 1995 and September 30, 1995; and (iv) all other reports, registration statements and other documents filed by BancGroup with the SEC since December 31, 1994. Since December 31, 1994, 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. All negotiations relative to this Agreement and the transactions contemplated by this Agreement have been carried on by BancGroup directly with Southern 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 fee, brokerage commissions or other like payment. 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 16 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 Southern by BancGroup, contains or will contain any untrue statement of a material fact, or omits or will omit to state a material fact necessary to make the statements contained in this Agreement or in any such statement or certificate not misleading. ARTICLE 5 REPRESENTATIONS, WARRANTIES AND COVENANTS OF SOUTHERN Southern represents, warrants and covenants to and with BancGroup, as follows: 5.1 ORGANIZATION. Southern is a Florida corporation, and the Bank is a Florida banking corporation and not a member of the Federal Reserve System. Each Southern 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 on the condition (financial or other) earnings, business, affairs, Assets, properties, prospects or results of operations of Southern or of Southern and its Subsidiaries taken as a whole. 5.2 CAPITAL STOCK. (i) As of September 30, 1995, the authorized capital stock of Southern consists of 10,000,000 shares of common stock, $1.00 par value per share, 3,362,000 shares of which are issued and outstanding. All of such shares which are outstanding are validly issued, fully paid and nonassessable and not subject to preemptive rights. Southern has 1,112,000 shares of its common stock subject to exercise pursuant to stock options under its stock option plans. Except for the foregoing, Southern 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. Southern has no direct Subsidiaries other than the Bank, and there are no operating subsidiaries of the Bank. Southern owns all of the issued and outstanding capital stock of the Bank free and clear of any liens, claims or encumbrances of any kind. All of the issued and outstanding shares of capital stock of the Subsidiaries have been validly issued and are fully paid and non-assessable. As of September 30, 1995, there were 1,000,000 shares of the common stock, par value $4.00 per share, authorized of the Bank, 527,778 of which are issued and outstanding and wholly owned by Southern. 5.4 FINANCIAL STATEMENTS; TAXES (a) Southern has delivered to BancGroup copies of the following financial statements of Southern: 17 (i) Consolidated statements of financial condition as of December 31, 1993 and 1994, and for the nine months ending September 30, 1995; (ii) Consolidated statements of income for each of the three years ended December 31, 1992, 1993 and 1994, and for the nine months ending September 30, 1995; (iii) Consolidated statements of stockholders' equity for each of the three years ended December 31, 1992, 1993, and 1994, and for the nine months ending September 30, 1995; and (iv) Consolidated statements of cash flows for the three years ended December 31, 1992, 1993 and 1994, and for the nine months ending September 30, 1995. All of the foregoing financial statements are in all material respects in accordance with the books and records of Southern and have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated, except for changes required by GAAP, all as more particularly set forth in the notes to such statements. Each of such balance sheets presents fairly as of its date the financial condition of Southern. Except as and to the extent reflected or reserved against in such balance sheets (including the notes thereto), Southern 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, other than Liabilities (including reserves) in the amount set forth in such balance sheets and 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 Southern for the periods indicated. The foregoing representations, insofar as they relate to the unaudited interim financial statements of Southern for the nine months ended September 30, 1995, 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 Southern 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 said 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 Southern, 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 Southern accrued for or applicable to the period ended on the dates thereof, and all years and periods prior thereto and for which Southern may at said 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 Southern, threatened by any taxing authority which is likely to result in a material Tax Liability, no material unpaid Tax deficiencies or additional liability of any sort have been proposed by any governmental representative and no agreements for extension of time for the assessment of any material amount of Tax have been entered into by or on behalf of Southern. 18 Southern 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 Southern 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 Southern 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 Southern 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 Southern 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 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, any of its outstanding securities; (e) except in the ordinary course of business, sold or transferred, or agreed to sell or transfer, any of its Assets, or canceled, or agreed to cancel, any debts or claims; (f) except in the ordinary course of business, entered or agreed to enter into any agreement or arrangement granting any preferential rights to purchase any of its Assets, or requiring the consent of any party to the transfer and assignment of any of its Assets; (g) suffered any Losses or waived any rights of value which in either event in the aggregate are material considering its business as a whole; 19 (h) except in the ordinary course of business, made or permitted any amendment or termination of any Contract, agreement or license to which it is a party if such amendment or termination is material considering its business as a whole; (i) except in accordance with normal and usual practice, made any accrual or arrangement for or payment of bonuses or special compensation of any kind or any severance or termination pay to any present or former officer or employee; (j) except in accordance with normal and usual practice, increased the rate of compensation payable to or to become payable to any of its officers or employees or made any material increase in any profit sharing, bonus, deferred compensation, savings, insurance, pension, retirement or other employee benefit plan, payment or arrangement made to, for or with any of its officers or employees; (k) received notice or had Knowledge or reason to believe that any of its substantial customers has terminated or intends to terminate its relationship, which termination would have a Material Adverse Effect on its financial condition, results of operations, business, Assets or properties; (l) failed to operate its business in the ordinary course so as to preserve its business intact and to preserve the goodwill of its customers and others with whom it has business relations; (m) entered into any other material transaction other than in the ordinary course of business; or (n) agreed in writing, or otherwise, to take any action described in clauses (a) through (m) above. Between the date hereof and the Effective Date, no Southern 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 Southern Company will enter into or amend any material Contract without the express written consent of BancGroup. Southern may request the consent of BancGroup to any of the foregoing actions by furnishing BancGroup with a written request which describes the action proposed to be taken by Southern. Such consent shall not be unreasonably withheld. BancGroup shall have a period of 10 days from the date on which it receives such request within which to notify Southern of either its consent or refusal to consent, to the proposed action. BancGroup's failure to respond to any such request within such 10 days period shall be deemed to constitute a consent to the action proposed in Southern's request. 5.6 TITLE AND RELATED MATTERS. (a) Title. Southern has good and marketable title to all the properties, interest in properties and Assets, real and personal, reflected in the most recent balance 20 sheet referred to in section 5.4(a)(i), or acquired after the date of such balance sheet (except properties, interests and Assets sold or otherwise disposed of since such date, in the ordinary course of business), free and clear of all mortgages, Liens, pledges, charges or encumbrances except (i) mortgages and other encumbrances referred to in the notes to such balance sheet, (ii) Liens for current Taxes not yet due and payable and (iii) such imperfections of title and easements as do not materially detract from or interfere with the present use of the properties subject thereto or affected thereby, or otherwise materially impair present business operations at such properties. To the Knowledge of Southern, the material structures and equipment of each Southern 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 Southern Company, either as lessor or lessee. (c) Personal Property. Schedule 5.6(c) sets forth a depreciation schedule of each Southern Company's fixed Assets as of December 31, 1994. (d) Computer Hardware and Software. Schedule 5.6(d) contains a description of all agreements relating to data processing computer software and hardware now being used in the business operations of any Southern Company. Southern 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 Southern Company. 5.7 COMMITMENTS. Except as set forth in Schedule 5.7, no Southern 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 Southern Company. Complete and accurate copies of all Contracts, plans and other items so listed have been made or will be made available to BancGroup for inspection. 5.8 CHARTER AND BYLAWS. Schedule 5.8 contains true and correct copies of the articles of incorporation and bylaws of each Southern Company, including all amendments thereto, as currently in effect. There will be no changes in such articles of incorporation or bylaws prior to the Effective Date, without the prior written consent of BancGroup. 5.9 LITIGATION. There is no Litigation (whether or not purportedly on behalf of Southern) pending or, to the Knowledge of Southern, threatened against or affecting any 21 Southern Company (nor is Southern aware 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 the business operations, properties or Assets or in the condition, financial or otherwise, of any Southern Company, and no Southern 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 the business operations, properties or Assets or in the condition, financial or otherwise, of such party. To the Knowledge of Southern, each Southern Company has complied in all material respects with all material applicable Laws and Regulations including those imposing Taxes, or 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 in the business operations, properties or Assets or in the condition, financial or otherwise, of any such Southern Company. 5.10 MATERIAL CONTRACT DEFAULTS. Except as disclosed on Schedule 5.10, no Southern 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 Southern, 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 Contract, indenture, mortgage, deed of trust or other material agreement or instrument to which any Southern Company is a party and will not conflict with any provision of the charter or bylaws of any Southern Company. 5.12 GOVERNMENTAL AUTHORIZATION. Each Southern Company has all Permits that, to the Knowledge of Southern, are or will be legally required to enable any Southern Company to conduct its business in all material respects as now conducted by each Southern Company. 5.13 ABSENCE OF REGULATORY COMMUNICATIONS. Except as provided in Schedule 5.13, no Southern Company is subject to, nor has any Southern 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. 22 5.14 ABSENCE OF MATERIAL ADVERSE CHANGE. To the Knowledge of Southern, 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 Southern Company. 5.15 INSURANCE. Each Southern Company has in effect insurance coverage and bonds with reputable insurers which, in respect to amounts, types and risks insured, management of Southern reasonably believes to be adequate for the type of business conducted by such company. No Southern 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 Southern 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 Southern 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 Southern Company at all times from the date hereof to the Effective Date. 5.16 PENSION AND EMPLOYEE BENEFIT PLANS. (a) To the Knowledge of Southern, all employee benefit plans of each Southern 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 Section 5.16, no Southern Company sponsors or otherwise maintains a "pension plan" within the meaning of section 3(2) of ERISA or any other retirement plan other than the Southern 401(k) 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 Southern, 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 Southern Company. (b) To the Knowledge of Southern, no amounts payable to any employee of any Southern Company will fail to be deductible for federal income tax purposes by virtue of Section 280G of the Code and regulations thereunder. 5.17 BUY-SELL AGREEMENT. To the Knowledge of Southern, there are no agreements among any of its shareholders granting to any person or persons a right of first refusal in respect of the sale, transfer, or other disposition of shares of outstanding securities by any shareholder of Southern, any similar agreement or any voting agreement or voting trust in respect of any such shares. 23 5.18 BROKERS. Except for services provided for Southern by The Carson Medlin Company, all negotiations relative to this Agreement and the transactions contemplated by this Agreement have been carried on by Southern directly with BancGroup and without the intervention of any other person, either as a result of any act of Southern, or otherwise, in such manner as to give rise to any valid claim against Southern for a finder's fee, brokerage commission or other like payment. 5.19 APPROVAL OF AGREEMENTS. The board of directors of Southern has approved this Agreement and the transactions contemplated by this Agreement and has authorized the execution and delivery by Southern of this Agreement. Subject to the matters referred to in section 8.2, Southern has full power, authority and legal right to enter into this Agreement, and, upon appropriate vote of the shareholders of Southern in accordance with this Agreement, Southern 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 Southern, 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 Southern, its Assets, properties, operations, and capital stock or to information furnished in writing by Southern 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 Southern have been calculated in accordance with prudent and customary banking practices and are adequate to reflect the risk inherent in the loans of Southern. Southern 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 Southern 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. Southern does not have in its portfolio any loan exceeding its legal lending limit, and except as disclosed on Schedule 5.22, Southern has no known significant delinquent, substandard, doubtful, loss, nonperforming or problem loans. 24 5.23 ENVIRONMENTAL MATTERS. Except as provided in Schedule 5.23, to the Knowledge of Southern, each Southern Company is in material compliance with all Laws and other governmental requirements relating to the generation, management, handling, transportation, treatment, disposal, storage, delivery, discharge, release or emission of any waste, pollution, or toxic, hazardous or other substance (the "Environmental Laws"), and Southern has no Knowledge that any Southern Company has not complied with all regulations and requirements promulgated by the Occupational Safety and Health Administration that are applicable to any Southern Company. To the Knowledge of Southern, there is no Litigation pending or threatened with respect to any violation or alleged violation of the Environmental Laws. To the Knowledge of Southern, with respect to Assets of or owned by any Southern 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 Southern Company. Southern has no Knowledge of any facts which might suggest that any Southern 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 Southern 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 Southern, no Southern 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. Southern has no Knowledge of any plan or intention on the part of Southern's shareholders to sell or otherwise dispose of any of the BancGroup Common Stock to be received by them in the Merger that would reduce such shareholders' ownership to a number of shares having, in the aggregate, a fair market value of less than fifty (50%) percent of the total fair market value of Southern common stock outstanding immediately before the Merger. 5.25 COLLECTIVE BARGAINING. There are no labor contracts, collective bargaining agreements, letters of undertakings or other arrangements, formal or informal, between any Southern Company and any union or labor organization covering any of any Southern Company's employees and none of said employees are represented by any union or labor organization. 5.26 LABOR DISPUTES. To the Knowledge of Southern, each Southern 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 Southern Company is or has been engaged in any unfair labor practice, and, to the Knowledge of Southern, no unfair labor practice complaint against any Southern Company is pending before the National Labor Relations Board. Relations between management of each Southern Company and the employees are amicable and there have not been, nor to the 25 Knowledge of Southern, are there presently, any attempts to organize employees, nor to the Knowledge of Southern, are there plans for any such attempts. 5.27 DERIVATIVE CONTRACTS. No Southern 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 Southern's financial statements delivered under section 5.4 hereof which is a financial derivative contract (including various combinations thereof). ARTICLE 6 ADDITIONAL COVENANTS 6.1 ADDITIONAL COVENANTS OF BANCGROUP. BancGroup covenants to and with Southern as follows: (a) Registration Statement and Other Filings. BancGroup shall prepare and file with the SEC the Registration Statement on Form S-4 (or such other form as may be appropriate) and all amendments and supplements thereto, in form reasonably satisfactory to Southern 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. (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 Southern: (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 26 (iv) With reasonable promptness, such additional financial data as Southern may reasonably request. (d) No Control of Southern by BancGroup. Notwithstanding any other provision hereof, until the Effective Date, the authority to establish and implement the business policies of Southern shall continue to reside solely in Southern'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 Southern Company shall, at BancGroup's option, either became 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 Southern Company who become employees of the Resulting Corporation or its Subsidiaries on the Effective Date shall be entitled, to the extent permitted by applicable Law, to participate in all benefit plans of Colonial Bank to the same extent as Colonial Bank employees. Employees of any Southern Company who become employees of the Resulting Corporation or its Subsidiaries shall be allowed to participate as of the Effective Date in the medical and dental benefits plan of Colonial Bank as new employees of Colonial Bank, and the time of employment of such employees who are employed at least 30 hours per week with any Southern Company 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 Southern Company of all employees who become employees of the Resulting Corporation or its Subsidiaries on the Effective Date shall be recognized only for vesting and eligibility purposes under Colonial Bank's benefit plans. In addition, if the Effective Date falls within an annual period of coverage under any group health plan or group dental plan of the Resulting Corporation and its Subsidiaries, each such Southern Company employee shall be given credit for covered expenses paid by that employee under comparable employee benefit plans of the Southern 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 or group dental plan of the Resulting Corporation and its Subsidiaries. (g) Indemnification; Directors and Officers Insurance (i) From and after the Effective Date, BancGroup shall indemnify and advance costs and expenses (including reasonable attorneys fees, disbursements and expenses) and hold harmless each present and former director and/or officer of Southern or its Subsidiaries determined as of the Effective Date (the "Indemnified Parties"), against any costs or expenses (including reasonable attorneys' fees), judgments, fines, losses, claims, damages, settlements or liabilities (collectively, "Costs") incurred in connection with any claim, action, suit, proceeding or investigation, whether civil, criminal, administrative or investigative (each a "Claim"), arising out of or pertaining to matters existing or occurring at or prior to the Effective Date, whether asserted or claimed prior to, at or after the 27 Effective Date to the fullest extent that Southern would have been required under Florida law and its Articles of Incorporation or Bylaws in effect on the date hereof, to indemnify such person (and also advance expenses as incurred to the fullest extent permitted under applicable law). (ii) Any Indemnified Party wishing to claim indemnification under Section 6.1 (i) shall notify BancGroup within forty-five (45) days of the Indemnified Party's receipt of a notice of any Claim, but the failure to so notify shall not relieve BancGroup of any liability it may have to such Indemnified Party if such failure does not materially prejudice the Indemnifying Party. In the event of any claim (whether arising before or after the Effective Date), (i) BancGroup shall have the right to assume the defense thereof, and BancGroup shall not be liable to such Indemnified Parties for any legal expenses of other counsel or any other expenses subsequently incurred by such Indemnified Parties in connection with the defense thereof, except that if BancGroup elects not to assume such defense, or counsel for the indemnified Parties advises that there are issues which raise conflicts of interest between BancGroup and the Indemnified Parties, the Indemnified Parties may retain counsel satisfactory to them, and BancGroup shall pay the reasonable fees and expenses of such counsel for the Indemnified Parties promptly after statements therefore are received; provided, however, that BancGroup shall be obligated pursuant to this paragraph (ii) to pay for only one firm of counsel for all Indemnified Parties in any jurisdiction unless the use of one counsel for such Indemnified Parties will present such counsel with a conflict of interest, (ii) the Indemnified Parties will cooperate in the defense of any such matter, and (iii) and BancGroup shall not be liable for any settlement effected without its prior written consent which shall not be unreasonably withheld. If such indemnity with any respect to any Indemnified Party is unenforceable against BancGroup, then BancGroup and the Indemnified Party shall contribute to the amount payable in such proportion as is appropriate to reflect relative faults and benefits. (iii) For a period of four (4) years after the Effective Date, BancGroup shall cause to be maintained in effect the current policies with directors and officers liability insurance maintained by Southern (provided that BancGroup may substitute therefore policies of at least the same coverage and amounts containing terms and conditions which are no less advantageous to such directors and officers and provided that the deductible amount on BancGroup's policies may be higher than that for existing Southern policies) with respect to claims arising from facts or events which occurred before the Effective Date, provided that such policies may be maintained at a cost that is comparable to the cost of such policies as of the date of this Agreement. (iv) If BancGroup or any of its successors and assigns, (i) shall consolidate with or merge into any other corporation or entity and shall not be the continuing or surviving corporation or entity of such consolidation or merger, or (ii) shall transfer all or substantially all of its property and assets to any individual, corporation or other entity, then, in each such case, proper provision shall be made so that the successors and assigns of BancGroup and its Subsidiaries shall assume the obligations set forth in this section. (v) The provisions of this Section 6.1(g) are intended to be for the benefit of, and shall be enforceable by each Indemnified Party, and each Indemnified Party's heirs and representatives. 28 6.2 ADDITIONAL COVENANTS OF SOUTHERN. Southern covenants to and with BancGroup as follows: (a) Operations. Southern will conduct its business and the business of each Southern Company in a proper and prudent manner and will use its best efforts to maintain its relationships with its depositors, customers and employees. No Southern 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 Southern 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. Southern may request the consent of BancGroup to any of the foregoing actions by furnishing BancGroup with a written request which describes the action proposed to be taken by Southern. Such consent shall not be unreasonably withheld. BancGroup shall have a period of 10 days from the date on which it receives such request within which to notify Southern of either its consent or refusal to consent, to the proposed action. BancGroup's failure to respond to any such request within such 10 day period shall be deemed to constitute a consent to the action proposed in Southern's request. (b) Stockholders Meeting; Best Efforts. Southern 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. Until the termination of this Agreement, neither Southern nor any of Southern's directors or officers (or any person representing any of the foregoing) shall solicit or encourage inquiries or proposals with respect to, furnish any information relating to or participate in any negotiations or discussions concerning, any acquisition or purchase of all or of a substantial portion of the Assets of, or of a substantial equity interest in, Southern or any business combination involving Southern or any Southern Company other than as contemplated by this Agreement. Southern will notify BancGroup immediately if any such inquiries or proposals are received by Southern, if any such information is requested from Southern, or if any such negotiations or discussions are sought to be initiated with Southern, and Southern shall instruct Southern's officers, directors, agents or affiliates or their subsidiaries to refrain from doing any of the above; provided, however, that nothing contained herein shall be deemed to prohibit any officer or director of Southern from fulfilling his fiduciary duty or from taking any action that is required by Law. (d) Director Recommendation. The members of the Board of Directors of Southern agree to support publicly the Merger, provided, however, that nothing contained herein shall be deemed to prohibit any officer or director of Southern from fulfilling his fiduciary duty or from taking any action that is required by Law. 29 (e) Shareholder Voting. Southern shall on the date of execution of this Agreement obtain an agreement from certain of its shareholders substantially in the form set forth in Exhibit A. (f) Financial Statements. Southern shall furnish to BancGroup: (i) As soon as practicable and in any event within 30 days after the end of each quarterly period (other than the last quarterly period) in each fiscal year, consolidated statements of operations of Southern 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 Southern 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 Southern by independent auditors in connection with each annual, interim or special audit of the books of Southern 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 Southern may file with the SEC or any other Agency; and (iv) With reasonable promptness, such additional financial data as the BancGroup may reasonably request. ARTICLE 7 MUTUAL COVENANTS AND AGREEMENTS 7.1 BEST EFFORTS; COOPERATION. Subject to the terms and conditions herein provided, BancGroup and Southern 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, to consummate and make effective, as soon as practicable, the transactions contemplated by this Agreement. The officers of each Party to this Agreement shall fully cooperate with officers and employees, accountants, counsel and other representatives of the other Parties not only in fulfilling the duties hereunder of the Party of which they are officers but also in assisting, directly or through direction of employees and other persons under their supervision or control, such as stock transfer agents for the Party, the other Parties requiring information which is reasonably available from such Party. 7.2 PRESS RELEASE. Each Party hereto agrees that, unless approved by the other Parties in advance, such Party will not make any public announcement, issue any press release or other publicity or confirm any statements by any person not a party to this Agreement concerning the transactions contemplated hereby. Notwithstanding the foregoing, each Party hereto reserves the right to make any disclosure if such Party, in its reasonable discretion, deems such disclosure required by Law. In that event, such Party 30 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-2 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 each of the other Parties 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. ARTICLE 8 CONDITIONS TO OBLIGATIONS OF ALL PARTIES The obligations of BancGroup and Southern 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 Southern as is required by applicable Law and Southern's articles of incorporation and by-laws. 8.2 REGULATORY AUTHORITY APPROVAL. Orders, Consents and approvals, in form and substance reasonably satisfactory to BancGroup and Southern shall have been entered by the Board of Governors of the Federal Reserve System and other appropriate bank regulatory Agencies (i) granting the authority necessary for the consummation of the transactions contemplated by this Agreement and (ii) satisfying all other requirements prescribed by Law. 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 31 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, as amended, and 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 Miller, Hamilton, Snider & Odom, L.L.C., counsel to BancGroup, shall have been received by Southern and BancGroup in form and substance reasonably satisfactory to Southern 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 Southern or BancGroup; (iii) no gain or loss will be recognized to the stockholders of Southern who receive shares of BancGroup Common Stock; (iv) the basis of the BancGroup Common Stock received in the Merger will be equal to the basis of the shares of Southern common stock exchanged in the Merger; (v) the holding period of the BancGroup Common Stock will include the holding period of the shares of Southern common stock exchanged therefor if such shares of Southern common stock were capital assets in the hands of the exchanging Southern stockholder; and (vi) cash received by a Southern stockholder 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 would otherwise be entitled to receive and will qualify as capital gain or loss (assuming Southern common stock was a capital asset in his hands as of the Effective Date). 8.6 MARKET VALUE. The average of the closing prices as reported by the NYSE of BancGroup Common Stock for the period of 20 consecutive trading days ending on the trading day immediately preceding the Effective Date shall not be less than $24.625 or greater than $36.625. ARTICLE 9 CONDITIONS TO OBLIGATIONS OF SOUTHERN The obligations of Southern 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 Southern may waive such conditions in writing: 9.1 REPRESENTATIONS, WARRANTIES AND COVENANTS. Notwithstanding any investigation made by or on behalf of Southern, all representations and warranties of BancGroup contained in this Agreement shall be true in all material respects on and as of the Effective Date as if such representations and warranties were made on and as of such Effective Date, and BancGroup shall have performed in all material respects all agreements and covenants required by this Agreement to be performed by it on or prior to the Effective Date. 9.2 ADVERSE CHANGES. There shall have been no changes after the date of the most recent balance sheet provided under section 4.3(a)(i) hereof in the results of 32 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 or which would impair the rights of Southern or its stockholders pursuant to this Agreement. 9.3 CLOSING CERTIFICATE. In addition to any other deliveries required to be delivered hereunder, Southern 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 (copies of which shall be attached to such certificate) 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 and or otherwise against, by or affecting BancGroup or the business, prospects, condition (financial or otherwise), or Assets of BancGroup or which would prevent the performance of this Agreement or the transactions contemplated by this Agreement or declare the same unlawful or cause the recision thereof; (e) to such persons' knowledge, the Proxy Statement delivered to Southern's stockholders, 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 Southern 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. Southern shall have received an opinion of Miller, Hamilton, Snider & Odom, L.L.C., counsel to BancGroup, dated as of the Closing, in form reasonably satisfactory to Southern, as to matters set forth in Exhibit B hereto. 9.5 COMFORT LETTER. Southern shall have received from Coopers & Lybrand, L.L.P., comfort letters dated the date of the mailing of the Proxy Statement and the 33 Effective Date, covering matters customary in transactions such as the Merger, and in form and substance reasonably satisfactory to Southern. 9.6 FAIRNESS OPINION. Southern shall have received prior to the mailing of the Proxy Statement from The Carson Medlin Company a letter setting forth its opinion that the consideration to be received by the shareholders of Southern under the terms of this Agreement is fair to them from a financial point of view. 9.7 NYSE LISTING. The shares of BancGroup Common Stock to be issued under this Agreement shall have been approved for listing on the NYSE. 9.8 OTHER MATTERS. There shall have been furnished to such counsel for Southern certified copies of such corporate records of BancGroup and copies of such other documents as such counsel may reasonably have requested for such purpose. 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 by Southern on or before the Effective Date 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 Southern 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 Southern 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 Southern which constitute a Material Adverse Effect, nor shall there have been any material changes in the Laws governing the business of Southern 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 the President or Vice President and from the Secretary or Assistant Secretary of Southern dated as of the Closing certifying that: (a) the Board of Directors of Southern has duly adopted resolutions (copies of which shall be attached to such certificate) approving the substantive terms of this 34 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 Southern have duly adopted resolutions (copies of which shall be attached to such certificate) 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 Southern is an officer of Southern 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 charter documents of Southern and the Bank referenced in section 5.8 hereof were 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 Southern's stockholders, 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 Southern for inclusion in such Proxy Statement); and (f) the conditions set forth in this Article 10 insofar as they relate to Southern have been satisfied. 10.4 OPINION OF COUNSEL. BancGroup shall have received an opinion of Shutts & Bowen, counsel to Southern, dated as of the Closing, in form reasonably satisfactory to BancGroup, as to matters set forth in Exhibit C hereto. 10.5 CONTROLLING SHAREHOLDERS. Each shareholder of Southern who may be an "affiliate" of Southern, 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. The agreement will also provide that no affiliate of Southern will sell or otherwise reduce such affiliate's 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. Southern recognizes and acknowledges that 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 Southern and copies of such other documents as such counsel may reasonably have requested for such purpose. 35 10.7 DISSENTERS. The number of shares as to which shareholders of Southern have exercised dissenters rights of appraisal under section 3.6 does not exceed 10% of the outstanding shares of common stock of Southern. 10.8 POOLING OF INTERESTS. BancGroup shall have received the written opinion of Coopers & Lybrand, L.L.P., that the Merger will qualify for the pooling of interests method of accounting under generally accepted accounting principles. 10.9 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 or declaration of a banking moratorium in the United States. 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 Section 7.2, Article 11, Article 15 and any applicable definitions of Article 14, shall survive. Items disclosed in the Exhibits and Schedules attached hereto are incorporated into this Agreement and form a part of the representations, warranties, covenants or agreements to which they relate. Information provided in such Exhibits and Schedules is provided only in response to the specific section of this Agreement which calls for such information. ARTICLE 12 NOTICES All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given at the time given or mailed, first class postage prepaid: (a) If to Southern to Charles W. Brinkley, Jr. President and CEO, Southern Banking Corporation, 201 East Pine Street, Orlando, Florida 32801, facsimile (407) 481-9879, with copies to Rod Jones, Esq., Shutts & Bowen, Suite 1000, 20 North Orange Avenue, Orlando, Florida 32801, facsimile (407) 425-8316, or as may otherwise be specified by Southern in writing to BancGroup. (b) If to BancGroup, to W. Flake Oakley, IV, One Commerce Street, Suite 800, Montgomery, Alabama, 36104, facsimile (334) 240-6040, with a copy to Michael D. Waters, Miller, Hamilton, Snider & Odom, One Commerce Street, Suite 802, Montgomery, Alabama 36104, facsimile (334) 265-4533, or as may otherwise be specified in writing by BancGroup to Southern. 36 ARTICLE 13 AMENDMENT OR TERMINATION 13.1 AMENDMENT. This Agreement may be amended by the mutual consent of BancGroup and Southern before or after approval of the transactions contemplated herein by the shareholders of Southern. 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 Southern, as follows: (a) by the mutual consent of the respective boards of directors of Southern 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 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 Southern; (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 shall not have been satisfied in full; (d) by the board of directors of either BancGroup or Southern if all transactions contemplated by this Agreement shall not have been consummated on or prior to September 30, 1996, if the failure to consummate the transactions provided for in this Agreement on or before such date is not caused by any breach of this Agreement by the Party electing to terminate pursuant to this section 13.2(d); or (e) by the board of directors of either BancGroup or Southern if the average of the closing prices of the BancGroup Common Stock reported by the NYSE for the 20 consecutive trading days ending on the trading day immediately proceeding the Effective Date shall be less than $24.625 or greater than $36.625. 13.3 DAMAGES. In the event of termination pursuant to section 13.2, Southern and BancGroup shall not be liable for damages for any breach of warranty or representation contained in this Agreement made in good faith, and, in that case, the expenses incurred shall be borne as set forth in section 15.1 hereof. ARTICLE 14 37 DEFINITIONS (a) The following terms, which are capitalized in this Agreement, shall have the meanings set forth below for the purpose of this Agreement: 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 Amended and Restated Agreement and Plan of Merger and the Exhibits and Schedules delivered pursuant hereto and incorporated herein by reference. Assets Of a Person shall mean all of the assets, properties, businesses and rights of such Person of every kind, nature, character and description, whether real, personal or mixed, tangible or intangible, accrued or contingent, or otherwise relating to or utilized in such Person's business, directly or indirectly, in whole or in part, whether or not carried on the books and records of such Person, and whether or not owned in the name of such Person or any Affiliate of such Person and wherever located. BancGroup The Colonial BancGroup, Inc., a Delaware corporation with its principal offices in Montgomery, Alabama. Bank Southern Bank of Central Florida, a Florida banking corporation. Closing The closing of the transactions contemplated hereby as described in section 2.7 of this Agreement. Code The Internal Revenue Code of 1986, as amended. Common Stock BancGroup's Common Stock authorized and defined in the restated certificate of incorporation of BancGroup, as amended. Consent Any consent, approval, authorization, clearance, exemption, waiver, or similar affirmation by any Person pursuant to any Contract, Law, Order, or Permit.
38 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 of the number of shares of BancGroup Common Stock to be issued for one share of Southern Stock, as defined in section 3.1(a). Exhibits A through C, inclusive, shall mean the Exhibits so marked, copies of which are attached to this Agreement. Such Exhibits are hereby incorporated by reference herein and made a part hereof, and may be referred to in this Agreement and any other related instrument or document without being attached hereto. FBCA The Florida Business Corporation Act Knowledge Means the actual knowledge of the Chairman, President, Chief Financial Officer, Chief Accounting Officer, Chief Credit Officer, General Counsel or any Senior or Executive Vice President of BancGroup, in the case of
39 knowledge of BancGroup, or of Southern and the Bank, in the case of knowledge of Southern. Law Any code, law, ordinance, regulation, reporting or licensing requirement, rule, or statute applicable to a Person or its Assets, Liabilities or business, including those promulgated, interpreted or enforced by any Agency. Liability Any direct or indirect, primary or secondary, liability, indebtedness, obligation, penalty, cost or expense (including costs of investigation, collection and defense), deficiency, guaranty or endorsement of or by any Person (other than endorsements of notes, bills, checks, and drafts presented for collection or deposit in the ordinary course of business) of any type, whether accrued, absolute or contingent, liquidated or unliquidated, matured or unmatured, or otherwise. Lien Any conditional sale agreement, default of title, easement, encroachment, encumbrance, hypothecation, infringement, lien, mortgage, pledge, reservation, restriction, security interest, title retention or other security arrangement, or any adverse right or interest, charge, or claim of any nature whatsoever of, on, or with respect to any property or property interest, other than (i) Liens for current property Taxes not yet due and payable, (ii) for depository institution Subsidiaries of a Party, pledges to secure deposits and other Liens incurred in the ordinary course of the banking business, and (iii) Liens in the form of easements and restrictive covenants on real property which do not materially adversely affect the use of such property by the current owner thereof. Litigation Any action, arbitration, complaint, criminal prosecution, governmental or other examination or investigation, hearing, inquiry, administrative or other proceeding relating to or affecting a Party, its business, its Assets (including Contracts related to it), or the transactions contemplated by this Agreement. Loan Property Any property owned by the Party in question or by any of its Subsidiaries or in which such Party or Subsidiary holds a security interest, and, where required by the
40 context, includes the owner or operator of such property, but only with respect to such property. Loss Any and all direct or indirect payments, obligations, recoveries, deficiencies, fines, penalties, interest, assessments, losses, diminution in the value of Assets, damages, punitive, exemplary or consequential damages (including, but not limited to, lost income and profits and interruptions of business), liabilities, costs, expenses (including without limitation, reasonable attorneys' fees and expenses, and consultant's fees and other costs of defense or investigation), and interest on any amount payable to a third party as a result of the foregoing. 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, business, or results of operations of such Party and its Subsidiaries, taken as a whole, or (ii) the ability of such Party to perform its obligations under this Agreement or to consummate the Merger or the other transactions contemplated by this Agreement provided that "material adverse impact" shall not be deemed to include the impact of (x) changes in banking and similar laws of general applicability or interpretations thereof by courts or governmental authorities, (y) changes in generally accepted accounting principles or regulatory accounting principles generally applicable to banks and their holding companies, and (z) the Merger and compliance with the provisions of this Agreement on the operating performance of the Parties. Merger The merger of Southern with BancGroup as contemplated in this Agreement. 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
41 court, arbitrator, mediator, tribunal, administrative agency or Agency. Party Shall mean Southern or BancGroup, and "Parties" shall mean both Southern and BancGroup. Permit Any federal, state, local, and foreign governmental approval, authorization, certificate, easement, filing, franchise, license, notice, permit, or right to which any Person is a party or that is or may be binding upon or inure to the benefit of any Person or its securities, Assets or business. Person A natural person or any legal, commercial or governmental entity, such as, but not limited to, a corporation, general partnership, joint venture, limited partnership, limited liability company, trust, business association, group acting in concert, or any person acting in a representative capacity. Proxy Statement The proxy statement used by Southern 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 Southern. 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 Southern, 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. Southern Southern Banking Corporation, a Florida corporation. Southern Company Shall mean Southern the Bank, any Subsidiary of Southern or the Bank, or any person or entity acquired as a Subsidiary of Southern or the Bank in the future and owned by Southern at the Effective Date.
42 Southern Options Options respecting the issuance of Southern common stock pursuant to Southern's stock option plans. Southern Stock Shares of Common stock, par value $1.00 per share, of Southern. Stockholders Meeting The special meeting of stockholders of Southern called to approve the transactions contemplated by this Agreement. Subsidiaries Shall mean all those corporations, banks, associations, or other entities of which the entity in question owns or controls 5% or more of the outstanding equity securities either directly or through an unbroken chain of entities as to each of which 5% or more of the outstanding equity securities is owned directly or indirectly by its parent; provided, however, there shall not be included any such entity acquired through foreclosure or any such entity the equity securities of which are owned or controlled in a fiduciary capacity. Tax or Taxes Means any federal, state, county, local, foreign, and other taxes, assessments, charges, fares, and impositions, including interest and penalties thereon or with respect thereto. 1933 Act The Securities Act of 1933, as amended. 1934 Act The Securities Exchange Act of 1934, as amended.
ARTICLE 15 MISCELLANEOUS 15.1 EXPENSES. Each Party hereto shall bear its own legal, auditing, trustee, investment banking, regulatory and other expenses in connection with this Agreement and the transactions contemplated hereby. 15.2 BENEFIT. This Agreement shall inure to the benefit of and be binding upon Southern and BancGroup, and their respective successors. This Agreement shall not be assignable by any Party without the prior written consent of the other Party. 15.3 GOVERNING LAW. This Agreement shall be governed by, and construed in accordance with the Laws of the State of Alabama without regard to any conflict of Laws. 43 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 said 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 44 other Party its costs and expenses incurred in connection with such action (including fees, disbursements and expenses of attorneys and costs of investigation). 15.11 NO WAIVER. No failure, delay or omission of or by any Party in exercising any right, power or remedy upon any breach or Default of any other Party shall impair any such rights, powers or remedies of the Party not in breach or Default, nor shall it be construed to be a wavier of any such right, power or remedy, or an acquiescence in any similar breach or Default; nor shall any waiver of any single breach or Default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any Party of any provisions of this Agreement must be in writing and be executed by the Parties to this Agreement and shall be effective only to the extent specifically set forth in such writing. 15.12 REMEDIES CUMULATIVE. All remedies provided in this Agreement, by law or otherwise, shall be cumulative and not alternative. 15.13 ENTIRE CONTRACT. This Agreement and the documents and instruments referred to herein constitute the entire contract between the parties to this Agreement and supersede all other understandings with respect to the subject matter of this Agreement. IN WITNESS WHEREOF, Financial and BancGroup have caused this Agreement to be signed by their respective duly authorized officers as of the date first above written. ATTEST: SOUTHERN BANKING CORPORATION BY: Charles W. Brinkley BY: J. Donald Prewitt --------------------------- -------------------------- ITS: President & CEO ITS: Chairman --------------------------- -------------------------- (CORPORATE SEAL) ATTEST: THE COLONIAL BANCGROUP, INC. BY: Teresa Skipper BY: W. Flake Oakley --------------------------- -------------------------- ITS: Assistant Secretary ITS: Chief Financial Officer --------------------------- -------------------------- (CORPORATE SEAL) EX-21 7 LIST OF SUBSIDIARIES 1 EXHIBIT 21 SUBSIDIARIES OF THE COLONIAL BANCGROUP, INC. COLONIAL BANK, AN ALABAMA BANKING CORPORATION. COLONIAL BANK OF TENNESSEE, A TENNESSEE BANK. COLONIAL BANK, ATLANTA, GEORGIA, A FEDERAL SAVINGS BANK THE COLONIAL BANCGROUP BUILDING CORPORATION, AN ALABAMA CORPORATION. EX-23.(A) 8 CONSENT OF COOPERS & LYBRAND 1 EXHIBIT 23(A) CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in this registration statement on Form S-4 of our report dated February 24, 1995, on our audits of the restated consolidated financial statements of The Colonial BancGroup, Inc. and Subsidiaries as of December 31, 1994 and 1993 and for each of the three years ended December 31, 1994. We also consent to the reference to our firm as "experts" under the caption "Independent Accountants." /s/ Coopers & Lybrand L.L.P. Montgomery, Alabama February 20, 1996 EX-23.(B) 9 CONSENT OF MILLER, HAMILTON, SNIDER & ODOM 1 EXHIBIT 23(B) CONSENT OF COUNSEL The Colonial BancGroup, Inc. We hereby consent to use in this Form S-4 Registration Statement of The Colonial BancGroup, Inc., of our name in the Prospectus, which is a part of such Registration Statement, under the headings "APPROVAL OF THE MERGER - Certain Federal Income Tax Consequences" and "LEGAL MATTERS," and to the summarization of our opinions referenced therein. /s/ MILLER, HAMILTON, SNIDER & ODOM, L.L.C. February 19, 1996 EX-23.(C) 10 CONSENT OF ARTHUR ANDERSEN 1 EXHIBIT 23(C) CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the use of our report and to all references to our Firm included in or made a part of this Registration Statement. /s/ Arthur Andersen, L.L.P. Birmingham, Alabama February 19, 1996 EX-23.(D) 11 CONSENT OF BRICKER & MELTON 1 EXHIBIT 23(D) CONSENT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use of our report dated January 19, 1995, our report dated January 19, 1995, except for information presented in Note L, for which the date is March 2, 1995, and our reported dated January 25, 1994, relating to the consolidated financial statements of Commercial Bancorp of Gwinnett, Inc. and Subsidiary, and our report dated March 10, 1995, relating to the consolidated financial statements of the former Commercial Bancorp of Georgia, Inc. and Subsidiary, included in the Registration Statement on Form S-4 and Proxy Statement. /s/ Bricker & Melton, P.A. Duluth, Georgia February 22, 1996 EX-23.(E) 12 CONSENT OF COOPERS & LYBRAND 1 EXHIBIT 23(E) CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the inclusion in this registration statement on Form S-4 of our report dated January 13, 1995, on our audits of the financial statements of Southern Banking Corporation and Subsidiary. We also consent to the reference to our firm under the caption Experts. /s/ Coopers & Lybrand February 20, 1996 EX-23.(F) 13 CONSENT & REPORT OF PRICE WATERHOUSE 1 EXHIBIT 23(F) CONSENT AND REPORT OF INDEPENDENT ACCOUNTANTS We hereby consent to the use in the Joint Proxy Statement and Prospectus constituting part of this Registration Statement on Form S-4 of Colonial BancGroup of our report dated March 2, 1994 relating to the consolidated financial statements of the former Commercial Bancorp of Georgia, Inc. as of and for each of the two years in the period ended December 31, 1993, which appears in such Prospectus. /s/ PRICE WATERHOUSE LLP Atlanta, Georgia February 22, 1996 2 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Shareholders of Commercial Bancorp of Georgia, Inc. In our opinion, the consolidated statement of condition and the related consolidated statements of income, of changes in shareholders' equity and of cash flows as of and for each of the two years in the period ended December 31, 1993 of the former Commercial Bancorp of Georgia, Inc. and its subsidiary (not presented separately herein) present fairly, in all material respects, the financial position, the results of their operations and their cash flows for each of the two years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PRICE WATERHOUSE LLP March 2, 1994 Atlanta, Georgia EX-24 14 POWER OF ATTORNEY 1 EXHIBIT 24 POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Robert E. Lowder, Young J. Boozer, III, and W. Flake Oakley, and each of them, his true and lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead, to sign any reports or other filings which may be required to be filed with the Securities and Exchange Commission on behalf of The Colonial BancGroup, Inc. (the "Registrant"), during the year ending December 31, 1996; to sign any registration statement and any amendments thereto of the Registrant for the purpose of registering under the Securities Act of 1933, as amended, shares to be offered and sold by the Registrant; to file such other reports or other filings, such registration statements and amendments thereto, with all exhibits thereto, and any documents in connection therewith with the Securities and Exchange Commission; and to file such notices, reports or registration statements (and amendments thereto) with any such securities authority of any state which may be necessary to register or qualify for an exemption from registration any securities offered or sold by BancGroup in such states, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite to be done in and about the premises as fully and to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or their substitutes, may lawfully do or cause to be done by virtue hereof. This Power of Attorney supersedes and revokes any previous power of attorney of the Registrant relating to the foregoing matters and shall terminate at the conclusion of the regular board meeting of the Registrant in January 1997. Done this 17th day of January, 1996, in the City of Montgomery, Alabama. /s/ Robert E. Lowder Chairman of the Board, - -------------------------------- President and Chief Robert E. Lowder Executive Officer /s/ Young J. Boozer Director - -------------------------------- Young J. Boozer /s/ William Britton Director - -------------------------------- William Britton /s/ Jerry J. Chesser Director - -------------------------------- Jerry J. Chesser 2 /s/ Augustus K. Clements, III Director - ----------------------------- Augustus K. Clements, III /s/ Robert Craft Director - ----------------------------- Robert Craft - ----------------------------- Director Patrick F. Dye /s/ Clinton Holdbrooks Director - ----------------------------- Clinton Holdbrooks /s/ D. B. Jones Director - ----------------------------- D. B. Jones /s/ Harold D. King Director - ----------------------------- Harold D. King /s/ John Ed Mathison Director - ----------------------------- John Ed Mathison /s/ Milton McGregor Director - ----------------------------- Milton McGregor /s/ John C. H. Miller, Jr. Director - ----------------------------- John C. H. Miller, Jr. /s/ Joe D. Mussafer Director - ----------------------------- Joe D. Mussafer /s/ William E. Powell, III Director - ----------------------------- William E. Powell, III /s/ Jack H. Rainer Director - ----------------------------- Jack H. Rainer /s/ Frances E. Roper Director - ----------------------------- Frances E. Roper /s/ Ed V. Welch Director - ----------------------------- Ed V. Welch EX-99.(A) 15 FORM OF PROXY OF DOTHAN FEDERAL SAVINGS BANK 1 Exhibit 99 (A) SOLICITED BY THE BOARD OF DIRECTORS PROXY DOTHAN FEDERAL SAVINGS BANK SPECIAL MEETING OF STOCKHOLDERS _________________, 1996 The undersigned hereby appoints _________________________ and _________________________, and either of them, or such other persons as the board of directors of Dothan Federal Savings Bank (the "Bank"), may designate, proxies for the undersigned, with full power of substitution, to represent the undersigned and to vote all of the shares of common stock of the Bank at the special meeting of stockholders to be held on __________________, 1996, and at any and all adjournments thereof. FOR AGAINST ABSTAIN 1. To ratify and approve the Agreement and Plan [ ] [ ] [ ] of Merger dated as of ______, 1996, pursuant to which the Bank will be merged with and into Colonial Bank, a subsidiary of The Colonial BancGroup, Inc.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND WILL BE VOTED AS DIRECTED HEREIN. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE VOTED FOR PROPOSAL 1 AND IN ACCORDANCE WITH THE DISCRETION OF THE PROXY HOLDERS RESPECTING SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE SPECIAL MEETING BUT WHICH ARE NOT NOW ANTICIPATED, AND TO VOTE UPON MATTERS INCIDENT TO THE CONDUCT OF THE SPECIAL MEETING. DATED: ____________________________________________, 1996 PHONE NO: _______________________________________________ _________________________________________________________ (Signature of Stockholder) _________________________________________________________ (Signature of Stockholder, if more than one) Please sign exactly as your name appears on the envelope in which this material was mailed. If shares are held jointly, each stockholder must sign. Agents, executors, administrators, guardians and trustees must give full title as such. Corporations should sign by their president or authorized officer. EX-99.(B) 16 ELECTION FORM 1 Exhibit 99 (B) ELECTION FORM Complete this Election Form ONLY if you wish to receive an amount of cash and common stock of The Colonial BancGroup, Inc. ("BancGroup") that is other than 50% for each in exchange for all of your shares of Common Stock, par value $.01 per share, of Dothan Federal Savings Bank (the "Bank"). In order to make such election, this Election Form, properly completed, dated, signed and submitted in accordance with the accompanying instructions, must be received by the Bank no later than 5:30 p.m., on _____________, 1996, which is the time of commencement of the special meeting of stockholders of the Bank called to vote upon the merger of the Bank with and into Colonial Bank, a subsidiary of BancGroup (the "Merger"). 2 PLEASE FOLLOW CAREFULLY THE ACCOMPANYING INSTRUCTIONS DELIVER TO: Dothan Federal Savings Bank 1962 West Main Street Dothan, Alabama 36302 Facsimile: (334)794-1988 Attention: Charles Williams Gentlemen: In connection with the Merger I wish to receive a combination of cash and Common Stock of BancGroup that is other than 50% for each. The percentage of cash and Common Stock that I wish to receive is designated immediately below. I understand that my election applies to all of the shares of Common Stock of the Bank that I own of record. Please indicate the number of shares of Bank Common Stock you own: ----------------------------- Please indicate the percentage of cash you wish to receive, if other than 50%: ----------% Please indicate the percentage of BancGroup Common Stock you wish to receive, if other than 50%: ----------% I understand that my election made above is subject to the terms, conditions and limitations set forth in the Joint Proxy Statement and Prospectus dated ___________, 1996, relating to the Merger, the Agreement and Plan of Merger dated as of January 22, 1996 (the "Agreement"), and the accompanying instructions. 3 PLEASE FILL IN THE INFORMATION REQUESTED AND SIGN BELOW. - ------------------------------ ------------------------------ Signature Name ------------------------------ ------------------------------ Address ------------------------------ Telephone number ------------------------------ Taxpayer ID or Social Security Number 4 INSTRUCTIONS 1. Time in Which to Elect To be effective, an election on this form must be received by the Bank no later than 1:30 p.m. on _______________, 1996, or, if there is a postponement or adjournment of the stockholders' meeting called to vote upon the Merger, no later than 1:30 p.m., on the day on which the Merger is actually approved by stockholders of the Bank (the "Election Deadline"). Election Forms not so received by the Bank by the Election Deadline will be void. 2. Revocation Any Election Form may be revoked by the person submitting the Election Form only by written notice received by the Bank prior to the Election Deadline. 3. Termination of Right to Elect All Election Forms will be void and of no effect if the Merger is not consummated. 4. Over and Undersubscriptions Regardless of the Election Forms submitted, the aggregate number of shares of BancGroup Common Stock to be distributed in the Merger shall equal 50% of the total Merger Consideration (as defined in the Agreement) and the aggregate amount of cash to be paid in the Merger shall equal 50% of the total Merger Consideration. If the aggregate amount of cash to be paid in the Merger is less than 50% of the Merger Consideration based upon the Election Forms which have been properly filed, then a sufficient amount of additional cash shall be distributed pro rata to all stockholders of the Bank who have not elected to receive 100% of the Merger Consideration in cash, regardless of whether such 5 stockholders have filed an Election Form, so that the aggregate amount of Merger Consideration to paid in cash in the Merger will equal 50%, and the number of shares of BancGroup Common Stock otherwise required to be distributed shall be reduced pro rata as to all stockholders who have not elected to receive 100% of the Merger Consideration in cash. If the aggregate amount of cash to be paid in the Merger is greater than 50% of the Merger Consideration based upon the Election Forms which have been properly filed, then the aggregate amount of cash will be reduced and a sufficient amount of cash shall be distributed pro rata to all stockholders of the Bank who have not elected to receive 100% of the Merger Consideration in BancGroup Common Stock, regardless of whether such stockholders have filed an Election Form, so that the aggregate amount of Merger Consideration to be paid in cash in the Merger will equal 50%, and the number of shares of BancGroup Common Stock otherwise required to be distributed shall be increased pro rata as to all stockholders who have not elected to received 100% of the Merger Consideration in BancGroup Common Stock. Cash to be paid to any Bank stockholder exercising dissenters' rights of appraisal shall be included as part of the Merger Consideration for determining the amount of cash to be paid. Interest will not be paid on any cash to be paid as part of the Merger Consideration. 5. Signatures If this Election form is signed by a trustee, executor, administrator, guardian, officer of a corporation, attorney-in-fact, or in any other representative, nominee or fiduciary capacity, the person signing must give such person's full title in such capacity and appropriate evidence of authority to act in such capacity must be forwarded with the Election Form. 6 6. Checks and New Certificates in Same Name Checks for cash and any stock certificates representing shares of BancGroup Common Stock shall be payable to the order of and registered in exactly the same name that appears on the old certificates representing shares of Bank Common Stock. 7. Miscellaneous Cash payments will be mailed by check to the former Bank stockholder entitled to such payments as promptly as practicable after the effective date of the Merger. The Bank and BancGroup shall determine whether Election Forms have been properly submitted. No person is under any obligation to notify any person of any defect in an Election Form or any other documents submitted therewith. 8. Questions and Requests for Information Questions and requests for information or assistance relating to this Election Form should be directed to the Bank at the address or telephone number set forth above. Additional copies of this Notice of Cash Election may be obtained from the Bank. -----END PRIVACY-ENHANCED MESSAGE-----