FILED PURSUANT TO
RULE 424 (B) (2)
REGISTRATION NO: 333-68720
Corporate Office
4144 North Armenia Avenue
Tampa, Florida 33607
[LOGO OF MANUFACTURERS BANK OF FLORIDA]
(813) 877-4600
MANUFACTURERS BANCSHARES, INC.
SEPTEMBER 14, 2001
Dear Shareholder:
You are cordially invited to attend the Special Meeting of Shareholders of
Manufacturers Bancshares, Inc., which will be held on October 17, 2001, at
10:00 a.m. local time. The special meeting will be held at our main office,
located at 4144 North Armenia Avenue, Tampa, Florida.
At the special meeting, you will be asked to consider and vote on approval
of an Agreement and Plan of Merger, dated as of June 18, 2001, between
Manufacturers and The Colonial BancGroup, Inc. The agreement provides for us to
merge with BancGroup. In the merger, you will receive whole shares of BancGroup
common stock in exchange for shares of Manufacturers common stock held by you.
Each share of Manufacturers common stock outstanding at the effective time of
the merger will be converted into the right to receive 1.60 shares of BancGroup
common stock. This amount is subject to adjustment based upon the market value
of BancGroup common stock during the trading period shortly before the merger.
Cash will be paid for any fractional shares.
Please see the attached proxy statement and prospectus for a complete
description of the terms of the merger and the formula for converting shares of
Manufacturers common stock into shares of BancGroup common stock in the merger.
Your board of directors has unanimously approved the agreement as being in
the best interests of Manufacturers shareholders and recommends that you vote
in favor of the approval of the agreement.
Additional information regarding the agreement, the merger, Manufacturers
and BancGroup is set forth in the attached proxy statement. This document also
serves as the prospectus for the shares of BancGroup common stock to be issued
in connection with the merger. Please read these materials and carefully
consider the information contained in them.
The affirmative vote of the holders of a majority of the outstanding shares
of Manufacturers common stock is required to approve the agreement.
Accordingly, your vote is important no matter how large or small your holdings
may be. Whether or not you plan to attend the special meeting, you are urged to
complete, sign and promptly return the enclosed proxy card to assure that your
shares will be voted at the special meeting. If you attend the special meeting,
you may vote in person if you wish, and your proxy will not be used.
Sincerely,
/s/ Anthony F. Gonzalez
Anthony F. Gonzalez
Chairman of the Board and CEO
[LOGO OF MANUFACTURERS BANK OF FLORIDA]
4144 North Armenia Avenue
Tampa, Florida 33607
(813) 877-4600
MANUFACTURERS BANCSHARES, INC.
----------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on October 17, 2001, at 10:00 a.m.
----------------
NOTICE IS HEREBY GIVEN that a special meeting of shareholders of
Manufacturers Bancshares, Inc. will be held at its main office at 4144 North
Armenia Avenue, Tampa, Florida, on October 17, 2001, at 10:00 a.m., local time,
for the following purposes:
1. Merger. To consider and vote upon the authorization, adoption and
approval of the Agreement and Plan of Merger, dated June 18, 2001, by and
between The Colonial BancGroup, Inc. and Manufacturers Bancshares, Inc.
Colonial BancGroup will be the surviving corporation in the merger. At the time
of the merger, each share of your Manufacturers common stock will be converted
into the right to receive the number shares of Colonial BancGroup common stock
as determined in accordance with the terms of the Agreement and Plan of Merger,
with cash paid in lieu of fractional shares at the market value of such
fractional shares, as described more fully in the accompanying Proxy Statement
and Prospectus. The Agreement is attached to the Proxy Statement and Prospectus
as Appendix A.
2. Other Matters. To transact such other business as may properly come
before the Special Meeting or any adjournments or postponements thereof.
We have fixed the close of business on September 10, 2001, as the record
date for the determination of shareholders entitled to notice of and to vote at
the Special Meeting. Only our holders of record at the close of business on
that date will be entitled to notice of and to vote at the Special Meeting or
any adjournments or postponements thereof. You are entitled to assert
dissenters' rights pursuant to the Florida Business Corporation Act. A copy of
the dissenters' rights provisions is attached to the enclosed Proxy Statement
and Prospectus as Appendix B.
You are cordially invited to attend the Special Meeting, but whether or not
you plan to attend, please complete and sign the enclosed form of proxy and
mail it promptly in the enclosed envelope. The proxy may be revoked at any time
by filing a written revocation with our president, by executing a later dated
proxy and delivering it to our president, or by attending the Special Meeting
and voting in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Anthony F. Gonzalez
Anthony F. Gonzalez
Chairman of the Board and CEO
September 14, 2001
TABLE OF CONTENTS
Page
----
SUMMARY.................................................................... 3
A WARNING ABOUT FORWARD-LOOKING STATEMENTS................................. 10
THE SPECIAL MEETING........................................................ 11
General................................................................... 11
Record Date; Shares Entitled to Vote; Vote Required for the Merger........ 11
Solicitation, Voting and Revocation of Proxies............................ 12
Effect of Merger on Outstanding BancGroup Common Stock.................... 12
THE MERGER................................................................. 14
General................................................................... 14
Background of and Reasons for the Merger.................................. 14
Fairness Opinion of Allen C. Ewing & Co................................... 15
Recommendation of the Board of Directors of Manufacturers................. 19
BancGroup's Reasons for the Merger........................................ 19
Interests of Certain Persons in the Merger................................ 19
Conversion of Manufacturers Common Stock.................................. 20
Surrender of Manufacturers Common Stock Certificates...................... 22
Certain Federal Income Tax Consequences................................... 22
Other Possible Consequences............................................... 24
Conditions to Consummation of the Merger.................................. 24
Amendment or Termination of Agreement..................................... 25
Commitment with Respect to Other Offers................................... 25
Regulatory Approvals...................................................... 25
Conduct of Business Pending the Merger.................................... 28
Indemnification........................................................... 29
Rights of Dissenting Shareholders......................................... 29
Resale of BancGroup Common Stock Issued in the Merger..................... 31
Accounting Treatment...................................................... 32
Manufacturers Trust Securities............................................ 32
NYSE Reporting of BancGroup Common Stock Issued in the Merger............. 32
Treatment of Manufacturers Options........................................ 32
COMPARATIVE MARKET PRICES AND DIVIDENDS.................................... 34
BANCGROUP CAPITAL STOCK AND DEBENTURES..................................... 35
BancGroup Common Stock.................................................... 36
Preferred Stock........................................................... 36
BancGroup Debt............................................................ 37
Changes in Control........................................................ 37
COMPARATIVE RIGHTS OF SHAREHOLDERS......................................... 39
Director Elections........................................................ 40
Removal of Directors...................................................... 40
Voting.................................................................... 40
Preemptive Rights......................................................... 40
Directors' Liability...................................................... 40
Indemnification........................................................... 41
Special Meetings of Shareholders; Action Without a Meeting................ 42
Mergers, Share Exchanges and Sales of Assets.............................. 42
Amendment of Certificate of Incorporation and Bylaws...................... 42
Rights of Dissenting Stockholders......................................... 43
Page
----
Preferred Stock.......................................................... 43
Effect of the Merger on Manufacturers Shareholders....................... 44
THE COLONIAL BANCGROUP, INC. AND SUBSIDIARIES............................. 45
Condensed Pro Forma Statements of Condition (Unaudited).................. 45
Condensed Pro Forma Statements of Income (Unaudited)..................... 47
Selected Financial and Operating Information............................. 50
MANUFACTURERS BANCSHARES, INC............................................. 53
Selected Consolidated Financial Data..................................... 53
Management Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 54
BUSINESS OF BANCGROUP..................................................... 69
General.................................................................. 69
Other Proposed Business Combinations..................................... 69
Voting Securities and Principal Stockholders............................. 69
Security Ownership of Management......................................... 70
Management Information................................................... 71
BUSINESS OF MANUFACTURERS................................................. 71
General.................................................................. 71
Lending Activities....................................................... 71
Deposit Activities....................................................... 72
Investments.............................................................. 72
Employees................................................................ 73
Properties............................................................... 73
Legal Proceedings........................................................ 73
Security Ownership of Management and Certain Beneficial Owners........... 73
ADJOURNMENT OF SPECIAL MEETING............................................ 74
OTHER MATTERS............................................................. 74
DATE FOR SUBMISSION OF BANCGROUP STOCKHOLDER PROPOSALS.................... 75
LEGAL MATTERS............................................................. 75
EXPERTS................................................................... 75
WHERE YOU CAN FIND MORE INFORMATION....................................... 76
INDEX TO FINANCIAL STATEMENTS............................................. F-1
APPENDIX A--Agreement and Plan of Merger.................................. A-1
APPENDIX B--Sections 607.1301, 607.1302 and 607.1320 of the Florida
Business Corporation Act Regarding Dissenter's Rights.................... B-1
APPENDIX C--Fairness Opinion of Allen C. Ewing & Co., Inc. dated September
14, 2001................................................................. C-1
2
SUMMARY
This summary highlights selected information from this proxy
statement/prospectus. It does not contain all of the information that will be
important to you as you consider your vote. You should carefully read the
entire document and the other documents to which we refer. These will give you
a more detailed description of the transaction that we are proposing. For more
information about BancGroup, see "Where You Can Find More Information"
(page 76). Each item in this summary refers to the pages where that subject is
discussed in greater detail elsewhere in the proxy statement/prospectus. In
this section, the terms "we" and "us" refer to Manufacturers.
The Companies
[LOGO OF THE COLONIAL BANCGROUP, INC.]
One Commerce Street
Post Office Box 1108
Montgomery, Alabama 36101
(334) 240-5000
BancGroup is a financial holding company whose wholly-owned subsidiary,
Colonial Bank, provides corporate and retail banking services and products in
Alabama, Florida, Georgia, Tennessee, Texas and Nevada. As of June 30, 2001,
BancGroup's total assets were about $12.3 billion, deposits were about $8.3
billion and shareholders' equity was about $0.8 billion.
[LOGO OF MANUFACTURERS BANK OF FLORIDA]
Manufacturers Bancshares, Inc.
4144 N. Armenia Avenue
Tampa, Florida 33607
(813) 877-4600
Manufacturers is a financial holding company whose wholly-owned subsidiary,
Manufacturers Bank of Florida, provides corporate and retail banking services
principally in Tampa, Florida. As of June 30, 2001, Manufactures total assets
were about $294.7 million, deposits were about $214.9 million and shareholders'
equity was about $23.4 million.
The Merger
The merger agreement is the document that controls the merger between
Manufacturers and BancGroup. We encourage you to read the entire merger
agreement, which is attached as Appendix A.
The merger agreement provides for the following:
1. Manufacturers will merge into BancGroup. When the merger becomes
effective, Manufacturers will cease to exist as a separate entity and you,
as a shareholder of Manufacturers, will be entitled to receive shares of
BancGroup stock. The amount of BancGroup stock that you will receive will
be determined as follows:
. if the market value (an average of closing prices for BancGroup
stock during a fixed period before the merger) of BancGroup stock
is between $11.50 and $13.50 per share, then you will receive 1.60
shares of BancGroup stock for each share of Manufacturers stock you
own just before the merger;
3
. if the market value of BancGroup stock is less than $11.50, you
will receive BancGroup shares equal to
$18.40 the number of Manufacturers shares you
____________ own just before the merger; and
market value X
. if the market value of BancGroup stock is more than $13.50, you
will receive BancGroup shares equal to
$21.60 the number of Manufacturers shares you
____________ own just before the merger.
market value X
These formulas are designed to adjust the number of shares you receive
depending on whether the value of BancGroup stock rises or falls before the
merger is effective. For example, if the market value of BancGroup stock is
$15.00 per share and you own 100 shares of Manufacturers stock, then you will
receive:
$21.60
____________ X 100 = 144 BancGroup shares.
$15.00
If the market value of BancGroup stock is $10.00, then you will receive:
$18.40
____________ X 100 = 184 BancGroup shares.
$10.00
BancGroup will not issue fractional shares in the merger. If the number of
shares you are to receive is not a whole number, you will receive cash instead
of the fractional share.
Comparative Market Prices (page 34)
BancGroup's stock is traded on the New York Stock Exchange. On June 15,
2001, the last trading day before we signed the merger agreement, the closing
price of the BancGroup's was $12.54. On September 7, 2001, BancGroup's stock
closed at $12.65.
Manufacturers stock is not publicly traded. Therefore, the value of the
stock can only be determined from prices paid in transactions known to
management of Manufacturers. The price paid in the last known transaction
before June 18, 2001, the date we signed the Merger Agreement, was $14.50.
The following table summarizes the comparative values of the two stocks just
before the merger agreement was signed and the BancGroup equivalent price per
share of Manufacturers' stock.
Equivalent price per
BancGroup(1) Manufacturers(2) Manufacturers' share(3)
------------ ---------------- -----------------------
$12.54 $14.50 $20.06
--------
(1) Closing price on June 15, 2001.
(2) Price obtained for shares sold on April 25, 2001.
(3) If the merger had closed on June 15, 2001, you would have received 1.60
shares of BancGroup stock for each share of Manufacturers stock you owned
on that date.
Our Reasons for the Merger (page 14)
We believe that the merger is in your best interest. We considered a number
of factors in deciding to approve and recommend the terms of the merger
agreement to you. These factors included the following:
. the overall terms of the proposed transaction;
4
. the financial condition, results of operations, and future prospects of
BancGroup;
. our financial condition, results of operations, and future prospects;
. the value of the consideration to be received by you relative to the
book value and earnings per share of our common stock;
. the competitive and regulatory environment for community banks
generally;
. the fact that the merger will enable you to exchange your shares of
Manufacturers stock (for which there is no established public trading
market) for shares of common stock of a larger and more diversified
entity, the stock of which is widely held and actively traded;
. that the merger will enable you to hold stock in a financial institution
that has historically paid substantial cash dividends to its
shareholders for over 15 years;
. the likelihood that we and BancGroup will receive the requisite
regulatory approvals to perform the merger; and
. the fact that we expect that the merger will be a tax-free transaction
for federal income tax purposes.
We also took into account an opinion received from Allen C. Ewing & Co. that
the terms of the merger are fair to you, from a financial point of view. In our
deliberations, we did not assign any relative or specific weight to any of the
factors that are discussed above, and individual members of our board of
directors may have given different weights to different factors as they were
discussed. In addition, the discussion of the information above and factors we
considered is not intended to be exhaustive of the factors considered.
The Shareholders' Meeting (page 11)
We will hold a special meeting of Manufacturers' shareholders at 10:00 a.m.
local time, on Wednesday, October 17, 2001 at our main office on 4144 N.
Armenia Avenue, Tampa, Florida. At the meeting, we will ask the shareholders to
approve the merger agreement and to act on any other matters that may be put to
a vote at the meeting.
Our Recommendations to our Shareholders (page 19)
Your Board of Directors believes that the merger is fair to you and in your
best interests, and unanimously recommends that you vote "For" the proposal to
approve the merger agreement.
Record Date; Voting Power (page 11)
You may vote at the special meeting if you owned Manufacturers shares as of
the close of business on September 10, 2001. You will have one vote for each
share of stock you owned on that date.
Vote Required (page 11)
If a quorum is present at the special meeting, then the affirmative vote of
a majority of the outstanding shares will be sufficient to approve the merger
agreement. A quorum consists of a majority of the shares outstanding on the
record date. On the record date, 2,596,190 shares of Manufacturers shares were
outstanding. The directors of Manufacturers own 2,165,155 shares of
Manufacturers' stock representing approximately 83.4% of the outstanding
shares. These individuals have agreed with BancGroup to vote their shares in
favor of the merger agreement. Accordingly, if these individuals vote as they
have agreed with BancGroup, then approval for the merger agreement by
Manufacturers shareholders is assured.
5
Exchange of Certificates (page 22)
Shortly after we complete the merger, we will send you detailed instructions
on how to exchange your shares. PLEASE DO NOT SEND US ANY STOCK CERTIFICATES
UNTIL YOU RECEIVE THOSE INSTRUCTIONS.
Conditions to Completion of the Merger (page 24)
The completion of the merger depends on meeting a number of conditions,
including the following:
. the shareholders of Manufacturers must approve the merger agreement;
. all required regulatory approvals must be received, and any waiting
periods must have passed;
. there must be no governmental order blocking completion of the merger,
and no proceedings by a government body trying to block the merger;
. the completion of the merger before February 28, 2002, or under certain
conditions, March 15, 2002; and
. the receipt of certain professional opinions, including a letter from
the accounting firm of PricewaterhouseCoopers LLP agreeing that the
merger may be accounted for as a "pooling of interests."
Unless prohibited by law, either Manufacturers or BancGroup could elect to
waive a condition that has not been satisfied and complete the merger anyway.
We cannot be certain whether or when any of these conditions will be satisfied,
or waived where permissible, or that we will complete the merger.
Termination of the Merger Agreement (page 25)
The two companies can agree at any time to terminate the merger agreement
before completing the merger, even if the shareholders of Manufacturers have
already voted to approve it.
Either company can also terminate the merger agreement:
. if the other party has materially breached the merger agreement and has
not cured the breach;
. if the merger has not been completed by February 28, 2002, or, under
certain conditions, by March 15, 2002 (provided that the failure to
complete has not been caused by the breach of the company electing to
terminate); or
. if Manufacturers enters into a binding agreement with any third party to
merge with, or sell control to, that third party. In that event,
Manufacturers may be required to pay liquidated damages to BancGroup.
Federal Income Tax Consequences (page 22)
We expect that neither the two companies nor Manufacturers' shareholders
will recognize any gain or loss for U.S. federal income tax purposes as a
result of the merger, except in connection with any cash that Manufacturers'
shareholders may receive for fractional shares. BancGroup has received an
opinion from PricewaterhouseCoopers LLP that this will be the case. The opinion
will not bind the Internal Revenue Service, which could take a different view.
This nonrecognition of gain or loss tax treatment will not apply to
Manufacturers' shareholders who dissent from the transaction and receive cash
instead of BancGroup stock for their Manufacturers stock as provided under
Florida law. The procedures for exercising dissenters' rights is discussed at
page 29.
6
Determining the actual tax consequences to you as an individual taxpayer can
be complicated. For example, the opinion referred to above does not address any
tax issues arising under state law. The overall tax treatment applicable to you
will depend on your specific situation and many variables not within our
control. You should consult your own tax advisor for a full understanding of
the merger's tax consequences to you.
Accounting Treatment (page 32)
We and BancGroup expect the merger to qualify as a "pooling of interests,"
which means that, for accounting and financial reporting purposes, BancGroup
will treat BancGroup and Manufacturers as though they had always been one
company. BancGroup has the right not to complete the merger if it does not
receive a letter from its independent public accountants that the merger will
qualify as a "pooling of interests."
Interests of Persons Involved in the Merger that are Different from Yours (page
19)
Certain directors, executive officers and employees of Manufacturers have
interests in the merger that are different from your interests. These differing
interests include the following:
. BancGroup will assume outstanding options to acquire Manufacturers
stock. Officers and a director of Manufacturers currently hold options
to acquire 190,393 shares of Manufacturers stock. In the merger, these
options will become rights to acquire BancGroup stock in amounts and at
prices determined by the exchange ratio applicable in the merger
generally.
. Manufacturers currently indemnifies its directors and certain officers,
employees and agents against loss from claims arising out of their
position with Manufacturers. For a period of six years after the merger,
BancGroup will, subject to some limitations, continue to indemnify those
persons against claims that arise from the period when they worked for,
or served as directors of, Manufacturers.
. Upon completion of the merger, Manufacturers employees will either
become employees of BancGroup or one of its subsidiaries and become
eligible for BancGroup's employee benefits, or they will be eligible to
receive severance benefits under BancGroup's severance policy.
. Alfred T. Rogers, the President of Manufacturers, and Joseph V.
Chillura, the Chief Operating Officer of the Bank, have entered into
employment agreements with BancGroup that become effective when and if
the merger is completed. Each agreement provides for a term of three
years, base compensation of $165,000, the right to receive options to
acquire 25,000 shares of BancGroup stock and various other benefits.
Each agreement also contains a covenant prohibiting Mr. Rogers and
Mr. Chillura from competing with BancGroup for a determinable period
following termination of employment before the end of the three-year
term.
. BancGroup has agreed that, subject to applicable fiduciary duties, its
board of directors will recommend Anthony F. Gonzalez, the Chairman and
CEO of Manufacturers, for election to the board of directors of
BancGroup.
Fairness Opinion (page 15)
In deciding to approve the merger, your Board of Directors considered the
opinion of a financial advisor, Allen C. Ewing & Co., that, as of the date of
the opinion, the terms of the merger are fair from a financial point of view to
Manufacturers shareholders. We have attached as Appendix C the written opinion
of Allen C. Ewing & Co. dated the date of this proxy statement. You should read
it carefully to understand the assumptions made, matters considered and
limitations of the review undertaken by Allen C. Ewing & Co. in providing its
opinion.
Dissenters' Rights (page 29)
Manufacturers shareholders entitled to vote at the special meeting are
entitled to exercise "dissenters' rights" of appraisal under Florida law. These
rights entitle a shareholder to "dissent" from the transaction and, by strictly
following the requirements fixed by law, receive "fair value" for their stock.
The fair value may
7
ultimately be determined in a judicial proceeding, the result of which cannot
be predicted with certainty. Dissenting shareholders who receive cash for their
stock will likely be subject to federal income tax treatment that differs from
that available to shareholders who receive BancGroup stock. The text of the
applicable Florida statutes is set forth in Appendix B.
Where You Can Find More Information (page 76)
This document incorporates important business and financial information
about BancGroup from documents that are not included in or delivered with this
document. You can obtain documents incorporated by reference in this document
(other than certain exhibits to those documents) by requesting them in writing
or by telephone from BancGroup by contacting William A. McCrary, Senior
Counsel, Post Office Box 1108, Montgomery, Alabama 36101-1108, telephone: (334)
240-5315. You will not be charged for any of these documents. If you would like
to request a document, please do so by October 7, 2001, in order to receive
them before the special meeting.
Unaudited Comparative Per Share and Selected Financial Data
Per Share Data
The table below presents on a per share basis the book value, cash dividends
and income from continuing operations of BancGroup and Manufacturers on a
historical basis and on a pro forma equivalent basis assuming consummation of
the Merger. The pro forma equivalent information shows the effect of the merger
on a per share basis from the perspective of a Manufacturers shareholder.
Certain information from the table has been taken from the condensed pro forma
statements of condition and income included elsewhere in this document. The
table should be read in conjunction with these pro forma statements.
Six Months Six Months
Ended Ended Year Year Year
June 30, June 30, Ended Ended Ended
2001 2000 2000 1999 1998
---------- ---------- ----- ----- -----
BancGroup--Historical:
Income from Continuing Operations:
Basic................................. $0.53 $0.55 $1.06 $1.04 $0.60
Diluted............................... $0.53 $0.54 $1.06 $1.03 $0.59
Book value at end of period............ 7.28 6.32 6.86 6.20 5.77
Cash dividends......................... 0.24 0.22 0.44 0.38 0.34
Manufacturers--Historical:
Net Income:
Basic................................. 0.52 0.50 1.06 0.81 0.50
Diluted............................... 0.49 0.45 0.96 0.72 0.44
Book value at end of period............ 9.02 8.19 8.50 7.62 5.72
Cash dividends......................... 0.15 0.13 0.38 0.10 --
BancGroup--Pro Forma Combined:
Income from Continuing Operations:
Basic................................. $0.52 $0.54 $1.05 $1.02 $0.59
Diluted............................... $0.52 $0.53 $1.04 $1.00 $0.57
Book value at end of period............ 7.20 N/A N/A N/A N/A
BancGroup--Pro Forma Combined Per
Equivalent Manufacturers Share:
Income from Continuing Operations:(a)
Basic................................. $0.83 $0.86 $1.68 $1.63 $0.94
Diluted............................... $0.83 $0.85 $1.66 $1.60 $0.91
Book value at end of period:(a)........ 11.52 N/A N/A N/A N/A
Cash dividends:(b)..................... 0.38 0.35 0.70 0.61 .54
--------
N/A Not applicable due to pro forma balance sheet being presented only at June
30, 2001 which assumes the transaction consummated on the latest balance
sheet date in accordance with Rule 11.02(b) of Regulation S-X.
8
(a) Pro forma equivalent per share amounts are calculated by multiplying the
pro forma combined total income per share and the pro forma combined total
book value per share of BancGroup by the conversion ratio so that the per
share amounts are equated to the respective values for one share of
Manufacturers. For these pro forma equivalent per share amounts, a 1.60
BancGroup Common Stock conversion ratio is utilized.
(b) Pro forma equivalent dividends per share are shown at BancGroup's Common
Stock dividend per share rate multiplied by the 1.60 conversion ratio per
share of Manufacturers Common Stock (see note (a)). BancGroup presently
contemplates that dividends will be declared in the future. However, the
payment of cash dividends is subject to BancGroup's actual results of
operations as well as certain other internal and external factors.
Accordingly, there is no assurance that cash dividends will either be
declared and paid in the future, or, if declared and paid, that such
dividends will approximate the pro forma amounts indicated.
9
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
We and BancGroup make forward-looking statements in this document and in
BancGroup's public documents to which it refers. When we or BancGroup use words
such as "anticipate," "believe," "estimate," "may," "intend," "expect," "will,"
"should," "seeks" or other similar expressions we or BancGroup refer to events
or conditions subject to risks and uncertainties. When considering those
forward-looking statements, you should keep in mind the risks, uncertainties
and other cautionary statements made in this prospectus. You should not place
undue reliance on any forward-looking statement, which speaks only as of the
date made. In addition to the risks identified below, you should refer to
BancGroup's public documents for specific risks which could cause actual
results to be significantly different from those expressed or implied by those
forward-looking statements. Some factors which may affect the accuracy of the
forward-looking statements apply generally to the financial services or real
estate industries, while other factors apply directly to us or BancGroup. Any
number of important factors which could cause actual results to differ
materially from those in the forward-looking statements include, but are not
limited to: (i) expected cost savings from reorganization into BancGroup are
not fully realized; (ii) deposit attrition, customer loss, or revenue loss
following the reorganization into BancGroup are greater than expected; (iii)
deposit attrition, customer loss, or revenue loss in the ordinary course of
business; (iv) increases in competitive pressure in the banking industry; (v)
changes in the interest rate environment which reduce margins; (vi) general
economic conditions, either nationally or regionally, that are less favorable
than expected, resulting in, among other things, a deterioration in credit
quality, (vii) changes which may occur in the regulatory environment; (viii) a
significant rate of inflation or deflation; and (ix) changes in the securities
markets.
Many of these factors are beyond our control and beyond the control of
BancGroup. For a discussion of factors that could cause BancGroup's actual
results to differ, please see the discussions in the sections entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" in its Annual Report on Form 10-K for the year ended December 31,
2000 and its Quarterly Reports on Form 10-Q for the periods ended March 31,
2001 and June 30, 2001.
10
THE SPECIAL MEETING
General
This Prospectus is being furnished to the shareholders of Manufacturers
Bancshares, Inc. ("Manufacturers") in connection with the solicitation of
proxies by the Board of Directors of Manufacturers for use at the Special
Meeting and at any adjournments or postponements thereof. The purpose of the
Special Meeting is to consider and vote upon the Agreement which provides for
the proposed Merger of Manufacturers with and into BancGroup. BancGroup will be
the surviving corporation in the Merger.
The Board of Directors of Manufacturers believes that the Merger is in the
best interests of Manufacturers shareholders and unanimously recommends that
shareholders vote "FOR" the Agreement (item 1 on the proxy card).
This Prospectus is also furnished by BancGroup in connection with the offer
of shares of BancGroup Common Stock to be issued in the Merger. No vote of
BancGroup shareholders is required to approve the Merger.
Record Date; Shares Entitled to Vote; Vote Required for the Merger
The Board of Directors of Manufacturers has fixed the close of business on
September 10, 2001, as the Record Date for determination of shareholders
entitled to vote at the Special Meeting. There were 310 record holders of
Manufacturers Common Stock and 2,596,190 shares of Manufacturers Common Stock
outstanding, each entitled to one vote per share, as of the Record Date.
Manufacturers is obligated to issue up to an additional 190,393 shares of
Manufacturers Common Stock upon the exercise of outstanding Manufacturers
Options.
The presence at the Special Meeting, in person or by proxy, of the holders
of a majority of the outstanding shares of Manufacturers Common Stock on the
Record Date is necessary to constitute a quorum for the transaction of business
at the Special Meeting. In the absence of a quorum, the Special Meeting may be
postponed from time to time until Manufacturers shareholders holding the
requisite number of shares of Manufacturers Common Stock are represented in
person or by proxy. If a quorum is present, the affirmative vote of the holders
of at least a majority of the outstanding shares of Manufacturers Common Stock,
whether or not present or represented at the Special Meeting, is required to
approve the Agreement. Broker non-votes and abstentions will not be counted as
votes "FOR" or "AGAINST" the proposal to approve the Agreement, and, as a
result, such non-votes will have the same effect as votes cast "AGAINST" the
Agreement. Each holder of record of shares of Manufacturers Common Stock is
entitled to cast, for each share registered in his or her name, one vote on the
Agreement as well as on each other matter presented to a vote of shareholders
at the Special Meeting.
As of the Record Date, directors of Manufacturers owned 2,165,155 shares of
Manufacturers Common Stock representing approximately 83.4% of the outstanding
shares. These individuals have agreed with BancGroup to vote their shares in
favor of the Agreement. Accordingly, if these individuals vote as they have
agreed with BancGroup, then approval of the Agreement by Manufacturers
shareholders is assured.
If the Agreement is approved at the Special Meeting, Manufacturers is
expected to merge with and into BancGroup promptly after the other conditions
to the Agreement are satisfied. See "The Merger--Conditions of Consummation of
the Merger."
THE BOARD OF DIRECTORS OF MANUFACTURERS URGES THE SHAREHOLDERS OF
MANUFACTURERS TO EXECUTE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE
AND UNANIMOUSLY RECOMMENDS THAT THE SHARES REPRESENTED BY THE PROXY BE VOTED IN
FAVOR OF THE AGREEMENT.
11
Solicitation, Voting and Revocation of Proxies
In addition to soliciting proxies by mail, directors, officers and other
employees of Manufacturers, without receiving special compensation therefor,
may solicit proxies from Manufacturers' shareholders by telephone, by email or
other electronic means, by facsimile 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
Manufacturers Common Stock.
Manufacturers will bear the cost of assembling and mailing this Prospectus
and other materials furnished to shareholders of Manufacturers. It will also
pay all other expenses of solicitation, including the expenses of brokers,
custodians, nominees, and other fiduciaries who, at the request of
Manufacturers, mail material to, or otherwise communicate with, beneficial
owners of the shares held by them. BancGroup will pay all expenses incident to
the registration of the BancGroup Common Stock to be issued in connection with
the Merger.
Shares of Manufacturers Common Stock represented by a proxy properly signed
and received at or prior to the Special Meeting, unless properly revoked, will
be voted in accordance with the instructions on the proxy. If a proxy is signed
and returned without any voting instructions, shares of Manufacturers Common
Stock represented by the proxy will be voted "FOR" the proposal to approve the
Agreement and in accordance with the determination of the majority of the Board
of Directors of Manufacturers as to any other matter which may properly come
before the Special Meeting, including any adjournment or postponement thereof.
A shareholder may revoke any proxy given pursuant to this solicitation by: (i)
delivering to the President of Manufacturers, prior to or at the Special
Meeting, a written notice revoking the proxy; (ii) delivering to the President
of Manufacturers, at or prior to the Special Meeting, a duly executed proxy
relating to the same shares and bearing a later date; or (iii) voting in person
at the Special Meeting. Attendance at the Special Meeting will not, in and of
itself, constitute a revocation of a proxy. All written notices of revocation
and other communications with respect to the revocation of Manufacturers'
proxies should be addressed to:
Manufacturers Bancshares, Inc.
4144 North Armenia Avenue
Tampa, Florida 33607
Attention: Alfred T. Rogers, President
Proxies marked as abstentions and shares held in street name which have been
designated by brokers on proxy cards as not voted will not be counted as votes
cast. Such proxies will, however, be counted for purposes of determining
whether a quorum is present at the Special Meeting.
The Board of Directors of Manufacturers is not aware of any business to be
acted upon at the Special Meeting other than consideration of the Agreement
described herein. If, however, other matters are properly brought before the
Special Meeting, or any adjournments or postponements thereof, the persons
appointed as proxies will have the discretion to vote or act on such matters
according to their best judgment. Proxies voted in favor of the approval of the
Agreement, or proxies as to which no voting instructions are given, will be
voted to adjourn the Special Meeting, if necessary, in order to solicit
additional proxies in favor of the approval of the Agreement. Proxies voted
against the approval of the Agreement and abstentions will not be voted for an
adjournment. See "Adjournment of the Special Meeting."
Effect of Merger on Outstanding BancGroup Common Stock
At the consummation of the Merger, the "Market Value" of BancGroup's Common
Stock will be the average of the closing prices of the BancGroup Common Stock
as reported by the New York Stock Exchange ("NYSE") on each of the ten trading
days ending on the trading day five trading days immediately preceding the
Effective Date. Assuming that no dissenters' rights of appraisal are exercised
in the Merger, that 2,786,583 shares of Manufacturers Common Stock are
outstanding on the Effective Date (which consists of the 2,596,190 shares of
common stock and 190,393 Manufacturers Options outstanding on the date of this
Proxy Statement/Prospectus), and the Market Value of BancGroup Common Stock is
between $11.50 and $13.50 per share on the Effective Date then BancGroup would
issue 4,458,532 shares pursuant to the Merger. As of
12
September 7, 2001 the closing price of BancGroup Common Stock was $12.65. If
the Market Value of BancGroup Common Stock is equal to $12.65 on the Effective
Date, then approximately 4,458,532 shares of BancGroup Common Stock will be
issued pursuant to the Merger. The issuance of 4,458,532 shares of BancGroup
Common Stock would represent approximately 4% of the total number of shares of
BancGroup Common Stock outstanding following the Merger, not counting any
additional shares BancGroup may issue for reasons unconnected to the Merger.
13
THE MERGER
The following sets forth a summary of the material provisions of the
Agreement and the transactions contemplated thereby. The description does not
purport to be complete and is qualified in its entirety by reference to the
Agreement, a copy of which is attached hereto as Appendix A, and certain
provisions of Florida law relating to the rights of dissenting shareholders, a
copy of which is attached hereto as Appendix B. All Manufacturers shareholders
are urged to read the Agreement and the Appendices in their entirety.
General
The Agreement provides that, subject to approval by the shareholders of
Manufacturers, receipt of necessary regulatory approvals and satisfaction of
certain other conditions described below at "Conditions to Consummation of the
Merger," Manufacturers will merge with and into BancGroup. Upon completion of
the Merger, the corporate existence of Manufacturers will cease, and BancGroup
will succeed to the business formerly conducted by Manufacturers.
Background of and Reasons for the Merger
From time to time over the past several years, the directors of
Manufacturers during regularly scheduled board of directors meetings have
discussed the business and prospects of Manufacturers, conditions in the
business and community banking market in Florida, and the merger activity among
financial institutions in the state. Among other things, the board considered
whether or not to expand the franchise by seeking acquisitions of other
financial institutions, as well as the possibility of merging with another
financial institution. In addition, during this time period, Manufacturers was
approached on an unsolicited basis by several companies who expressed moderate
to serious interest in acquiring Manufacturers.
In the fall of 2000, the board of directors and senior management of
Manufacturers considered the strategies available to the company over the
ensuing five-year period at various meetings and established a special
committee consisting of directors and senior management. The special committee
determined to engage a financial consultant to determine a range of valuation
for the company and to solicit possible interest from qualified third parties
for the committee to consider in regard to a possible sale or merger of
Manufacturers. The primary reasons for the board's decision to consider a sale
or merger were to enhance shareholder value, provide liquidity, and better
offer the customers of the Bank a wider range of financial products.
In February 2001, the special committee contracted with Allen C. Ewing & Co.
("Ewing") to market Manufacturers to qualified bank holding companies. In early
February 2001, Ewing presented to the committee a list of bank holding
companies that, in its opinion, could have strong marketing interest in
acquiring Manufacturers and had the necessary financial resources to carry out
the transaction and to obtain regulatory approvals. While not making a final
decision whether any transaction involving a sale of Manufacturers should be
entered into, the committee authorized Ewing to solicit indications of interest
that might warrant serious consideration and potentially result in an agreement
to merge or Manufacturers otherwise being acquired. Ewing, with the assistance
of Manufacturers' management, completed a confidential memorandum overviewing,
among other things, Manufacturers' history and financial information. The
memorandum was prepared for distribution to select financial institutions to
explore more formally their interest in acquiring Manufacturers.
Ewing commenced the marketing of Manufacturers in March 2001, and in May
2001, Ewing presented written expressions of interest reflecting specific
ranges of value for Manufacturers from several bank holding companies. As a
part of the presentation, the board of directors discussed information relating
to the several bank holding companies who had provided indications of interest.
Following the discussion, the board of directors agreed to negotiate with
BancGroup related to its proposal and directed management, with the assistance
of Manufacturers' financial and legal advisors, to commence negotiation of a
definitive agreement that would be brought back to the Manufacturers' board of
directors for review and consideration. During the
14
latter part of May and the first half of June, Manufacturers and BancGroup
representatives negotiated the terms of the Agreement. The Agreement was
reviewed and approved by the board of directors of Manufacturers at a meeting
held on June 15, 2001. At this meeting, legal counsel reviewed generally for
Manufacturers directors the fiduciary obligations of directors in sales of
financial institutions and commented on the form of the Agreement, the
agreement to be entered into between Manufacturers' directors and BancGroup,
and related issues. At the meeting, representatives of Ewing rendered an oral
opinion that the terms of the Merger are fair, from a financial point of view,
to the shareholders of Manufacturers. Manufacturers' board then unanimously
approved the Agreement and the transactions contemplated thereby.
Manufacturers' management also was authorized to execute the Agreement, which
was signed by BancGroup and Manufacturers effective June 18, 2001.
Manufacturers' board of directors believes that the Merger is in the best
interest of Manufacturers and its shareholders. The board of directors of
Manufacturers considered a number of factors in deciding to approve and
recommend the terms of the Agreement to Manufacturers' shareholders, including
the following:
. overall terms of the proposed transaction;
. the financial condition, results of operations, and future prospects of
Colonial BancGroup;
. the financial condition, results of operations, and future prospects of
Manufacturers;
. the value of the consideration to be received by Manufacturers
shareholders relative to the book value and earnings per share of
Manufacturers Common Stock;
. the competitive and regulatory environment for community banks
generally;
. the fact that the Merger will enable Manufacturers shareholders to
exchange their shares of Manufacturers Common Stock (for which there is
no established public trading market) for shares of common stock of a
larger and more diversified entity, the stock of which is widely held
and actively traded;
. that the Merger will enable Manufacturers shareholders to hold stock in
a financial institution that has historically paid substantial cash
dividends to its shareholders for over 15 years;
. the likelihood of receiving the requisite regulatory approvals; and
. that it is expected that the Merger will be a tax-free transaction for
federal income tax purposes.
The board, further, took into account an opinion received from Ewing that
the terms of the Merger are fair, from a financial point of view, to the
shareholders of Manufacturers. See "--Fairness Opinion of Allen C. Ewing & Co."
The board, in its deliberations, did not assign any relative or specific weight
to any of the factors that are discussed above, and individual directors may
have given different weights to different factors as they were discussed. In
addition, the above discussion of the information and factors considered by the
board of directors is not intended to be exhaustive of the factors considered.
The board of directors of Manufacturers unanimously approved the Agreement
and determined that the Merger is in the best interest of Manufacturers
shareholders. Accordingly, the board of directors recommends that the
shareholders of Manufacturers vote in favor of the Agreement.
Fairness Opinion of Allen C. Ewing & Co.
The Board of Directors of Manufacturers, the parent of Manufacturers Bank of
Florida (the "Bank"), retained Ewing in February 2001 to market Manufacturers
to a list of regional bank holding companies approved by the Board of
Directors. This marketing program initiated the negotiations between
Manufacturers and BancGroup which resulted in the parties executing the
Agreement. Ewing rendered its oral Opinion to the Board of Directors of
Manufacturers on June 15, 2001, that the terms of the Merger are fair, from a
financial point of view, to the shareholders of Manufacturers.
15
Ewing issued its written Opinion dated July 27, 2001, to the Directors of
Manufacturers, and updated such Opinion on September 14, 2001. No limitations
were imposed by the Board of Directors on the scope of Ewing's analysis or the
procedures followed by Ewing in rendering its Opinion. Ewing's Opinion is
directed to Manufacturers' Board of Directors and does not constitute a
recommendation to any Manufacturers shareholder as to how such shareholder
should vote on the merger. Ewing has not been requested to opine as to, and the
Opinion does not address, the underlying business decision by the
Manufacturers' Board to enter into the merger.
In issuing its Opinion, Ewing assumed and relied upon the accuracy and
completeness of the financial and other information used by it in arriving at
its Opinion as provided by Manufacturers. Ewing made no independent
verification of the assets and liabilities of Manufacturers. The Opinion is
based upon market and economic conditions as they existed on the date of the
Agreement. Events occurring after the date of issuance of the Opinion
including, but not limited to, changes in the market price of securities, the
results of operations, or material changes in the value of the assets or
liabilities of Manufacturers could affect the assumptions used and the
conclusions of the Opinion.
The full text of Ewing's Opinion is attached as Appendix C to this Proxy
Statement-Prospectus and is incorporated herein by reference. The description
of the Opinion set forth herein is qualified in its entirety by reference to
Appendix C. Manufacturers' shareholders are urged to read the Opinion in its
entirety.
In arriving at its Opinion, Ewing: (i) reviewed the audited statements
prepared by Dowell & Perez, P.A. of Tampa, Florida, for the fiscal years ended
December 31, 1998 through December 31, 2000; (ii) reviewed the Call Reports of
the Bank filed with the regulators reflecting the operations of the Bank for
the years ended December 31, 1998, December 31, 1999, December 31, 2000, and
the quarter ended March 31, 2001; (iii) reviewed the Agreement; (iv) reviewed
the business plan for Manufacturers for the years 2001, 2002, and 2003; (v)
reviewed other financial information prepared by the Bank and Manufacturers;
(vi) compared the values and terms of the Agreement with the values and terms
of selected transactions in Florida and the Southeast that were announced in
2000 and 2001 involving comparable institutions; (vii) examined the Bank's
market share in the Hillsborough County market; (viii) compared the Bank's
financial performance in 2000 and 2001 with other banking institutions
operating in Florida; (ix) reviewed the financial condition of BancGroup and
the anticipated impact of the proposed transaction on the future earnings per
share of BancGroup; and (x) reviewed the recent price performance and trading
activity in the shares of BancGroup. Ewing also held discussions with the
management of Manufacturers concerning its historical and future operations and
the decision of its Board of Directors to negotiate a transaction with
BancGroup.
The preparation of a fairness opinion involves various determinations as to
the most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and is not readily
susceptible to summary description. In arriving at its Opinion, Ewing did not
attribute any particular weight to any one factor considered by it, but rather
made qualitative judgments as to the significance and relevance of each
analysis and factor. Ewing believes that its analysis must be considered as a
whole and that considering any portions of such analysis and of the factors
considered, without considering all analyses and factors, could create a
misleading or incomplete view of the process underlying its Opinion. In its
analysis, Ewing made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond Manufacturers' control. Any estimates contained in these analyses are
not necessarily indicative of actual values or predictive of future results or
values, which may be significantly more or less favorable than as set forth
therein. As described above, Ewing's Opinion was just one of many factors taken
into consideration by Manufacturers' Board in approving the Agreement.
The following paragraphs summarize the most pertinent portions of the
financial analysis prepared by Ewing in arriving at its Opinion. They do not
purport to be a complete description of the analysis performed or the matters
considered by Ewing in arriving at its Opinion.
Analysis of BancGroup Shares. Ewing examined the profitability, quality, and
liquidity of the shares of BancGroup including a comparison of BancGroup's
relative performance with other bank holding companies
16
("BHCs") that had expressed interest in merging with Manufacturers. Ewing
reviewed market prices and trading volumes for BancGroup and compared the price
performance of BancGroup shares to that of the other regional BHCs. Ewing
determined that the recent market performance of BancGroup was comparable or
superior to other BHCs operating in the Southeast and that BancGroup shares
offered good liquidity to its shareholders.
Selection of Valuation Method. In valuing financial institutions, there are
several methods available to determine if a prospective transaction is fair,
from a financial point of view, to the shareholders of the institution to be
acquired. These methods include: (i) Market Comparison Method: A comparison of
the purchase price of the transaction with prices paid for similar banks during
periods of similar economic activity and market valuations based on ratios
commonly used in the industry including price/book and price/earnings; (ii)
Control Premium Method: This method can be utilized when there is a public
market for the shares of Manufacturers to be acquired and can be used in
comparing premiums over market price paid in comparable transactions; (iii) Net
Asset or Liquidating Value Method: This method generally does not apply to
profitable banks and is typically used in periods of severely depressed
markets; (iv) Discounted Cash Flow Method: This method is generally used in
determining the market value of larger banks. However, it can be used in
confirming market values determined by the Market Comparison or other methods.
The Discounted Cash Flow Method is based on a forecast of earnings and
dividends for a period of years based on the historical performance of
Manufacturers with an estimate of the proceeds of a projected sale at the end
of the period. The present value of these projected cash flows is determined
using discount rates reflecting the risks of the projections. Historical
earnings for community banks can be volatile, and earnings projections for
smaller community banks have less reliability. This reduces the accuracy of the
Discounted Cash Flow method in determining their market value. Ewing believes
that the Market Comparison Method provides the soundest choice for determining
the fairness of this transaction, and that the Discounted Cash Flow Method is
useful in confirming the valuation determined by the Market Comparison Method.
Analysis of Comparable Companies. Using industry information, including
information prepared by SNL Securities, Ewing compared the financial
performance of Manufacturers with two groups of banks and bank holding
companies. In the first group, Ewing compared performance indicators of
Manufacturers with the average performance of the nine selected Florida
community banks, which were merged or agreed to merge with larger companies
during 2000. The performance indicators utilized by Ewing for this comparison
included the return on average assets as of March 31, 2001, which was 0.94% for
Manufacturers vs. 0.49% for the nine banks; the return on average equity, which
was 12.81% for Manufacturers vs. 6.01% for the nine banks; the equity/assets
ratio, which for Manufacturers was 6.65% vs. 8.79% for the nine Florida banks;
the ratio of NPA/assets, which for Manufacturers was 0.29% vs. 0.48% for the
nine banks; and the net interest margin, which for Manufacturers was 4.50% vs.
4.33% for the nine banks.
In the second group, Ewing compared performance indicators of Manufacturers
with the average performance indicators of the 224 independent community banks
operating in Florida. The performance indicators for this comparison included
the return on average assets, which was 0.94% for Manufacturers vs. 0.82% for
the 224 banks; the return on average equity, which was 12.81% for Manufacturers
vs. 9.20% for the 224 banks; and the ratio of non-performing assets/assets,
which was 0.29% for Manufacturers vs. 0.22% for the 224 banks.
Analysis of Comparable Transactions. Ewing reviewed the terms and financial
characteristics of selected transactions involving the acquisition of banks by
commercial bank holding companies in 2000 and 2001. Ewing selected transactions
for comparison involving banks in Florida and the Southeastern United States.
Ewing selected transactions that occurred in 2000 and 2001, which Ewing deemed
to be a period of similar economic activity and similar market valuations.
Ewing selected nine transactions in Florida involving banks with assets ranging
from $50.0 million to $178.0 million. These banks were profitable community
banking organizations serving urban markets in Florida, and none of the banks
had a problem with excessive non-performing assets. The nine transactions
include the following (identified by acquiring/selling institution): Regions
Financial Corporation, AL/East Coast Bank Corp, FL; SouthTrust Corporation,
AL/First Bank Holding
17
Company, FL; Alabama National BanCorp, AL/Peoples State Bank, FL; Harris
Bankcorp, Inc., IL/Village Banc, FL; Wachovia Corporation, NC/Commerce National
Corp., FL; PAB Bancshares, Inc, GA/Friendship Community Bank, FL; Southern
Community Bancorp, FL/Peninsula Bancorp, FL; F.N.B. Corporation, PA/Citizens
Community Bancorp, FL; CIB Marine Bancshares, Inc, WI/Citrus Financial
Services, FL. Ewing also reviewed the 12 transactions that were announced in
the 10 Southeastern states during the first quarter of 2001. These transactions
generally involved larger institutions.
Ewing utilized the two primary ratios that are generally used by investors
for comparing the relative prices paid in transactions, which are price/book
ratio, which was 2.86x for Manufacturers/BancGroup transaction vs. an average
2.13x for the nine Florida and 1.92x for the 12 Southeastern transactions; and
the price/earnings ratio, which was 19.35x for Manufacturers/BancGroup
transaction vs. 22.50x for the nine Florida and 19.60x for the 12 Southeastern
transactions. Ewing observed that the price/book ratio of
Manufacturers/BancGroup transaction was significantly higher than the
price/book ratios of the nine Florida and 12 Southeastern transactions, but
that the price/earnings ratio was slightly lower.
Because the reasons for and circumstances surrounding each of the
transactions were diverse and because of the differences between the operations
of Manufacturers and the nine banks in the selected transactions, Ewing
believes that a strict reliance on the quantitative comparable transaction
analysis is, by itself, not conclusive. Notwithstanding these differences,
Ewing believes that the averages of the valuation ratios, i.e., price/book and
price/earnings for these transactions are relevant in determining the fairness
of the valuation ratios of Manufacturers/BancGroup transaction.
Discounted Cash Flow Analysis. Ewing projected the cash flows of
Manufacturers based on its business plan for the three-year period ended
December 31, 2003, which assumes that Manufacturers would continue to operate
as an independent institution. For purposes of this Discounted Cash Flow
analysis, Ewing assumed that modest dividends of 10% of earnings would be paid
by Manufacturers and that Manufacturers would enter into a merger as of
December 31, 2003. The projected earnings and equity for the year ended
December 31, 2003, were multiplied by the average price/earnings and price/book
ratios of Florida bank transactions for the past ten years to reflect the
multiples that have been paid for Florida banks over one or more business
cycles. These average price multiples were 19.44x earnings and 2.15x book
value.
A weight of 60% to the price/earnings ratio and 40% to the price/book ratio
were used in determining the projected proceeds from a sale of Manufacturers at
December 31, 2003. The sales proceeds were discounted to a present value
utilizing a discount rate, which was determined based on Ewing's estimate of
the rate that investors would require in making an investment in Manufacturers
based on the above projections and assumptions. Ewing calculated the discount
rate by layering appropriate risk rates, which took into consideration the
riskless rate of Treasury Notes for the period of the projections (five years),
the general risks of equity investment, and an additional risk rate reflecting
the volatility of the earnings projections for Manufacturers. Ewing used a
range of 16% to 17% in its calculations of present value.
Based on the Discounted Cash Flow Analysis, Ewing determined that the range
of present values of the projected cash flows resulted in values similar to the
price represented by the BancGroup transaction of approximately $54 million and
that the Discounted Cash Flow analysis supported the fairness of the
transaction's market value to Manufacturers' shareholders.
Rights to Terminate. Ewing observed that the Agreement provides the normal
provisions, whereby either party may terminate the Agreement because of
material changes in the representations made in the Agreement. BancGroup may
terminate the Merger if shareholders controlling more than 10% of the
outstanding shares of Manufacturers dissent from the Merger or if pooling of
interests accounting cannot be utilized. Either party may terminate the
Agreement if the Merger has not been consummated by February 28, 2002, or,
under certain conditions, by March 15, 2002.
18
The Minimum/Maximum Market Value to Company Shareholders at Closing. A price
collar is utilized in the Agreement that will result in a minimum market value
in BancGroup shares to be issued to Manufacturers' shareholders of $18.40 per
share regardless of a decline below $11.50 in the market price of BancGroup
shares as of the closing date. This market value represents a minimum
price/book ratio of 2.61x and a minimum price/earnings ratio of 17.68x.
Similarly, the maximum market value in BancGroup shares to be issued to
Manufacturers' shareholders will be $21.60 per share regardless of an increase
above $13.50 in the market price of BancGroup as of the closing date, which
will represent a maximum price/book ratio of 3.08x and a maximum price/earnings
ratio of 20.87x.
Marketing of Manufacturers. The Board of Directors of Manufacturers entered
into a marketing plan, whereby a possible merger of Manufacturers was discussed
with a multiple of selected regional bank holding companies. As a result of the
marketing process, several bank holding companies, including BancGroup,
expressed their strong interest in acquiring Manufacturers. The Board of
Directors determined that the Merger proposal presented by BancGroup
represented the highest market value and was the most favorable to the
shareholders of Manufacturers.
Compensation of Allen C. Ewing & Co. Ewing was retained by the Board of
Directors of Manufacturers to market Manufacturers to the selected regional
bank holding companies and to render its fairness opinion. Manufacturers has
agreed to pay Ewing a fee of one percent of the market value of the
transaction, and Manufacturers has agreed to indemnify Ewing against certain
liabilities as delineated in Ewing's agreement with Manufacturers.
Recommendation of the Board of Directors of Manufacturers
The Board of Directors of Manufacturers has determined that the Agreement is
in the best interest of Manufacturers shareholders. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF MANUFACTURERS VOTE IN FAVOR OF
THE APPROVAL AND ADOPTION OF THE AGREEMENT.
BancGroup's Reasons for the Merger
The Board of Directors of BancGroup has unanimously approved the Merger and
the Agreement. The Merger will allow BancGroup to expand its banking operations
in the Tampa market area. BancGroup currently operates a commercial bank with
branches in the Orlando, Ormond Beach, Tampa, Ft. Myers, Winter Haven, West
Palm Beach, Miami, Miami Beach, Bonita Springs and St. Petersburg, Florida. The
Board of Directors of BancGroup believes that the combination with
Manufacturers and the Bank is consistent with its current expansion strategy.
In approving the Merger and the Agreement, the Board of Directors of
BancGroup took into account: (i) the financial performance and condition of
Manufacturers and the Bank, including its capital and asset quality;
(ii) similarities in the philosophies of BancGroup and Manufacturers, including
Manufacturers' commitment to delivering high quality personalized financial
services to its customers; and (iii) Manufacturers' management's knowledge of,
and experience in, the Tampa, Florida market.
Interests of Certain Persons in the Merger
Certain members of Manufacturers' and the Bank's management and Boards of
Directors may be deemed to have certain interests in the Merger in addition to
their interest as shareholders of Manufacturers generally. Manufacturers' Board
of Directors was aware of these interests and considered them, among other
matters, in unanimously approving the Agreement.
Assumption of Options. As of the date of this Prospectus, Manufacturers had
outstanding options (the "Manufacturers Options") which entitle the holders
thereof to acquire up to 190,393 shares of Manufacturers Common Stock. The
Agreement provides that the Manufacturers Options, to the extent not exercised
prior to
19
the Effective Date, will be assumed by BancGroup on essentially the same terms
as were applicable to such option to acquire Manufacturers Common Stock except
that the options will thereafter represent to acquire BancGroup Common Stock,
the number of shares BancGroup Common Stock represented by each option will
equal the number of shares Manufacturers Common Stock subject to the option
multiplied by the Exchange Ratio and the exercise price of each option to
acquire BancGroup Common Stock will be equal to the exercise price for each
share of Manufacturers Common Stock subject to such option divided by the
Exchange Ratio. See "The Merger--Treatment of Manufacturers Options."
Employees. On the Effective Date, BancGroup anticipates that it will enter
into an employment agreement with Alfred T. Rogers, the Chief Executive Officer
of the Bank. Mr. Rogers' employment agreement is expected to provide that he
will, among other things, act as President of Colonial Bank's Bay Area Region
for compensation based upon his current annual salary of $165,000 plus a car
allowance of $750 per month. The employment agreement also provides that Mr.
Rogers will be eligible to receive BancGroup stock options respecting 25,000
shares of BancGroup Common Stock. The term of the employment agreement is three
years after the Effective Date. BancGroup may terminate the employment
agreement prior to that date by paying Mr. Rogers a cash payment equal to the
total salary that would otherwise be paid for the remainder of the term of the
employment agreement. The employment agreement also provides that Mr. Rogers
will not compete against BancGroup in the counties of Hillsborough, Pinellas,
Pasco, Sarasota and/or Manatee, Florida for up to three years following the
Effective Date.
On the Effective Date, BancGroup anticipates that it will enter into an
employment agreement with Joseph V. Chillura, the Chief Operating Officer of
the Bank. Mr. Chillura's employment agreement is expected to provide that he
will, among other things, act as an Executive Senior Vice President of Colonial
Bank's Bay Area Region for compensation based upon his current annual salary of
$165,000 plus a car allowance of $750 per month. The employment agreement also
provides that Mr. Chillura will be eligible to receive BancGroup stock options
respecting 25,000 shares of BancGroup Common Stock. The term of the employment
agreement is three years after the Effective Date. BancGroup may terminate the
employment agreement prior to that date by paying Mr. Chillura a cash payment
equal to the total salary that would otherwise be paid for the remainder of the
term of the employment agreement. The employment agreement also provides that
Mr. Chillura will not compete against BancGroup in the counties of
Hillsborough, Pinellas, Pasco, Sarasota and/or Manatee, Florida for up to three
years following the Effective Date.
On the Effective Date, all employees of Manufacturers will, at BancGroup's
option, either become employees of BancGroup or its subsidiaries or be entitled
to severance benefits in accordance with Colonial Bank's severance policy as of
the date of the Agreement. All employees of Manufacturers who become employees
of BancGroup or its subsidiaries on the Effective Date will be entitled, to the
extent permitted by applicable law, to participate in all benefit plans of
BancGroup to the same extent as BancGroup's employees.
Indemnification. Under the Agreement, BancGroup has agreed for a period of
six years to indemnify the directors and executive officers of Manufacturers
against certain claims and liabilities arising out of or pertaining to matters
existing or occurring at or prior to the Effective Date, to the extent that
Manufacturers would have been authorized under Florida law, or under its
Articles of Incorporation or Bylaws, to indemnify such persons.
Addition to BancGroup's Board of Directors. BancGroup has agreed that its
Board of Directors will, subject to its fiduciary duties to BancGroup and its
shareholders, recommend that Anthony F. Gonzalez (Chairman and CEO of
Manufacturers) be elected to BancGroup's Board of Directors in the first proxy
statement mailed after the Effective Date for an Annual Meeting.
Conversion of Manufacturers Common Stock
The Agreement provides for the Merger of Manufacturers with and into
BancGroup, with BancGroup to be the surviving corporation. On the Effective
Date, each outstanding share of Manufacturers Common Stock
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outstanding and held by Manufacturers' shareholders (except shares as to which
dissenters' rights are perfected) will be converted by operation of law and
without any action by any holder thereof into 1.60 shares of BancGroup Common
Stock, provided that the Market Value for BancGroup is not less than $11.50 per
share nor greater than $13.50 per share. If the Market Value is less than
$11.50, then each share of Manufacturers Common Stock outstanding at the
Effective Date shall be converted into the number of shares of BancGroup Common
Stock that shall equal $18.40 divided by the Market Value of BancGroup Common
Stock. If the Market Value is greater than $13.50, then each share of
Manufacturers Common Stock shall be converted into such number of shares of
BancGroup Common Stock that shall equal $21.60 divided by the Market Value of
BancGroup Common Stock. The Market Value shall be the average of the closing
prices of the BancGroup Common Stock as reported by the NYSE on each of the ten
trading days ending on the trading day five trading days immediately preceding
the Effective Date. The appropriate ratio that is used to calculate the Merger
Consideration based upon the Market Value as set forth above is referred to as
the "Exchange Ratio." Accordingly, based upon the 2,596,190 shares of
Manufacturers Common Stock outstanding as of the date of this Proxy
Statement/Prospectus, and assuming that the Market Value of BancGroup Common
stock is not less than $11.50 nor more than $13.50, the number of shares of
BancGroup Common Stock that may be issued in the Merger will be 4,153,904. The
number of shares of BancGroup Common Stock to be issued in the Merger will
increase proportionally with each share of Manufacturers Common Stock issued
pursuant to the exercise, before the Effective Date, of the Manufacturers
Options. See "--Interests of Certain Persons in the Merger" and "--Treatment of
Manufacturers Options."
No fractional shares of BancGroup Common Stock will be issued in connection
with the Merger. Each shareholder of Manufacturers otherwise entitled to
receive a fractional share of BancGroup Common Stock will receive instead a
cash payment (without interest) equal to such fractional interest multiplied by
the Market Value.
The Agreement provides that if it is announced between the date of the
Agreement and the Effective Date (i) by any person that such person is or has
commenced a tender or exchange offer to acquire in excess of 50% of the
outstanding shares of BancGroup Common Stock, or (ii) by BancGroup that it has
entered into a letter of intent or an agreement for the acquisition of
BancGroup by another person or that BancGroup shall be merged with a person in
a transaction in which BancGroup is not the surviving corporation, or a
transaction in which BancGroup's current shareholders would own less than 50%
of the resulting corporation, then each outstanding share of Manufacturers
Common Stock shall be converted into 1.60 shares of BancGroup Common Stock
without reference to the Market Value of BancGroup Common Stock.
As of September 7, 2001, the closing price of BancGroup Common Stock was
$12.65. If, upon the Effective Date, the Market Value is equal to $12.65, then
each share of Manufacturers Common Stock will be converted into 1.6 shares of
BancGroup Common Stock. As a result, a shareholder of Manufacturers who owns
500 shares of Manufacturers Common Stock would be entitled to receive 800
shares of BancGroup Common Stock (500 multiplied by 1.6). Assuming that the
Market Value is either greater than $13.50 or less than $11.50, as the Market
Value of the BancGroup Common Stock rises, the number of shares of BancGroup
Common Stock to be issued in the Merger will decrease, and as the Market Value
falls, the number of such shares to be issued will increase.
The closing sales price on the NYSE of the BancGroup Common Stock on
September 7, 2001 was $12.65 per share. Shareholders are advised to obtain
current market quotations for BancGroup Common Stock. The market price of
BancGroup Common Stock at the Effective Date, or on the date on which
certificates representing such shares are received by Manufacturers
shareholders, may be higher or lower than the market price of BancGroup Common
Stock as of the Record Date or at the time of the Special Meeting.
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The Agreement provides that if, prior to the Effective Date, BancGroup
Common Stock is changed into a different number of shares or a different class
of shares by reason of any recapitalization or reclassification, stock
dividend, combination, stock split, or reverse stock split of the BancGroup
Common Stock, an appropriate and proportionate adjustment will be made in the
number of shares of BancGroup Common Stock into which the Manufacturers Common
Stock will be converted in the Merger.
Surrender of Manufacturers Common Stock Certificates
On the Effective Date and subject to the conditions described at "Conditions
to Consummation of the Merger," Manufacturers' shareholders (except those
shareholders who perfect dissenters' rights under applicable law) will
automatically, and without further action by such shareholders or by BancGroup,
become owners of BancGroup Common Stock, as described herein. Outstanding
certificates representing shares of the Manufacturers Common Stock will
represent shares of BancGroup Common Stock. Thereafter, upon surrender of the
certificates formerly representing shares of Manufacturers Common Stock, the
holders will be entitled to receive certificates for the BancGroup Common
Stock. Dividends on the shares of BancGroup Common Stock will accumulate
without interest and will not be distributed to any former shareholder of
Manufacturers unless and until such shareholder surrenders for cancellation his
certificate for Manufacturers Common Stock. SunTrust Bank, Atlanta, Atlanta,
Georgia, transfer agent for BancGroup Common Stock, will act as the Exchange
Agent with respect to the shares of Manufacturers Common Stock surrendered in
connection with the Merger. The Exchange Agent will mail a detailed explanation
of these arrangements to Manufacturers shareholders promptly following the
Effective Date. Stock certificates should not be sent to the Exchange Agent
until such notice is received.
Certain Federal Income Tax Consequences
The Merger is intended to qualify as a "reorganization" for federal income
tax purposes under Section 368(a)(1)(A) of the Internal Revenue Code of 1986,
as amended (the "Code"). The obligation of each of Manufacturers and BancGroup
to consummate the Merger is conditioned on the receipt of an opinion from
PricewaterhouseCoopers LLP, BancGroup's independent public accountant, to the
effect that the Merger will constitute such a reorganization. BancGroup has
received this opinion. In delivering its opinion, PricewaterhouseCoopers LLP
received and relied upon certain representations contained in certificates of
officers of BancGroup and Manufacturers and certain other information, data,
documentation and other materials as it deemed necessary. The tax opinion is
based upon customary assumptions contained therein, including the assumption
that Manufacturers has no knowledge of any plan or intention on the part of the
Manufacturers shareholders to sell or dispose of BancGroup Common Stock that
would reduce their holdings to the number of shares having in the aggregate a
fair market value of less than 50% of the total fair market value of the
Manufacturers Common Stock outstanding immediately upon consummation of the
Merger.
Neither Manufacturers nor BancGroup intends to seek a ruling from the IRS as
to the federal income tax consequences of the Merger. Manufacturers'
shareholders should be aware that the opinion will not be binding on the IRS or
the courts. Manufacturers' shareholders also should be aware that some of the
tax consequences of the Merger are governed by provisions of the Code as to
which there are no final regulations and little or no judicial or
administrative guidance. There can be no assurance that future legislation,
administrative rulings, or court decisions will not adversely affect the
accuracy of the statements contained herein.
The tax opinion states that, provided the assumptions stated therein are
satisfied, the Merger will constitute a reorganization as defined in Section
368(a) of the Code, and the following federal income tax consequences will
result to Manufacturers' shareholders who exchange their shares of
Manufacturers Common Stock for shares of BancGroup Common Stock:
(i) No gain or loss will be recognized by Manufacturers' shareholders on
the exchange of shares of Manufacturers Common Stock for shares of
BancGroup Common Stock;
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(ii) The aggregate basis of BancGroup Common Stock received by each
Manufacturers shareholder (including any fractional shares of BancGroup
Common Stock deemed received, but not actually received), will be the same
as the aggregate tax basis of the shares of Manufacturers Common Stock
surrendered in exchange therefor;
(iii) The holding period of the shares of BancGroup Common Stock
received by each Manufacturers shareholder will include the period during
which the shares of Manufacturers Common Stock exchanged therefor were
held, provided that the shares of Manufacturers Common Stock were a capital
asset in the holder's hands as of the Effective Date;
(iv) Cash payments received by each Manufacturers shareholder in lieu of
a fractional share of BancGroup Common Stock will be treated for federal
income tax purposes as if the fractional share had been issued in the
exchange and then redeemed by BancGroup. Gain or loss will be recognized on
the redemption of the fractional share and generally will be capital gain
or loss if the Manufacturers Common Stock is a capital asset in the hands
of the holder;
(v) No gain or loss will be recognized by Manufacturers upon the
transfer of its assets and liabilities to BancGroup. No gain or loss will
be recognized by BancGroup upon the receipt of the assets and liabilities
of Manufacturers;
(vi) The basis of the assets of Manufacturers acquired by BancGroup will
be the same as the basis of the assets in the hands of Manufacturers
immediately prior to the Merger;
(vii) The holding period of the assets of Manufacturers in the hands of
BancGroup will include the period during which such assets were held by
Manufacturers;
(viii) No gain or loss will be recognized by Manufacturers' shareholders
on the assumption and conversion of Manufacturers Options into options to
acquire BancGroup Common Stock; and
(ix) A Manufacturers shareholder who dissents and receives only cash
pursuant to dissenters' rights will recognize gain or loss. Such gain or
loss will, in general, be treated as capital gain or loss, measured by the
difference between the amount of cash received and the tax basis of the
shares of Manufacturers Common Stock converted, if the shares of
Manufacturers Common Stock were held as capital assets. However, a
Manufacturers shareholder who receives only cash may need to consider the
effects of Section 302 and 318 of the Code in determining the federal
income tax consequences of the transaction.
Each Manufacturers shareholder will be required to report on such
shareholder's federal income tax return for the fiscal year of such shareholder
in which the Merger occurs that such shareholder has received BancGroup Common
Stock in a reorganization.
THE FOREGOING DISCUSSION IS INTENDED ONLY AS A SUMMARY OF MATERIAL FEDERAL
INCOME TAX CONSEQUENCES OF THE MERGER TO THE SHAREHOLDERS OF MANUFACTURERS, TO
MANUFACTURERS AND TO BANCGROUP AND DOES NOT PURPORT TO BE A COMPLETE
DESCRIPTION OF ALL POTENTIAL TAX EFFECTS OF THE MERGER. THE DISCUSSION DOES NOT
ADDRESS THE TAX CONSEQUENCES THAT MAY BE RELEVANT TO A PARTICULAR SHAREHOLDER
SUBJECT TO SPECIAL TREATMENT UNDER CERTAIN FEDERAL INCOME TAX LAWS, SUCH AS
DEALERS IN SECURITIES, BANKS, INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS,
NON-UNITED STATES PERSONS, STOCKHOLDERS WHO DO NOT HOLD THEIR SHARES OF
MANUFACTURERS COMMON STOCK AS "CAPITAL ASSETS" WITHIN THE MEANING OF SECTION
1221 OF THE CODE, AND SHAREHOLDERS WHO ACQUIRED THEIR SHARES OF MANUFACTURERS
COMMON STOCK PURSUANT TO THE EXERCISE OF OPTIONS OR OTHERWISE AS COMPENSATION,
NOR ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR FOREIGN
JURISDICTION; MOREOVER, THE TAX CONSEQUENCES TO HOLDERS OF MANUFACTURERS
OPTIONS ARE NOT DISCUSSED. THE DISCUSSION IS BASED UPON THE CODE, TREASURY
REGULATIONS THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT DECISIONS AS OF THE
DATE HEREOF. ALL OF THE FOREGOING IS SUBJECT TO
23
CHANGE, AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THIS
DISCUSSION. MANUFACTURERS SHAREHOLDERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE PARTICULAR FEDERAL, STATE, LOCAL AND FOREIGN TAX
CONSEQUENCES OF THE MERGER TO THEM.
Other Possible Consequences
If the Merger is consummated, the shareholders of Manufacturers, a Florida
corporation, will become shareholders of BancGroup, a Delaware business
corporation. For a discussion of the differences, if any, in the rights,
preferences, and privileges attaching to Manufacturers Common Stock as compared
with BancGroup Common Stock, see "Comparative Rights of Stockholders."
Conditions to Consummation of the Merger
The parties' respective obligations to consummate the Merger are subject to
the satisfaction (or waiver, to the extent permitted by law) of various
conditions set forth in the Agreement.
The obligations of Manufacturers and BancGroup to consummate the Merger are
conditioned upon, among other things, (i) the approval of the Agreement by the
holders of at least a majority of the outstanding shares of Manufacturers
Common Stock; (ii) the notification to, or approval of the Merger by, the Board
of Governors of the Federal Reserve System (the "Federal Reserve") and the
Florida State Banking Department (the "Florida Department") and approval of the
merger of the Bank with and into Colonial Bank (the "Bank Merger") by the
Alabama State Banking Department (the "Alabama Department") and the Federal
Reserve; (iii) the absence of pending or threatened litigation with a view to
restraining or prohibiting consummation of the Merger or to obtain divestiture,
rescission or damages in connection with the Merger; (iv) the absence of any
investigation by any governmental agency which might result in any such
proceeding; (v) consummation of the Merger no later than February 28, 2002, or,
under certain conditions, March 15, 2002; and (vi) receipt of opinions of
counsel regarding certain matters. The Agreement permits the parties to waive,
in writing, conditions for the consummation of the Merger. If, as is being
contemplated, BancGroup elects not to consummate the Bank Merger simultaneously
with or subsequent to the Merger, it is anticipated that the parties would
waive the conditions set forth in (ii) above relating to approvals of the Bank
Merger.
The obligation of Manufacturers to consummate the Merger is further subject
to several other conditions, including: (i) the absence of any material adverse
change in the financial condition or affairs of BancGroup; (ii) Ewing shall not
have withdrawn as of the Effective Date its opinion attached as Appendix C to
this Prospectus that the terms of the Merger are fair, from a financial point
of view, to the shareholders of Manufacturers; (iii) the shares of BancGroup
Common Stock to be issued under the Agreement shall have been approved for
listing on the NYSE; and (iv) the accuracy in all material respects of the
representations and warranties of BancGroup contained in the Agreement and the
performance by BancGroup of all of its covenants and agreements under the
Agreement.
The obligation of BancGroup to consummate the Merger is subject to several
other conditions, including: (i) the absence of any material adverse change in
the financial condition or affairs of Manufacturers; (ii) the number of shares
as to which holders of Manufacturers Common Stock exercise dissenters' rights
not exceeding 10% of the outstanding shares of Manufacturers Common Stock;
(iii) the receipt of a letter from PricewaterhouseCoopers LLP concurring with
the conclusions of BancGroup's and Manufacturers' management that no conditions
exist with respect to each company which would preclude accounting for the
Merger as a pooling of interests; and (iv) the accuracy in all material
respects of the representations and warranties of Manufacturers contained in
the Agreement, and the performance by Manufacturers of all of its covenants and
agreements under the Agreement.
It is anticipated that the foregoing conditions, as well as certain other
conditions contained in the Agreement, such as the receipt of certificates of
officers of each party as to compliance with the Agreement and
24
satisfaction of each party of all representations, warranties and covenants,
will either be satisfied or waived by the parties. The Agreement provides that
each of Manufacturers and BancGroup may waive all conditions to its respective
obligation to consummate the Merger, other than the receipt of the requisite
approvals of regulatory authorities and approval of the Agreement by the
shareholders of Manufacturers. In making any decision regarding a waiver of one
or more conditions to consummation of the Merger or an amendment of the
Agreement, the Boards of Directors of Manufacturers and BancGroup would be
subject to the fiduciary duty standards imposed upon such boards by relevant
law that would require such boards to act in the best interests of their
respective shareholders.
Amendment or Termination of Agreement
To the extent permitted by law, the Agreement may be amended by a subsequent
writing signed by each of the parties upon the approval of the Boards of
Directors of each of the parties. However, after approval of the Agreement by
the holders of Manufacturers Common Stock, no amendment decreasing the
consideration to be received by Manufacturers shareholders may be made without
the further approval of such shareholders. The Agreement may be terminated at
any time prior to or on the Effective Date, whether before or after approval of
the Agreement by the shareholders of Manufacturers, by the mutual consent of
the respective Boards of Directors of Manufacturers and BancGroup or by the
Board of Directors of either BancGroup or Manufacturers under certain
circumstances including, but not limited to: (i) a material breach which cannot
or has not been cured within 30 days of notice of such breach being given by
the non-breaching party; (ii) failure to consummate the transactions
contemplated under the Agreement by February 28, 2002, or, under certain
conditions, March 15, 2002, provided that such failure to consummate is not
caused by any breach of the Agreement by the party electing to terminate; and
(iii) without further action by either party, upon the execution by
Manufacturers of a legally binding agreement between Manufacturers and any
third party with respect to any Acquisition Proposal, provided that BancGroup
will have the right to demand payment of liquidated damages. See "--Commitment
with Respect to Other Offers."
Commitment with Respect to Other Offers
Until the earlier of the Effective Date or, subject to certain limitations,
the termination of the Agreement, neither Manufacturers nor any of its
directors or officers (or any person representing any of the foregoing) may
solicit or encourage inquiries or proposals with respect to, furnish any
information relating to or participate in any negotiations or discussions
concerning, any acquisition or purchase of all or of a substantial portion of
the assets of, or of a substantial equity interest in, Manufacturers or any
business combination involving Manufacturers (collectively, an "Acquisition
Proposal") other than as contemplated by the Agreement. Manufacturers is
required to notify BancGroup immediately if any such inquiries or proposals are
received by Manufacturers, if any such information is requested from
Manufacturers, or if any such negotiations or discussions are sought to be
initiated with Manufacturers. Manufacturers is required to instruct its
officers, directors, agents or affiliates or their subsidiaries to refrain from
doing any of the above. Manufacturers may communicate information about an
Acquisition Proposal to its shareholders if and to the extent that legal
counsel provides a written opinion to Manufacturers that it is required to do
so in order to comply with its legal obligations. If Manufacturers enters into
a letter of intent or definitive agreement with respect to such an Acquisition
Proposal either before the Effective Date or termination of the Agreement
(subject to certain exceptions) or receives an Acquisition Proposal and
consummates a transaction pursuant to it within 12 months of termination of the
Agreement (subject to certain exceptions), then Manufacturers will pay
BancGroup the sum of $3,000,000 as liquidated damages.
Regulatory Approvals
The Merger is subject to the prior approval of the Federal Reserve under the
Bank Holding Company Act of 1956, as amended (the "BHCA"), and by the Florida
Department pursuant to applicable provisions of the Florida Banking Code. It is
contemplated that following the Merger, the Bank will be held by BancGroup as a
25
separate bank subsidiary for some period of time, and that on or before
December 5, 2001, its assets and liabilities will be transferred to Colonial
Bank either by merger or otherwise. The application for approval of the Merger
by the Federal Reserve was filed on August 23, 2001, and the application for
approval of the Merger by the Florida Department was filed on August 27, 2001.
It is anticipated that the Federal Reserve and the Florida Department will
approve the Merger on or about October 1, 2001. If, following the Merger,
BancGroup elects to consummate the Bank Merger, the prior approval of the
Federal Reserve and the Alabama Department must be obtained. The application
for approval of the Bank Merger by the Federal Reserve was filed on August 23,
2001, and the application for approval of the Bank Merger by the Alabama
Department was filed on August 27, 2001. It is anticipated that the Federal
Reserve and the Alabama Department would approve these applications on or about
October 1, 2001. In the event BancGroup elects not to consummate the Bank
Merger, it is anticipated that the parties to the Agreement would waive the
condition to their obligation to consummate the Merger which requires the prior
approval of the Bank Merger by the Federal Reserve and the Alabama Department.
Federal Reserve Approval. Pursuant to Section 3 of the BHCA, and the
regulations promulgated pursuant thereto, the approval of the Federal Reserve
must be obtained prior to the Merger. The Federal Reserve must withhold
approval of the Merger if it finds that the transaction will result in a
monopoly or be in furtherance of any combination or conspiracy to monopolize or
attempt to monopolize the business of banking in any part of the United States.
In addition, the Federal Reserve may not approve the Merger if it finds that
the effect thereof may be substantially to lessen competition in any section of
the country, or tend to create a monopoly, or would in any other manner be in
restraint of trade, unless it finds that the anti-competitive effects of the
Merger are clearly outweighed by the probable effect of the Merger in meeting
the convenience and needs of the communities to be served. The Federal Reserve
will also take into consideration the financial condition and managerial
resources of BancGroup, its subsidiaries, any banks related to BancGroup
through common ownership or management, and the Bank. Finally, the Federal
Reserve will consider the compliance records of BancGroup's subsidiaries under
the Community Reinvestment Act.
In addition, the Federal Reserve is expressly permitted to approve
applications under Section 3 of the BHCA for a bank holding company that is
adequately capitalized and adequately managed to acquire control of a bank
located in a state other than the home state of such bank holding company (an
"Interstate Acquisition"), without regard to whether such transaction is
prohibited under the law of any state. However, if the law of the state in
which the target bank is located requires the target bank to have been in
existence for some minimum period of time, the Federal Reserve is prohibited
from approving an application by a bank holding company to acquire such target
bank if such target bank does not satisfy this state law requirement, so long
as the state law specifying such minimum period of time does not specify a
period of more than five years. The Merger constitutes an interstate
acquisition of a Florida bank, the Bank, by an Alabama bank holding company,
BancGroup.
Also, the Federal Reserve is prohibited from approving an Interstate
Acquisition if the acquiring bank holding company controls, or upon
consummation of the acquisition, would control, more than 10% of the total
amount of deposits of insured depository institutions in the United States.
Finally, subject to certain exceptions, the Federal Reserve may not approve an
application pertaining to an Interstate Acquisition if, among other things, the
bank holding company, upon consummation of the acquisition, would control 30%
or more of the total amount of deposits of insured depository institutions in
the state where the target bank is located.
The BHCA provides for the publication of notice and public comment on the
application and authorizes the Federal Reserve to permit interested parties to
intervene in the proceedings. If an interested party is permitted to intervene,
such intervention could delay the regulatory approvals required for
consummation of the Merger. Section 11 of the BHCA imposes a waiting period
which prohibits the consummation of the Merger, in ordinary circumstances, for
a period ranging from 15 to 30 days following the Federal Reserve's approval of
the Merger. During such period, the United States Department of Justice, should
it object to the Merger for antitrust reasons, may challenge the consummation
of the Merger.
26
Pursuant to Section 18(c) of the Federal Deposit Insurance Act (the "Bank
Merger Act"), the Federal Reserve's approval also must be obtained prior to the
Bank Merger. The Federal Reserve is prohibited from approving the Bank Merger
if it would result in a monopoly or would be in furtherance of any combination
or conspiracy to monopolize or to attempt to monopolize the business of banking
in any part of the United States. In addition, the Federal Reserve is
prohibited from approving the Bank Merger if its effect, in any section of
the country, would be substantially to lessen competition, or to tend to create
a monopoly, or which in any other manner would be in restraint of trade, unless
it finds that the anti-competitive effects of the Bank Merger are clearly
outweighed in the public interest by the probable effect of the Bank Merger in
meeting the convenience and needs of the community to be served. The Federal
Reserve is required to take into consideration the financial and managerial
resources and future prospects of the existing and proposed institutions, and
the convenience and needs of the community to be served.
In that the Bank Merger constitutes an interstate bank merger, certain
additional requirements are applicable to the Bank Merger. For example, subject
to certain exceptions, the Federal Reserve is prohibited from approving the
Bank Merger if Colonial Bank materially fails to comply with filing
requirements imposed by the Florida Department for interstate bank merger
transactions. In addition, the Federal Reserve is prohibited from approving the
Bank Merger if the bank resulting from the Bank Merger, including all insured
depository institutions which are affiliates of such resulting bank, upon
consummation of the transaction, would control more than 10% of the total
amount of deposits of insured depository institutions in the United States. The
Federal Reserve is also prohibited from approving the Bank Merger if either
party to the Bank Merger has a branch in any state in which any other bank
involved in the Bank Merger has a branch, and the resulting bank, upon
consummation of the Bank Merger, would control 30% or more of the total amount
of deposits of insured depository institutions in any such state. Finally, the
Federal Reserve may approve the interstate bank merger only if each bank
involved in the transaction is adequately capitalized as of the date the
application is filed, and the Federal Reserve determines that the resulting
bank will continue to be adequately capitalized and adequately managed upon
consummation of the Bank Merger.
The Bank Merger Act imposes a waiting period which prohibits consummation of
the Bank Merger, in ordinary circumstances, for a period ranging from 15 to 30
days following the Federal Reserve's approval of the Bank Merger. During such
period, the United States Department of Justice, should it object to the Merger
for antitrust reasons, may challenge the consummation of the Merger.
Florida Department Approval. The Florida Department must approve the change
of control of the Bank which would be effected by the Merger. Under Section
658.28 of the Florida Banking Code, the Florida Department shall issue a
Certificate of Approval for a change of control of a Florida state bank only
after it has made an investigation and has determined that the proposed new
owner of a controlling interest of such Florida state bank is qualified by
reputation, character, experience and financial responsibility to control and
operate the bank in a legal and proper manner and that the interest of the
other shareholders, if any, and the depositors and creditors of the bank and
the interest of the public generally will not be jeopardized by the proposed
change in ownership, controlling interest or management.
In addition, pursuant to Section 658.295 of the Florida Banking Code, the
Florida Department shall not permit the Merger unless the Bank has been in
existence and continuously operating, on the date of its acquisition, for more
than three years. Also, the Florida Department shall not permit the Merger if,
upon consummation of the transaction, BancGroup, including all of its insured
depository institutions that would be "affiliates," as defined in 12 U.S.C.
(S) 1841(k), would control 30% or more of the total amount of deposits held by
all insured depository institutions in the State of Florida.
Alabama Department Approval. The Bank Merger must be approved by the Alabama
Department pursuant to applicable provisions of the Alabama Banking Code. If
the Superintendent of the Alabama Department finds that (1) the proposed
transaction will not be detrimental to the safety and soundness of the bank
resulting from the Bank Merger, (2) any new officers and directors of the
resulting bank are qualified by character, experience, and financial
responsibility to direct and manage the resulting bank, and (3) the proposed
27
Bank Merger is consistent with the convenience and needs of the communities to
be served by the resulting bank in the State of Alabama and is otherwise in the
public interest, the Bank Merger shall be approved by the Superintendent.
The Agreement provides that the obligation of each of BancGroup and
Manufacturers to consummate the Merger is conditioned upon the receipt of all
necessary regulatory approvals. There can be no assurance that the applications
necessary for BancGroup to consummate the Merger with Manufacturers will be
approved,
and, if such approvals are received, that such approvals will not be
conditioned upon terms and conditions that would cause the parties to abandon
the Merger.
Any approval received from bank regulatory agencies reflects only their view
that the Merger does not contravene applicable competitive standards imposed by
law, and that the Merger is consistent with regulatory policies relating to
safety and soundness. THE APPROVAL OF THE BANK REGULATORY AGENCIES IS NOT AN
ENDORSEMENT OR RECOMMENDATION OF THE MERGER.
BancGroup is not aware of any governmental approvals or actions that may be
required for consummation of the Merger except for the Federal Reserve and
Florida Department approvals described above. Should any such approval or
action be required, it is presently contemplated that such approval or action
would be sought.
Conduct of Business Pending the Merger
The Agreement contains certain restrictions on the conduct of the business
of Manufacturers pending consummation of the Merger. The Agreement prohibits
Manufacturers from taking, without the prior written consent of BancGroup, any
of the following actions, prior to the Effective Date, subject to certain
limited exceptions previously agreed to by BancGroup and Manufacturers:
(i) Issuing, delivering or agreeing to issue or deliver any stock, bonds
or other corporate securities (whether authorized and unissued or held in
the treasury), except shares of Manufacturers Common Stock issued upon the
exercise of Manufacturers Options;
(ii) Borrowing or agreeing to borrow any funds or incurring or becoming
subject to, any liability (absolute or contingent) except borrowings,
obligations and liabilities incurred in the ordinary course of business and
consistent with past practice;
(iii) Paying any material obligation or liability (absolute or
contingent) other than current liabilities reflected in or shown on the
most recent balance sheet and current liabilities incurred since that date
in the ordinary course of business and consistent with past practice;
(iv) Declaring or making or agreeing to declare or make, any payment of
dividends or distributions of any assets of any kind whatsoever to
shareholders, or purchasing or redeeming or agreeing to purchase or redeem,
any of its outstanding securities except that Manufacturers may pay cash
dividends at its current rate and at times consistent with past practices;
(v) Except in the ordinary course of business, selling or transferring
or agreeing to sell or transfer, any of its assets, property or rights or
canceling, or agreeing to cancel, any debts or claims;
(vi) Except in the ordinary course of business, entering or agreeing to
enter into any agreement or arrangement granting any preferential rights to
purchase any of its assets, property or rights or requiring the consent of
any party to the transfer and assignment of any of its assets, property or
rights;
(vii) Waiving any rights of value which in the aggregate are material;
(viii) Except in the ordinary course of business, making or permitting
any amendment or termination of any contract, agreement or license to which
it is a party if such amendment or termination is material considering its
business as a whole;
28
(ix) Except in accordance with past practice, making any accrual or
arrangement for or payment of bonuses or special compensation of any kind
or any severance or termination pay to any present or former officer or
employee;
(x) Except in accordance with past practice, increasing the rate of
compensation payable to or to become payable to any of its officers or
employees or making any material increase in any profit-sharing, bonus,
deferred compensation, savings, insurance, pension, retirement or other
employee benefit plan, payment or arrangement made to, for or with any of
its officers or employees;
(xi) Failing to operate its business in the ordinary course so as to
preserve its business intact and to preserve the goodwill of its customers
and others with whom it has business relations; and
(xii) Entering into any other material transaction other than in the
ordinary course of business.
The Agreement provides that prior to the Effective Date, no director or
officer of Manufacturers or any of its subsidiaries shall, directly or
indirectly, own, manage, operate, join, control, be employed by or participate
in the ownership, proposed ownership, management, operation or control of or be
connected in any manner with, any business, corporation or partnership which is
competitive to the business of Manufacturers or its subsidiaries.
The Agreement also provides that (i) at the request of BancGroup,
Manufacturers will consult with BancGroup and advise BancGroup in advance of
all loan requests outside the ordinary course of business or in excess of
$500,000 that are not single-family residential loan requests; and (ii)
Manufacturers will consult with BancGroup respecting business issues that
Manufacturers believes should be brought to the attention of BancGroup.
Indemnification
BancGroup has agreed to indemnify for six years present and former directors
and officers of Manufacturers and the Bank against liabilities arising out of
actions or omissions occurring at or prior to the Effective Date to the maximum
extent provided in the FBCA and Manufacturers' Articles of Incorporation and
Bylaws.
Rights of Dissenting Shareholders
Holders of Manufacturers Common Stock as of the Record Date are entitled to
dissenters' rights of appraisal under Florida law. Consummation of the Merger
is subject to, among other things, the holders of no more than 10% of the
outstanding Manufacturers Common Stock electing to exercise their dissenters'
rights. Pursuant to Section 607.1320 of the FBCA, a Manufacturers shareholder
who does not wish to accept the shares of BancGroup Common Stock to be received
pursuant to the terms of the Agreement may dissent from the Merger and elect to
receive the fair value of his shares as of the day prior to the date the Merger
is approved by Manufacturers shareholders. Such fair value is exclusive of any
appreciation or depreciation in anticipation of the Merger, unless exclusion
would be inequitable.
In order to exercise appraisal rights, a dissenting shareholder of
Manufacturers (a "Dissenting Shareholder") must strictly comply with the
statutory procedures of Sections 607.1320, 607.1301 and 607.1302 of the FBCA,
which are summarized below. A copy of the full text of those Sections is
attached hereto as Appendix B. Shareholders of Manufacturers are urged to read
Appendix B in its entirety and to consult with their legal advisors. Each
shareholder of Manufacturers who desires to assert his or her appraisal rights
is cautioned that failure on his or her part to adhere strictly to the
requirements of Florida law in any regard will cause a forfeiture of any
appraisal rights.
Procedures for Exercising Dissenters' Rights of Appraisal. The following
summary of Florida law is qualified in its entirety by reference to the full
text of the provisions of the FBCA attached hereto as Appendix B.
29
1. A Dissenting Shareholder must file with Manufacturers, prior to the
taking of the vote on the Merger, a written notice of intent to demand
payment for his or her shares if the Merger is effectuated. A vote against
the Merger will not alone be deemed to be the written notice of intent to
demand payment. A Dissenting Shareholder need not vote against the Merger,
but cannot vote for the Merger.
2. Within ten days after the vote on the Merger is taken, Manufacturers
must give written notice of the authorization of the Merger, if obtained,
to each Manufacturers shareholder who filed notice of intent to demand
payment for his shares. WITHIN 20 DAYS AFTER THE GIVING OF THE FOREGOING
NOTICE BY MANUFACTURERS, EACH DISSENTING SHAREHOLDER MUST FILE WITH
MANUFACTURERS A NOTICE OF ELECTION TO DISSENT, STATING HIS OR HER NAME AND
ADDRESS, THE NUMBER OF SHARES AS TO WHICH HE OR SHE DISSENTS AND A DEMAND
FOR PAYMENT OF THE FAIR VALUE OF HIS OR HER SHARES. ANY DISSENTING
SHAREHOLDER FAILING TO FILE SUCH ELECTION WITHIN THE PERIOD WILL LOSE HIS
OR HER APPRAISAL RIGHTS AND BE BOUND BY THE TERMS OF THE AGREEMENT. A
Dissenting Shareholder filing an election to dissent must also deposit the
certificate(s) representing his or her shares with Manufacturers
simultaneously with the filing of the election.
3. Upon filing a notice of election to dissent, a Dissenting Shareholder
shall thereafter be entitled only to payment pursuant to the procedure set
forth in the applicable sections of FBCA and shall not be entitled to vote
or to exercise any other rights of a shareholder. A notice of election may
be withdrawn in writing by the Dissenting Shareholder at any time before an
offer is made by Manufacturers to pay for shares. Upon such withdrawal, the
right of the Dissenting Shareholder to be paid the fair value of his or her
shares will cease, and he or she will be reinstated as a shareholder.
4. Within 10 days after the expiration of the period in which a
Dissenting Shareholder may file notice of election to dissent, or within
ten days after the Effective Date of the Merger, whichever is later (but in
no event later than 90 days after the Merger is approved), Manufacturers
(or BancGroup after the Effective Date) must make a written offer to each
Dissenting Shareholder who has made demand for appraisal for his or her
shares at a price deemed by Manufacturers to be the fair value thereof.
5. If, within 30 days after the making of such offer, the Dissenting
Shareholder accepts the offer, payment for the shares of the Dissenting
Shareholder is to be made within 90 days after the making of such offer or
the effective date of the Merger, whichever is later. Upon payment of the
agreed value, the Dissenting Shareholder will cease to have any interest in
such shares.
6. If Manufacturers (or BancGroup, if appropriate) fails to make such
offer within the period specified above or if it makes an offer and a
Dissenting Shareholder fails to accept the same within a period of 30 days
thereafter, then Manufacturers, within 30 days after receipt of written
demand from any Dissenting Shareholder given within 60 days after the date
on which the Merger was effected, shall, or at its election at any time
within such period of 60 days may, file an action in any court of competent
jurisdiction in Hillsborough County requesting that the fair value of such
shares be determined by the Court.
7. If Manufacturers fails to institute such proceeding within the above-
prescribed period, any Dissenting Shareholder may do so in the name of
Manufacturers. A copy of the initial pleading will be served on each
Dissenting Shareholder. Manufacturers is required to pay each Dissenting
Shareholder the amount found to be due within 10 days after final
determination of the proceedings. The judgment of the court is payable only
upon and concurrently with the surrender to Manufacturers of the
certificate(s) representing the shares. Upon payment of the judgment, the
Dissenting Shareholder ceases to have any interest in such shares.
8. The costs and expenses of the court proceeding are determined by the
court and will be assessed against Manufacturers (or BancGroup, if
appropriate) except that all or any part of such costs and expenses may be
apportioned and assessed against any Dissenting Shareholders who are
parties to the proceeding and to whom Manufacturers has made an offer to
pay for their shares, if the court finds their
30
refusal to accept such offer to have been arbitrary, vexatious or not in
good faith. Expenses include reasonable compensation for, and expenses of,
appraisers, but shall exclude the fees and expenses of counsel for, and
experts employed by, any party. If the value of the shares, as determined
by the court, materially exceeds the amount that Manufacturers offered to
pay for the shares then the court may, in its discretion, award to any
Dissenting Shareholder who is a party to the proceedings, such sum as the
court may determine to be reasonable compensation to any expert(s) employed
by the Dissenting Shareholder in the proceeding.
Any Dissenting Shareholder who perfects his or her right to be paid the
value of his or her shares will recognize gain or loss, if any, for federal
income tax purposes upon the receipt of cash for such shares. The amount of
gain or loss and its character as ordinary or capital gain or loss will be
determined in accordance with applicable provisions of the Code. See "--Certain
Federal Income Tax Consequences."
BECAUSE OF THE COMPLEXITY OF THE PROVISIONS OF THE FLORIDA LAW RELATING TO
DISSENTERS' APPRAISAL RIGHTS, SHAREHOLDERS WHO ARE CONSIDERING DISSENTING FROM
THE MERGER ARE URGED TO CONSULT THEIR OWN LEGAL ADVISERS.
Resale of BancGroup Common Stock Issued in the Merger
The issuance of the shares of BancGroup Common Stock pursuant to the Merger
(including any shares to be issued pursuant to Manufacturers Options) has been
registered under the Securities Act of 1933 (the "Securities Act"). As a
result, shareholders of Manufacturers who are not "affiliates" of Manufacturers
(as such term is defined under the Securities Act) may resell, without
restriction, all shares of BancGroup Common Stock which they receive in
connection with the Merger. Under the Securities Act, only affiliates of
Manufacturers are subject to restrictions on the resale of the BancGroup Common
Stock which they receive in the Merger.
The BancGroup Common Stock received by affiliates of Manufacturers who do
not also become affiliates of BancGroup after the consummation of the Merger
may not be sold except pursuant to an effective registration statement under
the Securities Act covering such shares or in compliance with Rule 145 under
the Securities Act or another applicable exemption from the registration
requirements of the Securities Act. Generally, Rule 145 permits BancGroup
Common Stock held by such shareholders to be sold in accordance with certain
provisions of Rule 144 under the Securities Act. In general, these provisions
of Rule 144 permit a person to sell on the open market in brokers or certain
other transactions within any three-month period a number of shares that does
not exceed the greater of 1% of the then outstanding shares of BancGroup Common
Stock or the average weekly trading volume in BancGroup Common Stock reported
on the NYSE during the four calendar weeks preceding such sale. Sales under
Rule 144 are also subject to the availability of current public information
about BancGroup. The restrictions on sales will cease to apply under most
circumstances once the former Manufacturers affiliate has held the BancGroup
Common Stock for at least one year. BancGroup Common Stock held by affiliates
of Manufacturers who become affiliates of BancGroup, if any, will be subject to
additional restrictions on the ability of such persons to resell such shares.
Manufacturers has provided BancGroup with the identity of those persons
(primarily officers, directors and principal shareholders) who may be deemed to
be affiliates of Manufacturers. Manufacturers has obtained from each such
person a written undertaking to the effect that no sale or transfer will be
made of any shares of BancGroup Common Stock by such person except pursuant to
Rule 145 or pursuant to an effective registration statement or an exemption
from registration under the Securities Act. The undertaking also requires each
affiliate to agree that such person will not sell or otherwise reduce risk
relative to any shares of BancGroup Common Stock received in the Merger until
financial results concerning at least 30 days of post-Merger combined
operations have been published by BancGroup within the meaning of Section
201.01 of the Commission's Codification of Financial Reporting Policies.
31
Accounting Treatment
BancGroup will account for the Merger as a pooling-of-interests transaction
in accordance with generally accepted accounting principles, which, among other
things, require that the number of shares of Manufacturers Common Stock
acquired for cash pursuant to the exercise of dissenters' rights or in lieu of
fractional shares not exceed 10% of the outstanding shares of Manufacturers
Common Stock. Under this accounting treatment, assets and liabilities of
Manufacturers would be added to those of BancGroup at their recorded book
values, and the shareholders' equity of the two companies would be combined in
BancGroup's consolidated balance sheet. Financial statements of BancGroup
issued after the Effective Date will be restated to reflect the consolidated
operations of BancGroup and Manufacturers as if the Merger had taken place
prior to the periods covered by the financial statements.
Manufacturers Trust Securities
In December 1999, Manufacturers formed MBI Business Trust for the sole
purpose of issuing trust preferred securities. Distributions on the outstanding
shares of trust preferred securities are payable at the three- month LIBOR rate
plus 2.5%. As of June 30, 2001, there was $3.0 million of trust preferred
securities were outstanding. BancGroup will assume all rights and obligations
of the trust preferred securities according to the terms of the operative
documents.
NYSE Reporting of BancGroup Common Stock Issued in the Merger
Sales of BancGroup Common Stock to be issued in the Merger in exchange for
Manufacturers Common Stock will be reported on the NYSE.
Treatment of Manufacturers Options
Assumption of Options. As of the date of this Prospectus, Manufacturers had
granted options (the "Manufacturers Options"),which entitle the holders thereof
to acquire up to 190,393 shares of Manufacturers Common Stock. Except for the
Manufacturers Options exercised or terminated prior to the Effective Date, on
the Effective Date, BancGroup will assume all Manufacturers Options
outstanding, and each such option will represent the right to acquire the
BancGoup Common Stock on substantially the same terms applicable to the
Manufacturers Options. The registration statement registering the shares of
BancGroup Common Stock issued pursuant to the Merger also registers the shares
of BancGroup Common Stock to be issued upon the exercise of the Manufacturers
Options assumed by BancGroup. The number of shares of BancGroup Common Stock to
be issued pursuant to such options will equal the number of shares of
Manufacturers Common Stock subject to such Manufacturers Options multiplied by
the Exchange Ratio, provided that no fraction of shares of BancGroup Common
Stock will be issued, and the number of shares of BancGroup Common Stock to be
issued upon the exercise of Manufacturers Options, if a fractional share
exists, will equal the number of whole shares obtained by rounding to the
nearest whole number, giving account to such fraction, or else such fractional
interest shall be paid in cash, based upon the Market Value. The exercise price
for the acquisition of BancGroup Common Stock will be the exercise price for
each share of Manufacturers Common Stock subject to such options divided by the
Exchange Ratio, adjusted appropriately for any rounding to whole shares that
may be done.
The Manufacturers Options are issuable pursuant to the Manufacturers 1998
Stock Option Plan, a stock option plan originally adopted by the Bank on July
1, 1998, and assumed by Manufacturers when it became a bank holding company on
June 23, 1999 (the "Option Plan"). The Option Plan is not qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended, nor subject to
the Employee Retirement Income Security Act of 1974. Manufacturers Options are
not transferable except under the laws of descent and distribution.
Purpose of the Option Plan. The purpose of the Option Plan is to advance the
interests of Manufacturers and its shareholders by affording employees and
officers an opportunity to acquire or increase their propriety
32
interest in Manufacturers and, therefore, additional incentive to promote
Manufacturers' success and remain in its employ. BancGroup believes that its
assumption of the Manufacturers Options will be consistent with this purpose.
No further options will be granted under the Option Plan after the Merger. A
total of 13 persons currently hold Manufacturers Options.
Tax Consequences--Incentive Options. Options issued and held under the
Option Plan by employees are intended to qualify as "incentive stock options,"
under, and to the extent provided in, Section 422 of the Internal Revenue Code
of 1986, as amended. Under the Internal Revenue Code no income will result to a
grantee of any such option upon the granting or exercising of an option by the
grantee, and BancGroup will not be entitled to a tax deduction by reason of
such grant or exercise.
If, after exercising the option, the employee holds the stock obtained
through exercise for at least two years after the date of option grant and at
least one year after the stock was obtained, the employee's gain (if any) on
selling the stock will generally be treated as a long term capital gain.
Generally, the employee's alternative minimum taxable income for minimum tax
purposes will be increased by the difference between the option price and the
fair market value of the stock on the date of exercise.
If the following holding period requirements are not met, then any gain on
the sale of the stock will be taxed partly or entirely at ordinary income tax
rates. If the stock is held for less than the required holding period, then the
difference between the option exercise price and the fair market value of the
stock on the date of exercise will be taxed at ordinary income tax rates. The
gain equal to the increase in the fair market value of the stock after the
date, of exercise of the option will generally be taxed as capital gain.
It should be understood that the holding periods discussed above relate only
to federal income tax treatment and not to any securities law restrictions that
may apply to the sale of shares obtained through an option.
The foregoing statements concerning federal income tax treatment are
necessarily general and may not apply in a particular instance, including where
the options do not qualify as incentive stock options. Option holders should
contact their own professional tax advisors for advice concerning their
particular tax situation and any changes in the tax law since the date of this
Proxy Statement/Prospectus.
Exercise of Options. After a Manufacturers Option becomes exercisable in
accordance with its terms, it may be exercised by the holder by giving written
notice to BancGroup on a form provided by BancGroup and by paying to BancGroup
in cash the exercise price of the shares to be acquired under the option.
Payment may be made to BancGroup by cash, check, bank draft, or money order.
The period during which an option may be exercised is stated in the agreement
respecting each grant of options but in no case may be more than ten years from
the date the option is granted. The optionee must be in the continuous employ
of Manufacturers or BancGroup from the date of grant through the date of
exercise, except as stated below.
Termination of Employment. If an employee is terminated for cause, the
option will also terminate as of the date of termination of employee's
employment. Otherwise, the Option will terminate three months following the
termination of the employee's employment without cause, or one year following
the termination of employment as a result of the employee's death, disability
or legal incapacity. "Cause" is defined in the Option Plan as the termination
of the employee's employment for "cause" under such individual's employment
agreement or, in the absence of such agreement, because of the gross
misconduct, drug dependence, gross neglect or incompetent performance of
assigned duties, proven dishonesty or commission of a felony on the part of
such individual which, in the Board's sole discretion renders such individual
unable to properly and effectively provide services to, or effectively act as a
represent of, Manufacturers.
Other Matters. It is not anticipated that BancGroup will make any reports to
option holders regarding the amount or status of Manufacturers Options held.
Option holders may obtain such information from BancGroup at the address given
above on page 3 of this Proxy Statement/Prospectus.
The shares subject to options will be obtained by BancGroup from authorized
but unissued shares.
33
COMPARATIVE MARKET PRICES AND DIVIDENDS
Shares of Manufacturers Common Stock are not actively traded, and such
trading activity, as it occurs takes place in privately negotiated
transactions. Since January 1, 1999, the sales price per share of Manufacturers
Common Stock, of which Manufacturers had knowledge, ranged from $10 to $14.50
per share. During 1999, Manufacturers acquired Partners Bank of Florida in a
transaction involving issuance of Manufacturers Common Stock and cash.
Manufacturers Common Stock issued in connection with the acquisition was valued
at $14.50 per share for purposes of recording the acquisition. The last sale of
Manufacturers Common Stock of which Manufacturers had knowledge was for 5,000
shares on April 25, 2001 at a price of $14.50 per share. The following sets
forth the trading prices for the shares of Manufacturers Common Stock that have
occurred since January 1, 1999 for transactions in which the trading prices are
known to management of Manufacturers:
Price Per
Share of
Common Stock
-------------
High Low
------ ------
1999
First Quarter.................................................. $10.00 $10.00
Second Quarter................................................. 14.50 14.00
Third Quarter.................................................. 14.50 14.50
Fourth Quarter................................................. 14.50 14.50
2000
First Quarter.................................................. 14.50 14.50
Second Quarter................................................. 14.50 14.50
Third Quarter.................................................. 14.50 14.50
Fourth Quarter................................................. 14.50 14.50
2001
First Quarter.................................................. 14.50 14.50
Second Quarter................................................. 14.50 14.50
Third Quarter (through September 7, 2001)...................... -- --
Manufacturers has paid quarterly dividends during each quarter beginning
January 1, 2000 and through June 30, 2001. There were no dividends paid in 1998
and dividends of $0.10 per share were paid in August of 1999. The Agreement
provides that Manufacturers may pay cash dividends at its most recent rate and
on dates and times consistent with past practice. The following table sets
forth the cash dividends per share declared on Manufacturers Common Stock
during 2000 and through September 7, 2001.
Dividends Declared
Per Share of
Manufacturers Common Stock
--------------------------
2000
First Quarter..................................... $0.05
Second Quarter.................................... 0.08
Third Quarter..................................... 0.10
Fourth Quarter.................................... 0.15
2001
First Quarter..................................... $0.05
Second Quarter.................................... 0.10
Third Quarter (through September 7, 2001)......... 0.17
In December 1999, Manufacturers formed MBI Business Trust for the sole
purpose of issuing trust preferred securities. Distributions on the outstanding
shares of trust preferred securities were payable at 8.75% through March 31,
2000. After March 31, 2000, distributions were paid and are payable at the
three month LIBOR rate plus 2.5%. Although distributions may be deferred at the
election of Manufacturers, they continue
34
to accumulate and are payable to security holders at the then current
distribution rate. Dividends on Manufacturers Common Stock are suspended if
distributions on trust preferred securities are not current. Distributions on
the trust preferred securities were current as of July 31, 2001.
Total distributions on trust preferred securities for the six months ended
June 30, 2001 and for the year ended December 31, 2000 were $66,741 and
$255,185, respectively. Manufacturers also paid distributions on trust
preferred securities in early July 2001 of $55,340.
BancGroup. BancGroup Common Stock is listed for trading on the NYSE under
the symbol "CNB." The following table indicates the high and low sales prices
of the BancGroup Common Stock as reported on the NYSE since January 1, 1999.
Price Per Share
of Common Stock
--------------- Dividends
High Low Per Share
------- ------- ---------
1999
First Quarter...................................... $12.563 $11.375 $.095
Second Quarter..................................... 13.938 11.188 .095
Third Quarter...................................... 15.000 10.375 .095
Fourth Quarter..................................... 12.938 10.188 .095
2000
First Quarter...................................... 10.750 8.625 .110
Second Quarter..................................... 11.250 9.000 .110
Third Quarter...................................... 10.750 9.688 .110
Fourth Quarter..................................... 11.125 8.313 .110
2001
First Quarter...................................... 13.120 10.750 .120
Second Quarter..................................... 14.750 12.050 .120
Third Quarter (through September 7, 2001).......... 14.940 12.65 .120
On June 15, 2001, the business day immediately prior to the public
announcement of the Merger, the closing price of the BancGroup Common Stock on
the NYSE was $12.54 per share. The following table presents the market value
per share of BancGroup Common Stock on that date, and the market value and
equivalent per share value of Manufacturers Common Stock on that date:
Equivalent
BancGroup Manufacturers Price Per
Common Common Manufacturers
Stock(1) Stock(2) Share(3)
--------- ------------- -------------
Comparative Market Value............... $12.54 $14.50 $20.06
--------
(1) Closing price as reported by the NYSE on June 15, 2001.
(2) There is no established public trading market for the shares of
Manufacturers Common Stock. The value shown is the price at which shares of
Manufacturers Common Stock were sold on April 25, 2001, which was the last
sale price prior to the public announcement of the Merger on June 18, 2001,
of which management of Manufacturers is aware.
(3) If the Merger had closed on June 15, 2001, and assuming that the Market
Value as that term is defined herein had also been $12.54, 1.6 shares of
BancGroup Common Stock would have been exchanged for each share of
Manufacturers Common Stock.
BANCGROUP CAPITAL STOCK AND DEBENTURES
BancGroup's authorized capital stock consists of 200,000,000 shares of
BancGroup Common Stock, par value $2.50 per share. As of June 30, 2001, there
were issued and outstanding a total of 110,714,099 shares of BancGroup Common
Stock. No shares of Preference Stock are issued and outstanding. Additionally,
35
BancGroup has various issuances of long term debt oustanding at June 30, 2001
summarized as follows and described more fully below, under BancGroup debt.
June 30, 2001
--------------
(in thousands)
7 1/2% Convertible Subordinated Debentures.................... $ 2,853
7% Convertible Subordinated Debentures........................ 1,145
Variable Rate Subordinated Debentures......................... 7,725
Subordinated Notes............................................ 248,335
Trust Preferred Securities.................................... 70,000
FHLB Advances................................................. 1,121,718
Reverse Repurchase Agreements................................. 88,064
----------
Total....................................................... $1,539,840
==========
The following statements with respect to BancGroup Common Stock and
Preference Stock are brief summaries of material provisions of Delaware law,
the Restated Certificate of Incorporation (the "BancGroup Certificate"), as
amended, and Bylaws of BancGroup, do not purport to be complete and are
qualified in their entirety by reference to the foregoing.
BancGroup Common Stock
Dividends. Subject to the rights of holders of Preference Stock, if any, to
receive certain dividends prior to the declaration of dividends on shares of
BancGroup Common Stock, when and as dividends, payable in cash, stock or other
property, are declared by the BancGroup Board of Directors, the holders of
BancGroup Common Stock are entitled to share ratably in such dividends.
Voting Rights. Each holder of BancGroup Common Stock has one vote for each
share held on matters presented for consideration by the stockholders.
Preemptive Rights. The holders of BancGroup Common Stock have no preemptive
rights to acquire any additional shares of BancGroup.
Issuance of Stock. The BancGroup Certificate authorizes the Board of
Directors of BancGroup to issue authorized shares of BancGroup Common Stock
without stockholder approval. However, BancGroup's Common Stock is listed on
the NYSE, which requires stockholder approval of the issuance of additional
shares of BancGroup Common Stock under certain circumstances.
Liquidation Rights. In the event of liquidation, dissolution or winding-up
of BancGroup, whether voluntary or involuntary, the holders of BancGroup Common
Stock will be entitled to share ratably in any of its assets or funds that are
available for distribution to its stockholders after the satisfaction of its
liabilities (or after adequate provision is made therefor) and after
preferences of any outstanding Preference Stock.
Preferred Stock
The Preferred Stock may be issued from time to time as a class without
series, or if so determined by the Board of Directors of BancGroup, either in
whole or in part in one or more series. The voting rights, and such
designations, preferences and relative, participating, optional or other
special rights, if any, and the qualifications, limitations or restrictions
thereof, if any, including, but not limited to, the dividend rights, conversion
rights, redemption rights and liquidation preferences, if any, of any wholly
unissued series of Preferred Stock (or of the entire class of Preferred Stock
if none of such shares has been issued), the number of shares constituting any
such series and the terms and conditions of the issue thereof may be fixed by
resolution of the Board of Directors of BancGroup. Preferred Stock may have a
preference over the BancGroup Common Stock with respect to the payment of
dividends and the distribution of assets in the event of the liquidation or
winding-up of BancGroup and such other preferences as may be fixed by the Board
of Directors of BancGroup.
36
BancGroup Debt
BancGroup has 7.50% Convertible Subordinated Debentures due March 31, 2011
("1986 Debentures") issued in 1986 that are convertible at any time into shares
of BancGroup Common Stock, at the conversion price of $7.00 principal amount of
1986 Debentures, subject to adjustment upon the occurrence of certain events,
for each share of stock received. The 1986 Debentures are redeemable at the
option of BancGroup at the face amount plus accrued interest. In the event all
of the remaining 1986 Debentures are converted into shares of BancGroup Common
Stock in accordance with the 1986 Indenture, approximately 412,000 shares of
such Common Stock would be issued.
BancGroup also has 7.00% Convertible Subordinated Debentures due December
31, 2004 ("1994 Debentures"), that were issued by D/W Bankshares prior to being
merged into BancGroup. The 1994 Debentures are convertible into BancGroup
Common Stock, at the conversion price of $7.58 principal amount of the 1994
Debentures, subject to adjustment upon occurrence of certain events, for each
share of stock received. In the event all of the remaining 1994 Debentures are
converted into shares of BancGroup Common Stock in accordance with the 1994
Indenture, approximately 151,000 shares of such Common Stock would be issued.
In connection with the ASB Bancshares, Inc. acquisition, on February 5,
1998, BancGroup issued $7,725,000 of variable rate subordinated debentures due
February 5, 2008 ("1998 Debentures"). These variable rate subordinated
debentures bear interest equal to the New York Prime Rate minus 1% (but in no
event less than 7% per annum).
On March 15, 1999, BancGroup issued $100 million of subordinated notes, due
March 15, 2009. The notes bears interest at 8.00% and are not subject to
redemption prior to maturity.
On January 29, 1997, BancGroup issued, through a special purpose trust, $70
million of Trust Preferred Securities. The securities bear interest at 8.92%
and are subject to redemption by BancGroup, in whole or in part at any time
after January 29, 2007 until maturity in January 2017. Circumstances are remote
that redemption will occur prior to maturity.
On May 23, 2001, Colonial Bank issued $150 million in subordinated notes at
9.375% due June 1, 2011 for general corporate and banking purposes in the
ordinary course of business. This debt qualifies as Tier II capital. In
connection with this issuance, BancGroup executed an interest rate swap whereby
BancGroup will receive a fixed rate and pay a floating rate, effectively
converting the fixed rate notes to floating. The result of this interest rate
swap created a current effective rate on the notes for the second quarter
ending June 30, 2001 of 7.2175%.
The subordinated debentures, notes and Trust Preferred Securities described
above are subordinate to substantially all remaining liabilities of BancGroup.
BancGroup had long-term FHLB Advances outstanding of $1,121,718,000 at June
30, 2001. These advances bear interest rates of 4.00% to 7.53% and mature from
2001 to 2013.
BancGroup has received funds under reverse repurchase agreements with Morgan
Stanley, Salomon Brothers and First Boston. At June 30, 2001, BancGroup had
long-term reverse repurchase agreements outstanding of $88 million. These
agreements, which are collateralized by mortgage-backed securities, bear
interest rates of 5.80% to 6.03% and mature from 2001 to 2003.
Changes in Control
Certain provisions of the BancGroup Certificate and the BancGroup Bylaws may
have the effect of preventing, discouraging or delaying any change in control
of BancGroup. The authority of the BancGroup
37
Board of Directors to issue BancGroup Preferred Stock with such rights and
privileges, including voting rights, as it may deem appropriate may enable
BancGroup's Board of Directors to prevent a change in control despite a shift
in ownership of the BancGroup Common Stock. See "General" and "Preferred
Stock." In addition, the power of BancGroup's Board of Directors to issue
additional shares of BancGroup Common Stock may help delay or deter a change in
control by increasing the number of shares needed to gain control. See
"BancGroup Common Stock." The following provisions also may deter any change in
control of BancGroup.
Classified Board. BancGroup's Board of Directors is classified into three
classes, as nearly equal in number as possible, with the members of each class
elected to three-year terms. Thus, one-third of BancGroup's Board of Directors
is elected by stockholders each year. With this provision, two annual elections
are required in order to change a majority of the Board of Directors. There are
currently 18 directors of BancGroup. This provision of the BancGroup
Certificate also stipulates that (i) directors can be removed only for cause
upon a vote of 80% of the voting power of the outstanding shares entitled to
vote in the election of directors, voting as a class, (ii) vacancies in the
Board of Directors may only be filled by a majority vote of the directors
remaining in office, (iii) the maximum number of directors shall be fixed by
resolution of the Board of Directors, and (iv) the provisions relating to the
classified Board of Directors can only be amended by the affirmative vote of
the holders of at least 80% of the voting power of the outstanding shares
entitled to vote in the election of directors, voting as a class.
Business Combinations. Certain "Business Combinations" of BancGroup with a
"Related Person" may only be undertaken with the affirmative vote of at least
75% of the outstanding shares of "Voting Stock," plus the affirmative vote of
at least 67% of the outstanding shares of Voting Stock, not counting shares
owned by the Related Person, unless the Continuing Directors of BancGroup
approve such Business Combination. A "Related Person" is a person, or group,
who owns or acquires 10% or more of the outstanding shares of BancGroup Common
Stock, provided that no person shall be a Related Person if such person would
have been a Related Person on the date of approval of this provision by
BancGroup's Board of Directors, i.e., April 20, 1994. An effect of this
provision may be to exclude Robert E. Lowder, the current Chairman and Chief
Executive Officer of BancGroup, and certain members of his family from the
definition of Related Person. A "Continuing Director" is a director who was a
member of the Board of Directors immediately prior to the time a person became
a Related Person. This provision may not be amended without the affirmative
vote of the holders of at least 75% of the outstanding shares of Voting Stock,
plus the affirmative vote of the outstanding shares of at least 67% of the
outstanding Voting Stock, excluding shares held by a Related Person. This
provision may have the effect of giving the incumbent Board of Directors a veto
over a merger or other Business Combination that could be desired by a majority
of BancGroup's stockholders. As of February 20, 2001, the Board of Directors of
BancGroup owned approximately 7.9% of the outstanding shares of BancGroup
Common Stock.
Board Evaluation of Mergers. The BancGroup Certificate permits the Board of
Directors to consider certain factors such as the character and financial
stability of the other party, the projected social, legal, and economic effects
of a proposed transaction upon the employees, suppliers, regulatory agencies
and customers and communities of BancGroup, and other factors when considering
whether BancGroup should undertake a merger, sale of assets, or other similar
transaction with another party. This provision may not be amended except by the
affirmative vote of at least 80% of the outstanding shares of BancGroup Common
Stock. This provision may give greater latitude to the Board of Directors in
terms of the factors which the board may consider in recommending or rejecting
a merger or other Business Combination of BancGroup.
Director Authority. The BancGroup Certificate prohibits stockholders from
calling special stockholders' meetings and acting by written consent. It also
provides that only BancGroup's Board of Directors has the authority to
undertake certain actions with respect to governing BancGroup such as
appointing committees, electing officers, and establishing compensation of
officers, and it allows the Board of Directors to act by majority vote.
38
Bylaw Provisions. The BancGroup Bylaws provide that stockholders wishing to
propose nominees for the Board of Directors or other business to be taken up at
an annual meeting of BancGroup shareholders must comply with certain advance
written notice provisions. These bylaw provisions are intended to provide for
the more orderly conduct of stockholders' meetings but could make it more
difficult for shareholders to nominate directors or introduce business at
shareholders' meetings.
Delaware Business Combination Statute. Subject to some exceptions, Delaware
law prohibits BancGroup from entering into certain "business combinations" (as
defined) involving persons beneficially owning 15% or more of the outstanding
BancGroup Common Stock (or one who is an affiliate of BancGroup and has over
the past three years beneficially owned 15% or more of such stock) (either, for
the purpose of this paragraph, an "Interested Stockholder"), unless the Board
of Directors has approved either (i) the business combination or (ii) prior to
the stock acquisition by which such person's beneficial ownership interest
reached 15% (a "Stock Acquisition"), the Stock Acquisition. The prohibition
lasts for three years from the date of the Stock Acquisition. Notwithstanding
the preceding, Delaware law allows BancGroup to enter into a business
combination with an Interested Stockholder if (i) the business combination is
approved by BancGroup's Board of Directors and authorized by an affirmative
vote of at least 66 2/3% of the outstanding voting stock of BancGroup which is
not owned by the Interested Stockholder or (ii) upon consummation of the
transaction which resulted in the shareholder becoming an Interested
Stockholder, such shareholder owned at least 85% of the outstanding BancGroup
Common Stock (excluding BancGroup Common Stock held by officers and directors
of BancGroup or by certain BancGroup stock plans). These provisions of Delaware
law apply simultaneously with the provisions of the BancGroup Certificate
relating to business combinations with a related person, described above at
"Business Combinations," but they are generally less restrictive than the
BancGroup Certificate.
Control Acquisitions. As it relates to BancGroup, the Change in Bank Control
Act of 1978 prohibits a person or group of persons from acquiring "control" of
a bank holding company unless the Federal Reserve has been given 60 days' prior
written notice of such proposed acquisition and within that time period the
Federal Reserve has not issued a notice disapproving the proposed acquisition
or extending for up to another 30 days the period during which such a
disapproval may be issued. An acquisition may be made prior to the expiration
of the disapproval period if the Federal Reserve issues written notice of its
intent not to disapprove the action. Under a rebuttable presumption established
by the Federal Reserve, the acquisition of more than 10% of a class of voting
stock of a bank holding company with a class of securities registered under
Section 12 of the Exchange Act, such as BancGroup, would, under the
circumstances set forth in the presumption, constitute the acquisition of
control. The receipt of revocable proxies, provided the proxies terminate
within a reasonable time after the meeting to which they relate, is not
included in determining percentages for change in control purposes.
COMPARATIVE RIGHTS OF SHAREHOLDERS
If the Merger is consummated, shareholders of Manufacturers (except those
perfecting dissenters' rights) will become holders of BancGroup Common Stock.
The rights of the holders of the Manufacturers Common Stock who become holders
of BancGroup Common Stock following the Merger will be governed by the
BancGroup Certificate and the BancGroup Bylaws, as well as the laws of
Delaware, the state in which BancGroup is incorporated.
The following summary compares the rights of the holders of Manufacturers
Common Stock with the rights of the holders of the BancGroup Common Stock. For
a more detailed description of the rights of the holders of BancGroup Common
Stock, including certain features of the BancGroup Certificate and the DGCL
that might limit the circumstances under which a change in control of BancGroup
could occur, see "BancGroup Capital Stock and Debentures."
39
The following information is qualified in its entirety by the BancGroup
Certificate and the BancGroup Bylaws, and Manufacturers' Articles of
Incorporation and Bylaws, the DGCL and the FBCA.
Director Elections
Manufacturers. Manufacturers' Directors are elected to terms of three years
with approximately one-third of the Board to be elected annually. Shareholders
may not cumulate votes in connection with such election (nor for any other
purpose).
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
Manufacturers. Manufacturers' Directors may be removed by shareholders with
or without cause by the affirmative vote of the holders of a majority of the
then outstanding voting shares of Manufacturers, voting together as a single
class.
BancGroup. The BancGroup Certificate provides that a director may be removed
from office, but only for cause and by the affirmative vote of the holders of
at least 80% of the voting shares then entitled to vote at an election of
directors.
Voting
Manufacturers. Each holder of Manufacturers Common Stock is entitled to cast
one vote for each share held on each issue with respect to which a shareholder
vote is authorized, but may not cumulate votes for the election of directors or
for any other purpose.
BancGroup. Each stockholder of BancGroup is entitled to one vote for each
share of BancGroup Common Stock held, and such holders are not entitled to
cumulative voting rights in the election of directors.
Preemptive Rights
Manufacturers. Holders of Manufacturers Common Stock have preemptive rights
to subscribe for additional shares on a pro rata basis when and if shares are
offered for sale by Manufacturers.
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
Manufacturers. Section 607.0831 of the FBCA provides that a director of
Manufacturers will not be personally liable for monetary damages to
Manufacturers or any other person for any statement, vote, decision or failure
to act, regarding corporate management or policy, by a director unless: (a) the
director breached or failed to perform his duties as a director, and (b) the
director's breach of or failure to perform those duties constitutes: (1) a
violation of the criminal law, unless the director had reasonable cause to
believe his conduct was lawful or had no reasonable cause to believe his
conduct was unlawful, (2) a transaction in which the director derived an
improper personal benefit, (3) a payment of certain unlawful dividends and
distributions, (4) in a proceeding by or in the right of Manufacturers to
procure judgment in its favor or by or in the right of a shareholder, conscious
disregard for the best interests of Manufacturers, or willful misconduct, or
(5) in a proceeding by or in the right of someone other than Manufacturers or a
shareholder, recklessness or an act or omission which was committed in bad
faith or with malicious purpose or in a manner exhibiting wanton and
40
willful disregard of human rights, safety or property. This provision would
absolve directors of Manufacturers of personal liability for negligence in the
performance of their duties, including gross negligence. It would not permit a
director to be exculpated, however, from liability for actions involving
conflicts of interest or breaches of the traditional "duty of loyalty" to
Manufacturers and its shareholders, and it would not affect the availability of
injunctive and other equitable relief as a remedy.
BancGroup. The BancGroup Certificate provides that a director of BancGroup
will have no personal liability to BancGroup or its 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
Manufacturers. Under Section 607.0850 of the FBCA, the directors and
officers of Manufacturers may be indemnified against certain liabilities which
they may incur in their capacity as officers and directors. Such
indemnification is generally available if the individual acted in good faith
and in a manner he or she reasonably believed to be in, or not opposed to, the
best interest of Manufacturers, and with respect to any criminal proceeding,
had no reasonable cause to believe his or her conduct was unlawful.
Indemnification may also be available unless a court of competent jurisdiction
establishes by final adjudication that the actions or omissions of the
individual are material to the cause of action so adjudicated and constituted:
(a) a violation of the criminal law, unless the individual had reasonable cause
to believe his or her conduct was lawful or had no reasonable cause to believe
his or her conduct was unlawful; (b) a transaction from which the individual
derived an improper personal benefit; or (c) willful misconduct or conscious
disregard for the best interest of Manufacturers in a proceeding by or in the
right of Manufacturers to procure a judgment in its favor or in a proceeding by
or in the right of a shareholder. Manufacturers' Bylaws authorize Manufacturers
to indemnify its officers, directors, employees and agents to the extent
permitted by Florida law.
Manufacturers maintains a directors' and officers' insurance policy pursuant
to which officers and directors of Manufacturers would be entitled to
indemnification against certain liabilities, including reimbursement of certain
expenses.
BancGroup. The BancGroup Certificate provides that directors, officers,
employees and agents of BancGroup shall be indemnified to the full extent
permitted under the DGCL. Section 145 of the DGCL contains detailed and
comprehensive provisions providing for indemnification of directors and
officers of Delaware corporations against expenses, judgments, fines and
settlements in connection with litigation. Under the DGCL, other than an action
brought by or in the right of BancGroup, such indemnification is available if
it is determined that the proposed 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 indemnity acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
BancGroup and except that no indemnification shall be made in respect of any
claim, issue or matter as to which such person has been adjudged to be liable
to BancGroup unless and only to the extent that the Delaware Court of Chancery
or the court in which the action was brought determines upon application that
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses as the court deems proper.
41
To the extent that the proposed indemnity has been successful on the merits
or otherwise in defense of any action, suit or proceeding (or any claim, issue
or matter therein), he or she must be indemnified against expenses (including
attorneys' fees) actually and reasonably incurred by him in connection
therewith.
BancGroup maintains an officers' and directors' insurance policy and a
separate indemnification agreement pursuant to which officers and directors of
BancGroup would be entitled to indemnification against certain liabilities,
including reimbursement of certain expenses that extends beyond the minimum
indemnification provided by Section 145 of the DGCL.
Special Meetings of Shareholders; Action Without a Meeting
Manufacturers. Manufacturers' Articles of Incorporation authorize a special
shareholders meeting to be called by the board of directors, Manufacturers'
chairman of the board or chief executive officer, or by the holders of not less
than twenty percent of the outstanding shares. Manufacturers Articles of
Incorporation also provide that any action required or permitted of
shareholders to be taken instead without a meeting by written consent of
shareholders having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted.
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
Manufacturers. The FBCA provides that mergers and sales of substantially all
of the property of a Florida corporation must be approved by a majority of the
outstanding shares of the corporation entitled to vote thereon. The FBCA also
provides, however, that the shareholders of a corporation surviving a merger
need not approve the transaction if: (a) the articles of incorporation of the
surviving corporation will not differ from its articles before the merger, and
(b) each shareholder of the surviving corporation whose shares were outstanding
immediately prior to the effective date of the merger will hold the same number
of shares with identical designations, preferences, limitations and relative
rights, immediately after the merger.
BancGroup. The DGCL provides that mergers and sales of substantially all of
the assets of Delaware corporations must be approved by a majority of the
outstanding stock of the corporation entitled to vote thereon. The DGCL also
provides, however, that the 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 "Anti-
takeover Statutes" for a description of additional restrictions on business
combination transactions.
Amendment of Certificate of Incorporation and Bylaws
Manufacturers. Section 607.1002 of the FBCA permits the Board of Directors
to amend the Articles of Incorporation in certain minor respects without
shareholder action, but Section 607.1003 requires most amendments to be adopted
by the shareholders upon recommendation of the Board of Directors. Unless the
42
FBCA requires a greater vote, amendments may be adopted by a majority of the
votes cast, a quorum being present (except those provisions of Manufacturers'
Articles of Incorporation which relate to director classification, election,
vacancies, notice and removal, which amendments require the affirmative vote of
a majority of the outstanding shares of Manufacturers Common Stock).
Section 607.1020 of the FBCA permits the Board of Directors to amend or
repeal the bylaws unless the FBCA or the shareholders provide otherwise. The
shareholders entitled to vote have concurrent power to amend or repeal the
bylaws.
BancGroup. Under the DGCL, a Delaware corporation's certificate of
incorporation may be amended by the affirmative vote of the holders of a
majority of the outstanding shares entitled to vote thereon, and a majority of
the outstanding stock of each class entitled to vote as a class, unless the
certificate requires the vote of a larger portion of the stock. The BancGroup
Certificate requires "super-majority" Stockholder approval to amend or repeal
any provision of, or adopt any provision inconsistent with, certain provisions
in the BancGroup Certificate governing (i) the election or removal of
directors, (ii) business combinations between BancGroup and a Related Person,
and (iii) board of directors evaluation of business combination procedures. See
"BancGroup Capital Stock and Debentures--Changes in Control."
As is permitted by the DGCL, the Certificate gives the Board of Directors
the power to adopt, amend or repeal the BancGroup Bylaws. The stockholders
entitled to vote have concurrent power to adopt, amend or repeal the BancGroup
Bylaws.
Rights of Dissenting Stockholders
Manufacturers. Holders of Manufacturers Common Stock as of the Record Date
are entitled to dissenters' rights of appraisal under Florida law. For a
description of such appraisal rights, see "The Merger--Rights of Dissenting
Shareholders."
BancGroup. Under the DGCL, a stockholder has the right, in certain
circumstances, to dissent from certain corporate transactions and receive the
fair value of his or her shares in cash in lieu of the consideration he or she
otherwise would have received in the transaction. For this purpose, "fair
value" may be determined by all generally accepted techniques of valuation used
in the financial community, excluding any element of value arising from the
accomplishment or expectation of the transaction, but including elements of
future value that are known or susceptible of proof. Such fair value is
determined by the Delaware Court of Chancery, if a petition for appraisal is
timely filed. Appraisal rights are not available, however, to stockholders of a
corporation (i) if the shares are listed on a national securities exchange (as
is BancGroup Common Stock) or quoted on the Nasdaq NMS, or held of record by
more than 2,000 stockholders (as is BancGroup Common Stock), and (ii)
stockholders are permitted by the terms of the merger or consolidation to
accept in exchange for their shares (a) shares of stock of the surviving or
resulting corporation, (b) shares of stock of another corporation listed on a
national securities exchange or held of record by more than 2,000 stockholders,
(c) cash in lieu of fractional shares of such stock, or (d) any combination
thereof. Stockholders are not permitted appraisal rights in a merger if such
corporation is the surviving corporation and no vote of its stockholders is
required.
Preferred Stock
Manufacturers. Manufacturers' Articles of Incorporation authorize the
issuance of 2,000,000 shares of preferred stock from time to time by resolution
of the Board of Directors of Manufacturers. Currently, no shares of preferred
stock are issued and outstanding.
BancGroup. The BancGroup Certificate authorizes the issuance of 1,000,000
shares of Preferred Stock from time to time by resolution of the Board of
Directors of BancGroup. Currently, no shares of Preferred Stock are issued and
outstanding. See "BancGroup Capital Stock and Debentures--Preference Stock."
43
Effect of the Merger on Manufacturers Shareholders
As of June 30, 2001, Manufacturers had 310 shareholders of record and
2,596,190 outstanding shares of common stock. As of June 30, 2001, there were
110,714,099 shares of BancGroup Common Stock outstanding held by 9,753
stockholders of record.
Assuming that no dissenters' rights of appraisal are exercised in the
Merger, that the Manufacturers Options are exercised prior to the Effective
Date, and the Market Value of BancGroup Common Stock is $12.65 (the closing
price of BancGroup Common Stock as of September 7, 2001) on the Effective Date,
an aggregate number of 4,458,532 shares of BancGroup Common Stock will be
issued to the shareholders of Manufacturers pursuant to the Merger. These
shares would represent approximately 4% of the total shares of BancGroup Common
Stock outstanding after the Merger, not counting any shares of BancGroup Common
Stock that may be issued for reasons unconnected to the Merger.
The issuance of the BancGroup Common Stock pursuant to the Merger will
reduce the percentage interest of the BancGroup Common Stock currently held by
each principal stockholder and each director and officer of BancGroup. Based
upon the foregoing assumptions, as a group, the directors and officers of
BancGroup who own approximately 8% of BancGroup's outstanding shares would own
approximately 8% after the Merger. See "Business of BancGroup--Voting
Securities and Principal Stockholders."
44
THE COLONIAL BANCGROUP INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF CONDITION (Unaudited)
(In thousands)
The following summary includes (i) the condensed consolidated statement of
condition of BancGroup and subsidiaries as of June 30, 2001, (ii) the condensed
consolidated statement of condition of Manufacturers BancShares, Inc. as of
June 30, 2001, (iii) adjustments to give effect to the completed pooling-of-
interests method business combination with Manufacturers reflecting the
issuance of 4,153,904 shares of BancGroup Common Stock (based on an assumed
conversion ratio of 1.60 shares per equivalent Manufacturers share) and (iv)
the pro forma combined condensed statement of condition of BancGroup and
subsidiaries as if such combination had occurred on June 30, 2001.
These pro forma statements should be read in conjunction with the
accompanying notes and the separate consolidated statements of condition of
BancGroup and subsidiaries, incorporated by reference herein. The pro forma
information provided below may not be indicative of future results.
June 30, 2001
-----------------------------------------------------------------
Consolidated Manufacturers Additions/ Proforma Combined
Colonial BancGroup Bancshares (Deductions) Balance Sheet
------------------ ------------- ----------- -----------------
Assets:
Cash and due from
banks.................. $ 267,024 $ 11,870 $ -- $ 278,894
Interest bearing
deposits in banks and
federal funds sold..... 137,072 7,596 -- 144,668
Securities available for
sale................... 1,600,845 18,953 -- 1,619,798
Investment securities... 37,463 2,719 -- 40,182
Mortgage loans held for
sale................... 29,273 3,060 -- 32,333
Loans, net of unearned
income................. 9,759,185 241,143 -- 10,000,328
Less: allowance for
loan losses........... (113,706) (2,936) (116,642)
----------- -------- -------- -----------
Loans, net.............. 9,645,479 238,207 -- 9,883,686
Premises and equipment,
net.................... 183,250 7,109 -- 190,359
Excess of cost over
tangible and identified
intangible assets
acquired, net.......... 91,585 296 -- 91,881
Other real estate
owned.................. 10,813 -- -- 10,813
Accrued interest and
other assets........... 272,688 4,955 -- 277,643
----------- -------- -------- -----------
Total assets......... $12,275,492 $294,765 $ $12,570,257
=========== ======== ======== ===========
Liabilities:
Deposits................ $ 8,324,605 $214,905 $ -- $ 8,539,510
FHLB short-term
borrowings............. 100,000 -- -- 100,000
Other short-term
borrowings............. 1,410,295 14,441 -- 1,424,736
Subordinated debt....... 260,058 -- -- 260,058
Trust preferred
securities............. 70,000 3,000 -- 73,000
FHLB long-term debt..... 1,121,718 40,450 -- 1,162,168
Other long-term debt.... 88,064 1,000 -- 89,064
Other liabilities....... 94,948 540 95,488
----------- -------- -------- -----------
Total liabilities.... 11,469,688 274,336 11,744,024
Shareholders Equity:
Common stock............ 282,727 26 (26)(1) 287,170
4,443 (1)
Treasury stock.......... (22,571) -- 22,571 (1) --
Additional paid in
capital................ 119,731 9,802 (9,802)(1) 102,545
(17,186)(1)
Retained earnings....... 422,459 10,407 -- 432,866
Unearned compensation... (4,027) -- -- (4,027)
Accumulated other
comprehensive income
(loss), net of taxes... 7,485 194 -- 7,679
----------- -------- -------- -----------
Total shareholders
equity.............. 805,804 20,429 826,233
----------- -------- -------- -----------
Total liabilities and
shareholders
equity.............. $12,275,492 $294,765 $ -- $12,570,257
=========== ======== ======== ===========
Capital Ratios:
Tier One Leverage
Ratio................. 6.46% 7.47% 6.47%
Tier One Risk Based
Capital Ratio*........ 7.60% 9.29% 7.61%
Total Risk Based
Capital Ratio*........ 11.26% 10.53% 11.20%
--------
*Based on risk-weighted assets.
45
ADJUSTMENTS TO UNAUDITED CONDENSED PRO FORMA FINANCIAL STATEMENTS
(1) To record the issuance of 4,153,904 shares of
BancGroup Common Stock in exchange for all of
the outstanding shares of Manufacturers.
Manufacturers outstanding shares.................... 2,596,190
Assumed conversion ratio............................ 1.60(a)
----------
BancGroup shares to be issued....................... 4,153,904
Shares issued out of Treasury total 2,376,746 at an
average cost of $9.4967 per share.................. $ 22,571
Par value of 1,777,158 shares issued at $2.50 per
share.............................................. $ 4,443
Total shares issued at cost and par value........... $ 27,014
Total capital stock of Manufacturers................ 9,828
----------
Excess recorded as a decrease to contributed
capital............................................ (17,186)
----------
9,828
To eliminate Manufacturers
Common stock, at par value........................ $ (26)
Contributed capital............................... (9,802)
----------
(9,828)
----------
Net change in equity............................ $ (0)
==========
(2) BancGroup management anticipates that certain nonrecurring integration
related expenses will be incurred. The charges will include expenses
related to fixed asset write-offs, severance accruals, system conversions,
contract buy-outs, an additional provision for loan loss to conform
Manufacturers policies with those of BancGroup and other transaction
related costs.
The total of the above amounts are expected to be between $1.5 and $2.0
million, net of tax, will be charged to earnings in the appropriate periods
and therefore are not reflected in the unaudited condensed pro forma
statement of condition or statements of income.
BancGroup expects to achieve approximately $1.9 to $2.2 million, net of
tax, in annual cost savings from the Merger and the related integration
activities. These savings are also not reflected in BancGroup's unaudited
condensed pro forma financial statements.
(3) There are no material differences in accounting policies of the combining
companies, therefore no accounting policy conformance adjustments were
reflected in the unaudited condensed pro forma financial statements.
--------
Notes:
(a) Market value of Colonial BancGroup stock was assumed using the closing
price on September 7, 2001. The closing market price was $12.65. Using the
closing price in lieu of the 10 day average calculation as specified in
the Agreement results in a conversion ratio of 1.60 shares of BancGroup
Common Stock for each share of Manufacturers Common Stock.
46
THE COLONIAL BANCGROUP INC. AND SUBSIDIARIES
CONDENSED PRO FORMA STATEMENTS OF INCOME (Unaudited)
(In thousands)
The following summary includes (i) the (unaudited) condensed consolidated
statements of income of BancGroup and subsidiaries on a historical basis for
the six months ended June 30, 2001 and 2000 and for the years ended December
31, 2000, 1999, and 1998, (ii) the (unaudited) condensed consolidated
statements of income for Manufacturers for the six months ended June 30, 2001
and 2000 and for the years ended December 31, 2000, 1999, and 1998, (iii)
adjustments to give effect to the completed pooling-of interests method
business combination with Manufacturers and (iv) the (unaudited) pro forma
statements of income of BancGroup and subsidiaries as if such business
combination had occurred on January 1, 1998.
These (unaudited) pro forma statements should be read in conjunction with
the accompanying notes and the separate consolidated statements of income of
BancGroup and subsidiaries, incorporated by reference herein. The pro forma
information provided may not necessarily be indicative of future results.
Six Months Ended June 30, 2001
------------------------------------------------------------
Consolidated Manufacturers Adjustments/ Pro Forma
Colonial BancGroup BancShares (Deductions) Combined Total
------------------ ------------- ------------ --------------
Interest Income......... $ 461,981 $ 11,211 $ $ 473,192
Interest Expense........ 260,188 5,308 265,496
------------ ---------- ---- ------------
Net Interest Income... 201,793 5,903 -- 207,696
Loan Loss Provision..... 16,897 45 16,942
------------ ---------- ---- ------------
Net Interest Income
After Loan Loss
Provision.............. 184,896 5,858 -- 190,754
Noninterest Income...... 42,312 728 43,040
Noninterest Expense..... 135,751 4,490 140,241
------------ ---------- ---- ------------
Income From Continuing
Operations Before
Income Taxes........... 91,457 2,096 -- 93,553
Income Tax.............. 32,925 777 -- 33,702
------------ ---------- ---- ------------
Income from Continuing
Operations............. $ 58,532 $ 1,319 $-- $ 59,851
============ ========== ==== ============
Average Basic Shares
Outstanding............ 110,594,000 2,513,858 114,616,173
Average Diluted Shares
Outstanding............ 111,554,000 2,704,251 115,880,802
Earnings from Continuing
Operations Per Share
Basic:................ $ 0.53 $ 0.52 $ 0.52
Diluted............... $ 0.53 $ 0.49 $ 0.52
47
Six Months Ended June, 2000
------------------------------------------------------------
Consolidated Manufacturers Adjustments/ Pro Forma
Colonial BancGroup BancShares (Deductions) Combined Total
------------------ ------------- ------------ --------------
Interest Income......... $ 431,900 $ 9,732 $ $ 441,632
Interest Expense........ 235,253 4,462 239,715
------------ ---------- ---- ------------
Net Interest Income... 196,647 5,270 -- 201,917
Loan Loss Provision..... 12,961 70 13,031
------------ ---------- ---- ------------
Net Interest Income
After Loan Loss
Provision.............. 183,686 5,200 -- 188,886
Noninterest Income...... 36,957 751 37,708
Noninterest Expense..... 125,099 3,793 128,892
------------ ---------- ---- ------------
Income From Continuing
Operations Before
Income Taxes........... 95,544 2,158 -- 97,702
Income Tax.............. 34,888 904 -- 35,792
------------ ---------- ---- ------------
Income from Continuing
Operations............. $ 60,656 $ 1,254 $-- $ 61,910
============ ========== ==== ============
Average Basic Shares
Outstanding............ 111,249,000 2,501,284 115,251,054
Average Diluted Shares
Outstanding............ 112,015,000 2,778,872 116,461,195
Earnings from Continuing
Operations Per Share
Basic:................ $ 0.55 $ 0.50 $ 0.54
Diluted............... $ 0.54 $ 0.45 $ 0.53
Year Ended December 31, 2000
------------------------------------------------------------
Consolidated Manufacturers Adjustments/ Pro Forma
Colonial BancGroup BancShares (Deductions) Combined Total
------------------ ------------- ------------ --------------
Interest Income......... $ 897,761 $ 20,343 $ $ 918,104
Interest Expense........ 507,870 9,597 517,467
------------ ---------- ---- ------------
Net Interest Income... 389,891 10,746 -- 400,637
Loan Loss Provision..... 29,680 95 29,775
------------ ---------- ---- ------------
Net Interest Income
After Loan Loss
Provision.............. 360,211 10,651 -- 370,862
Noninterest Income...... 75,299 1,550 76,849
Noninterest Expense..... 249,982 7,732 257,714
------------ ---------- ---- ------------
Income From Continuing
Operations Before
Income Taxes........... 185,528 4,469 -- 189,997
Income Tax.............. 67,732 1,824 -- 69,556
------------ ---------- ---- ------------
Income from Continuing
Operations............. $ 117,796 $ 2,645 $-- $ 120,441
============ ========== ==== ============
Average Basic Shares
Outstanding............ 110,761,000 2,500,681 114,762,090
Average Diluted Shares
Outstanding............ 111,472,000 2,756,731 115,882,770
Earnings from Continuing
Operations Per Share
Basic:................ $ 1.06 $ 1.06 $ 1.05
Diluted............... $ 1.06 $ 0.96 $ 1.04
48
Year Ended December 31, 1999
------------------------------------------------------------
Consolidated Manufacturers Adjustments/ Pro Forma
Colonial BancGroup BancShares (Deductions) Combined Total
------------------ ------------- ------------ --------------
Interest Income......... $ 750,828 $ 15,210 $ $ 766,038
Interest Expense........ 378,406 6,486 384,892
------------ ---------- ---- ------------
Net Interest Income... 372,422 8,724 -- 381,146
Loan Loss Provision..... 28,707 470 29,177
------------ ---------- ---- ------------
Net Interest Income
After Loan Loss
Provision.............. 343,715 8,254 -- 351,969
Noninterest Income...... 74,087 1,254 75,341
Noninterest Expense..... 233,539 6,376 239,915
------------ ---------- ---- ------------
Income From Continuing
Operations Before
Income Taxes........... 184,263 3,132 -- 187,395
Income Tax.............. 68,193 1,167 -- 69,360
------------ ---------- ---- ------------
Income from Continuing
Operations............. $ 116,070 $ 1,965 $-- $ 118,035
============ ========== ==== ============
Average Basic Shares
Outstanding............ 111,678,000 2,438,138 115,579,021
Average Diluted Shares
Outstanding............ 113,252,000 2,731,588 117,622,541
Earnings from Continuing
Operations Per Share
Basic:................ $ 1.04 $ 0.81 $ 1.02
Diluted............... $ 1.03 $ 0.72 $ 1.00
Year Ended December 31, 1998
------------------------------------------------------------
Consolidated Manufacturers Adjustments/ Pro Forma
Colonial BancGroup BancShares (Deductions) Combined Total
------------------ ------------- ------------ --------------
Interest Income......... $ 664,645 $ 11,810 $ $ 676,455
Interest Expense........ 334,444 5,320 339,764
------------ ---------- ---- ------------
Net Interest Income... 330,201 6,490 -- 336,691
Loan Loss Provision..... 26,345 1,166 27,511
------------ ---------- ---- ------------
Net Interest Income
After Loan Loss
Provision.............. 303,856 5,324 -- 309,180
Noninterest Income...... 58,952 1,292 60,244
Noninterest Expense..... 259,374 4,684 264,058
------------ ---------- ---- ------------
Income From Continuing
Operations Before
Income Taxes........... 103,434 1,932 -- 105,366
Income Tax.............. 37,790 737 -- 38,527
------------ ---------- ---- ------------
Income from Continuing
Operations............. $ 65,644 $ 1,195 $-- $ 66,839
============ ========== ==== ============
Average Basic Shares
Outstanding............ 110,062,000 2,401,984 113,905,174
Average Diluted Shares
Outstanding............ 112,431,000 2,695,434 116,743,694
Earnings from Continuing
Operations Per Share
Basic:................ $ 0.60 $ 0.50 $ 0.59
Diluted............... $ 0.59 $ 0.44 $ 0.57
49
THE COLONIAL BANCGROUP AND SUBSIDIARIES
SELECTED FINANCIAL AND OPERATING INFORMATION
The following tables present certain financial information for BancGroup on
a historical basis and pro forma basis. The first table presents historical and
pro forma information for the six months ended June 30, 2001 and 2000. The
second table presents historical and pro forma income statements for the years
ended December 31, 2000, 1999, and 1998 as well as historical information for
the years ended December 31, 1997 and 1996. The final table presents pro forma
and historical statements of condition as of June 30, 2001 as well as
historical statements for the years ended December 31, 2000, 1999, 1998, 1997,
and 1996.
The pro forma information includes consolidated BancGroup and subsidiaries
and Manufacturers Bancshares, Inc. The pro forma balance sheet data gives
effect to the combination as if it had occurred June 30, 2001 and the pro forma
operating data gives effect to the combination as if it had occurred at the
beginning of the earliest period presented.
The following selected financial information should be read in conjunction
with the discussion set forth in "Management Discussion and Analysis of
Financial Condition and Results of Operations," and all financial statements
included elsewhere in this Prospectus and incorporated by Reference. The pro
forma information provided below may not be indicative of future results.
Six Months Ended June 30,
-----------------------------------------
BancGroup BancGroup BancGroup BancGroup
Pro Forma Pro Forma Historical Historical
2001 2000 2001 2000
--------- --------- ---------- ----------
(In thousands, except per share data)
Statement of income:
Interest income..................... $473,192 $441,632 $461,981 $431,900
Interest expense.................... 265,496 239,715 260,188 235,253
-------- -------- -------- --------
Net interest income................. 207,696 201,917 201,793 196,647
Provision for loan losses........... 16,942 13,031 16,897 12,961
-------- -------- -------- --------
Net interest income after provision
for loan losses.................... 190,754 188,886 184,896 183,686
Noninterest income.................. 43,040 37,708 42,312 36,957
Noninterest expense................. 140,241 128,892 135,751 125,099
-------- -------- -------- --------
Income from continuing operations
before income taxes................ 93,553 97,702 91,457 95,544
Applicable income taxes............. 33,702 35,792 32,925 34,888
-------- -------- -------- --------
Income from continuing operations... $ 59,851 $ 61,910 58,532 60,656
======== ========
Discontinued operations:(1)......... -- (4,699)
-------- --------
Net income.......................... $ 58,532 $ 55,957
======== ========
Earnings per common share:(2)
Income from continuing operations
(net of taxes):
Basic............................. $ 0.52 $ 0.54 $ 0.53 $ 0.55
Diluted........................... 0.52 0.53 0.53 0.54
Average shares outstanding:
Basic............................. 114,616 115,251 110,594 111,249
Diluted........................... 115,881 116,461 111,554 112,015
Cash dividends per common share:.... $ 0.24 $ 0.22 $ 0.24 $ 0.22
50
Year Ended December 31, Year Ended December 31,
----------------------------- ------------------------------------------------------
BancGroup BancGroup BancGroup BancGroup BancGroup BancGroup BancGroup BancGroup
Pro Forma Pro Forma Pro Forma Historical Historical Historical Historical Historical
2000 1999 1998 2000 1999 1998 1997 1996
--------- --------- --------- ---------- ---------- ---------- ---------- ----------
(In thousands, except per share data)
Statement of income:
Interest income......... $918,104 $766,038 $676,455 $897,761 $750,828 $664,645 $571,936 $470,894
Interest expense........ 517,467 384,892 339,764 507,870 378,406 334,444 280,269 227,896
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income..... 400,637 381,146 336,691 389,891 372,422 330,201 291,667 242,998
Provision for loan
losses................. 29,775 29,177 27,511 29,680 28,707 26,345 16,321 14,442
-------- -------- -------- -------- -------- -------- -------- --------
Net interest income
after provision for
loan losses............ 370,862 351,969 309,180 360,211 343,715 303,856 275,346 228,556
Noninterest income...... 76,849 75,341 60,244 75,299 74,087 58,952 49,626 41,261
Noninterest expense(3).. 257,714 239,915 264,058 249,982 233,539 259,374 201,032 187,825
-------- -------- -------- -------- -------- -------- -------- --------
Income from continuing
operations before
income taxes........... 189,997 187,395 105,366 185,528 184,263 103,434 123,940 81,992
Applicable income
taxes.................. 69,556 69,360 38,527 67,732 68,193 37,790 44,716 28,248
-------- -------- -------- -------- -------- -------- -------- --------
Income from continuing
operations............. $120,441 $118,035 $ 66,839 117,796 116,070 65,644 79,224 53,744
======== ======== ========
Discontinued
operations:(1)......... (5,065) 3,527 (10,448) 11,138 8,105
-------- -------- -------- -------- --------
Net income.............. $112,731 $119,597 $ 55,196 $ 90,362 $ 61,849
======== ======== ======== ======== ========
Earnings per common
share:(2)
Income from continuing
operations (net of
taxes):(1)
Basic................. $ 1.05 $ 1.02 $ 0.59 $ 1.06 $ 1.04 $ 0.60 $ 0.76 $ 0.56
Diluted............... $ 1.04 $ 1.00 $ 0.57 $ 1.06 $ 1.03 $ 0.59 $ 0.73 $ 0.54
Average shares
outstanding:
Basic................. 114,762 115,579 113,905 110,761 111,678 110,062 105,010 97,246
Diluted............... 115,883 117,623 116,743 111,472 113,252 112,431 108,396 101,128
Cash dividends per
common share:(2)....... $ 0.44 $ 0.38 $ 0.34 $ 0.44 $ 0.38 $ 0.34 $ 0.30 $ 0.27
--------
(1) In December 2000, the company exited the mortgage servicing business,
incurring a loss on disposal of $4,322, net of tax. The financial results
for this line of business have been separately reported as Discontinued
Operations in all periods presented.
(2) Restated to reflect the impact of two-for-one stock splits effected in the
form of stock dividends paid February 11, 1997 and August 14, 1998.
(3) Included in noninterest expense are nonrecurring items related to a special
Savings Association Insurance Fund assessment, merger and acquisition
costs, and restructuring charges. These amounts totaled $0, $1,242,000,
$17,499,000, $5,439,000, and $12,625,000 in 2000, 1999, 1998, 1997 and
1996, respectively. For the six month periods ended June 30, 2001 and 2000,
these amounts were $0.
51
June 30, December 31,
------------------------ -------------------------------------------------------------
BancGroup BancGroup BancGroup BancGroup BancGroup BancGroup BancGroup
Pro Forma Historical Historical Historical Historical Historical Historical
2001 2001 2000 1999 1998 1997 1996
----------- ----------- ----------- ----------- ----------- ---------- ----------
Statement of Condition Data
At period end:
Total assets...................... $12,570,257 $12,275,492 $11,727,637 $10,854,099 $10,456,285 $8,061,566 $6,630,642
Loans, net of unearned income... 10,000,328 9,759,185 9,416,770 8,228,149 7,110,295 5,951,067 4,835,274
Mortgage loans held for sale...... 32,333 29,273 9,866 33,150 692,042 238,540 167,993
Deposits.......................... 8,539,510 8,324,605 8,143,017 7,967,978 7,446,153 6,325,690 5,135,215
Long-term debt.................... 1,584,290 1,539,840 831,247 889,571 746,447 315,281 39,092
Shareholders' equity.............. 826,233 805,804 756,852 695,179 639,807 590,017 483,717
Average balances
Total assets...................... 12,405,296 12,117,471 11,334,955 10,590,197 9,195,895 7,432,493 6,132,367
Interest-earning assets........... 11,729,230 11,460,744 10,484,078 9,609,152 8,300,873 6,804,087 5,610,184
Loans, net of unearned income..... 10,124,979 9,892,326 8,828,899 7,617,585 6,451,427 5,497,737 4,488,023
Mortgage loans held for sale...... 20,477 17,417 14,711 341,692 407,672 158,966 135,135
Deposits.......................... 8,476,069 8,261,813 8,053,138 7,581,939 6,750,880 5,902,179 4,797,516
Shareholders' equity.............. 802,183 780,558 710,293 673,255 642,287 547,886 458,807
Book value per share.............. 7.20 7.28 6.86 6.20 5.77 5.55 4.71
Tangible book value per share...... 6.47 6.46 6.16 5.51 5.00 4.90 4.41
Selected Ratios
Income from continuing operations to:(1)
Average assets.................... 0.96% 0.96% 1.04% 1.17% 0.77% 1.11% 0.91%
Average stockholders' equity...... 14.92% 14.98% 16.60% 17.99% 10.79% 15.33% 12.18%
Efficiency ratio from continuing
operations(1)..................... 55.93 55.68 53.74 51.89 59.93 56.88 60.21
Dividend payout ratio.............. 46.15 45.28 43.14 35.51 68.00 34.88 42.86
Average equity to average total
assets............................ 6.47 6.44 6.27 6.36 6.98 7.37 7.48
Allowance for losses to total loans
(net of unearned income).......... 1.17% 1.17% 1.14% 1.17% 1.18% 1.21% 1.28%
--------
(1) In December 2000, the company exited the mortgage servicing business
incurring a loss on disposal of $4,322, net of tax. The financial results
for this line of business have been separately reported as Discontinued
Operations in all periods presented.
52
MANUFACTURERS BANCSHARES, INC.
SELECTED CONSOLIDATED FINANCIAL DATA
The selected historical financial data for the six month periods ended June
30, 2001 and 2000 have been derived from Manufacturers unaudited consolidated
financial statements. The selected historical financial data for each of the
years ended December 31, 2000 through 1996 have been derived from Manufacturers
audited consolidated financial statements. This information is only a summary.
You should read it together with Manufacturers historical financial statements
and the discussion set forth in "Management's Discussion and Analysis of
Financial Condition and Results of Operations," included elsewhere in this
prospectus.
At and For the Six
Months Ended At and For the Years Ended
---------------------- ----------------------------------------------------------
6/30/01 6/30/00 2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ---------- ---------- ----------
(Dollars in thousands, except per share data)
At Period End:
Cash and cash
equivalents........... $ 19,466 $ 23,305 $ 12,848 $ 21,837 $ 17,354 $ 38,529 $ 13,923
Investment
securities............ 21,672 22,914 23,036 22,449 16,880 6,143 17,945
Loans, net............. 241,267 195,351 223,318 187,954 124,762 89,958 63,797
Property and
equipment, net........ 7,108 7,737 7,513 6,476 4,547 3,658 2,165
Other assets........... 5,252 4,946 5,294 5,008 1,410 1,341 1,548
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total assets......... $ 294,765 $ 254,253 $ 272,009 $ 243,724 $ 164,953 $ 139,629 $ 99,378
========== ========== ========== ========== ========== ========== ==========
Deposits............... $ 214,905 $ 195,711 $ 212,794 $ 204,819 $ 139,838 $ 124,789 $ 90,856
Other liabilities...... 540 464 737 539 371 302 289
Other borrowings....... 54,891 37,507 36,230 19,420 10,999 1,988 820
Long-term debt......... 1,000 -- 1,000 -- -- --
Shareholders' equity... 23,429 20,571 21,248 18,946 13,745 12,550 7,413
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total liabilities and
shareholders'
equity.............. $ 294,765 $ 254,253 $ 272,009 $ 243,724 $ 164,953 $ 139,629 $ 99,378
========== ========== ========== ========== ========== ========== ==========
For the Period:
Total interest
income................ 11,211 9,732 $ 20,343 15,210 11,810 9,895 7,465
Total interest
expense............... 5,308 4,462 9,597 6,486 5,320 4,656 3,180
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income.. 5,903 5,270 10,746 8,724 6,490 5,239 4,285
Provision for loan
losses................ 45 70 95 470 1,166 465 70
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income
after provision for
loan losses......... 5,858 5,200 10,651 8,254 5,324 4,774 4,215
Noninterest income..... 728 751 1,550 1,254 1,292 665 577
Noninterest expense.... 4,490 3,793 7,732 6,376 4,684 3,767 2,798
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes............... 2,096 2,158 4,469 3,132 1,932 1,672 1,994
Income taxes........... 777 904 1,824 1,167 737 584 745
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income........... $ 1,319 $ 1,254 $ 2,645 $ 1,965 $ 1,195 $ 1,088 $ 1,249
========== ========== ========== ========== ========== ========== ==========
Net income per share... $ 0.52 $ 0.50 $ 1.06 $ 0.81 $ 0.50 $ 0.55 $ 0.69
========== ========== ========== ========== ========== ========== ==========
Weighted average
number of shares
outstanding........... 2,513,858 2,501,284 2,500,681 2,438,138 2,401,984 1,986,599 1,801,984
========== ========== ========== ========== ========== ========== ==========
Actual shares
outstanding at end of
period................. 2,596,190 2,512,240 2,500,033 2,486,686 2,401,984 2,401,984 1,801,984
========== ========== ========== ========== ========== ========== ==========
Book value per share.... $ 9.02 $ 8.19 $ 8.50 $ 7.62 $ 5.72 $ 5.22 $ 4.11
========== ========== ========== ========== ========== ========== ==========
Ratios and Other Data:
Return on average
assets................ 0.92% 0.99% 1.03% 0.99% 0.79% 0.83% 1.31%
Return on average
equity................ 12.20% 12.62% 13.07% 12.91% 9.18% 12.52% 17.70%
Average equity to
average assets........ 7.51% 7.88% 7.90% 7.67% 8.61% 6.62% 7.42%
Efficiency ratio....... 67.71% 62.99% 62.88% 63.90% 60.20% 63.80% 57.55%
Allowance for loan
losses to total
loans................. 1.20% 1.54% 1.28% 1.59% 1.20% 1.03% 0.91%
53
MANAGEMENT DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
The operating results of Manufacturers are primarily dependent upon the
operating results of its wholly owned subsidiary Manufacturers Bank of Florida
(the "Bank"). The Bank conducts a commercial banking business consisting of
attracting deposits from the general public and applying those funds to the
origination of commercial, consumer and real estate loans (including commercial
loans collateralized by real estate).
The Bank's profitability depends primarily on net interest income, which is
the excess of interest income generated from interest-earning assets (i.e.,
loans, investments and federal funds sold) over interest expense incurred on
interest-bearing liabilities (i.e., customers' deposits and borrowed funds).
Net interest income is dependent upon the relative amounts of interest-earning
assets and interest-bearing liabilities, and the amount of interest earned and
paid on those balances. When interest-earning assets approximate or exceed
interest-bearing liabilities, the amount of interest earned that exceeds the
amount of interest paid generates net interest income. Net interest income is
affected by changes in interest rates to the extent that interest-earning asset
and interest-bearing liabilities reprice when interest rates change.
Additionally, the Bank's profitability is affected by such factors as the
provision for loan losses, the level of noninterest income and expense and the
effective tax rate. Non-interest income consists primarily of service fees on
deposit accounts. Non-interest expense consists primarily of compensation and
employee benefits, occupancy and equipment expenses, professional fees, data
processing costs, deposit insurance premiums paid to the FDIC, and other
operating expenses.
The following discussion and analysis is based upon Manufacturers results of
operations for the six months ended June 30, 2001 and 2000 and for the three
years ended December 31, 2000, 1999 and 1998, and should be read in conjunction
with the Manufacturers' consolidated financial statements and related notes
appearing elsewhere in this Proxy Statement/Prospectus. Operating results for
the interim period ended June 30, 2001 are not necessarily indicative of the
results that may be expected for the entire fiscal year ending December 31,
2001.
Results of Operations
Overview
Manufacturers' net income for the six months ended June 30, 2001 was $1.32
million or $0.52 per weighted average common share outstanding compared to
$1.25 million or $0.50 per share for the six months ended June 30, 2000.
Manufacturers realized an increase in net interest income of $633,000 for the
period that was offset by an increase in noninterest expense of $697,000. The
increase in noninterest expense was attributable primarily to increased
compensation expense recorded in connection with nonqualified stock options
exercised in June, 2001. The remaining net increase in net income for the
period reflected a lower loan loss and tax provision for the six months ended
June 30, 2001 compared to the six months ended June 30, 2000.
Manufacturers' net income for the year ended December 31, 2000 was $2.65
million or $1.06 per weighted average common share outstanding compared to net
income for 1999 and 1998 of $1.97 million and $1.20 million, respectively, or
$0.81 and $.50 per share, respectively. The increase in 2000 net income
compared to the prior two years was primarily attributable to significant
increases in average loan volume and the resultant increase in net interest
income. Average loans for 2000 were $200.2 million as compared to average loans
for 1999 and 1998 of $154.3 million and $110.3 million, respectively. Net
interest income for the three years ended December 31, 2000, 1999, and 1998 was
$10.75 million, $8.72 million and $6.49 million, respectively.
54
Net Interest Income
Net interest income, which constitutes the principal source of income for
Manufacturers, represents the excess of interest income on interest-earning
assets over interest expense on interest-bearing liabilities. The principal
interest-earning assets are federal funds sold, investment securities and loans
receivable. Interest bearing liabilities primarily consist of time deposits,
interest bearing checking accounts ("NOW accounts"), saving deposits and money
market accounts. Funds attracted by these interest-bearing liabilities are
invested in interest-earning assets. Accordingly, net interest income depends
upon the volume of average interest earning assets and average interest-bearing
liabilities and the interest rates earned or paid on them.
The following table presents for each category of interest-earning assets
and interest-bearing liabilities (i) the average balance outstanding; (ii) the
total dollar amount of interest income or expense and; (iii) the resultant
calculated yield or rate for the six months ended June 30, 2001 and 2000 and
for the three years ended December 31, 2000, 1999 and 1998. The table also
presents the net interest rate spread, net interest margin, and the ratio of
average interest-earning assets to average interest-bearing liabilities.
For the Six Months Ended June 30,
-------------------------------------------------
2001 2000
------------------------ ------------------------
Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate
-------- -------- ------ -------- -------- ------
(In thousands)
Assets:
Interest-earning assets
Loans(1)....................... $232,653 $10,089 8.67% $192,307 $ 8,465 8.80%
Investments.................... 20,971 762 7.27 22,869 691 6.04
Federal funds sold............. 14,862 360 4.84 19,386 576 5.94
-------- ------- ---- -------- ------- ----
Total earning assets......... 268,486 11,211 8.35 234,562 9,732 8.30
------- ---- ------- ----
Non-earning assets............... 19,339 17,685
-------- --------
Total assets................. $287,825 $252,247
======== ========
Liabilities and Shareholders'
Equity:
Interest-bearing liabilities
NOW accounts................... $ 25,339 276 2.18% $ 24,529 350 2.85%
Money market deposits.......... 33,811 480 2.84 29,235 519 3.55
Savings accounts............... 10,348 71 1.37 11,816 121 2.05
Certificates of deposit........ 114,272 3,230 5.65 103,116 2,601 5.04
Borrowings..................... 51,944 1,251 4.82 32,055 871 5.43
-------- ------- ---- -------- ------- ----
Total interest-
bearing liabilities......... 235,714 5,308 4.50 200,751 4,462 4.45
------- ---- ------- ----
Non interest-bearing
liabilities..................... 30,486 31,622
Shareholders' equity............. 21,625 19,874
-------- --------
Total liabilities and
shareholders' equity........ $287,825 $252,247
======== ========
Spread and Interest Differential:
Net interest income............ $ 5,903 $ 5,270
======= =======
Interest-rate spread(2)........ 3.85% 3.85%
==== ====
Net interest margin(3)......... 4.40% 4.49%
==== ====
Ratio of average earning assets
to average
interest-bearing liabilities.... 1.14 1.17
======== ========
55
Years Ended December 31,
--------------------------------------------------------------------------
2000 1999 1998
------------------------ ------------------------ ------------------------
Average Yield/ Average Yield/ Average Yield/
Balance Interest Rate Balance Interest Rate Balance Interest Rate
-------- -------- ------ -------- -------- ------ -------- -------- ------
(In thousands)
Assets:
Interest-earning assets
Loans(1).................... $200,151 $17,963 8.97% $154,299 $13,602 8.82% $110,343 $10,076 9.13%
Investments................. 23,055 1,444 6.26 16,128 941 5.83 5,507 336 6.10
Federal funds sold.......... 15,139 936 6.18 13,945 667 4.78 25,797 1,398 5.42
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total earning assets...... 238,345 20,343 8.54 184,372 15,210 8.25 141,647 11,810 8.34
------- ---- ------- ---- ------- ----
Non-earning assets............ 17,955 14,122 9,859
-------- -------- --------
Total assets.............. $256,300 $198,494 $151,506
======== ======== ========
Liabilities and Shareholders'
Equity:
Interest-bearing liabilities
NOW accounts................ $ 24,041 $ 704 2.93% $ 18,778 $ 539 2.87% $ 8,659 $ 240 2.77%
Money market deposits....... 28,455 1,021 3.59 21,742 725 3.33 18,408 658 3.57
Savings accounts............ 11,401 229 2.01 12,205 295 2.42 10,354 307 2.97
Certificates of deposit..... 103,694 5,613 5.41 85,026 3,999 4.70 69,777 3,614 5.18
Borrowings.................. 36,028 2,030 5.63 17,800 928 5.21 9,548 501 5.25
-------- ------- ---- -------- ------- ---- -------- ------- ----
Total interest-
bearing liabilities...... 203,619 9,597 4.71 155,551 6,486 4.17 116,746 5,320 4.56
------- ---- ------- ---- ------- ----
Non interest-bearing
liabilities.................. 32,438 27,724 21,743
Shareholders' equity.......... 20,243 15,219 13,017
-------- -------- --------
Total liabilities and
shareholders' equity..... $256,300 $198,494 $151,506
======== ======== ========
Spread and Interest
Differential:
Net interest income......... $10,746 $ 8,724 $ 6,490
======= ======= =======
Interest-rate spread(2)..... 3.83% 4.08% 3.78%
==== ==== ====
Net interest margin(3)...... 4.51% 4.73% 4.58%
==== ==== ====
Ratio of average earning
assets to average
interest-bearing liabilities.. 1.17 1.19 1.21
======== ======== ========
--------
(1) Includes loans on non-accrual status
(2) Interest-rate spread represents the average yield on interest-earning
assets over the average cost of interest bearing liabilities.
(3) Net interest margin represents net interest income (annualized) divided by
average interest-earning assets.
56
Manufacturers' net interest income was $5.90 million for the six months
ended June 30, 2001 compared to $5.27 million for the six months ended June 30,
2000. The increase primarily reflects an increase in average earnings assets of
$33.92 million or 14.5% to $268.5 million for 2001 from $234.6 million for
2000. Average interest-bearing liabilities for the same periods increased
$34.96 million or 17.4% to $235.7 million for the first six months of 2001
compared to $200.8 million for the first six months of 2000. The yield on total
interest-earning assets and the rate on total interest-bearing liabilities,
however, and the related net interest rate spread and net interest margin
between each six month period remained relatively flat, in spite of a declining
interest rate environment during the first six months of 2001 compared to a
rising interest rate environment during the first six months of 2000. The prime
lending rate was 6.75% as of June 30, 2001 compared to 9.50% as of December 31,
2000. The prime lending rate at June 30, 2000 was unchanged at 9.50% but had
increased from 8.50% as of December 31, 1999. Manufacturers has been able to
achieve stability in its net interest margin primarily as a result of its
significant fixed rate loan portfolio. Fixed rate loans as a percentage of
total loans at June 30, 2001 were approximately 74%.
Net interest income for the year ended December 31, 2000 was $10.75 million
compared to $8.72 million and $6.49 million for 1999 and 1998. Overall, the
increase reflects the substantial growth in the balance sheet of the Bank and
the ability of Manufacturers to effectively manage its net interest margin
during a period of extreme interest rate volatility. Average earning assets
increased to $238.3 million for 2000 compared to $184.4 million and $141.6
million for 1999 and 1998, respectively. Average interest-bearing liabilities
increased to $203.6 million for 2000 compared to $155.6 million and $116.7
million for 1999 and 1998, respectively. Manufacturers' net interest margin
during those years remained relatively flat at 4.51%, 4.73% and 4.58% for 2000,
1999 and 1998, respectively, reflecting primarily the magnitude of its fixed
rate loan portfolio. In contrast, the prime lending rate changed nine times
during the three years preceding December 31, 2000 finally increasing to 9.50%
in May 2000 and remaining at 9.50% throughout the rest of 2000. The prime
lending rate at December 31, 1999 and 1998 was at 8.50% and 7.75%, respectively
and was 8.50% at January 1, 1998.
Changes in the net interest margin from year to year as they do occur are
mostly attributable to the repricing of adjustable rate loans, investable
federal fund balances and time deposits consistent with changes in interest
rates. Rate changes applied to the Bank's other interest-bearing deposit
accounts have historically not had a significant effect on the Bank's net
interest margin.
Because of the Bank's negative gap position (see discussion on interest rate
risk below), changes in the net interest margin are affected to the largest
extent by the repricing of time deposits. As such, net interest income was
affected unfavorably with increases in the prime lending rate, which started in
July 1999 and continued through May 2000. Interest expense on time deposits
increased to $5.61 million in 2000 compared to $4.0 million and $3.61 million
in 1999 and 1998, respectively. The increase in 2000 of $1.61 million was
attributable to the effect of these increases in interest rates and the
increase in the average balance outstanding to $103.7 million for 2000 compared
to $85.0 million for 1999.
57
The following table summarizes for the six months ended June 30, 2001 versus
the six months ended June 30, 2000 and for the year ended December 31, 2000
versus the year ended December 31, 1999, the effect on net interest income of
changes in average volume, average rates and rate/volume for each category of
interest-earning assets and interest-bearing liabilities as discussed above.
The effect of such changes is calculated as follows: (1) changes in interest
rate (change in rate multiplied by prior volume), (2) changes in volume (change
in volume multiplied by prior rate) and (3) changes in rate/volume (change in
rate multiplied by change in volume.)
Six Months Ended June 30, Years Ended December 31,
2001 vs. 2000 2000 vs. 1999
---------------------------- -----------------------------
Increase (Decrease) Due to Increase (Decrease) Due to
---------------------------- -----------------------------
Rate/ Rate/
Rate Volume Volume Total Rate Volume Volume Total
----- ------ ------ ------ ----- ------ ------ ------
(Dollars in thousands)
Interest-earning assets
Loans................. $(126) $1,776 $(26) $1,624 $ 246 $4,042 $ 73 $4,361
Investments........... 140 (57) (12) 71 69 404 30 503
Federal funds sold.... (107) (134) 25 (216) 195 57 17 269
----- ------ ---- ------ ----- ------ ----- ------
Total interest-
earning assets..... (93) 1,585 (13) 1,479 510 4,503 120 5,133
===== ====== ==== ====== ===== ====== ===== ======
Interest-bearing
liabilities
NOW accounts.......... (83) 12 (3) (74) 11 151 3 165
Money market
deposits............. (104) 81 (16) (39) 55 224 17 296
Savings accounts...... (40) (15) 5 (50) (50) (19) 3 (66)
Certificates of
deposit.............. 314 281 34 629 603 878 133 1,614
Borrowings............ (99) 540 (61) 380 75 950 77 1,102
----- ------ ---- ------ ----- ------ ----- ------
Total interest-
bearing
liabilities........ (12) 899 (41) 846 694 2,184 233 3,111
----- ------ ---- ------ ----- ------ ----- ------
Net change in net-
interest income........ $ (81) $ 686 $ 28 $ 633 $(184) $2,319 $(113) $2,022
===== ====== ==== ====== ===== ====== ===== ======
Net Interest Income and Interest Rate Risk
Net interest income can be significantly affected by changes in interest
rates. Manufacturers attempts to minimize its exposure to interest rate risk
through a program of asset/liability management. A principal objective of
Manufacturers' asset/liability management strategy is to match the maturity and
repricing horizons of interest-earning assets and interest-bearing liabilities.
Manufacturers measures its interest rate risk by comparing its rate
sensitive assets to its rate sensitive liabilities. An asset or liability is
considered to be interest-rate sensitive if it will reprice or mature within
the time period analyzed, usually one year or less. The interest-rate
sensitivity "gap" is the difference between interest-earning assets and
interest-bearing liabilities scheduled to mature or reprice within each time
period analyzed.
The rate sensitivity gap is considered positive when the amount of interest-
rate sensitive assets exceeds the amount of interest-rate sensitive
liabilities. The gap is considered negative when the amount of interest-rate
sensitive liabilities exceeds interest-rate sensitive assets. During a period
of rising interest rates, a negative gap would tend to adversely affect net
interest income, while a positive gap would tend to result in an increase in
net interest income. During a period of declining interest rates, a negative
gap would tend to result in an increase in net interest income, while a
positive gap would tend to adversely affect net interest income.
Management affects its gap position by managing the maturity distribution of
its investment portfolio, by originating adjustable rate versus fixed rate
loans, and by managing the product mix and maturity of its deposit accounts.
58
At June 30, 2001, Manufacturers cumulative one-year gap was a negative
14.17% of total assets and in management's opinion, was within acceptable risk
limits. The following table summarizes Manufacturers rate sensitivity gap over
various time horizons and on a cumulative basis as of June 30, 2001.
One Year More than
0 to 30 31 to 90 91 to to Five Five
Days Days 365 Days Years Years Total
------- -------- -------- -------- --------- --------
(Dollars in thousands)
Earning assets
Loans(1).............. $44,137 $ 13,214 $ 18,265 $103,441 $65,493 $244,550
Investments(2)........ 2,988 1,003 7,609 2,163 7,909 21,672
Federal funds sold.... 7,596 -- -- -- -- 7,596
------- -------- -------- -------- ------- --------
Total interest-
earning assets..... 54,721 14,217 25,874 105,604 73,402 273,818
------- -------- -------- -------- ------- --------
Interest-bearing
liabilities
Savings and NOW
accounts............. 7,647 7,647
Money market
deposits............. 23,689 23,689
Certificates of
deposit(3)........... 10,949 19,488 54,375 32,022 116,834
FHLB borrowings....... 5,000 25,500 9,950 40,450
Other borrowings...... 14,051 14,051
Mtg plus line of
credit............... -- 1,390 -- -- -- 1,390
------- -------- -------- -------- ------- --------
Total interest-
bearing
liabilities........ 61,336 20,878 54,375 57,522 9,950 204,061
------- -------- -------- -------- ------- --------
Rate Sensitivity GAP.... (6,615) (6,661) (28,501) 48,082 63,452 $ 69,757
======= ======== ======== ======== ======= ========
Cumulative Rate
Sensitivity GAP........ $(6,615) $(13,276) $(41,777) $ 6,305 $69,757
======= ======== ======== ======== =======
Rate Sensitivity GAP
Ratio.................. (2.42)% (2.43)% (10.41)% 17.56% 23.17%
======= ======== ======== ======== =======
Cumulative Rate
Sensitivity GAP Ratio.. (2.42)% (4.85)% (15.26)% 2.30% 25.48%
======= ======== ======== ======== =======
Ratio of Cumulative GAP
to Total Assets........ (2.24)% (4.50)% (14.17)% 2.14% 23.67%
======= ======== ======== ======== =======
--------
(1) In preparing the table above, adjustable-interest rate loans were included
in the period in which the interest rates are next scheduled to adjust
rather than in the period in which the loans mature. Fixed-interest rate
loans were scheduled according to their contractual maturities.
(2) In preparing the table above, adjustable-interest rate investment
securities were included in the period in which the interest rates are next
scheduled to adjust rather than in the period in which the investment
securities mature. Fixed-interest rate investment securities were scheduled
according to their contractual maturities.
(3) Certificates of deposit were scheduled according to their contractual
maturities.
Provision for Loan Losses
The provision for loan losses is charged to earnings based on management's
evaluation of the allowance for loan losses. The allowance for loan losses
reflects management's estimate of losses that are inherent in the loan
portfolio as of the date of review and is based upon historical experience, the
volume and type of lending conducted by the Bank, the amounts of non-performing
loans, general economic conditions, particularly as they relate to Bank's
market area, and other factors related to the collectibility of Bank's loan
portfolio.
For the six months ended June 30, 2001 and 2000, the provision for loan
losses was $45,000, and $70,000, respectively. For the three years ended
December 31, 2000, 1999, and 1998, the loan loss provision was $95,000,
$470,000 and $1.17 million, respectively.
59
Noninterest Income
Noninterest income consists primarily of service charges and fees on deposit
accounts and mortgage banking fees. Noninterest income for the six months ended
June 30, 2001 decreased to $728,000 from $751,000 for the six months ended June
30, 2000. The decrease primarily reflects income of $132,000 recognized in 2000
for gains in the cash surrender value of bank owned life insurance policies.
Excluding income on the change in value of the life insurance, noninterest
income increased $109,000 or 17.6% for the first six months of 2001.
Noninterest income for the three years ended December 31, 2000, 1999 and
1998 was $1.55 million, $1.25 million and $1.29 million, respectively. Service
charges and fees on deposit accounts for the same three years ended were
$939,000, $815,000 and $663,000, respectively. The increase in noninterest
income for 2000 primarily reflects a gain on the sale of a financial asset of
$330,000. Noninterest income for 1998 was also affected by gains on the sale of
other real estate of $360,000.
Noninterest Expenses
Noninterest expense for the six months ended June 30, 2001 increased to
$4.49 million from $3.79 million for the six months ended June 30, 2000.
Noninterest expense includes personnel expenses that increased to $2.55 million
from $1.84 million for the same periods. The increase primarily reflects
compensation expense recorded in connection with certain nonqualified stock
options exercised in June 2001.
Noninterest expense for the three years ended December 31, 2000, 1999 and
1998 was $7.73 million, $6.38 million and $4.68 million, respectively.
Increases from year to year primarily reflect increases in personnel expense
consistent with the overall increase in total assets of Manufacturers.
Noninterest expense also includes occupancy increase which for the same three
years was $1.49 million, $1.29 million and $912,000.
Income Tax Provision
Tax expense reflects estimates of amounts anticipated to be paid for federal
and state income taxes based on taxable income for the period or year plus any
net change in Manufacturers' net deferred tax asset from the beginning of the
year to the end of the period or year.
Tax expense for the six months ended June 30, 2001 decreased to $777,000
from $904,000 for the six months ended June 30, 2000.
Tax expense for the three years ended December 31, 2000, 1999 and 1998 was
$1.82 million, $1.17 million and $737,000, respectively.
Financial Condition
Overview
Manufacturers' financial condition is primarily dependent on the quality of
the Bank's loan and investment portfolios, the Bank's ability to fund loans and
meet current obligations with deposit activities and other borrowings and the
adequacy of the Bank's capital relative to total assets.
The following discussion and analysis is based upon Manufacturers' financial
condition as of June 30, 2001 and 2000 and as of December 31, 2000, 1999 and
1998, and pertains primarily to the activities of the Bank. The following
discussion should be read in conjunction with the Manufacturers' consolidated
financial statements and related notes appearing elsewhere in this Proxy
Statement/Prospectus.
60
Lending Activities
The Bank has experienced significant increases in its loan portfolio since
December 31, 1999. This increase was realized in concurrence with employment by
Manufacturers of a new chief executive officer and a new chief operating
officer. The following table shows the relationship of loans to total assets
for the Bank as of the periods indicated:
At June 30, At December 31,
----------- ------------------
2001 2000 1999
----------- -------- --------
(Dollars in thousands)
Total assets................................. $294,765 $272,009 $243,724
Total loans, net............................. 241,267 223,318 187,954
Loans as a % of total assets................. 81.9% 82.1% 77.1%
Lending activities are conducted pursuant to a written policy that has been
adopted and approved by the board of directors of the Bank. Loan officers have
defined lending authorities beyond which loans, depending upon their type and
size, must be reviewed and approved by a loan committee comprised of certain
officers and directors.
Management seeks to maintain quality assets through sound underwriting and
sound lending practices. The largest category of loans in the loan portfolio
are collateralized by real estate mortgages, consisting primarily of commercial
properties. The Bank generally originates residential mortgage loans solely for
the purpose of selling those loans in the secondary market. As of June 30, 2001
and December 31, 2000, 81.3% and 77.7%, respectively, of the total loan
portfolio consisted of loans secured by real estate.
Commercial real estate mortgage loans in the portfolio consist of fixed and
adjustable-interest rate loans which were originated at prevailing market
interest rates. The Bank's loan policy has been to originate commercial real
estate mortgage loans predominantly in its primary market area. Commercial real
estate mortgage loans are generally made in amounts up to 80% of the appraised
value of the property securing the loan. In making commercial real estate
loans, the Bank primarily considers the net operating income generated by the
real estate to support the debt service, the financial resources and income
level and managerial expertise of the borrower, the marketability of the
collateral and the Bank's lending experience with the borrower.
Commercial loans not secured by real estate are typically underwritten on
the basis of the borrower's ability to make repayment from the cash flows of
the business and, generally, are collateralized by business assets, such as
accounts receivable, equipment and inventory. As a result, the availability of
funds for the repayment of commercial loans may be substantially dependent on
the success of the business itself, which is subject to adverse conditions in
the economy. Commercial loans also entail certain additional risks since they
usually involve large loan balances to single borrowers or a related group of
borrowers, resulting in a more concentrated loan portfolio. Further, the
collateral underlying the loans may depreciate over time, cannot be appraised
with as much precision as residential real estate, and may fluctuate in value
based on the success of the business
Loan concentrations are defined as significant amounts loaned to a single
borrower or to a number of borrowers engaged in similar activities which would
cause them to be similarly impacted by economic or other conditions. The Bank,
on a routine basis, monitors these concentrations in order to consider
adjustments in its lending practices to reflect economic conditions, loan to
deposit ratio, and industry trends. Management believes as of June 30, 2001 and
December 31, 2000 that the Bank had no significant concentration of risk with a
single borrower or industry. Loan customers are principally closely-held
businesses and residents of Tampa, Florida and the surrounding areas and as
such, the borrower's ability to honor their loan commitments is substantially
dependent upon the general economic conditions of the region. Most of the
Bank's business activity is with customers located within the Tampa area.
61
The following table presents the composition of the Manufacturers' loan
portfolio for the periods indicated.
As of June 30,
--------------------------------
2001 2000
--------------- ---------------
(Dollars in thousands)
% of % of
Amount Total Amount Total
-------- ------ -------- ------
Commercial.................................... $ 40,933 16.74% $ 42,065 21.18%
Real estate................................... 198,900 81.33 147,861 74.45
Consumer and other............................ 4,717 1.93 8,668 4.37
-------- ------ -------- ------
Total loans receivable.................... 244,550 100.00% 198,594 100.00%
====== ======
Less:
Deferred loan fees.......................... 347 185
Allowance for loan losses................... 2,936 1.20% 3,058 1.54%
-------- ====== -------- ======
Loans, net................................ $241,267 $195,351
======== ========
As of December 31,
---------------------------------------------------------------------------------
2000 1999 1998 1997 1996
--------------- --------------- --------------- -------------- --------------
% of % of % of % of % of
Amount Total Amount Total Amount Total Amount Total Amount Total
-------- ------ -------- ------ -------- ------ ------- ------ ------- ------
Commercial.............. $43,150 19.05% $ 44,966 23.51% $ 32,122 25.41% $28,242 31.04% $16,715 25.95%
Real estate............. 176,000 77.70 136,427 71.35 88,398 69.92 56,915 62.54 43,514 67.55
Consumer and other...... 7,363 3.25 9,826 5.14 5,906 4.67 5,842 6.42 4,185 6.50
-------- ------ -------- ------ -------- ------ ------- ------ ------- ------
Total loans
receivable......... 226,513 100.00% 191,219 100.00% 126,426 100.00% 90,999 100.00% 64,414 100.00%
====== ====== ====== ====== ======
Less:
Deferred loan fees.... 306 232 147 101 30
Allowance for loan
losses............... 2,889 1.28% 3,033 1.59% 1,517 1.20% 940 1.03% 587 0.91%
-------- ====== -------- ====== -------- ====== ------- ====== ------- ======
Loans, net.......... $223,318 $187,954 $124,762 $89,958 $63,797
======== ======== ======== ======= =======
As of June 30, 2001, the maturities and interest rate sensitivities of the
Bank's loan portfolio, based on remaining scheduled principal repayments, were
as follows:
Due After One
Due in One Year Through Due After
Year or Less Five Years Five Years Total
------------ ------------- ---------- --------
(Dollars in thousands)
Commercial.................. $21,099 $17,854 $ 1,980 $ 40,933
Real estate................. 27,301 87,067 84,532 198,900
Consumer and other.......... 3,274 1,373 70 4,717
------- -------- ------- --------
Total................... $51,674 $106,294 $86,582 $244,550
======= ======== ======= ========
Loans with maturities over
one year:
Fixed interest rate....... $ 88,521 $65,493 $154,014
Variable interest rate.... 17,773 21,089 38,862
-------- ------- --------
Total maturities greater
than one year.......... $106,294 $86,582 $192,876
======== ======= ========
Classification of Assets
Generally, interest on loans accrues and is credited to income based upon
the principal balance outstanding. It is management's policy to discontinue
the accrual of interest income and classify a loan on non-accrual status when
in the opinion of management, principal or interest is not likely to be paid
in accordance with the terms of the obligation or when principal or interest
is past due 90 days or more unless, in the
62
determination of management, the principal and interest on the loan are well
collateralized and in the process of collection. Loans are not returned to
accrual status until principal and interest payments are brought current and
future payments appear reasonably certain. Interest accrued and unpaid at the
time a loan is placed on non-accrual status is charged against interest income.
Real estate acquired by the Bank as a result of foreclosure or by deed in lieu
of foreclosure is classified as other real estate owned ("OREO"). OREO
properties are recorded at the lower of cost or fair value less estimated
selling costs, and the estimated loss, if any is charged to the allowance for
credit losses at the time it is transferred to OREO. Further write-downs in
OREO are recorded at the time management believes additional deterioration in
value has occurred and are charged to non-interest expense.
Nonperforming assets, including OREO, are presented in the following table
as of and for the six months ended June 30, 2001 and 2000 and December 31,
2000, 1999, 1998, 1997 and 1996.
At June
30, At December 31,
---------- ----------------------------
2001 2000 2000 1999 1998 1997 1996
---- ---- ---- ---- ---- ---- ----
(Dollars in thousands)
Loans on non-accrual status
Commercial........................ $ 33 $285 $ 94 $153 $-- $-- $--
Real estate....................... 682 452 618 113 88 -- 51
Consumer and other................ 65 116 83 38 -- -- --
---- ---- ---- ---- ---- ---- ----
Total loans on non-accrual
status......................... 780 853 795 304 88 -- 51
Accruing loans over 90 days
delinquent......................... -- 43 1 20 23 11 --
---- ---- ---- ---- ---- ---- ----
Total non-performing loans...... 780 896 796 324 111 11 51
Other real estate owned............. -- -- 50 -- -- 301 723
---- ---- ---- ---- ---- ---- ----
Total non-performing assets..... $780 $896 $846 $324 $111 $312 $774
==== ==== ==== ==== ==== ==== ====
As a percentage of total assets.....
Total non-performing loans...... 0.26% 0.35% 0.29% 0.13% 0.07% 0.01% 0.05%
==== ==== ==== ==== ==== ==== ====
Total non-performing assets..... 0.26% 0.35% 0.31% 0.13% 0.07% 0.22% 0.78%
==== ==== ==== ==== ==== ==== ====
Allowance for Loan Losses
In originating loans, the Bank recognizes that credit losses will be
experienced and that the risk of loss will vary with, among other things, the
type of loan being made, the credit worthiness of the borrower over the term of
the loan and, in the case of a collateralized loan, the quality of the
collateral for the loan, as well as general economic conditions. As a matter of
policy, the Bank maintains an allowance for loan losses. The amount provided
for loan losses during any period is based on an evaluation by management of
the amount needed to maintain the allowance at a level sufficient to cover
anticipated losses and the inherent risk of losses in the loan portfolio.
In determining the amount of the allowance, management considers the dollar
amount of loans outstanding, its assessment of known or potential problem
loans, current economic conditions, the risk characteristics of the various
classifications of loans, the credit record of its borrowers, the fair market
value of underlying collateral and other factors. Specific allowances are
provided for individual loans when ultimate collection is considered
questionable by management after reviewing the current status of such loans and
considering the fair value of the underlying collateral for each loan.
Management continues to actively monitor the Bank's asset quality and to
charge off loans against the allowance for loan losses when appropriate or to
provide specific loss allowances for individual loans when necessary.
Management's estimate of the allowance for loan losses is based on information
available to them at the time of their review. Subsequent adjustments to the
allowance may be necessary if future economic conditions or other facts differ
from the assumptions used in making the initial determinations.
63
The following table summarizes changes in the allowance for loan for loan
losses for the six months ended June 30, 2001 and 2000 and for the five years
ended December 31, 2000.
At June 30, At December 31,
------------------ ----------------------------------------------
2001 2000 2000 1999 1998 1997 1996
-------- -------- -------- -------- -------- ------- -------
(Dollars in thousands)
Allowance at beginning
of period.............. $ 2,889 $ 3,033 $ 3,033 $ 1,517 $ 940 $ 587 $ 633
Loans charged off:
Commercial............. 25 23 157 535 542 55 75
Real estate............ 8 146 159 235 157 43 61
Consumer and other..... 73 23 145 307 79 33 17
-------- -------- -------- -------- -------- ------- -------
Total loans charged-
off................... 106 192 461 1,077 778 131 153
-------- -------- -------- -------- -------- ------- -------
Recoveries:
Commercial............. 93 19 61 3 72 15 10
Real estate............ 100 118 61 109 4 25
Consumer and other..... 15 28 43 24 8 -- 2
-------- -------- -------- -------- -------- ------- -------
Total recoveries....... 108 147 222 88 189 19 37
-------- -------- -------- -------- -------- ------- -------
Net loans charged-off.. (2) 45 239 989 589 112 116
Allowance recorded in
connection with
acquisition............ 2,035
Provision for loan
losses charged to
expense................ 45 70 95 470 1,166 465 70
-------- -------- -------- -------- -------- ------- -------
Allowance at end of
period................. $ 2,936 $ 3,058 $ 2,889 $ 3,033 $ 1,517 $ 940 $ 587
======== ======== ======== ======== ======== ======= =======
Net charge-offs as a
percentage of average
loans outstanding...... 0.00% 0.02% 0.12% 0.61% 0.53% 0.15% 0.19%
======== ======== ======== ======== ======== ======= =======
Allowance to period-end
loans receivable....... 1.20% 1.54% 1.28% 1.59% 1.20% 1.03% 0.91%
======== ======== ======== ======== ======== ======= =======
Average loans
outstanding............ 234,134 193,799 200,151 163,323 110,343 73,674 60,593
======== ======== ======== ======== ======== ======= =======
Period-end total loans
receivable............. 244,550 198,594 226,513 191,219 126,426 90,999 64,414
======== ======== ======== ======== ======== ======= =======
Investment Securities
Investment parameters for the Bank are set forth in a policy approved by the
Board of Directors. This policy establishes that investments in debt securities
are limited to those securities guaranteed by the United States Treasury
Department or an agency thereof, should generally have a maturity of five years
or less and qualify for purposes of complying with minimum liquidity
requirements of the State of Florida. Certain other debt securities acquired in
connection with the purchase of another financial institution may not comply
with the Bank's policy but may still be held by the Bank. The Bank does not
purchase or hold equity securities except those of the Federal Home Loan Bank
and Independent Bankers Bank of Florida.
The Bank classifies its investments in debt securities as either held-to-
maturity or available-for-sale and does not hold any securities for trading
purposes. Debt securities that management has the positive intent and ability
to hold to maturity or classified as held-to-maturity and are carried at
amortized cost. All other debt securities are classified as available-for-sale
and are reported at fair value, with unrealized gains and losses recorded as a
component of shareholders' equity. Other investments, consisting mostly of
stock of the Federal Home Loan Bank and stock of the Independent Bankers Bank
of Florida are carried at cost as the stock is not readily marketable.
64
The following table set forth the carrying value of the Bank's investment
portfolio for the periods indicated.
At June 30, At December 31,
----------- ---------------
2001 2000 1999
----------- ------- -------
(Dollars in thousands)
Securities Available for Sale
U.S. Government agency obligations............... $18,568 $17,800 $18,506
Corporate debt obligations....................... 386 379 370
Securities Held to Maturity
U.S. Government agency obligations............... 499 2,638 2,572
Other Investments
Federal Home Loan Bank stock..................... 2,069 2,069 950
Interest-bearing bank deposit.................... 100 100
Other equity securities.......................... 50 50 51
------- ------- -------
Total investment securities.................... $21,672 $23,036 $22,449
======= ======= =======
The maturity distribution and certain other information pertaining to
investment securities as of June 30, 2001 was as follows:
Amortized Estimated
Cost Fair Value Yield
--------- ---------- -----
(Dollars in thousands)
Securities Available for Sale
U.S. Government agency obligations
Due within one year............................. $ 8,001 $ 8,068 5.84%
Due one to five years........................... 1,000 1,031 6.49
Due five to ten years........................... 761 788 7.02
Due after ten years............................. 4,535 4,549 5.68
Corporate debt obligations
Due one to five years........................... 197 200 7.55
Due after ten years............................. 184 186 7.85
Mortgage-backed securities........................ 4,081 4,132 6.48
Securities Held to Maturity
U.S. Government agency obligations
Due within one year............................. 499 513 6.88
------- ------- ----
Total debt securities......................... $19,258 $19,467 6.09%
======= ======= ====
Other Investments
Federal Home Loan Bank stock...................... $ 2,069 $ 2,069
Interest-bearing bank deposit..................... 100 100
Other equity securities........................... 50 50
------- -------
Total investment securities................... $21,477 $21,686
======= =======
Deposit Activities
Deposits are the major source of funds for lending and other investment
purposes. Deposits are attracted principally from within the Bank's primary
market area through the offering of a broad variety of deposit instruments
including checking accounts, interest-bearing checking accounts or NOW
accounts, money market accounts, regular saving accounts, term certificate
accounts (including "jumbo" certificates in denominations of $100,000 or more)
and retirement saving plans.
65
Total deposits were $214.9 million as of June 30, 2001 compared to $212.8
million and $204.8 million as of December 31, 2000 and 1999, respectively.
Deposits increased significantly in 1999 from $139.8 million as of December 31,
1998 reflecting the acquisition of Partners Bank of Florida during 1999 and
expanding into new markets with the opening of several new branches.
The distribution of the Bank's deposits accounts as of June 30, 2001 and for
the three years ended December 31, 2000, 1999 and 1998 was as follow
As of June 30, As of December 31,
--------------- -------------------------------------------------
2001 2000 1999 1998
--------------- --------------- --------------- ---------------
% of % of % of % of
Amount Total Amount Total Amount Total Amount Total
-------- ------ -------- ------ -------- ------ -------- ------
(Dollars in thousands)
Demand Deposits......... $ 28,796 13.40% $ 35,666 16.76% $ 39,471 19.27% $ 27,039 19.34%
NOW accounts............ 25,258 11.75 24,244 11.39 23,385 11.42 14,520 10.38
Money market accounts... 33,601 15.63 27,821 13.07 27,653 13.50 19,820 14.17
Savings deposits........ 10,415 4.85 10,438 4.91 12,043 5.88 10,788 7.71
Time deposits:
Under $100,000........ 45,646 21.24 41,957 19.72 43,738 21.35 26,535 18.98
$100,000 and over..... 71,189 33.13 72,668 34.15 58,529 28.58 41,136 29.42
-------- ------ -------- ------ -------- ------ -------- ------
Total deposits...... $214,905 100.00% $212,794 100.00% $204,819 100.00% $139,838 100.00%
======== ====== ======== ====== ======== ====== ======== ======
Maturity terms, service fees and withdrawal penalties are established by the
Bank on a periodic basis. The determination of rates and terms is predicated on
funds acquisition and liquidity requirements, rates paid by competitors, growth
goals and federal regulations.
The Bank does not have a concentration of deposits from any one source, the
loss of which would have a material adverse effect, except for deposits
maintained at the Bank by one member of the Board of Directors that totaled
$17.5 million as of June 30, 2001. The Bank maintained "brokered deposits" as
of June 30, 2001 and December 31, 2000 of $10.08 million and $12.0 million,
respectively. During 2000, the Bank also began offer time deposits through an
internet program. Wholesale time deposits obtained through this internet
program were $14.4 million and $7.2 million as of June 30, 2001 and December
31, 2000. Management believes that substantially all of its depositors, except
those as noted above, are residents in its primary market area.
Time deposits of $100,000 and over and other large deposit accounts tend to
be short-term in nature and more sensitive to changes in interest rates than
other types of deposits and, therefore, may be a less stable source of funds.
In the event that existing short-term deposits are not renewed, the resulting
loss of the deposited funds could adversely affect the Bank's liquidity. In a
rising interest rate market, such short-term deposits may prove to be a costly
source of funds because their short-term nature facilities renewal at
increasingly higher interest rates, which may adversely affect the Bank's
earnings. However, the converse is true in a falling interest-rate market where
such short-term deposits would be more favorable.
Time deposits of $100,000 and over mature as follows for the periods
indicated.
June 30, December 31,
2001 2000
-------- ------------
(Dollars in
thousands)
Due in three months or less............................ $ 30,437 $ 36,944
Due from three months to six months.................... 23,077 20,006
Due from six months to one year........................ 31,298 31,781
Due one to five years.................................. 32,022 25,894
-------- --------
$116,834 $114,625
======== ========
66
Liquidity
Liquidity management involves the ability to meet the cash flow requirements
of customers who may be depositors wanting to withdraw their funds and the
ability to fund loans to meet borrowers' credit needs. In the ordinary course
of business, the Bank generates cash flows from interest and fee income,
monthly loan payments and loan maturities and the maturity of investment
securities. In addition to cash and due from banks, the Bank also considers
federal funds sold and available-for-sale securities as primary sources of
assets liquidity as well as lines of credit provided by correspondent banks and
the Federal Home Loan Bank.
Many factors affect the ability to accomplish its liquidity objectives
successfully, including the economic environment, the asset/liability mix
within the balance sheet and the ability of the Bank and Bancshares to secure
other borrowings. At June 30, 2001 and December 31, 2000, the Bank had
commitments to originate loans totaling $44.46 million and $39.45 million,
respectively. Standby letters of credit at June 30, 2001 and December 31, 2000
were $3.93 million and $2.84 million, respectively. In addition, scheduled
maturities of certificates of deposit during the year following June 30, 2001
and December 31, 2000 totaled $84.81 million and $88.73 million, respectively.
Management believes that adequate resources exist to fund all of its
commitments that will be funded within the next 12 months and, if so desired,
that the Bank can adjust the rates and terms on certificates of deposit and
other deposit accounts to retain deposits in a changing interest rate
environment.
A state-chartered commercial bank is required to maintain a liquidity
reserve of at least 15% of its transaction deposit accounts and 8% of its non-
transaction deposit accounts. The liquidity reserve may consist of cash on
hand, cash on demand deposit with other correspondent banks, short term
marketable securities and other investments as determined by the rules of the
Florida Department of Banking and Finance. As of June 30, 2001 and December 31,
2000, the Bank's liquidity ratio was 21.6% and 25.9%, respectively.
Capital Resources
The federal banking regulatory authorities have adopted certain "prompt
corrective action" rules with respect to depository institutions. The rules
establish five capital tiers: "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized," and "critically
undercapitalized." The various federal banking regulatory agencies have adopted
regulations to implement the capital rules by, among other things, defining the
relevant capital measure for the five capital categories. An institution is
deemed to be "well capitalized" if it has a total risk-based capital ratio of
10% or greater, a Tier 1 risk-based capital ratio of 6% or greater, and a Tier
1 leverage ratio of 5% or greater and is not subject to a regulatory order
agreement, or directive to meet and maintain a specific capital level.
At June 30, 2001 and December 31, 2000, the Bank met the necessary benchmark
capital ratios to be considered a "well capitalized" financial institution.
Depository institutions which fall below the "adequately capitalized" category
generally are prohibited from making any capital distribution, are prohibited
from acquiring brokered deposits, are subject to growth limitations, and are
required to submit capital restoration plan. There are number of requirements
and restrictions that may be imposed on institutions treated as "significantly
undercapitalized" and, if the institution is "critically undercapitalized," the
banking regulatory agencies have the right to appoint a receiver or
conservator.
In accordance with risk capital guidelines issued by the FDIC, the Bank is
required to maintain a minimum standard of total capital to risk-weighted
assets of 8%. Additionally, the FDIC requires banks to maintain a minimum
leverage-capital ratio of Tier 1 capital (as defined) to total assets. The
leverage-capital ratio ranges from 3% to 5% based on the bank's rating under
the regulatory rating system.
67
The following table summarizes the regulatory capital levels and ratios for
the Bank only.
Capital Resources
Actual Regulatory Requirement
Ratios for Well Capitalized Institutions
------ ---------------------------------
At June 30, 2001
Total capital to risk-weighted
assets............................. 10.56% 10.00%
Tier 1 capital to risk-weighted
asset.............................. 9.32 6.00
Tier 1 capital to total asset--
leverage ratio..................... 7.57 5.00
At December 31, 2000
Total capital to risk-weighted
assets............................. 10.38 10.00
Tier 1 capital to risk-weighted
asset.............................. 9.13 6.00
Tier 1 capital to total asset--
leverage ratio..................... 7.63 5.00
At December 31, 1999
Total capital to risk-weighted
assets............................. 10.38 10.00
Tier 1 capital to risk-weighted
asset.............................. 9.12 6.00
Tier 1 capital to total asset--
leverage ratio..................... 7.84 5.00
At December 31, 1998
Total capital to risk-weighted
assets............................. 11.47 10.00
Tier 1 capital to risk-weighted
asset.............................. 10.33 6.00
Tier 1 capital to total asset--
leverage ratio...................... 8.59 5.00
68
BUSINESS OF BANCGROUP
General
BancGroup is a Delaware corporation organized in 1974 as a bank holding
company under the Bank Holding Act of 1956, as amended. Through its wholly-
owned subsidiary, Colonial Bank, BancGroup conducts a general commercial
banking business in the states of Alabama, Florida, Georgia, Nevada, Tennessee
and Texas. At June 30, 2001, BancGroup had assets of $12.3 billion.
As of June 30, 2001 Colonial Bank has a total of 243 branches, with 117
branches in Alabama, 89 branches in Florida, 22 branches in Georgia, two
branches in Tennessee, three branches in Texas and ten branches in Nevada.
Colonial Bank conducts a general commercial banking business in its respective
service areas. Colonial Bank offers a variety of demand, savings and time
deposit products as well as extensions of credit through personal, commercial
and mortgage loans within each of its market areas. Colonial Bank also provides
additional services to its markets through cash management servicers,
electronic banking services, credit card and merchant services and wealth
management services. Wealth management services include trust services and the
sales of various types of investment products such as mutual funds, annuities,
stocks, municipal bonds and U.S. government securities.
Other Proposed Business Combination
As of June 15, 2001, BancGroup entered into a branch purchase and assumption
agreement with Union Planters Corporation to acquire 13 Union Planters
branches. Nine of these branches are located in Florida in the Tamp and Naples
areas and have approximately $244 million in deposits. The remaining four
branches, which have approximately $114 million in deposits, are located in
Alabama in Elmore County, which is just north of Montgomery. This transaction
is pending approval by various regulatory agencies and is expected to close in
the fourth quarter of 2001.
Voting Securities and Principal Stockholders
As of February 20, 2001, BancGroup had issued and outstanding 110,543,599
shares of BancGroup Common Stock with approximately 9,892 stockholders of
record. Each such share is entitled to one vote. In addition, as of that date,
2,585,208 shares of BancGroup Common Stock were subject to issuance upon
exercise of options pursuant to BancGroup's stock option plans and up to
584,033 shares of BancGroup Common Stock were issuable upon conversion of
BancGroup's 1986 Debentures. There are currently 200,000,000 shares of
BancGroup Common Stock authorized.
The following table shows those persons who are known to BancGroup to be
beneficial owners as of February 20, 2001 of more than five percent of
outstanding BancGroup Common Stock.
Percentage of
Common Class
Name and Address Stock Outstanding(1)
---------------- --------- --------------
Robert E. Lowder................................. 6,211,096(2) 5.6%
Post Office Box 1108
Montgomery, AL 36101
--------
(1) Percentage is calculated assuming the issuance of shares of BancGroup
Common Stock pursuant to BancGroup's stock option plans that are held by
Mr. Lowder.
(2) Includes 160,000 shares of Common Stock subject to options under
BancGroup's stock option plans, excluding options that were not exercisable
within 60 days of February 20, 2001, due to vesting requirements. In
addition, the total includes 25,960 and 22,628 shares owned by Mr. Lowder's
wife and stepson, respectively. Mr. Lowder disclaims beneficial ownership
of these shares.
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 February 20,
2001.
Shares of BancGroup
Beneficially Owned
------------------------
Percentage
Common of Class
Directors Name Stock Outstanding
-------------- --------- -----------
Lewis Beville......................................... 3,988 *
William Britton....................................... 61,919(1) *
Jerry J. Chesser...................................... 326,999 *
Augustus K. Clements, III............................. 47,794 *
Robert S. Craft....................................... 38,353(2) *
Patrick F. Dye........................................ 34,950 *
Clinton O. Holdbrooks................................. 608,271(3) *
Harold D. King........................................ 247,162(4) *
Robert E. Lowder...................................... 6,211,096(5) 5.6%
John Ed Mathison...................................... 43,783(6) *
Milton E. McGregor.................................... 100,000 *
John C.H. Miller, Jr.................................. 83,810(7) *
Joe D. Mussafer....................................... 44,510 *
William E. Powell, III................................ 37,815 *
James W. Rane......................................... 4,904 *
Frances E. Roper...................................... 756,899 *
Simuel Sippial........................................ 17,047 *
Edward V. Welch....................................... 63,727 *
CERTAIN EXECUTIVE OFFICERS WHO ARE NOT ALSO DIRECTORS
Caryn D. Cope......................................... 24,944(8) *
Sarah H. Moore........................................ 20,863(8) *
W. Flake Oakley, IV................................... 128,906(8) *
All executive officers and directors as a group....... 8,907,740 8.1%
--------
* Represents less than 1%.
(1) Includes 7,232 shares owned by Mr. Britton's wife. Mr. Britton disclaims
beneficial ownership of such shares.
(2) Includes 2,808 shares held by the IRA of Mr. Craft's wife. Mr. Craft
disclaims beneficial ownership of such shares.
(3) Includes 128,996 shares held by Mr. Holdbrooks as a trustee of a charitable
trust.
(4) Includes 40,780 shares owned by Mr. King's wife and 20 shares held in a
trust of which he is beneficiary. Mr. King disclaims beneficial ownership
of such shares.
(5) Includes 160,000 shares of Common Stock subject to options under
BancGroup's stock option plans, excluding options that were not exercisable
within 60 days of February 20, 2001, due to vesting requirements. In
addition, the total includes 25,960 and 22,628 shares owned by Mr. Lowder's
wife and stepson, respectively. Mr. Lowder disclaims beneficial ownership
of these shares.
(6) Includes 2,000 shares owned by Dr. Mathison's wife. Dr. Mathison disclaims
beneficial ownership of such shares.
(7) Includes 45,000 shares subject to options under BancGroup's stock option
plans. Also includes 260 shares owned by Mr. Miller's wife. Mr. Miller
disclaims beneficial ownership of his wife's shares.
(8) Caryn D. Cope, Sarah H. Moore and W. Flake Oakley, IV, hold vested options
respecting 10,000, 9,500 and 70,000, respectively, pursuant to BancGroup's
stock option plans, excluding options that are not exercisable within 60
days of February 20, 2001, due to vesting requirements.
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 (i) BancGroup's Annual Report on Form 10-K for the fiscal year
ending December 31, 2000, at item 10, and (ii) BancGroup's Proxy Statement for
its 2001 Annual Meeting under the headings "Election of Directors," "Section
16(a) Beneficial Ownership Reporting Compliance," "Compensation Committee
Interlocks and Insider Participation," "Executive Compensation," and "Executive
Compensation Committee Report" at pages 4-15. BancGroup hereby incorporates
such information by reference.
BUSINESS OF MANUFACTURERS
General
Manufacturers was incorporated under the laws of the State of Florida on
January 5, 1999. Manufacturers is a registered bank holding company under the
BHCA and owns all of the voting shares of the Bank. The Bank commenced
operations on February 3, 1986. The Bank is a state banking corporation subject
to regulation by the FDIC and the Florida Department. The Bank's operations are
conducted from its main office located in Tampa, Florida and branch offices
located in the surrounding area.
Manufacturers provides a range of consumer and commercial banking services
to individuals, businesses and industries. The basic services offered by
Manufacturers include: demand interest-bearing and noninterest-bearing
accounts, money market deposit accounts, NOW accounts, time deposits, safe
deposit services, credit cards, cash management, direct deposits, notary
services, money orders, night depository, travelers' checks, cashier's checks,
domestic collections, savings bonds, bank drafts, automated teller services,
drive-in tellers, and banking by mail and the internet. In addition,
Manufacturers primarily makes secured and unsecured commercial and real estate
loans and issues stand-by letters of credit. Manufacturers provides automated
teller machine (ATM) cards, as a part of the Star ATM Network, thereby
permitting customers to utilize the convenience of larger ATM networks.
Manufacturers also provides customers with extended banking hours.
Manufacturers does not have trust powers and, accordingly, no trust services
are provided.
The revenues of Manufacturers are primarily derived from interest on, and
fees received in connection with, real estate and other loans, and from
interest and dividends from investment securities and short-term investments,
and also fees associated with deposit services. The principal sources of funds
for Manufacturers's lending activities are its deposits, repayment of loans,
and the maturity of investment securities. The principal expenses of
Manufacturers are the interest paid on deposits, and operating and general
administrative expenses.
As is the case with banking institutions generally, Manufacturers'
operations are materially and significantly influenced by general economic
conditions and by related monetary and fiscal policies of financial institution
regulatory agencies, including the Federal Reserve, the FDIC and the Florida
Department. Deposit flows and costs of funds are influenced by interest rates
on competing investments and general market rates of interest. Lending
activities are affected by the demand for financing of real estate and other
types of loans, which in turn is affected by the interest rates at which such
financing may be offered and other factors affecting local demand and
availability of funds. Manufacturers faces strong competition in the attraction
of deposits (its primary source of lendable funds) and in the origination of
loans.
Lending Activities
Manufacturers offers a range of lending services, including real estate,
consumer and commercial loans, to individuals and small businesses and other
organizations that are located in or conduct a substantial portion of their
business in Manufacturers's market area. Manufacturers's consolidated net loans
at June 30, 2001 were $241 million, or 82.7% of total Manufacturers
consolidated assets. The interest rates charged on loans vary with the degree
of risk, maturity, and amount of the loan, and are further subject to
competitive pressures, money market rates, availability of funds, and
government regulations. Manufacturers has no foreign loans or loans for highly
leveraged transactions.
71
Manufacturers's loans are concentrated in three major areas: commercial and
commercial real estate loans, residential real estate loans, and consumer
loans. A majority of Manufacturers's loans are made on a secured basis. As of
June 30, 2001, approximately 81.3% of Manufacturers's consolidated loan
portfolio consisted of loans secured by mortgages on real estate and 16.7% of
the loan portfolio consisted of commercial loans. At the same date, 2% of the
Bank's loan portfolio consisted of consumer and other loans.
Manufacturers's real estate loans are secured by mortgages and consist
primarily of loans to individuals, investors and businesses for the purchase,
improvement of or investment in real estate and for the construction and/or
ownership of single-family residential units. These real estate loans may be
made at fixed- or variable-interest rates. Manufacturers generally does not
make fixed-interest rate commercial real estate loans for terms exceeding 10
years. Loans in excess of four years generally have adjustable-interest rates.
Manufacturers' residential loans generally are repayable in monthly
installments based on up to a 30-year amortization schedule with variable-
interest rates.
Manufacturers's commercial loan portfolio includes loans to individuals and
small-to-medium sized businesses located primarily in Hillsborough County for
working capital, equipment purchases, and various other business purposes. A
majority of commercial loans are secured by real estate, equipment or similar
assets, but these loans may also be made on an unsecured basis. Commercial
loans may be made at variable or fixed rates of interest. Commercial lines of
credit are typically granted on a one-year basis, with loan covenants and
monetary thresholds. Other commercial loans with terms or amortization
schedules of longer than one year will normally carry interest rates which vary
with the prime lending rate and will become payable in full and are generally
refinanced in three to five years.
Manufacturers's consumer loan portfolio consists primarily of loans to
individuals for various consumer purposes, but includes some business purpose
loans which are payable on an installment basis. The majority of these loans
are for terms of less than five years and are secured by liens on various
personal assets of the borrowers, but consumer loans may also be made on an
unsecured basis. Consumer loans are made at fixed and variable interest rates,
and are often based on up to a five-year amortization schedule.
Loan originations are derived from a number of sources. Loan originations
can be attributed to direct solicitation by Manufacturers's loan officers,
existing customers and borrowers, advertising, walk-in customers and, in some
instances, referrals from brokers.
Deposit Activities
Deposits are the major source of Manufacturers's funds for lending and other
investment activities. Manufacturers considers the majority of its regular
savings, demand, NOW and money market deposit accounts to be core deposits.
These accounts comprised approximately 45.6% of Manufacturers's consolidated
total deposits at June 30, 2001. Approximately 54.4% of Manufacturers's
consolidated deposits at June 30, 2001 were certificates of deposit. Generally,
Manufacturers attempts to maintain the rates paid on its deposits at a
competitive level. Time deposits of $100,000 and over made up approximately
33.1% of Manufacturers's consolidated total deposits at June 30, 2001. The
majority of the deposits of Manufacturers are generated from Hillsborough
County.
Investments
Manufacturers invests a portion of its assets in U.S. Government agency
obligations, mortgage-backed securities and federal funds sold. Manufacturers's
investments are managed in relation to loan demand and deposit growth, and are
generally used to provide for the investment of excess funds at minimal risks
while providing liquidity to fund increases in loan demand or to offset
fluctuations in deposits. Occasionally, Manufacturers may purchase certificates
of deposits of national and state banks. These investments may exceed $100,000
in any one institution (the limit of FDIC insurance for deposit accounts).
Federal funds sold is the excess cash Manufacturers has available over and
above daily cash needs. This money is invested on an overnight basis with
approved correspondent banks.
72
Employees
As of June 30, 2001, Manufacturers and the Bank collectively had 82 full-
time employees (including executive officers) and two part-time employees. The
employees are not represented by a collective bargaining unit. Manufacturers
and the Bank consider relations with employees to be good.
Properties
The main office of Manufacturers and the Bank is located at 4144 North
Armenia Avenue, Tampa, Florida. The Bank also has banking offices located at
701 North Franklin Street, Tampa, Florida (downtown office), 1701 South Dale
Mabry, Tampa, Florida (South Tampa office), and 3702 Bearss Avenue, Tampa,
Florida (Carrolwood office). The Bank also operates ATMs at Whaley's Market,
533 South Howard Avenue, Tampa, Florida and Legend's Field, 1 Steinbrenner
Drive, Tampa, Florida. The Bank owns the Carrolwood office and the building and
improvements located at South Tampa. The downtown office is owned by
Manufacturers. The Bank's main office is leased from an entity owned by six of
the members of Manufacturers' Board of Directors.
Legal Proceedings
Manufacturers and the Bank are periodically parties to or otherwise involved
in legal proceedings arising in the normal course of business, such as claims
to enforce liens, claims involving the making and servicing of real property
loans, and other issues incident to their respective businesses. Management
does not believe that there is any pending or threatened proceeding against
Manufacturers or the Bank which, if determined adversely, would have a material
adverse effect on Manufacturers's consolidated financial position.
Security Ownership of Management and Certain Beneficial Owners
The following table sets forth certain information as of the Record Date
regarding the beneficial ownership of Manufacturers Common Stock by: (i) 5% or
greater shareholders of the Manufacturers, (ii) each director of Manufacturers
and (iii) all directors and executive officers of the Manufacturers as a group.
Unless otherwise indicated, the persons named in the table have sole voting and
investment power with respect to all of the shares owned by them.
Shares Percent
Beneficially of
Name of Beneficial Owner Owned(a) Ownership
------------------------ ------------ ---------
Frank Agliano........................................ 73,319 2.81%
M. G. Avarez, Jr. ................................... 198,392(b) 7.64%
Joseph V. Chillura................................... 127,255(c) 4.79%
Anthony F. Gonzalez.................................. 580,486(d) 22.36%
Constantino Gonzalez................................. 281,636(d) 10.85%
Velma-Jean Kato...................................... 49,250(e) 1.89%
Diana Llaneza........................................ 739,312(f) 28.48%
Frank Llaneza........................................ 739,312(f) 28.48%
Luciano Prida, Jr. .................................. 47,320(g) 1.82%
Alfred T. Rogers..................................... 206,085(h) 7.76%
All directors and executive officers as a group (12
persons)............................................ 2,322,474 84.38%
--------
(a) Information relating to beneficial ownership is based upon information
available to Manufacturers and uses "beneficial ownership" concepts set
forth in rules of the Commission under the Securities Exchange Act of 1934,
as amended. Under such rules, more than one person may be deemed to be a
beneficial owner of the same securities, and a person may be deemed to be a
beneficial owner of securities as to which he or she may disclaim any
beneficial interest. Accordingly, directors are named as beneficial
73
owners as shares as to which they may disclaim any beneficial interest. The
shares set forth above also include as to each director the number of
shares listed below, which represent shares the individual has the right to
acquire pursuant to presently exercisable options:
Name of Individual Number of Shares
------------------ ----------------
Frank Agliano............................................... 10,000
Joseph V. Chillura.......................................... 59,850
Velma-Jean Kato............................................. 8,200
Alfred T. Rogers............................................ 59,850
(b) Includes 44,000 shares held jointly with his spouse.
(c) Includes 58,605 shares held jointly with his spouse.
(d) Consists of shares held by a limited partnership, as to which shares he
has voting and dispositive powers.
(e) Includes 40,050 held jointly with her spouse and 1,000 shares held by her
mother.
(f) Consists of 23,331 shares held by Diana Llaneza and 715,981 shares held by
a partnership, as to which Diana and Frank Llaneza share voting and
dispositive powers.
(g) Consists of 35,500 shares held jointly with his spouse and 11,820 shares
owned by his company, as to which shares he has voting and dispositive
powers.
(h) Includes 130,892 shares held by his revocable trust.
ADJOURNMENT OF SPECIAL MEETING
Approval of the Agreement by Manufacturers shareholders requires the
affirmative vote of at least a majority of the outstanding shares of
Manufacturers Common Stock. In the event there are an insufficient number of
shares of Manufacturers Common Stock present in person or by proxy at the
Special Meeting to approve the Agreement, Manufacturers' Board of Directors
intends to adjourn the Special Meeting to a later date provided a majority of
the shares present and voting on the motion have voted in favor of such
adjournment. The place and date to which the Special Meeting would be
adjourned would be announced at the Special Meeting. Proxies voted against the
Agreement and abstentions will not be voted to adjourn the special Meeting.
Abstentions and broker non-votes will not be voted on this matter but will not
count as "no" votes. However, an abstention or a broker non-vote has the same
effect as a "no" vote. If it is necessary to adjourn the Special Meeting and
the adjournment is for a period of not more than 30 days from the original
date of the Special Meeting, no notice of the time and place of the adjourned
meeting need be given the shareholders, other than an announcement made at the
Special Meeting.
The effect of any such adjournment would be to permit Manufacturers to
solicit additional proxies for approval of the Agreement. Such an adjournment
would not invalidate any proxies previously filed as long as the record date
for the adjourned meeting remained the same, including proxies filed by
shareholders voting against the Agreement.
OTHER MATTERS
The Board of Directors of Manufacturers 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 Manufacturers.
74
DATE FOR SUBMISSION OF BANCGROUP STOCKHOLDER PROPOSALS
In order to be eligible for inclusion in BancGroup's proxy solicitation
materials for its 2002 annual meeting of stockholders, any stockholder proposal
to take action at such meeting must be received at BancGroup's main office at
One Commerce Street, Post Office Box 1108, Montgomery, Alabama 36101, no later
than 120 calendar days in advance of the date of March 16, 2002 (November 16,
2001), for inclusion in the proxy or information statement relating to the 2002
annual meeting.
LEGAL MATTERS
Certain legal matters regarding the shares of BancGroup Common Stock of
BancGroup offered hereby are being passed upon by the law firm of Miller,
Hamilton, Snider & Odom, L.L.C., Mobile, Alabama, of which John C. H. Miller,
Jr., a director of BancGroup, is a partner. Such firm received fees for legal
services performed in 2000 of $1,416,321. John C. H. Miller, Jr. beneficially
owns 83,810 shares of BancGroup Common Stock. Mr. Miller also received
employee-related compensation from BancGroup in 2000 of $41,000. Mr. Miller is
also an officer of Pilot Group, a firm that provides consulting services to
BancGroup. BancGroup paid Pilot Group approximately $33,000 in fees during
2000. Certain legal matters relating to the Merger are being passed upon for
Manufacturers by the law firm of Smith Mackinnon, P.A., Orlando, Florida.
EXPERTS
The consolidated financial statements of BancGroup incorporated in this
Prospectus by reference to the Annual Report on Form 10-K for the year ended
December 31, 2000 have been so incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in accounting and auditing. It is not expected that a
representative of such firm will be present at the Special Meeting.
Dowell & Perez, P.A. serves as the independent accountants for
Manufacturers. Manufacturers' consolidated financial statements as of December
31, 2000 and 1999 and for each of the three years ended December 31, 2000 are
included in this Prospectus in reliance upon the report of such firm, and are
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.
PLEASE SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE
ACCOMPANYING ENVELOPE AS PROMPTLY AS POSSIBLE. YOU MAY REVOKE THE PROXY BY
GIVING WRITTEN NOTICE OF REVOCATION TO THE SECRETARY OF MANUFACTURERS PRIOR TO
THE SPECIAL MEETING, BY EXECUTING A LATER DATED PROXY AND DELIVERING IT TO THE
PRESIDENT OF MANUFACTURERS PRIOR TO THE SPECIAL MEETING OR BY ATTENDING THE
SPECIAL MEETING VOTING IN PERSON.
75
WHERE YOU CAN FIND MORE INFORMATION
BancGroup files reports, proxy statements, and other information with the
SEC. You can read and copy these reports, proxy statements, and other
information concerning us at the SEC's Public Reference Room at 450 Fifth
Street, N. W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330
for further information on the Public Reference Room. You can review
BancGroup's electronically filed reports, proxy and information statements on
the SEC's Internet site at http://www.sec.gov. BancGroup's common stock is
quoted on the New York Stock Exchange under the symbol "CNB". These reports,
proxy statements and other information are also available for inspection at the
offices of the New York Stock Exchange, 20 Broad Street, New York City, New
York 10005.
BancGroup has filed a registration statement on Form S-4 with the SEC
covering the common stock. This Proxy Statement/Prospectus, which forms a part
of the registration statement, does not contain all of the information included
in the registration statement. For further information about BancGroup and its
common stock you should refer to the registration statement and its exhibits.
You can obtain the full registration statement from the SEC as indicated above.
The SEC allows BancGroup to "incorporate by reference" the information it
files with the SEC. This permits BancGroup to disclose important information to
you by referring to these filed documents. The information incorporated by
reference is an important part of this Proxy Statement/Prospectus, and
information that BancGroup files later with the SEC will automatically update
and supersede this information. BancGroup incorporates by reference:
. its Annual Report on Form 10-K for the year ended December 31, 2000,
. its Quarterly Reports on Form 10-Q for the periods ended March 31, 2001
and June 30, 2001,
. its description of the current management and Board of Directors
contained in BancGroup's Proxy Statement for its 2001 Annual Meeting,
. a description of its common stock, $2.50 par value per share, contained
in BancGroup's Registration Statement on Form 8-A, filed with the SEC on
November 22, 1994 and effective February 22, 1995, and
. any future filings made with the SEC under Sections 13(a), 13(c), 14 or
15(d) under the Securities Exchange Act of 1934 after the date of this
Proxy Statement/Prospectus and prior to the Special Meeting, or, in the
case of exercise of stock options that are being assumed by BancGroup,
prior to the exercise of such options.
You may request a copy of these filings at no cost by writing or telephoning
BancGroup at the following address:
Office of the Senior Counsel
The Colonial BancGroup, Inc.
Colonial Financial Center
One Commerce Street
Fifth Floor
Montgomery, Alabama 36104
(334) 240-5000
You should rely only on the information incorporated by reference or
provided in this Proxy Statement/Prospectus. BancGroup has not authorized
anyone else to provide you with different information. BancGroup is not making
an offer of the common stock in any state where the offer is not permitted. You
should not assume that the information in this Proxy Statement/Prospectus is
accurate as of any date other than the date on the front of this Proxy
Statement/Prospectus.
76
MANUFACTURERS BANCSHARES, INC.
INDEX TO FINANCIAL STATEMENTS
Page
----
Audited Consolidated Financial Statements
REPORT OF INDEPENDENT ACCOUNTANTS......................................... F-2
Consolidated Statements of Financial Condition........................... F-3
Consolidated Statements of Income........................................ F-4
Consolidated Statement of Changes in Shareholders' Equity................ F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7
Unaudited Consolidated Condensed Financial Statements
Unaudited Consolidated Statements of Financial Condition, June 30, 2001
and 2000................................................................ F-21
Unaudited Consolidated Statements of Income for the Six Months Ended June
30, 2001 and 2000....................................................... F-22
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended
June 30, 2001 and 2000.................................................. F-23
Notes to Unaudited Consolidated Financial Statements for the Six Months
Ended June 30, 2001 and 2000............................................ F-24
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
March 10, 2001
To the Board of Directors and Shareholders of
Manufacturers Bancshares, Inc.
In our opinion, the accompanying consolidated statements of financial
condition and the related consolidated statements of income, changes in
shareholders' equity and of cash flows present fairly, in all material
respects, the financial position of Manufacturers Bancshares, Inc. and its
subsidiaries (the "Company") at December 31, 2000 and 1999, and the results of
their operations and their cash flows for each of each of the three years in
the period ended December 31, 2000 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 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, 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.
/s/ Dowell & Perez, P.A.
Certified Public Accountants
Tampa, Florida
F-2
MANUFACTURERS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
December 31,
-------------------------
2000 1999
------------ ------------
ASSETS
Cash and due from banks............................. $ 4,364,553 $ 13,414,647
Federal funds sold.................................. 8,483,954 8,422,768
Securities available-for-sale....................... 18,178,496 18,875,912
Securities held-to-maturity......................... 2,637,866 2,571,800
Other investments................................... 2,219,500 1,000,760
Loans, net of allowance for loan losses of
$2,889,448 and $3,033,525, respectively............ 223,317,580 187,953,863
Property and equipment, net......................... 7,512,565 6,476,491
Interest receivable................................. 1,598,753 1,315,196
Other assets........................................ 2,587,226 2,239,153
Deferred income taxes............................... 1,108,235 1,453,674
------------ ------------
$272,008,728 $243,724,264
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits..................................... $ 35,666,256 $ 39,471,538
NOW deposits........................................ 24,244,005 23,385,027
Money market deposits............................... 27,820,732 27,652,838
Savings deposits.................................... 10,437,599 12,042,589
Time deposits (under $100,000)...................... 41,957,251 43,737,678
Time deposits ($100,000 and over)................... 72,667,856 58,529,205
------------ ------------
Total deposits.................................. 212,793,699 204,818,875
Accrued interest payable............................ 474,902 287,837
Accounts payable and accrued expenses............... 262,562 251,725
Short-term borrowings............................... 9,229,898 420,162
Long-term debt...................................... 1,000,000
Federal Home Loan Bank Borrowings................... 27,000,000 19,000,000
------------ ------------
Total liabilities............................... 250,761,061 224,778,599
------------ ------------
Commitments and contingencies
Shareholders' equity:
Company obligated mandatorily redeemable capital
securities of trust subsidiary................... 3,000,000 2,500,000
Common stock, $.01 par value; 10,000,000 shares
authorized; 2,500,033 and 2,486,686 issued....... 25,000 24,867
Additional paid-in capital........................ 8,614,713 8,539,777
Retained earnings................................. 9,529,927 8,088,033
Accumulated other comprehensive income (loss)..... 78,027 (207,012)
------------ ------------
Total shareholders' equity...................... 21,247,667 18,945,665
------------ ------------
$272,008,728 $243,724,264
============ ============
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
F-3
MANUFACTURERS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF INCOME
For the years ended December 31,
-----------------------------------
2000 1999 1998
----------- ----------- -----------
Interest income from earning assets:
Loans.................................... $17,962,452 $13,602,103 $10,075,673
Investment securities.................... 1,444,147 941,012 335,819
Federal funds sold....................... 936,339 666,916 1,398,602
----------- ----------- -----------
Total interest income.................. 20,342,938 15,210,031 11,810,094
----------- ----------- -----------
Interest expense on deposits:
NOW...................................... 704,325 539,443 239,963
Money market............................. 1,021,138 724,858 658,718
Savings.................................. 228,721 295,303 307,235
Time..................................... 5,612,923 3,998,552 3,613,830
Other interest expense................... 2,029,948 927,428 500,752
----------- ----------- -----------
Total interest expense................. 9,597,055 6,485,584 5,320,498
----------- ----------- -----------
Net interest income.................... 10,745,883 8,724,447 6,489,596
Provision for loan losses.................. 95,000 470,000 1,166,000
----------- ----------- -----------
Net interest income after provision for
loan losses........................... 10,650,883 8,254,447 5,323,596
----------- ----------- -----------
Noninterest income:
Service charges on deposit accounts...... 938,676 815,112 662,983
Gain on transfer of financial asset...... 330,000 -- --
Gain on sale of ORE...................... -- -- 359,485
Gain on sale of land and building........ -- -- 100,765
Other income............................. 280,889 438,284 168,370
----------- ----------- -----------
Total noninterest income............... 1,549,565 1,253,396 1,291,603
----------- ----------- -----------
Noninterest expenses:
Personnel expense........................ 3,875,505 3,025,327 2,151,991
Occupancy expense........................ 1,487,297 1,289,663 912,215
Other operating expense.................. 2,369,121 2,061,175 1,619,237
----------- ----------- -----------
Total noninterest expense.............. 7,731,923 6,376,165 4,683,443
----------- ----------- -----------
Income before income taxes................. 4,468,525 3,131,678 1,931,756
Income tax expense......................... 1,823,681 1,166,655 737,247
----------- ----------- -----------
Net income................................. $ 2,644,844 $ 1,965,023 $ 1,194,509
=========== =========== ===========
Earnings per share
Basic.................................... $ 1.06 $ 0.81 $ 0.50
=========== =========== ===========
Diluted.................................. $ 0.96 $ 0.72 $ 0.44
=========== =========== ===========
The accompanying Notes to Unaudited Financial Statements are an integral part
of these financial statements.
F-4
MANUFACTURERS BANCSHARES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
For the years ended Decmber 31, 2000, 1999 and 1998
Mandatorily Accumulated
redeemable Additional other Total
capital paid- Retained comprehensive shareholders'
securities Common stock in capital earnings (loss) income equity
----------- ------------ ---------- ----------- ------------- -------------
Balance, December 31,
1997................... $ -- $24,020 $7,348,430 $ 5,177,528 $ -- $12,549,978
Comprehensive income:
Net income............ 1,194,509 1,194,509
-----------
Total comprehensive
income............. 1,194,509
---------- ------- ---------- ----------- --------- -----------
Balance, December 31,
1998................... -- 24,020 7,348,430 6,372,037 -- 13,744,487
Comprehensive income:
Net income............ 1,965,023 1,965,023
Change in net
unrealized gain
(loss) securities
available for sale... (207,012) (207,012)
-----------
Total comprehensive
income............. 1,758,011
-----------
Shares issued for bank
acquisition............ 847 1,191,347 1,192,194
Proceeds from sale of
mandatorily redeemable
capital securities..... 2,500,000 2,500,000
Dividends paid.......... (249,027) (249,027)
---------- ------- ---------- ----------- --------- -----------
Balance, December 31,
1999................... 2,500,000 24,867 8,539,777 8,088,033 (207,012) 18,945,665
Comprehensive income:
Net income............ 2,644,844 2,644,844
Change in net
unrealized gain
(loss) securities
available for sale... 285,039 285,039
-----------
Total comprehensive
income............. 2,929,883
-----------
Shares issued to
preferred
shareholders........... 150 149,850 150,000
Shares issued for stock
options................ 133 106,867 107,000
Cancellation of shares
held in escrow from
bank acquisition....... (150) (181,781) (181,931)
Proceeds from sale of
mandatorily redeemable
capital securities..... 500,000 500,000
Dividends paid.......... (1,202,950) (1,202,950)
---------- ------- ---------- ----------- --------- -----------
Balance, December 31,
2000................... $3,000,000 $25,000 $8,614,713 $ 9,529,927 $ 78,027 $21,247,667
========== ======= ========== =========== ========= ===========
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
F-5
MANUFACTURERS BANCSHARES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31,
----------------------------------------
2000 1999 1998
------------ ------------ ------------
Cash flows from operating
activities:
Interest received................. $ 20,059,381 $ 14,809,952 $ 11,738,217
Noninterest income received....... 1,549,565 1,253,396 831,353
Interest paid..................... (9,409,990) (6,383,318) (5,337,811)
Salaries and benefits paid........ (3,875,505) (3,025,327) (2,151,991)
Other operating expenditures...... (3,013,404) (4,649,296) (2,382,813)
Taxes paid........................ (1,823,681) (1,166,655) (737,247)
------------ ------------ ------------
Net cash provided by operating
activities..................... 3,486,366 838,752 1,959,708
------------ ------------ ------------
Cash flows from investing
activities:
(Increase) decrease in investment
securities....................... (302,351) 7,681 (10,736,311)
Increase in loans................. (35,458,717) (44,060,902) (35,969,765)
Proceeds from sale of land and
building......................... -- -- 887,910
Proceeds from sale or ORE......... -- -- 660,120
Capital expenditures.............. (1,870,885) (821,202) (2,036,506)
------------ ------------ ------------
Net cash used by investing
activities..................... (37,631,953) (44,874,423) (47,194,552)
------------ ------------ ------------
Cash flows from financing
activities:
Increase (decrease) in deposits:
Demand deposits................. (3,805,282) 5,164,433 3,978,817
NOW deposits.................... 858,978 8,865,346 9,191,547
Money market deposits........... 167,894 7,832,972 6,073,650
Savings deposits................ (1,604,990) (1,302,244) 919,385
Time deposits................... 12,358,224 14,619,238 (5,114,477)
Increase (decrease) in short-term
borrowings....................... 8,809,736 (1,578,859) 11,030
Proceeds from long term debt...... 1,000,000 -- --
Increase in Federal Home Loan Bank
borrowings....................... 8,000,000 10,000,000 9,000,000
Proceeds from sale of stock....... 575,069 2,500,000 --
Proceeds from bank acquisition.... 2,667,415 --
Dividends paid.................... (1,202,950) (249,027) --
------------ ------------ ------------
Net cash provided by financing
activities..................... 25,156,679 48,519,274 24,059,952
------------ ------------ ------------
Net (decrease) increase in cash and
cash equivalents................... (8,988,908) 4,483,603 (21,174,892)
Cash and cash equivalents at
beginning of year.................. 21,837,415 17,353,812 38,528,704
------------ ------------ ------------
Cash and cash equivalents at end of
year............................... $ 12,848,507 $ 21,837,415 $ 17,353,812
============ ============ ============
The accompanying Notes to Financial Statements are an integral part of these
financial statements.
F-6
MANUFACTURERS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Description of business and summary of significant accounting policies:
Manufacturers Bancshares, Inc. ( the "Company") is a Florida bank holding
company formed January 5, 1999. During 1999, the Company and Manufacturers Bank
of Florida (the "Bank") entered into an Agreement and Plan of Reorganization
whereby the Bank became a wholly-owned subsidiary of the Company. Under the
Plan of Reorganization, all of the outstanding shares of the Bank were
converted on a one-for-one basis into outstanding shares of common stock of the
Company.
The Company owns 100% of the outstanding common stock of the Bank and 100%
of the outstanding common stock of MBI Business Trust (the "Trust"), a
statutory business trust formed under the laws of the State of Delaware.
The Bank commenced operations on February 3, 1986 and is regulated by the
Florida Department of Banking and Finance and the Federal Deposit Insurance
Corporation. The Trust was formed pursuant to a trust agreement dated December
10, 1999 and exists for the sole purpose of issuing certain trust securities as
more fully described in Note 9. The Company is regulated by the Federal Reserve
Board of Governors.
Basis of presentation and consolidation
The accompanying financial statements include the consolidated accounts of
Manufacturers Bancshares, Inc. and its wholly-owned subsidiaries (the
"Company"). All significant intercompany balances and transactions have been
eliminated in consolidation. Financial statements as of and for the year ended
December 31, 1998 reflect only the accounts of the Bank.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
the date of the balance sheet and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant changes in
the near term relate to the determination of the allowance for loan losses and
the valuation of deferred tax assets.
Significant group concentration of credit risk
Most of the Company's activities are with customers in the Tampa area. Notes
2 and 3 summarize the investing and lending activities of the Company. The
Company does not have any significant concentrations to any one industry or
customer.
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, which are invested
primarily overnight.
Interest bearing deposits in banks
Interest-bearing deposits in banks mature within one year are carried at
cost and included with other investments.
F-7
MANUFACTURERS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Securities
Debt securities that management has the positive intent and ability to hold
to maturity are classified as "held to maturity" and recorded at amortized
cost. Securities not classified as held to maturity are classified as
"available for sale" and recorded at fair value, with unrealized gains and
losses excluded from earnings and reported in other comprehensive income.
Purchase premiums and discounts are recognized in interest income using the
interest method over the terms of the securities. Declines in the fair value of
held-to-maturity and available-for-sale securities below their cost that are
deemed to be other than temporary are reflected in earnings as realized losses.
Gains and losses on the sale of securities are recorded on the trade date and
are determined using the specific identification method.
Other investments at December 31, 2000 include the Company's investment in
stock of the Independent Bankers Bank and the Federal Home Loan Bank. This
stock is carried at cost since the stock is not readily marketable.
Loans
Loans are reported at their outstanding unpaid principal balances adjusted
for charge-offs, the allowance for loan losses and any deferred fees or costs
on originated loans. Interest income is accrued on the unpaid principal
balance. Loan origination fees, net of certain direct origination costs, are
deferred and recognized as an adjustment of the related loan yield using the
interest method.
The accrual of interest on loans is discontinued (nonaccrual status) at the
time a loan is 90 days delinquent as to payment of principal or interest unless
the loan is well-secured and in the process of collection. In all cases, loans
are placed on nonaccrual or charged off at an earlier date if collection of
principal or interest is considered doubtful.
All interest accrued but not collected for loans that are placed on
nonaccrual or charged off is reversed against interest income. The interest on
these loans is accounted for on the cash-basis, until qualifying for return to
accrual. Loans are returned to accrual status when all the principal and
interest amounts contractually due are brought current and future payments are
reasonably assured.
Allowance for loan losses
The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to earnings. Loan losses
are charged against the allowance when management believes the uncollectibility
of a loan balance is confirmed. Subsequent recoveries, if any, are credited to
the allowance.
The allowance for loan losses is evaluated on a regular basis by management
and is based upon management's periodic review of the collectibility of the
loans in light of historical experience, the nature and volume of the loan
portfolio, adverse situations that may affect the borrower's ability to repay,
the estimated value of any underlying collateral and prevailing economic
conditions. This evaluation is inherently subjective as it requires estimates
that are susceptible to significant revision as more information becomes
available.
The allowance for loan losses includes specific valuation allowances for any
loan that is considered impaired. A loan is considered impaired when, based on
current information and events, it is probable that the Company will be unable
to collect the scheduled payments of principal or interest when due according
to the contractual terms of the loan agreement. Factors considered by
management in determining impairment include payment status, collateral value,
and the probability of scheduled principal and interest payments when due.
F-8
MANUFACTURERS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Loans that experience insignificant payment delays and payment shortfalls
generally are not classified as impaired. Management determines the
significance of payment delays and payment shortfalls on a case-by-case basis,
taking into consideration all of the circumstances surrounding the loan and the
borrower, including the length of the delay, the reasons for the delay, the
borrower's prior payment record, and the amount of the shortfall in relation to
the principal and interest owed.
Specific valuation allowances for impaired loans are computed on a loan by
loan basis by either the present value of expected future cash flows discounted
at the loan's effective interest rate, the loan's obtainable market price, or
the fair value of the collateral if the loan is collateral dependent.
Credit related financial instruments
In the ordinary course of business, the Company has entered into commitments
to extend credit, including commitments under credit card arrangements,
commercial letters of credit and standby letters of credit. Such financial
instruments are recorded when they are funded.
Derivative financial instruments
As part of the Company's asset/liability management, the Company has started
to use interest rate swaps to hedge various exposures or to modify interest
rate characteristics of various balance sheet accounts. Changes in the fair
value of interest rate swaps designated as hedging instruments are recognized
as either net income or other comprehensive income depending on the type of
swap.
Foreclosed assets
Assets acquired through, or in lieu of, loan foreclosure are held for sale
and are initially recorded at fair value at the date of foreclosure,
establishing a new cost basis. Subsequent to foreclosure, valuations are
periodically performed by management and the assets are carried at the lower of
carrying amount or fair value less cost to sell. Revenues and expenses from
operations and changes in the valuation allowance are included in net expenses
from foreclosed assets. Foreclosed assets at December 31, 2000 of $50,202
consisted solely of other real estate owned. There were no foreclosed assets at
December 31, 1999.
Banking premises and equipment
Land is carried at cost. Building and equipment are carried at cost, less
accumulated depreciation computed on the straight-line method over the
estimated useful life of the assets.
Transfers of financial assets
Transfers of financial assets are accounted for as sales, when control over
the assets has been surrendered. Control over transferred assets is deemed to
be surrendered when (1) the assets have been isolated from the Company, (2) the
transferee obtains the right (free of conditions that constrain it from taking
advantage of that right) to pledge or exchange the transferred assets, and (3)
the Company does not maintain effective control over the transferred assets
through an agreement to repurchase them before their maturity.
Income taxes
Deferred income tax assets and liabilities are determined based on the tax
effects of the temporary differences between the book and tax bases of the
various balance sheet assets and liabilities and gives
F-9
MANUFACTURERS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
recognition to changes in tax rates and laws. Deferred tax assets are also
recognized for the expected future tax benefit of available net operating loss
carryforwards. The change in the net deferred tax asset or liability from the
beginning to the end of the year is recognized as a component of income tax
expense. A valuation allowance is recorded for any net deferred tax asset if,
based on available evidence, it is more likely than not that some or all of the
deferred tax asset will not be realized.
Stock compensation plans
The Company has elected to account for its stock options under the intrinsic
value based method. Under this method, compensation cost is the excess, if any,
of the quoted market price of the stock at the grant date over the amount an
employee must pay to acquire the stock. Stock options issued by the Company
have no intrinsic value at the date of grant and no compensation cost has been
recognized in the accompanying financial statements.
Earnings per share
Basic earnings per share represents income available to common shareholders
divided by the weighted-average number of common shares outstanding during the
year. Diluted earnings per share reflects additional common shares that would
have been outstanding if dilutive potential common shares had been issued, as
well as any adjustment to income that would result from the assumed issuance.
Potential common shares that may be issued by the Company relate solely to
outstanding stock options and are determined using the treasury stock method.
Weighted-average shares outstanding used to compute basic earnings per share
for the years ended December 31, 2000, 1999 and 1998 were 2,500,681, 2,438,138
and 2,401,984, respectively. Weighted-average shares outstanding used to
compute diluted earnings per share for the years ended December 31, 2000, 1999
and 1998 were 2,756,731, 2,731,588 and 2,695,434, respectively.
Comprehensive income
Comprehensive income includes net income plus unrealized gains and losses on
available-for-sale securities and is presented in the statement of changes in
shareholders' equity. Accumulated other income or loss consists solely of the
net unrealized gain or loss on available-for-sale securities and is presented
as a separate component of equity in the consolidated balance sheet.
Note 2--Securities:
The amortized cost and aggregate fair value of securities as of December 31,
2000 consist of the following:
December 31, 2000
---------------------------------------
Unrealized
Amortized -------------- Aggregate
Cost Gain Loss Fair Value
----------- ------- ------ -----------
Available-for-sale securities
Federal agency...................... $16,080,863 $72,355 $( -- ) $16,153,218
Mortgage-backed..................... 1,644,395 2,359 ( ) 1,646,754
Corporate........................... 375,211 3,313 ( ) 378,524
----------- ------- ------ -----------
$18,100,469 $78,027 $( -- ) $18,178,496
=========== ======= ====== ===========
Held-to-maturity securities Federal
agency...............................
Federal agency...................... $ 2,637,866 $35,342 $( -- ) $ 2,673,208
=========== ======= ====== ===========
F-10
MANUFACTURERS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
The amortized cost and aggregate fair value of securities as of December 31,
1999 consist of the following:
December 31, 1999
----------------------------------------
Unrealized
Amortized --------------- Aggregate
Cost Gain Loss Fair Value
----------- ----- --------- -----------
Available-for-sale securities
Federal agency...................... $16,568,244 $ -- $(177,873) $16,390,371
Mortgage-backed..................... 2,139,469 (24,210) 2,115,259
Corporate........................... 375,211 (4,929) 370,282
----------- ----- --------- -----------
$19,082,924 $ -- $(207,012) $18,875,912
=========== ===== ========= ===========
Held-to-maturity securities:
Federal agency....................... $ 2,571,800 $ -- $ (21,550) $ 2,550,250
=========== ===== ========= ===========
The amortized cost and aggregate fair value of available-for-sale securities
at December 31, 2000, by contractual maturity, are shown below:
Amortized Aggregate
Cost Fair Value
----------- -----------
Within one year..................................... $ 8,248,221 $ 8,235,442
Due after one year through five years............... 7,915,508 8,039,670
Due after five years through ten years.............. 1,960,000 1,966,241
Due after ten years................................. 970,211 963,597
----------- -----------
Mortgage-backed securities.......................... 1,644,395 1,646,754
----------- -----------
$20,738,335 $20,851,704
=========== ===========
Other investments at December 31, 2000 consist of stock of the Federal Home
Loan Bank and Independent Bankers Bank of $2,069,500 and $50,000, respectively
and a $100,000 interest bearing bank deposit. Other investments at December 31,
1999 consist of Federal Home Loan Bank stock of $950,000 and Independent
Bankers Bank stock of $50,760.
The Company did not sell any securities during the years ended December 31,
2000, 1999 and 1998. Securities in the amount of $5,952,000 and $6,750,000 were
pledged as security for certain borrowed funds held by the Company at December
31, 2000 and 1999, respectively.
Note 3--Loans and allowance for loan losses:
December 31,
-------------------------
2000 1999
------------ ------------
Commercial........................................ $ 43,149,651 $ 44,966,302
Mortgage.......................................... 175,999,666 136,426,408
Consumer.......................................... 6,615,348 9,038,314
Credit card and other loans....................... 747,895 788,238
------------ ------------
226,512,560 191,219,262
Less: Allowance for loan losses................. 2,889,448 3,033,525
Net deferred loan fees.......................... 305,532 231,874
------------ ------------
$223,317,580 $187,953,863
============ ============
F-11
MANUFACTURERS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Activity in the allowance for loan loss account was as follows:
December 31,
-----------------------------------
2000 1999 1998
---------- ----------- ----------
Beginning balance......................... $3,033,525 $ 1,517,012 $ 939,536
Allowance recorded in connection with the
Company's acquisition of Partners Bank of
Florida.................................. 2,035,360
Provision for loan losses................. 95,000 470,000 1,166,000
Charge-offs............................... (461,077) (1,077,479) (778,432)
Recoveries................................ 222,000 88,632 189,908
---------- ----------- ----------
$2,889,448 $ 3,033,525 $1,517,012
========== =========== ==========
Nonaccrual loans at December 31, 2000, 1999 and 1998 were $794,306, $304,341
and $88,047, respectively. Impaired loans at December 31, 2000 and 1999 were
$333,460 and $672,032, respectively. There were no significant loans that the
Company considered impaired as of December 31, 1998.
The allowance for loan losses at December 31, 2000 and 1999 includes
valuation allowances related to impaired loans of $166,730 and $356,369,
respectively. There were no impaired loans at December 31, 2000 and 1999 that
did not have a valuation allowance. Interest income recognized on impaired
loans during 2000 and 1999 was approximately $13,000 and $65,000, respectively.
Note 4--Banking premises and equipment:
December 31,
Estimated ---------------------
useful life 2000 1999
----------- ---------- ----------
Land......................................... -- $1,177,545 $1,177,545
Bank premises................................ 39 years 1,956,601 948,192
Furniture, fixtures and equipment............ 5-7 years 4,033,573 3,701,480
Leasehold improvements....................... 10-20 years 3,260,588 2,982,540
---------- ----------
10,428,307 8,809,757
Less--accumulated depreciation............. 2,915,742 2,333,266
---------- ----------
$7,512,565 $6,476,491
========== ==========
Depreciation expense for the years ended December 31, 2000, 1999 and 1998
was $834,811, $678,080 and 360,945, respectively.
The Company leases premises under various operating leases. These leases
contain provisions for the pass through of operating expenses from the lessor.
Minimum future rental payments for these leases, excluding sales tax, over the
remaining noncancelable terms are summarized below:
2001............................................................ $ 450,418
2002............................................................ 451,618
2003............................................................ 452,818
2004............................................................ 426,401
2005............................................................ 344,751
Thereafter...................................................... 4,068,377
----------
$6,194,383
==========
Lease expense for the years ended December 31, 2000, 1999 and 1998 was
$381,680, $442,728 and $372,970, respectively.
F-12
MANUFACTURERS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 5--Deposits:
Deposits at December 31, 2000 include brokered deposits of $12,000,000.
Brokered deposits mature between 30 days and one year and pay interest at
various rates ranging from 6.5% to 6.85%. There were no brokered deposits at
December 31, 1999.
At December 31, 2000, the scheduled maturities of certificates of deposits
are as follows:
2001.......................................................... $ 88,730,875
2002.......................................................... 25,183,529
2003.......................................................... 484,675
2004.......................................................... 105,627
2005.......................................................... 120,401
------------
$114,625,107
============
Note 6--Short-term borrowings:
Short-term borrowings consist of a line of credit with a financial
institution, securities sold under agreements to repurchase and sweep
agreements.
The demand line of credit is for $500,000 and is secured by all shares of
the Company's subsidiary, Manufacturers Bank of Florida and cross defaulted
with a mortgage loan on the Company's downtown branch (see Note 8). Interest on
the line of credit is payable at LIBOR plus 1.5% and is adjusted quarterly. The
amount outstanding on the line of credit at December 31, 2000 and 1999 was
$470,000 and $225,000, respectively.
Securities sold under agreements to repurchase represent borrowings of the
Company secured by investment securities and generally mature within one to
four days. Customers earn a specific rate of interest, payable daily (.5% to
1.5 % under the federal funds rate) for the duration of the transaction, not
the interest rate of the underlying security. Securities sold under agreements
to repurchase at December 31, 2000 and 1999 were $1,085,901 and zero,
respectively.
The Company also has sweep agreements with certain bank customers that
allows the Company to borrow funds on a daily basis from the customers' deposit
accounts. Rates paid on sweep agreements are similar to those paid on
repurchase agreements. Sweep agreements are not secured by securities of the
Company. Amounts outstanding under sweep agreements at December 31, 2000 and
1999 were $7,673,997 and $195,162, respectively.
Note 7--Federal Home Loan Bank borrowings:
The Federal Home Loan Bank has advanced funds to the Company under various
lending agreements that provided credit availability to the Company of up to
$43.3 million at December 31, 2000. These advances are secured by a blanket
lien on all of the Company's single family residential mortgage loans and
specific liens on certain other real estate mortgage loans assigned by the
Company to the Federal Home Loan Bank. Interest on these borrowings is fixed at
various rates based on the date the funds were advanced and range from 4.9% to
6.58%. Total borrowings with the Federal Home Loan Bank at December 31, 2000
were $27,000,000 and mature as follows:
2003........................................................... $ 5,670,000
2005........................................................... 11,330,000
2009........................................................... 5,000,000
2010........................................................... 5,000,000
-----------
$27,000,000
===========
F-13
MANUFACTURERS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 8--Long-term debt:
Long-term debt of the Company consists solely of a $1,000,000 promissory
note secured by the Company's downtown branch location. Loan proceeds were used
to purchase the location from a corporation owned by two directors of the
Company. The note is interest only for one year beginning June 16, 2000.
Principal and interest payments of $25,744 are due quarterly thereafter with a
final balloon payment of $720,508 due at maturity on June 16, 2011. Interest on
the note is payable at LIBOR plus 1.5% and is adjusted quarterly. The real
property noted above also secures the Company's line of credit with the same
financial institution (See Note 6).
Note 9--Trust preferred securities:
During 1999, the Company issued 250 shares of variable rate cumulative trust
preferred securities (the "preferred securities") through its wholly-owned
subsidiary MBI Business Trust (the "Trust"). The preferred securities were
issued pursuant to a trust agreement dated December 10, 1999 and were sold at a
price of $10,000 per share. The Company sold additional shares of preferred
securities during 2000 also at $10,000 per share. The Trust exists solely for
the purpose of issuing the preferred securities.
Proceeds from the sale of the preferred securities are invested in an
equivalent amount of junior subordinated debentures (the "debentures") of the
parent company only, Manufactures Bancshares, Inc. The preferred securities
represent an undivided beneficial interest in the assets of the Trust which
consist solely of the debentures and the interest earned on those debentures
plus proceeds from the sale of 20,000 shares of common securities sold by the
Trust to the parent company. The debentures are unsecured and rank subordinate
and junior in terms of right of payment to all future debt of the Company.
Distributions on each preferred security are payable at the annual rate of
8.75% through March 31, 2000 and LIBOR plus 2.5% after March 31, 2000.
Distributions may be deferred if the parent company elects to defer payments
due on the debentures. The parent company has the right under the indenture
agreement to defer payments for a period not exceeding 20 consecutive quarters.
Unpaid cumulative distributions to which preferred security holders are
entitled accumulate additional distributions at the then current distribution
rate. Distributions paid by the Company through the Trust on preferred
securities during 2000 were $255,185
The ability of the Trust to pay distributions is entirely dependent upon the
parent company making payments on the debentures. Interest payments for 2000
paid to the Trust by the parent company were $255,185. The ability of the
parent company to pay interest on the debentures is primarily dependent on the
payment of dividends by the Bank to the parent company.
The preferred securities are subject to mandatory redemption on December 10,
2029, the stated maturity date of the debentures, or earlier upon repayment of
the debentures by the parent company. The parent company may elect to repay the
debentures prior to their maturity on or after December 10, 2004 or sooner in
the event of a change-in-control of the Company or certain other events as set
forth in the indenture agreement.
F-14
MANUFACTURERS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 10--Income taxes:
The income tax provisions for the years ended December 31, 2000, 1999 and
1998 are as follows:
December 31,
-------------------------------
2000 1999 1998
---------- ---------- ---------
Current:
Federal................................... $1,264,778 $ 854,099 $ 837,124
State..................................... 213,464 97,018 87,112
---------- ---------- ---------
1,478,242 951,117 924,236
---------- ---------- ---------
Deferred
Federal................................... 297,340 185,527 (160,953)
State..................................... 48,099 30,011 (26,036)
---------- ---------- ---------
345,439 215,538 (186,989)
---------- ---------- ---------
$1,823,681 $1,166,655 $ 737,247
========== ========== =========
Deferred tax expense represents the change in the Company's net deferred tax
asset from the beginning to the end of each year. Deferred tax assets relate
primarily to the loan loss provision recognized in the financial statements in
excess of the amounts deductible in the Bank's tax returns. Deferred tax
liabilities result primarily to tax deductions for depreciation greater than
book expense.
As of December 31, 2000, the Company had a net operating loss carryforward
for tax reporting purposes of $3,966,231 as a result of the Company's
acquisition of Partners Bank of Florida in 1999. The net operating loss
carryforward expires in the years 2001 to 2014 and is subject to an annual
limitation on the amount available to offset taxable income in any year as a
result of the change in ownership. The annual loss carryforward available to
offset taxable income of the Company is approximately $122,000.
Note 11--Off-balance sheet activities:
Credit-related financial instruments
In the normal course of business, the Company is party to credit related
financial instruments with off-balance-sheet risk to meet the financing needs
of its customers. These instruments include commitments to extend credit,
standby letters of credit and commercial letters of credit. Such commitments
involve, to varying degrees, elements of credit and interest rate risk in
excess of the amounts recognized in the consolidated balance sheets.
The Company's exposure to credit loss is represented by the contract amount
of these instruments. The Company follows the same credit policies in making
commitments as it does for on-balance-sheet instruments.
At December 31, 2000 and 1999, the following financial instruments were
outstanding whose contract amounts represent credit risk:
Contractual Amount
-----------------------
2000 1999
----------- -----------
Commitments to grant loans and unfunded
commitments under lines of credit................ $39,447,302 $33,086,868
Commercial and standby letters of credit.......... 2,839,579 1,958,718
F-15
MANUFACTURERS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
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. The commitment for equity lines of credit may expire
without being drawn upon. Therefore, the total commitment amounts do not
necessarily represent future cash requirements.
Unfunded commitments under commercial lines-of-credit, revolving credit
lines and overdraft protection agreements are commitments for possible future
extensions of credit to existing customers. These lines-of-credit are
uncollateralized and usually do not contain a specified maturity date and may
not be drawn upon to the total extent to which the Company is committed.
Commercial and standby letters-of-credit are conditional commitments issued
by the Company to guarantee the performance of a customer to a third party.
Those letters-of-credit are primarily issued to support public and private
borrowing arrangements. Essentially all letters of credit issued have
expiration dates within one year. The credit risk involved in issuing letters-
of-credit is essentially the same as that involved in lending loan facilities
to customers.
Derivative financial instruments
The Company has begun to use interest rate swaps to manage its interest rate
risk. Interest rate swaps are contracts in which a series of interest rate
flows in a single currency are exchanged over a prescribed period. The notional
amount on which the interest payments are based is not exchanged. Most interest
rate swaps involve the exchange of fixed and floating interest payments. As of
December 31, 2000, the Company was not party to any contractual interest rate
swaps although the Company did effectively create an interest rate swap through
a loan participation more fully described at Note 19. Subsequent to year end,
the Company entered into a swap agreement with a financial institution for a
notional amount of $6,250,000. The swap hedges the Company's exposure to the
floating rate interest payments on the loan participation noted above.
Note 12--Legal contingencies:
Various legal claims arise from time to time in the normal course of
business which, in the opinion of management, will have no material effect on
the Company's consolidated financial statements.
Note 13--Minimum regulatory capital requirements:
The Company (on a consolidated basis) and the Bank are subject to various
regulatory capital requirements administered by the federal banking agencies.
Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Company's and the Bank's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company and the Bank must meet specific capital
guidelines that involve quantitative measures of their assets, liabilities and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The capital amounts and classification are also subject to
qualitative judgments by the regulators about components, risk weightings and
other factors. Prompt corrective actions are not applicable to bank holding
companies.
Quantitative measures established by regulation to ensure capital adequacy
require the Corporation and the Bank to maintain minimum amounts and ratios
(set forth in the table below) of Leverage capital to average assets, Tier I
capital to risk weighted assets, and Tier I plus Tier II capital (for total
risk based capital) to risk weighted assets. Management believes that as of
December 31, 2000 the Bank meets all capital adequacy requirements to which it
is subject.
F-16
MANUFACTURERS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Regulatory capital amounts and related ratios for the Company and the Bank
at December 31, 2000 are as follows:
Tier I Total
Leverage Risk-Based Risk-Based
Capital Capital Capital
------------ ------------ ------------
As of December 31, 2000
Regulatory capital
Company........................... $ 19,955,000 $ 19,955,000 $ 22,723,000
Bank.............................. 20,074,000 20,074,000 22,824,000
Regulatory assets
Average total assets
Company........................... 265,590,000
Bank.............................. 263,198,000
Net Risk Weighted assets
Company........................... 221,300,000 221,300,000
Bank.............................. 219,903,000 219,903,000
Capital ratios:
Company........................... 7.51% 9.02% 10.27%
Bank.............................. 7.63% 9.13% 10.38%
Federal minimum..................... 4.00% 4.00% 8.00%
Well-capitalized (applies to banks
only).............................. 5.00% 6.00% 10.00%
Note 14--Stock options:
During 1998, the Company's Board of Directors approved the 1998 Stock
Options Plan (the "Plan") for certain directors, officers and employees of the
Company whereby 300,000 shares of the Company's common stock were made
available through qualified incentive stock options and non-qualified stock
options. The Plan specifies that the exercise price per share of common stock
under each option shall not be less than the fair market value of the common
stock on the date of grant, except for qualified options granted to individuals
who own more than 10% of the Company's outstanding common stock. For qualified
stock options granted to holders of more than 10% of the Company's common
stock, the exercise price shall not be less than 110% of the fair market value
of the common stock on the date of grant.
There were 256,950, 293,450 and 293,450 stock options issued and outstanding
at December 31, 2000, 1999 and 1998, respectively. Option shares exercised
during 2000 were 13,375. Option shares cancelled during 2000 as a result of
termination were 23,125. There were no options exercised or cancelled during
1999. Option shares issued vest over a five year period from the date of grant
at an exercise price of $7 or $8 per share.
Note 15--Related parties:
The Company makes loans and lines of credit in accordance with its normal
lending policies to certain officers and directors of the Company. At December
31, 2000 and 1999, the total amount of these borrowings outstanding was
$1,037,202 and $1,654,461 respectively.
The company leases certain office space from corporations owned by certain
of its directors. Lease expense for 2000, 1999 and 1998 paid to these
corporations was $338,850, $413,387 and $372,970, respectively.
During 2000, the Company purchased the downtown branch location for
$1,000,000 from a corporation owned by two directors of the Company. During
1998, the Company sold certain land and bank premises to a corporation owned by
several directors. The land and building was sold for $900,000 resulting in net
proceeds to the Company of $887,910 and a related gain of $100,765.
F-17
MANUFACTURERS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 16--Regulatory restrictions:
Banking regulations limit the amount of dividends that may be paid. The
Company cannot pay dividends in any one year that exceed the sum of net income
for that year plus net income after dividends for the two preceding years
without prior approval of the state and federal banking authorities. The
Company also cannot declare a dividend at any time if net operating results for
the current year and the two preceding years combined is a loss or would cause
the capital accounts of the Company to fall below the minimum amounts required
by state and federal banking laws and regulations.
Note 17--Fair value of financial instruments:
The Company is required to disclose the fair value of all significant assets
and liabilities that represent a contractual obligation to pay or receive cash
from another entity or individual.
For cash and due from banks and federal funds sold, carrying value is
considered a reasonable estimate of fair value. For securities reported at Note
2, fair value is based on quoted market prices or quoted market prices for
similar securities. For loans, fair value is based on the interest rate earned
by the Company over the term of the loan versus market rates and market terms
for similar loans charged by other banks. Interest rates earned by the Company
approximate market rates and as such, carrying amounts for loans do not differ
significantly from fair value.
For demand, NOW, money market and savings deposits and for securities sold
under repurchase agreements, carrying value is considered a reasonable estimate
of fair value. For time deposits, fair value is based on the interest rate
charged by the Company over the term of the deposit versus market rates and
market terms for time deposits charged by other banks. Interest rates charged
by the Company approximate market rates and as such, carrying amounts for time
deposits do not differ significantly from fair value.
Note 18--Acquisition of Partners Bank of Florida:
During 1999, the Company acquired the stock of Partners Bank of Florida in
exchange for cash of $1.18 million and 84,702 shares of the Company's common
stock. During 2000, 15,028 of the original shares issued in connection with the
acquisition that were held in escrow under the terms of the purchase agreement
were disbursed back to the Company and cancelled. Cancellation of these escrow
shares served as reimbursement to the Company for costs incurred to resolve
certain contingent liabilities that resulted from the acquisition.
The acquisition was recorded under the purchase method of accounting.
Goodwill of approximately $314,000 has been recorded in connection with the
acquisition and is being amortized over 15 years.
Note 19--Gain on transfer of financial asset:
During 2000, the Company transferred a portion of its interest in a
$6,000,000 fixed rate loan to another financial institution (the "transferee").
The Company continues to service the loan and also continues to receive the
note's fixed rate interest payments. In connection with the transfer, the
Company agreed to pay the transferee a floating rate of interest effectively
creating an interest rate swap. The transfer was accounted for as a sale as the
Company surrendered control of the loan and as a result recognized a gain on
the transfer of $330,000. The gain represents the fair value of the proceeds
received in the transfer, including the estimated fair value of the interest
rate swap, in excess of the carrying amount of the loan. The estimated value of
the swap of $300,000 is included in other assets.
F-18
MANUFACTURERS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 20--Reconciliation of net income to net cash provided by operating
activities:
December 31,
-----------------------------------
2000 1999 1998
---------- ----------- ----------
Net income............................... $2,644,844 $ 1,965,023 $1,194,509
Adjustments to reconcile net cash
provided by operating activities:
Provision for loan losses.............. 95,000 470,000 1,166,000
Depreciation........................... 834,811 678,080 360,945
Gain on sale of Other Real Estate...... (359,485)
Gain on sale of land and building...... (100,765)
Increase in interest receivable........ (283,557) (400,079) (71,877)
Increase in other assets............... (348,073) (1,272,242) (111,754)
Decrease (increase) in deferred taxes.. 345,439 215,538 (186,989)
Increase (decrease) in interest
payable............................... 187,065 48,556 (17,313)
Increase (decrease) in accounts payable
and accrued expenses.................. 10,837 (866,124) 86,437
---------- ----------- ----------
$3,486,366 $ 838,752 $1,959,708
========== =========== ==========
Note 21--Parent Company Statements
Manufacturers Banchshares, Inc. is a Florida bank holding company formed
January 5, 1999. Below are condensed financial statements for the holding
company since inception:
December 31,
-----------------------
2000 1999
----------- -----------
Condensed Balance Sheets:
Assets:
Cash................................................. $ 25,745 $ 2,385
Commercial loans..................................... 375,000
Investment in bank subsidiary........................ 21,366,347 19,168,280
Investment in non-bank subsidiary.................... 200,000 200,000
Premises and equipment, net.......................... 982,283
Other assets......................................... 2,376
----------- -----------
Total Assets....................................... $22,951,751 $19,370,665
=========== ===========
Liabilities and Shareholders' Equity
Liabilities:
Line of credit....................................... $ 470,000 $ 225,000
Due to subsidiary.................................... 200,000 200,000
Long-term debt....................................... 1,000,000
Other liabilities.................................... 34,084
----------- -----------
1,704,084 425,000
Shareholders' equity................................... 21,247,667 18,945,665
----------- -----------
Total Liabilities and Shareholders' Equity......... $22,951,751 $19,370,665
=========== ===========
F-19
MANUFACTURERS BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
December 31,
----------------------
2000 1999
---------- ----------
Condensed Statements of Income:
Cash dividends from bank subsidiary.................. $1,217,282 $ 348,669
Rental income........................................ 67,912
Expenses............................................. (309,526) (86,282)
---------- ----------
Income before equity in undistributed net income of
subsidiaries........................................ 975,668 262,387
Equity in undistributed net income of Subsidiaries... 1,669,176 1,702,636
---------- ----------
Net Income....................................... $2,644,844 $1,965,023
========== ==========
December 31,
----------------------
2000 1999
---------- ----------
Condensed Statements of Cash Flows:
Cash Flows from Operating Activities:
Dividends from bank subsidiary..................... $1,217,282 $ 348,669
Rental income...................................... 67,912
Operating expenditures............................. (256,371) (86,282)
---------- ----------
Net cash provided by operating activities........ 1,028,823 262,387
---------- ----------
Cash Flows from Investing Activities:
Capital investment in bank subsidiary................ (425,783) (2,700,000)
Increase in loans.................................... (375,000)
Capital expenditures................................. (1,003,730)
---------- ----------
Net cash used by investing activities............ (1,804,513) (2,700,000)
---------- ----------
Cash Flows from Financing Activities:
Proceeds from sale of trust preferred securities..... 500,000 2,500,000
Proceeds from line of credit......................... 245,000 225,000
Proceeds from mortgage............................... 1,000,000
Cash used in bank acquisition........................ (35,975)
Proceeds from issuance of common stock............... 257,000
Dividends paid....................................... (1,202,950) (249,027)
---------- ----------
Net cash provided by financing activities........ 799,050 2,439,998
---------- ----------
Net increase in cash................................... 23,360 2,385
Cash and cash equivalents, beginning of year........... 2,385
---------- ----------
Cash and cash equivalents, end of year................. $ 25,745 $ 2,385
========== ==========
F-20
MANUFACTURERS BANCSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30,
-------------------------
2001 2000
------------ ------------
ASSETS
Cash and due from banks............................. $ 11,870,400 $ 10,485,076
Federal funds sold.................................. 7,596,318 12,820,255
Securities available-for-sale....................... 18,953,198 17,370,318
Securities held-to-maturity......................... 499,205 3,325,654
Other investments................................... 2,219,500 2,219,500
Loans, net of allowance for loan losses of
$2,936,219 and $3,058,279, respectively............ 241,266,554 195,351,374
Property and equipment, net......................... 7,108,629 7,737,392
Interest receivable................................. 1,468,802 1,358,664
Other assets........................................ 2,595,049 2,212,726
Deferred income taxes............................... 1,187,515 1,372,088
------------ ------------
$294,765,170 $254,253,047
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits..................................... $ 28,796,700 $ 33,516,322
NOW deposits........................................ 25,258,169 26,451,750
Money market deposits............................... 33,601,026 23,046,948
Savings deposits.................................... 10,414,934 11,452,973
Time deposits (under $100,000)...................... 45,645,738 39,892,639
Time deposits ($100,000 and over)................... 71,188,730 61,350,029
------------ ------------
Total deposits.................................. 214,905,297 195,710,661
Accrued interest payable............................ 466,025 268,495
Accounts payable and accrued expenses............... 74,021 195,514
Short-term borrowings............................... 14,441,406 12,507,742
Long-term debt...................................... 1,000,000 1,000,000
Federal Home Loan Bank Borrowings................... 40,450,000 24,000,000
------------ ------------
Total liabilities............................... 271,336,749 233,682,412
------------ ------------
Commitments and contingencies
Shareholders' equity:
Company obligated mandatorily redeemable capital
securities of trust subsidiary................... 3,000,000 3,000,000
Common stock, $.01 par value; 10,000,000 shares
authorized; 2,596,190 and 2,512,240 issued....... 25,962 25,122
Additional paid-in capital........................ 9,801,957 8,805,801
Retained earnings................................. 10,406,721 8,961,319
Accumulated other comprehensive income (loss)..... 193,781 (221,607)
------------ ------------
Total shareholders' equity...................... 23,428,421 20,570,635
------------ ------------
$294,765,170 $254,253,047
============ ============
The accompanying Notes to Unaudited Financial Statements are an integral part
of these financial statements.
F-21
MANUFACTURERS BANCSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME
For the six months
ended June 30,
----------------------
2001 2000
----------- ----------
Interest income from earning assets:
Loans................................................. $10,088,766 $8,465,143
Investment securities................................. 762,004 691,064
Federal funds sold.................................... 360,100 576,343
----------- ----------
Total interest income............................... 11,210,870 9,732,550
----------- ----------
Interest expense on deposits:
NOW................................................... 275,706 350,224
Money market.......................................... 480,192 518,540
Savings............................................... 70,519 120,642
Time.................................................. 3,230,356 2,601,320
Other interest expense................................ 1,251,124 870,778
----------- ----------
Total interest expense.............................. 5,307,897 4,461,504
----------- ----------
Net interest income................................. 5,902,973 5,271,046
Provision for loan losses............................... 45,000 70,000
----------- ----------
Net interest income after provision for loan
losses............................................. 5,857,973 5,201,046
----------- ----------
Noninterest income:
Service charges on deposit accounts................... 476,922 485,015
Other income.......................................... 250,631 265,660
----------- ----------
Total noninterest income............................ 727,553 750,675
----------- ----------
Noninterest expenses:
Personnel expense..................................... 2,547,431 1,843,815
Occupancy expense..................................... 735,268 736,148
Other operating expense............................... 1,207,365 1,213,590
----------- ----------
Total noninterest expense........................... 4,490,064 3,793,553
----------- ----------
Income before income taxes.............................. 2,095,462 2,158,168
Income tax expense...................................... 776,921 904,052
----------- ----------
Net income.............................................. $ 1,318,541 $1,254,116
=========== ==========
Earnings per share
Basic................................................. $ 0.52 $ 0.50
=========== ==========
Diluted............................................... $ 0.49 $ 0.45
=========== ==========
The accompanying Notes to Unaudited Financial Statements are an integral part
of these financial statements.
F-22
MANUFACTURERS BANCSHARES, INC.
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the six months ended June 30,
-----------------------------------
2001 2000
----------------- ----------------
Cash flows from operating activities:
Interest received....................... $ 11,340,821 $ 9,689,082
Noninterest income received............. 727,553 750,675
Interest paid........................... (5,316,774) (4,480,846)
Salaries and benefits paid.............. (2,547,431) (1,843,815)
Other operating expenditures............ (1,804,654) (1,497,584)
Taxes paid.............................. (776,921) (904,052)
----------------- ----------------
Net cash provided by operating
activities........................... 1,622,594 1,713,460
----------------- ----------------
Cash flows from investing activities:
Decrease (increase) in investment
securities............................. 1,479,713 (481,595)
Increase in loans....................... (17,993,974) (7,467,511)
Capital expenditures.................... (9,687) (1,661,253)
----------------- ----------------
Net cash used by investing
activities........................... (16,523,948) (9,610,359)
----------------- ----------------
Cash flows from financing activities:
Increase (decrease) in deposits:
Demand deposits....................... (6,869,556) (5,955,216)
NOW deposits.......................... 1,014,164 3,066,723
Money market deposits................. 5,780,294 (4,605,890)
Savings deposits...................... (22,665) (589,616)
Time deposits......................... 2,209,361 (1,024,215)
Increase in short-term borrowings....... 5,211,508 12,087,580
Proceeds from long term debt............ -- 1,000,000
Increase in Federal Home Loan Bank
borrowings............................. 13,450,000 5,000,000
Proceeds from sale of stock............. 1,188,206 766,279
Dividends paid.......................... (441,747) (380,830)
----------------- ----------------
Net cash provided by financing
activities........................... 21,519,565 9,364,815
----------------- ----------------
Net increase in cash and cash
equivalents.............................. 6,618,211 1,467,916
Cash and cash equivalents at beginning of
year..................................... 12,848,507 21,837,415
----------------- ----------------
Cash and cash equivalents at end of
period................................... $ 19,466,718 $ 23,305,331
================= ================
The accompanying Notes to Unaudited Financial Statements are an integral part
of these financial statements.
F-23
MANUFACTURERS BANCSHARES, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2001 and 2000
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with the instructions for interim financial
statements and do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
These unaudited condensed consolidated financial statements should be read in
conjunction with the audited consolidated financial statements and notes
thereto for the years ended December 31, 2000 and 1999. In the opinion of the
Company, the financial statements reflect all adjustments which are of a normal
recurring nature and which are necessary to present fairly the financial
position of the Company as of June 30, 2001 and the results of operations for
the six months ended June 30, 2001 and 2000, and cash flows for the six months
ended June 30, 2001 and 2000. The results of operations for the six months
ended June 30, 2001 are not necessarily indicative of the results which may be
expected for the entire fiscal year.
2. RECENT ACCOUNTING PRONOUNCEMENTS
In September 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts and for hedging activities. It requires
that an entity recognize all derivatives as either assets or liabilities on the
balance sheet and measures those instruments at fair value. This statement
could increase volatility in earnings and other comprehensive income. In June
of 1999, SFAS No. 133 was amended by SFAS No. 137, which delays the effective
date of implementation until fiscal years beginning after June 15, 2000. In
June of 2000, SFAS No. 133 was amended by SFAS 138, which addresses issues
related to implementation difficulties. These pronouncements did not have a
material impact on its financial position or results of operations.
F-24
APPENDIX A
AGREEMENT AND PLAN OF MERGER
by and between
THE COLONIAL BANCGROUP, INC.
and
MANUFACTURERS BANCSHARES, INC.
dated as of
June 18, 2001
TABLE OF CONTENTS
Caption Page
------- ----
ARTICLE 1--NAME
1.1 Name............................................................... A-1
ARTICLE 2--MERGER--TERMS AND CONDITIONS
2.1 Applicable Law..................................................... A-1
2.2 Corporate Existence................................................ A-1
2.3 Articles of Incorporation and Bylaws............................... A-2
2.4 Resulting Corporation's Officers and Board......................... A-2
2.5 Stockholder Approval............................................... A-2
2.6 Further Acts....................................................... A-2
2.7 Effective Date and Closing......................................... A-2
2.8 Subsidiary Bank Merger............................................. A-2
ARTICLE 3--CONVERSION OF ACQUIRED CORPORATION STOCK
3.1 Conversion of Acquired Corporation Stock........................... A-2
3.2 Surrender of Acquired Corporation Stock............................ A-3
3.3 Fractional Shares.................................................. A-4
3.4 Adjustments........................................................ A-4
3.5 BancGroup Stock.................................................... A-4
3.6 Dissenting Rights.................................................. A-4
ARTICLE 4--REPRESENTATIONS, WARRANTIES AND COVENANTS OF BANCGROUP
4.1 Organization....................................................... A-4
4.2 Capital Stock...................................................... A-4
4.3 Financial Statements; Taxes........................................ A-5
4.4 No Conflict with Other Instrument.................................. A-5
4.5 Absence of Material Adverse Change................................. A-6
4.6 Approval of Agreement.............................................. A-6
4.7 Tax Treatment...................................................... A-6
4.8 Title and Related Matters.......................................... A-6
4.9 Subsidiaries....................................................... A-6
4.10 Contracts......................................................... A-6
4.11 Litigation........................................................ A-6
4.12 Compliance........................................................ A-7
4.13 Registration Statement............................................ A-7
4.14 SEC Filings....................................................... A-7
4.15 Form S-4.......................................................... A-7
4.16 Brokers........................................................... A-7
4.17 Government Authorization.......................................... A-8
4.18 Absence of Regulatory Communications.............................. A-8
4.19 Disclosure........................................................ A-8
ARTICLE 5--REPRESENTATIONS, WARRANTIES AND COVENANTS OF ACQUIRED
CORPORATION
5.1 Organization....................................................... A-8
5.2 Capital Stock...................................................... A-8
5.3 Subsidiaries....................................................... A-8
5.4 Financial Statements; Taxes........................................ A-9
5.5 Absence of Certain Changes or Events............................... A-10
5.6 Title and Related Matters.......................................... A-11
5.7 Commitments........................................................ A-11
5.8 Charter and Bylaws................................................. A-11
5.9 Litigation......................................................... A-11
i
Caption Page
------- ----
5.10 Material Contract Defaults.......................................... A-12
5.11 No Conflict with Other Instrument................................... A-12
5.12 Governmental Authorization.......................................... A-12
5.13 Absence of Regulatory Communications................................ A-12
5.14 Absence of Material Adverse Change.................................. A-12
5.15 Insurance........................................................... A-12
5.16 Pension and Employee Benefit Plans.................................. A-12
5.17 Buy-Sell Agreements................................................. A-13
5.18 Brokers............................................................. A-13
5.19 Approval of Agreements.............................................. A-13
5.20 Disclosure.......................................................... A-13
5.21 Registration Statement.............................................. A-13
5.22 Loans; Adequacy of Allowance for Loan Losses........................ A-13
5.23 Environmental Matters............................................... A-14
5.24 Transfer of Shares.................................................. A-14
5.25 Collective Bargaining............................................... A-14
5.26 Labor Disputes...................................................... A-14
5.27 Derivative Contracts................................................ A-14
5.28 Non-Terminable Contracts and Severance Agreements................... A-15
ARTICLE 6--ADDITIONAL COVENANTS
6.1 Additional Covenants of BancGroup.................................... A-15
6.2 Additional Covenants of Acquired Corporation......................... A-17
ARTICLE 7--MUTUAL COVENANTS AND AGREEMENTS
7.1 Best Efforts; Cooperation............................................ A-20
7.2 Press Release........................................................ A-20
7.3 Mutual Disclosure.................................................... A-21
7.4 Access to Properties and Records..................................... A-21
7.5 Notice of Adverse Changes............................................ A-21
ARTICLE 8--CONDITIONS TO OBLIGATIONS OF ALL PARTIES
8.1 Approval by Shareholders............................................. A-21
8.2 Regulatory Authority Approval........................................ A-21
8.3 Litigation........................................................... A-22
8.4 Registration Statement............................................... A-22
8.5 Tax Opinion.......................................................... A-22
ARTICLE 9--CONDITIONS TO OBLIGATIONS OF ACQUIRED CORPORATION
9.1 Representations, Warranties and Covenants............................ A-22
9.2 Adverse Changes...................................................... A-23
9.3 Closing Certificate.................................................. A-23
9.4 Opinion of Counsel................................................... A-23
9.5 NYSE Listing......................................................... A-23
9.6 Other Matters........................................................ A-23
9.7 Material Events...................................................... A-23
9.8 Fairness Opinion..................................................... A-24
ARTICLE 10--CONDITIONS TO OBLIGATIONS OF BANCGROUP
10.1 Representations, Warranties and Covenants........................... A-24
10.2 Adverse Changes..................................................... A-24
10.3 Closing Certificate................................................. A-24
10.4 Opinion of Counsel.................................................. A-25
10.5 Controlling Shareholders............................................ A-25
10.6 Other Matters....................................................... A-25
10.7 Dissenters.......................................................... A-25
ii
Caption Page
------- ----
10.8 Material Events..................................................... A-25
10.9 Pooling of Interest................................................. A-25
10.10 Non Compete Agreements............................................. A-25
10.11 Amendments to Leases............................................... A-25
ARTICLE 11--TERMINATION OF REPRESENTATIONS AND WARRANTIES.................. A-25
ARTICLE 12--NOTICES........................................................ A-26
ARTICLE 13--AMENDMENT OR TERMINATION
13.1 Amendment........................................................... A-26
13.2 Termination......................................................... A-26
13.3 Damages............................................................. A-27
ARTICLE 14--DEFINITIONS.................................................... A-27
ARTICLE 15--MISCELLANEOUS
15.1 Expenses............................................................ A-33
15.2 Benefit and Assignment.............................................. A-33
15.3 Governing Law....................................................... A-33
15.4 Counterparts........................................................ A-33
15.5 Headings............................................................ A-33
15.6 Severability........................................................ A-33
15.7 Construction........................................................ A-34
15.8 Return of Information............................................... A-34
15.9 Equitable Remedies.................................................. A-34
15.10 Attorneys' Fees.................................................... A-34
15.11 No Waiver.......................................................... A-34
15.12 Remedies Cumulative................................................ A-34
15.13 Entire Contract.................................................... A-34
APPENDIX B................................................................. B-1
APPENDIX C................................................................. C-1
iii
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of this the
18th day of June 2001, by and between MANUFACTURERS BANCSHARES, INC. ("Acquired
Corporation"), a Florida corporation, and THE COLONIAL BANCGROUP, INC.
("BancGroup"), a Delaware corporation.
WITNESSETH
WHEREAS, Acquired Corporation operates as a bank holding company for its
wholly owned subsidiary, Manufacturers Bank of Florida (the "Bank"), with its
principal office in Tampa, Florida; and
WHEREAS, BancGroup is a bank holding company with a Subsidiary bank,
Colonial Bank, operating in Alabama, Florida, Georgia, Nevada, Tennessee and
Texas; and
WHEREAS, Acquired Corporation wishes to merge with BancGroup; and
WHEREAS, it is the intention of BancGroup and Acquired Corporation that such
Merger shall qualify for federal income tax purposes as a "reorganization"
within the meaning of section 368(a) of the Code, as defined herein;
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the Parties hereto agree as follows:
ARTICLE 1
NAME
1.1 Name. The name of the corporation resulting from the Merger shall be
"The Colonial BancGroup, Inc."
ARTICLE 2
MERGER--TERMS AND CONDITIONS
2.1 Applicable Law. On the Effective Date, Acquired Corporation shall be
merged with and into BancGroup (herein referred to as the "Resulting
Corporation" whenever reference is made to it as of the time of merger or
thereafter). The Merger shall be undertaken pursuant to the provisions of and
with the effect provided in the DGCL and, to the extent applicable, the FBCA.
The offices and facilities of Acquired Corporation and of BancGroup shall
become the offices and facilities of the Resulting Corporation.
2.2 Corporate Existence. On the Effective Date, the corporate existence of
Acquired Corporation and of BancGroup shall, as provided in the DGCL and the
FBCA, be merged into and continued in the Resulting Corporation, and the
Resulting Corporation shall be deemed to be the same corporation as Acquired
Corporation and BancGroup. All rights, franchises and interests of Acquired
Corporation and BancGroup, respectively, in and to every type of property
(real, personal and mixed) and choses in action shall be transferred to and
vested in the Resulting Corporation by virtue of the Merger without any deed or
other transfer. The Resulting Corporation on the Effective Date, and without
any order or other action on the part of any court or otherwise, shall hold and
enjoy all rights of property, franchises and interests, including appointments,
designations and nominations and all other rights and interests as trustee,
executor, administrator, transfer agent and registrar of stocks and bonds,
guardian of estates, assignee, and receiver and in every other fiduciary
capacity and in every agency, and capacity, in the same manner and to the same
extent as such rights, franchises and interests were held or enjoyed by
Acquired Corporation and BancGroup, respectively, on the Effective Date.
A-1
2.3 Articles of Incorporation and Bylaws. On the Effective Date, the
certificate of incorporation and bylaws of the Resulting Corporation shall be
the restated certificate of incorporation and bylaws of BancGroup as they exist
immediately before the Effective Date.
2.4 Resulting Corporation's Officers and Board. The board of directors and
the officers of the Resulting Corporation on the Effective Date shall consist
of those persons serving in such capacities of BancGroup as of the Effective
Date.
2.5 Stockholder Approval. This Agreement shall be submitted to the
shareholders of Acquired Corporation at the Stockholders' Meeting to be held as
promptly as practicable consistent with the satisfaction of the conditions set
forth in this Agreement. Upon approval by the requisite vote of the
shareholders of Acquired Corporation as required by applicable Law, the Merger
shall become effective as soon as practicable thereafter in the manner provided
in section 2.7 hereof.
2.6 Further Acts. If, at any time after the Effective Date, the Resulting
Corporation shall consider or be advised that any further assignments or
assurances in law or any other acts are necessary or desirable (i) to vest,
perfect, confirm or record, in the Resulting Corporation, title to and
possession of any property or right of Acquired Corporation or BancGroup,
acquired as a result of the Merger, or (ii) otherwise to carry out the purposes
of the Merger and this Agreement, BancGroup and its officers and directors
shall execute and deliver all such proper deeds, assignments and assurances in
law and do all acts necessary or proper to vest, perfect or confirm title to,
and possession of, such property or rights in the Resulting Corporation and
otherwise to carry out the purposes of this Agreement; and the proper officers
and directors of the Resulting Corporation are fully authorized in the name of
Acquired Corporation or BancGroup, or otherwise, to take any and all such
action.
2.7 Effective Date and Closing. Subject to the terms of all requirements of
Law and the conditions specified in this Agreement, the Merger shall become
effective on the date specified in the Certificate of Merger to be issued by
the Secretary of State of the State of Delaware (such time being herein called
the "Effective Date"). Assuming all other conditions stated in this Agreement
have been or will be satisfied as of the Closing, the Closing shall take place
at the offices of BancGroup, in Montgomery, Alabama, at 5:00 p.m. on a date
specified by BancGroup that shall be as soon as reasonably practicable after
the later to occur of the Stockholder Meeting or all required regulatory
approvals under Section 8.2, or at such other place and time that the Parties
may mutually agree.
2.8 Subsidiary Bank Merger. BancGroup and Acquired Corporation anticipate
that on or after the Effective Date the Bank will merge with and into Colonial
Bank, BancGroup's Subsidiary bank. The exact timing and structure of the Bank
Merger have not been finalized at this time, and BancGroup in its discretion
will finalize such timing and structure at a later date. Acquired Corporation
will cooperate with BancGroup in consummating with the Bank Merger, including
the calling of any special meetings of the board of directors of the Bank and
the filing of any regulatory applications.
ARTICLE 3
CONVERSION OF ACQUIRED CORPORATION STOCK
3.1 Conversion of Acquired Corporation Stock.
(a) On the Effective Date, each share of common stock, par value $0.01, of
Acquired Corporation outstanding and held of record by Acquired Corporation's
shareholders (the "Acquired Corporation Stock"), shall be converted by
operation of law and without any action by any holder thereof into shares of
BancGroup Common Stock. Specifically, each outstanding share of Acquired
Corporation Stock shall (subject to section 3.3 hereof), be converted into 1.60
shares of BancGroup Common Stock, provided that the Market Value for BancGroup
is not less than $11.50 per share nor greater than $13.50 per share. If the
Market Value is less than $11.50, then each share of Acquired Corporation Stock
outstanding at the Effective Date shall be converted
A-2
into the number of shares of BancGroup Common Stock that shall equal $18.40
divided by the market value of BancGroup Common Stock. If the Market Value is
greater than $13.50, then each share of Acquired Corporation Stock shall be
converted into such number of shares of BancGroup Common Stock that shall equal
$21.60 divided by the market value of BancGroup Common Stock. The Market Value
shall be the average of the closing prices of the BancGroup Common Stock as
reported by the NYSE on each of the ten trading days ending on the trading day
five trading days immediately preceding the Effective Date. The appropriate
ratio that is used to calculate the Merger Consideration based upon the market
value as set forth above is referred to as the "Exchange Ratio". However, if
there shall be announced between the date of this Agreement and the Effective
Date (i) by any Person that such Person is or has commenced a tender or
exchange offer to acquire in excess of 50% of the outstanding shares of
BancGroup Common Stock, or (ii) by BancGroup that it has entered into a letter
of intent or an agreement for the acquisition of BancGroup by another Person or
that BancGroup shall be merged with a Person in a transaction in which
BancGroup is not the surviving corporation, or a transaction in which
BancGroup's current shareholders would own less than 50% of the resulting
corporation, then each outstanding share of Acquired Corporation Stock shall be
converted into 1.60 shares of BancGroup Common Stock without reference to the
Market Value of BancGroup Common Stock.
(b) (i) On the Effective Date, BancGroup shall assume all Acquired
Corporation Options outstanding, and each such option shall cease to represent
a right to acquire Acquired Corporation common stock and shall, instead,
represent the right to acquire BancGroup Common Stock on substantially the same
terms applicable to the Acquired Corporation 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 Acquired
Corporation common stock subject to such Acquired Corporation Options
multiplied by the Exchange Ratio, provided that no fractions of shares of
BancGroup Common Stock shall be issued and the number of shares of BancGroup
Common Stock to be issued upon the exercise of Acquired Corporation Options, if
a fractional share exists, shall equal the number of whole shares obtained by
rounding to the nearest whole number, giving account to such fraction, or by
paying for such fraction in cash, based upon the Market Value. The exercise
price for the acquisition of BancGroup Common Stock shall be the exercise price
for each share of Acquired Corporation common stock subject to such options
divided by the Exchange Ratio, adjusted appropriately for any rounding to whole
shares that may be done. It is intended that the assumption by BancGroup of the
Acquired Corporation Options shall be undertaken in a manner that will not
constitute a "modification" as defined in Section 424 of the Code as to any
stock option which is an "incentive stock option." Schedule 3.1(b) hereto sets
forth the names of all persons holding Acquired Corporation Options, the number
of shares of Acquired Corporation common stock subject to such options, the
exercise price and the expiration date of such options.
(ii) BancGroup shall file at its expense a registration statement with
the SEC on Form S-8 or such other appropriate form (including the Form S-4
to be filed in connection with the Merger) with respect to the shares of
BancGroup Common Stock to be issued pursuant to such options and shall use
its reasonable best efforts to maintain the effectiveness of such
registration statement for so long as such options remain outstanding. Such
shares shall also be registered or qualified for sale under the securities
laws of any state in which registration or qualification is necessary.
3.2 Surrender of Acquired Corporation Stock. After the Effective Date, each
holder of an outstanding certificate or certificates which prior thereto
represented shares of Acquired Corporation Stock who is entitled to receive
BancGroup Common Stock shall be entitled, upon surrender to BancGroup of their
certificate or certificates representing shares of Acquired Corporation Stock
(or an affidavit or affirmation by such holder of the loss, theft, or
destruction of such certificate or certificates in such form as BancGroup may
reasonably require and, if BancGroup reasonably requires, a bond of indemnity
in form and amount, and issued by such sureties, as BancGroup may reasonably
require), to receive in exchange therefor a certificate or certificates
representing the number of whole shares of BancGroup Common Stock into and for
which the shares of Acquired Corporation Stock so surrendered shall have been
converted, such certificates to be of such
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denominations and registered in such names as such holder may reasonably
request. Until so surrendered and exchanged, each such outstanding certificate
which, prior to the Effective Date, represented shares of Acquired Corporation
Stock and which is to be converted into BancGroup Common Stock shall for all
purposes evidence ownership of the BancGroup Common Stock into and for which
such shares shall have been so converted, except that no dividends or other
distributions with respect to such BancGroup Common Stock shall be made until
the certificates previously representing shares of Acquired Corporation Stock
shall have been properly tendered.
3.3 Fractional Shares. No fractional shares of BancGroup Common Stock shall
be issued, and each holder of shares of Acquired Corporation Stock having a
fractional interest arising upon the conversion of such shares into shares of
BancGroup Common Stock shall, at the time of surrender of the certificates
previously representing Acquired Corporation Stock, be paid by BancGroup an
amount in cash equal to the Market Value of such fractional share.
3.4 Adjustments. In the event that prior to the Effective Date BancGroup
Common Stock shall be changed into a different number of shares or a different
class of shares by reason of any recapitalization or reclassification, stock
dividend, combination, stock split, or reverse stock split of the BancGroup
Common Stock, an appropriate and proportionate adjustment shall be made in the
number of shares of BancGroup Common Stock into which the Acquired Corporation
Stock shall be converted as well as the maximum and minimum Market Value
amounts set forth in this Agreement.
3.5 BancGroup Stock. The shares of Common Stock of BancGroup issued and
outstanding immediately before the Effective Date shall continue to be issued
and outstanding shares of the Resulting Corporation.
3.6 Dissenting Rights. Any shareholder of Acquired Corporation who shall not
have voted in favor of this Agreement and who has complied with the applicable
procedures set forth in the FBCA, relating to rights of dissenting
shareholders, shall be entitled to receive payment for the fair value of his
Acquired Corporation Stock. If after the Effective Date a dissenting
shareholder of Acquired Corporation fails to perfect, or effectively withdraws
or loses his right to appraisal and payment for his shares of Acquired
Corporation Stock, BancGroup shall issue and deliver the consideration to which
such holder of shares of Acquired Corporation Stock is entitled under Section
3.1 (without interest) upon surrender by such holder of the certificate or
certificates representing shares of Acquired Corporation Stock held by him or
her.
ARTICLE 4
REPRESENTATIONS, WARRANTIES AND COVENANTS OF BANCGROUP
BancGroup represents, warrants and covenants to and with Acquired
Corporation as follows:
4.1 Organization. BancGroup is a corporation duly organized, validly
existing and in good standing under the Laws of the State of Delaware.
BancGroup has the necessary corporate powers to carry on its business as
presently conducted and is qualified to do business in every jurisdiction in
which the character and location of the Assets owned by it or the nature of the
business transacted by it requires qualification or in which the failure to
qualify could, individually or in the aggregate, have a Material Adverse
Effect.
4.2 Capital Stock.
(a) The authorized capital stock of BancGroup consists of (A) 200,000,000
shares of Common Stock, $2.50 par value per share, of which as of April 30,
2001, 110,676,810 shares were validly issued and outstanding, fully paid and
nonassessable and are not subject to preemptive rights (not counting additional
shares subject to issue pursuant to stock option and other plans and
convertible debentures), and (B) 1,000,000 shares of Preference Stock, $2.50
par value per share, none of which are issued and outstanding. The shares of
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BancGroup Common Stock to be issued in the Merger are duly authorized and,
when so issued, will be validly issued and outstanding, fully paid and
nonassessable, will have been registered under the 1933 Act, and will have
been registered or qualified under the securities laws of all jurisdictions in
which such registration or qualification is required, based upon information
provided by Acquired Corporation.
(b) The authorized capital stock of each Subsidiary of BancGroup is validly
issued and outstanding, fully paid and nonassessable, and each Subsidiary is
wholly owned, directly or indirectly, by BancGroup.
4.3 Financial Statements; Taxes. (a) BancGroup has delivered to Acquired
Corporation copies of the following financial statements of BancGroup:
(i) Consolidated balance sheets as of December 31, 1999, December 31,
2000, and March 31, 2001;
(ii) Consolidated statements of operations for each of the three years
ended December 31, 1998, 1999 and 2000, and for the three months ended
March 31, 2001;
(iii) Consolidated statements of cash flows for each of the three years
ended December 31, 1998, 1999 and 2000, and for the three months ended
March 31, 2001; and
(iv) Consolidated statements of changes in shareholders' equity for the
three years ended December 31, 1998, 1999 and 2000, and for the three
months ended March 31, 2001.
All such financial statements are in all material respects in accordance with
the books and records of BancGroup and have been prepared in accordance with
GAAP applied on a consistent basis throughout the periods indicated unless
otherwise stated, all as more particularly set forth in the notes to such
statements. Each of the consolidated balance sheets presents fairly as of its
date the consolidated financial condition of BancGroup and its Subsidiaries.
Except as and to the extent reflected or reserved against in such balance
sheets (including the notes thereto), BancGroup did not have, as of the dates
of such balance sheets, any material Liabilities or obligations (absolute or
contingent) of a nature customarily reflected in a balance sheet or the notes
thereto. The statements of consolidated income, shareholders' equity and
changes in consolidated financial position present fairly the results of
operations and changes in financial position of BancGroup and its Subsidiaries
for the periods indicated. The foregoing representations, insofar as they
relate to the unaudited interim financial statements of BancGroup for the
three months ended March 31, 2001, are subject in all cases to normal
recurring year-end adjustments and the omission of footnote disclosure.
(b) All Tax returns required to be filed by or on behalf of BancGroup have
been timely filed (or requests for extensions therefor have been timely filed
and granted and have not expired), and all returns filed are complete and
accurate in all material respects. All Taxes shown on these returns to be due
and all additional assessments received have been paid. The amounts recorded
for Taxes on the balance sheets provided under section 4.3(a) are, to the
Knowledge of BancGroup, sufficient in all material respects for the payment of
all unpaid federal, state, county, local, foreign or other Taxes (including
any interest or penalties) of BancGroup accrued for or applicable to the
period ended on the dates thereof, and all years and periods prior thereto and
for which BancGroup may at such dates have been liable in its own right or as
transferee of the Assets of, or as successor to, any other corporation or
other party. No audit, examination or investigation is presently being
conducted or, to the Knowledge of BancGroup, threatened by any taxing
authority which is likely to result in a material Tax Liability, no material
unpaid Tax deficiencies or additional liabilities of any sort have been
proposed by any governmental representative and no agreements for extension of
time for the assessment of any material amount of Tax have been entered into
by or on behalf of BancGroup. BancGroup has withheld from its employees (and
timely paid to the appropriate governmental entity) proper and accurate
amounts for all periods in material compliance with all Tax withholding
provisions of applicable federal, state, foreign and local Laws (including
without limitation, income, social security and employment Tax withholding for
all types of compensation).
4.4 No Conflict with Other Instrument. The consummation of the transactions
contemplated by this Agreement will not result in a breach of or constitute a
Default (without regard to the giving of notice or the
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passage of time) under any material Contract, indenture, mortgage, deed of
trust or other material agreement or instrument to which BancGroup or any of
its Subsidiaries is a party or by which they or their Assets may be bound; will
not conflict with any provision of the restated certificate of incorporation or
bylaws of BancGroup or the articles of incorporation or bylaws of any of its
Subsidiaries; and will not violate any provision of any Law, regulation,
judgment or decree binding on them or any of their Assets.
4.5 Absence of Material Adverse Change. Since the date of the most recent
balance sheet provided under section 4.3(a)(i) above, there have been no
events, changes or occurrences which have had or are reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on BancGroup.
4.6 Approval of Agreement. The board of directors of BancGroup has, or will
have prior to the Effective Date, approved this Agreement and the transactions
contemplated by it and has, or will have prior to the Effective Date,
authorized the execution and delivery by BancGroup of this Agreement. This
Agreement constitutes the legal, valid and binding obligation of BancGroup,
enforceable against it in accordance with its terms. Approval of this Agreement
by the stockholders of BancGroup is not required by applicable Law. Subject to
the matters referred to in section 8.2, BancGroup has full power, authority and
legal right to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. BancGroup has no Knowledge of any fact or
circumstance under which the appropriate regulatory approvals required by
section 8.2 will not be granted without the imposition of material conditions
or material delays.
4.7 Tax Treatment. BancGroup has no present plan to sell or otherwise
dispose of any of the Assets of Acquired Corporation, subsequent to the Merger,
and BancGroup intends to continue the historic business of Acquired
Corporation.
4.8 Title and Related Matters. BancGroup has good and marketable title to
all the properties, interests in properties and Assets, real and personal, that
are material to the business of BancGroup, reflected in the most recent balance
sheet referred to in section 4.3(a), or acquired after the date of such balance
sheet (except properties, interests and Assets sold or otherwise disposed of
since such date, in the ordinary course of business), free and clear of all
mortgages, Liens, pledges, charges or encumbrances except (i) mortgages and
other encumbrances referred to in the notes of such balance sheet, (ii) liens
for current Taxes not yet due and payable and (iii) such imperfections of title
and easements as do not materially detract from or interfere with the present
use of the properties subject thereto or affected thereby, or otherwise
materially impair present business operations at such properties. To the
Knowledge of BancGroup, the material structures and equipment of BancGroup
comply in all material respects with the requirements of all applicable Laws.
4.9 Subsidiaries. Each Subsidiary of BancGroup has been duly incorporated
and is validly existing as a corporation in good standing under the Laws of the
jurisdiction of its incorporation and each Subsidiary has been duly qualified
as a foreign corporation to transact business and is in good standing under the
Laws of each other jurisdiction in which it owns or leases properties, or
conducts any business so as to require such qualification and in which the
failure to be duly qualified could have a Material Adverse Effect upon
BancGroup and its Subsidiaries considered as one enterprise; BancGroup's
banking subsidiary has its deposits fully insured by the Federal Deposit
Insurance Corporation to the extent provided by the Federal Deposit Insurance
Act; and the businesses of the non-bank Subsidiaries of BancGroup are permitted
to subsidiaries of registered bank holding companies.
4.10 Contracts. Neither BancGroup nor any of its Subsidiaries is in
violation of its respective certificate of incorporation or bylaws or in
Default in the performance or observance of any material obligation, agreement,
covenant or condition contained in any Contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which it is a party or by which
it or its property may be bound.
4.11 Litigation. Except as disclosed in or reserved for in BancGroup's
financial statements, there is no Litigation before or by any court or Agency,
domestic or foreign, now pending, or, to the Knowledge of BancGroup, threatened
against or affecting BancGroup or any of its Subsidiaries (nor is BancGroup
aware of
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any facts which could give rise to any such Litigation) which is required to be
disclosed in the Registration Statement (other than as disclosed therein), or
which is likely to have any Material Adverse Effect or prospective Material
Adverse Effect, or which is likely to materially and adversely affect the
properties or Assets thereof or which is likely to materially affect or delay
the consummation of the transactions contemplated by this Agreement; all
pending legal or governmental proceedings to which BancGroup or any Subsidiary
is a party or of which any of their properties is the subject which are not
described in the Registration Statement, including ordinary routine litigation
incidental to the business, are, considered in the aggregate, not material; and
neither BancGroup nor any of its Subsidiaries have any contingent obligations
which could be considered material to BancGroup and its Subsidiaries considered
as one enterprise which are not disclosed in the Registration Statement as it
may be amended or supplemented.
4.12 Compliance. BancGroup and its Subsidiaries, in the conduct of their
businesses, are to the Knowledge of BancGroup, in material compliance with all
material federal, state or local Laws applicable to their or the conduct of
their businesses.
4.13 Registration Statement. At the time the Registration Statement becomes
effective and at the time of the Stockholders' Meeting, the Registration
Statement, including the Proxy Statement which shall constitute a part thereof,
will comply in all material respects with the requirements of the 1933 Act and
the rules and regulations thereunder, will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and
warranties in this subsection shall not apply to statements in or omissions
from the Proxy Statement made in reliance upon and in conformity with
information furnished in writing to BancGroup by Acquired Corporation or any of
its representatives expressly for use in the Proxy Statement or information
included in the Proxy Statement regarding the business of Acquired Corporation,
its operations, Assets and capital.
4.14 SEC Filings. (a) BancGroup has heretofore delivered to Acquired
Corporation copies of BancGroup's: (i) Annual Report on Form 10-K for the
fiscal year ended December 31, 2000; (ii) 2000 Annual Report to Shareholders;
(iii) Quarterly Report on Form 10-Q for the quarter ended March 31, 2001 and
(iv) any reports on Form 8-K, filed by BancGroup with the SEC since March 31,
2000. Since December 31, 1999, BancGroup has timely filed all reports and
registration statements and the documents required to be filed with the SEC
under the rules and regulations of the SEC and all such reports and
registration statements or other documents have complied in all material
respects, as of their respective filing dates and effective dates, as the case
may be, with all the applicable requirements of the 1933 Act and the 1934 Act.
As of the respective filing and effective dates, none of such reports or
registration statements or other documents contained any untrue statement of a
material fact or omitted to state a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(b) The documents incorporated by reference into the Registration Statement,
at the time they were filed with the SEC, complied in all material respects
with the requirements of the 1934 Act and Regulations thereunder and when read
together and with the other information in the Registration Statement will not
contain an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading at the time the Registration Statement becomes effective or at the
time of the Stockholders Meeting.
4.15 Form S-4. The conditions for use of a registration statement on SEC
Form S-4 set forth in the General Instructions on Form S-4 have been or will be
satisfied with respect to BancGroup and the Registration Statement.
4.16 Brokers. Except for negotiations with Allen C. Ewing & Co. as
referenced in Section 5.18 of this Agreement, all negotiations relative to this
Agreement and the transactions contemplated by this Agreement have been carried
on by BancGroup directly with Acquired Corporation and without the intervention
of any
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other person, either as a result of any act of BancGroup or otherwise in such
manner as to give rights to any valid claim against BancGroup for finders fees,
brokerage commissions or other like payments.
4.17 Government Authorization. BancGroup and its Subsidiaries have all
Permits that, to the Knowledge of BancGroup and its Subsidiaries, are or will
be legally required to enable BancGroup or any of its Subsidiaries to conduct
their businesses in all material respects as now conducted by each of them.
4.18 Absence of Regulatory Communications. Neither BancGroup nor any of its
Subsidiaries is subject to, or has received during the past three (3) years,
any written communication directed specifically to it from any Agency to which
it is subject or pursuant to which such Agency has imposed or has indicated it
may impose any material restrictions on the operations of it or the business
conducted by it or in which such Agency has raised a material question
concerning the condition, financial or otherwise, of such company.
4.19 Disclosure. No representation or warranty, or any statement or
certificate furnished or to be furnished to Acquired Corporation by BancGroup,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the statements contained
in this Agreement or in any such statement or certificate not misleading.
ARTICLE 5
REPRESENTATIONS, WARRANTIES AND COVENANTS OF ACQUIRED CORPORATION
Acquired Corporation represents, warrants and covenants to and with
BancGroup, as follows:
5.1 Organization. Acquired Corporation is a Florida corporation, and the
Bank is a Florida banking corporation. Each Acquired Corporation Company is
duly organized, validly existing and in good standing under the respective Laws
of its jurisdiction of incorporation and has all requisite power and authority
to carry on its business as it is now being conducted and is qualified to do
business in every jurisdiction in which the character and location of the
Assets owned by it or the nature of the business transacted by it requires
qualification or in which the failure to qualify could, individually, or in the
aggregate, have a Material Adverse Effect.
5.2 Capital Stock. (i) As of the date of this Agreement, the authorized
capital stock of Acquired Corporation consisted of (a) 10,000,000 shares of
common stock, $0.01 par value per share, 2,580,473 shares of which are issued
and outstanding and (b) 2,000,000 shares of preferred stock, none of which is
issued or outstanding. All of such shares which are outstanding are validly
issued, fully paid and nonassessable and not subject to preemptive rights.
Acquired Corporation has 206,110 shares of its common stock subject to exercise
pursuant to stock options under its stock option plans. Except for the
foregoing, Acquired Corporation does not have any other arrangements or
commitments obligating it to issue shares of its capital stock or any
securities convertible into or having the right to purchase shares of its
capital stock, including the grant or issuance of Acquired Corporation Options.
(ii) Trust Preferred Securities. As of the date of this Agreement, the
Acquired Corporation also has outstanding shares of variable rate cumulative
trust preferred securities (the "Trust Preferred Securities") through its
wholly-owned subsidiary, MBI Business Trust, which is a wholly-owned subsidiary
of the Bank and a statutory business trust formed under the laws of the State
of Delaware. All of such shares which are outstanding are validly issued, fully
paid, nonassessable and not subject to preemptive rights.
5.3 Subsidiaries. Except as set forth on Schedule 5.3, Acquired Corporation
has no direct Subsidiaries other than the Bank, and there are no Subsidiaries
of the Bank. Except as set forth on Schedule 5.3, Acquired Corporation 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 the date of this Agreement, there were
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3,400,000 shares of the common stock, par value $1.00 per share, authorized of
the Bank, 2,471,662 of which are issued and outstanding and wholly owned by
Acquired Corporation. The Bank has no arrangements or commitments obligating it
to issue shares of its capital stock or any securities convertible into or
having the right to purchase shares of its capital stock.
5.4 Financial Statements; Taxes (a) Acquired Corporation has delivered to
BancGroup copies of the following financial statements of Acquired Corporation:
(i) Consolidated statements of financial condition as of December 31,
1999, December 31, 2000 and March 31, 2001;
(ii) Consolidated statements of income for each of the three years ended
December 31, 1998, 1999 and 2000, and for the three months ended March 31,
2001; and
(iii) Consolidated statements of stockholders' equity for each of the
three years ended December 31, 1998, 1999, and 2000, and for the three
months ended March 31, 2001.
All of the foregoing financial statements are in all material respects in
accordance with the books and records of Acquired Corporation and have been
prepared in accordance with GAAP applied on a consistent basis throughout the
periods indicated, except for changes required by GAAP, all as more
particularly set forth in the notes to such statements. Each of such balance
sheets presents fairly as of its date the financial condition of Acquired
Corporation. Except as and to the extent reflected or reserved against in such
balance sheets (including the notes thereto), Acquired Corporation did not
have, as of the date of such balance sheets, any material Liabilities or
obligations (absolute or contingent) of a nature customarily reflected in a
balance sheet or the notes thereto. The statements of income, stockholders'
equity and cash flows present fairly the results of operation, changes in
shareholders equity and cash flows of Acquired Corporation for the periods
indicated. The foregoing representations, insofar as they relate to the
unaudited interim financial statements of Acquired Corporation for the three
months ended March 31, 2001, are subject in all cases to normal recurring year-
end adjustments and the omission of footnote disclosure.
(b) Except as set forth on Schedule 5.4(b), all Tax returns required to be
filed by or on behalf of Acquired Corporation have been timely filed (or
requests for extensions therefor have been timely filed and granted and have
not expired), and all returns filed are complete and accurate in all material
respects. All Taxes shown on these returns to be due and all additional
assessments received have been paid. The amounts recorded for Taxes on the
balance sheets provided under section 5.4(a) are, to the Knowledge of Acquired
Corporation, sufficient in all material respects for the payment of all unpaid
federal, state, county, local, foreign and other Taxes (including any interest
or penalties) of Acquired Corporation accrued for or applicable to the period
ended on the dates thereof, and all years and periods prior thereto and for
which Acquired Corporation may at such dates have been liable in its own right
or as a transferee of the Assets of, or as successor to, any other corporation
or other party. No audit, examination or investigation is presently being
conducted or, to the Knowledge of Acquired Corporation, threatened by any
taxing authority which is likely to result in a material Tax Liability, no
material unpaid Tax deficiencies or additional liability of any sort has been
proposed by any governmental representative and no agreements for extension of
time for the assessment of any material amount of Tax have been entered into by
or on behalf of Acquired Corporation. Acquired Corporation has not executed an
extension or waiver of any statute of limitations on the assessment or
collection of any Tax due that is currently in effect.
(c) Each Acquired Corporation Company has withheld from its employees (and
timely paid to the appropriate governmental entity) proper and accurate amounts
for all periods in material compliance with all Tax withholding provisions of
applicable federal, state, foreign and local Laws (including without
limitation, income, social security and employment Tax withholding for all
types of compensation). Each Acquired Corporation Company is in compliance
with, and its records contain all information and documents (including properly
completed IRS Forms W-9) necessary to comply with, all applicable information
reporting and Tax withholding requirements under federal, state and local Tax
Laws, and such records identify with specificity all accounts subject to backup
withholding under section 3406 of the Code.
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5.5 Absence of Certain Changes or Events. Except as set forth on Schedule
5.5, since the date of the most recent balance sheet provided under section
5.4(a)(i) above, no Acquired Corporation Company has
(a) issued, delivered or agreed to issue or deliver any stock, bonds or
other corporate securities (whether authorized and unissued or held in the
treasury) except shares of common stock issued upon the exercise of
existing Acquired Corporation Options and shares issued as director's
qualifying shares;
(b) borrowed or agreed to borrow any funds or incurred, or become
subject to, any Liability (absolute or contingent) except borrowings,
obligations (including purchase of federal funds) and Liabilities incurred
in the ordinary course of business and consistent with past practice;
(c) paid any material obligation or Liability (absolute or contingent)
other than current Liabilities reflected in or shown on the most recent
balance sheet referred to in section 5.4(a)(i) and current Liabilities
incurred since that date in the ordinary course of business and consistent
with past practice;
(d) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any Assets of any kind whatsoever to
shareholders, or purchased or redeemed, or agreed to purchase or redeem,
directly or indirectly, or otherwise acquire, any of its outstanding
securities, except that Acquired Corporation may pay cash dividends at its
current rate and at times consistent with past practice, both as shown on
Schedule 5.5(d);
(e) except in the ordinary course of business, sold or transferred, or
agreed to sell or transfer, any of its Assets, or canceled, or agreed to
cancel, any debts or claims;
(f) except in the ordinary course of business, entered or agreed to
enter into any agreement or arrangement granting any preferential rights to
purchase any of its Assets, or requiring the consent of any party to the
transfer and assignment of any of its Assets;
(g) suffered any Losses or waived any rights of value which in either
event in the aggregate are material considering its business as a whole;
(h) except in the ordinary course of business, made or permitted any
amendment or termination of any Contract, agreement or license to which it
is a party if such amendment or termination is material considering its
business as a whole;
(i) except in accordance with normal and usual practice, made any
accrual or arrangement for or payment of bonuses or special compensation of
any kind or any severance or termination pay to any present or former
officer or employee;
(j) except in accordance with normal and usual practice, increased the
rate of compensation payable to or to become payable to any of its officers
or employees or made any material increase in any profit sharing, bonus,
deferred compensation, savings, insurance, pension, retirement or other
employee benefit plan, payment or arrangement made to, for or with any of
its officers or employees;
(k) received notice or had Knowledge or reason to believe that any of
its substantial customers has terminated or intends to terminate its
relationship, which termination would have a Material Adverse Effect on its
financial condition, results of operations, business, Assets or properties;
(l) failed to operate its business in the ordinary course so as to
preserve its business intact and to preserve the goodwill of its customers
and others with whom it has business relations;
(m) entered into any other material transaction other than in the
ordinary course of business; or
(n) agreed in writing, or otherwise, to take any action described in
clauses (a) through (m) above.
Between the date hereof and the Effective Date, no Acquired Corporation
Company, without the express written approval of BancGroup, will do any of the
things listed in clauses (a) through (n) of this section 5.5 except as
permitted therein or as contemplated in this Agreement, and no Acquired
Corporation Company will enter into or amend any material Contract, other than
Loans or renewals thereof entered into in the ordinary course of business,
without the express written consent of BancGroup.
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5.6 Title and Related Matters.
(a) Title. Each Acquired Corporation Company has good and marketable title
to all the properties, interest in properties and Assets, real and personal,
that are material to the business of such Acquired Corporation Company,
reflected in the most recent balance sheet referred to in section 5.4(a)(i), or
acquired after the date of such balance sheet (except properties, interests and
Assets sold or otherwise disposed of since such date, in the ordinary course of
business), free and clear of all mortgages, Liens, pledges, charges or
encumbrances except (i) mortgages and other encumbrances referred to in the
notes to such balance sheet, (ii) Liens for current Taxes not yet due and
payable and (iii) such imperfections of title and easements as do not
materially detract from or interfere with the present use of the properties
subject thereto or affected thereby, or otherwise materially impair present
business operations at such properties. To the Knowledge of Acquired
Corporation, the material structures and equipment of each Acquired Corporation
Company comply in all material respects with the requirements of all applicable
Laws.
(b) Leases. Schedule 5.6(b) sets forth a list and description of all real
and personal property owned or leased by any Acquired Corporation Company,
either as lessor or lessee. Complete and accurate copies of all such leases
have been made available to BancGroup for inspection.
(c) Personal Property. Schedule 5.6(c) sets forth a depreciation schedule of
each Acquired Corporation Company's fixed Assets as of March 31, 2001.
(d) Computer Hardware and Software. Schedule 5.6(d) contains a description
of all agreements relating to data processing computer software and hardware
now being used in the business operations of any Acquired Corporation Company.
Acquired Corporation is not aware of any defects, irregularities or problems
with any of its computer hardware or software which renders such hardware or
software unable to satisfactorily perform the tasks and functions to be
performed by them in the business of any Acquired Corporation Company. Complete
and accurate copies of all Contracts, plans and other items so listed have been
made available to BancGroup for inspection.
5.7 Commitments. Except as set forth in Schedule 5.7, no Acquired
Corporation Company is a party to any oral or written (i) Contract for the
employment of any officer or employee which is not terminable on 30 days' (or
less) notice, (ii) profit sharing, bonus, deferred compensation, savings, stock
option, severance pay, pension or retirement plan, agreement or arrangement,
(iii) loan agreement, indenture or similar agreement relating to the borrowing
of money by such party, (iv) guaranty of any obligation for the borrowing of
money or otherwise, excluding endorsements made for collection, and guaranties
made in the ordinary course of business, (v) consulting or other similar
material Contracts, (vi) collective bargaining agreement, (vii) agreement with
any present or former officer, director or shareholder of such party, or (viii)
other Contract, agreement or other commitment which is material to the
business, operations, property, prospects or Assets or to the condition,
financial or otherwise, of any Acquired Corporation Company. Complete and
accurate copies of all Contracts, plans and other items so listed have been
provided to BancGroup.
5.8 Charter and Bylaws. Schedule 5.8 contains true and correct copies of the
articles of incorporation and bylaws of each Acquired Corporation Company,
including all amendments thereto, as currently in effect. There will be no
changes in such articles of incorporation or bylaws prior to the Effective
Date, without the prior written consent of BancGroup.
5.9 Litigation. There is no Litigation (whether or not purportedly on behalf
of Acquired Corporation) pending or, to the Knowledge of Acquired Corporation,
threatened against or affecting any Acquired Corporation Company (nor does
Acquired Corporation have Knowledge of any facts which are likely to give rise
to any such Litigation) at law or in equity, or before or by any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, or before any arbitrator of any kind, which involves the possibility
of any judgment or Liability not fully covered by insurance in excess of a
reasonable deductible amount or which may have a Material Adverse Effect on
Acquired Corporation, and no Acquired Corporation Company is in Default with
respect to any judgment, order, writ, injunction, decree, award, rule or
regulation of any court, arbitrator or governmental department, commission,
board, bureau, agency or
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instrumentality, which Default would have a Material Adverse Effect on Acquired
Corporation. To the Knowledge of Acquired Corporation, each Acquired
Corporation Company has complied in all material respects with all material
applicable Laws and Regulations including those imposing Taxes, of any
applicable jurisdiction and of all states, municipalities, other political
subdivisions and Agencies, in respect of the ownership of its properties and
the conduct of its business, which, if not complied with, would have a Material
Adverse Effect on Acquired Corporation.
5.10 Material Contract Defaults. Except as disclosed on Schedule 5.10, no
Acquired Corporation Company is in Default in any material respect under the
terms of any material Contract, agreement, lease or other commitment which is
or may be material to the business, operations, properties or Assets, or the
condition, financial or otherwise, of such company and, to the Knowledge of
Acquired Corporation, there is no event which, with notice or lapse of time, or
both, may be or become an event of Default under any such material Contract,
agreement, lease or other commitment in respect of which adequate steps have
not been taken to prevent such a Default from occurring.
5.11 No Conflict with Other Instrument. The consummation of the transactions
contemplated by this Agreement will not result in the breach of any term or
provision of or constitute a Default under any material Contract, indenture,
mortgage, deed of trust or other material agreement or instrument to which any
Acquired Corporation Company is a party and will not conflict with any
provision of the charter or bylaws of any Acquired Corporation Company.
5.12 Governmental Authorization. Each Acquired Corporation Company has all
Permits that, to the Knowledge of Acquired Corporation, are or will be legally
required to enable any Acquired Corporation Company to conduct its business in
all material respects as now conducted by each Acquired Corporation Company.
5.13 Absence of Regulatory Communications. Except as provided in Schedule
5.13, no Acquired Corporation Company is subject to, nor has any Acquired
Corporation Company received during the past three years, any written
communication directed specifically to it from any Agency to which it is
subject or pursuant to which such Agency has imposed or has indicated it may
impose any material restrictions on the operations of it or the business
conducted by it or in which such Agency has raised any material question
concerning the condition, financial or otherwise, of such company.
5.14 Absence of Material Adverse Change. To the Knowledge of Acquired
Corporation, since the date of the most recent balance sheet provided under
section 5.4(a)(i), there have been no events, changes or occurrences which have
had, or are reasonably likely to have, individually or in the aggregate, a
Material Adverse Effect on any Acquired Corporation Company.
5.15 Insurance. Each Acquired Corporation Company has in effect insurance
coverage and bonds with reputable insurers which, in respect to amounts, types
and risks insured, management of Acquired Corporation reasonably believes to be
adequate for the type of business conducted by such company. No Acquired
Corporation Company is liable for any material retroactive premium adjustment.
All insurance policies and bonds are valid, enforceable and in full force and
effect, and no Acquired Corporation Company has received any notice of any
material premium increase or cancellation with respect to any of its insurance
policies or bonds. Within the last three years, no Acquired Corporation Company
has been refused any insurance coverage which it has sought or applied for, and
it has no reason to believe that existing insurance coverage cannot be renewed
as and when the same shall expire, upon terms and conditions as favorable as
those presently in effect, other than possible increases in premiums that do
not result from any extraordinary loss experience. All policies of insurance
presently held or policies containing substantially equivalent coverage will be
outstanding and in full force with respect to each Acquired Corporation Company
at all times from the date hereof to the Effective Date.
5.16 Pension and Employee Benefit Plans.
(a) To the Knowledge of Acquired Corporation, all employee benefit plans of
each Acquired Corporation Company have been established in compliance with, and
such plans have been operated in material compliance
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with, all applicable Laws. Except as set forth in Schedule 5.16, no Acquired
Corporation Company sponsors or otherwise maintains a "pension plan" within the
meaning of section 3(2) of ERISA or any other retirement plan other than the
Section 401K plan of Acquired Corporation that is intended to qualify under
section 401 of the Code, nor do any unfunded Liabilities exist with respect to
any employee benefit plan, past or present. To the Knowledge of Acquired
Corporation, no employee benefit plan, any trust created thereunder or any
trustee or administrator thereof has engaged in a "prohibited transaction," as
defined in section 4975 of the Code, which may have a Material Adverse Effect
on the condition, financial or otherwise, of any Acquired Corporation Company.
(b) To the Knowledge of Acquired Corporation, no amounts payable to any
employee of any Acquired Corporation Company will fail to be deductible for
federal income tax purposes by virtue of Section 280G of the Code and
regulations thereunder.
5.17 Buy-Sell Agreements. Except as provided in Schedule 5.17, to the
Knowledge of Acquired Corporation, there are no agreements among any of its
shareholders granting to any person or persons a right of first refusal in
respect of the sale, transfer, or other disposition of shares of outstanding
securities by any shareholder of Acquired Corporation, any similar agreement or
any voting agreement or voting trust in respect of any such shares.
5.18 Brokers. Except for services provided to Acquired Corporation by Allen
C. Ewing & Co., all negotiations relative to this Agreement and the
transactions contemplated by this Agreement have been carried on by Acquired
Corporation directly with BancGroup and without the intervention of any other
person, either as a result of any act of Acquired Corporation, or otherwise, in
such manner as to give rise to any valid claim against Acquired Corporation for
a finder's fee, brokerage commission or other like payment.
5.19 Approval of Agreements. The board of directors of Acquired Corporation
has approved this Agreement and the transactions contemplated by this Agreement
and has authorized the execution and delivery by Acquired Corporation of this
Agreement. Subject to the matters referred to in section 8.2, Acquired
Corporation has full power, authority and legal right to enter into this
Agreement, and, upon appropriate vote of the shareholders of Acquired
Corporation in accordance with this Agreement, Acquired Corporation shall have
full power, authority and legal right to consummate the transactions
contemplated by this Agreement.
5.20 Disclosure. No representation or warranty, nor any statement or
certificate furnished or to be furnished to BancGroup by Acquired Corporation,
contains or will contain any untrue statement of a material fact, or omits or
will omit to state a material fact necessary to make the statements contained
in this Agreement or in any such statement or certificate not misleading.
5.21 Registration Statement. At the time the Registration Statement becomes
effective and at the time of the Stockholders Meeting, the Registration
Statement, including the Proxy Statement which shall constitute part thereof,
will not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this section shall only
apply to statements in or omissions from the Proxy Statement relating to
descriptions of the business of Acquired Corporation, its Assets, properties,
operations, and capital stock or to information furnished in writing by
Acquired Corporation or its representatives expressly for inclusion in the
Proxy Statement.
5.22 Loans; Adequacy of Allowance for Loan Losses. All reserves for loan
losses shown on the most recent financial statements furnished by Acquired
Corporation have been calculated in accordance with prudent and customary
banking practices and are adequate in all material respects to reflect the risk
inherent in the loans of Acquired Corporation. Acquired Corporation has no
Knowledge of any fact which is likely to require a future material increase in
the provision for loan losses or a material decrease in the loan loss reserve
reflected in such financial statements. Each loan reflected as an Asset on the
financial statements of Acquired Corporation is the legal, valid and binding
obligation of the obligor of each loan, enforceable in accordance
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with its terms subject to the effect of bankruptcy, insolvency, reorganization,
moratorium, or other similar laws relating to creditors' rights generally and
to general equitable principles and complies with all Laws to which it is
subject. Acquired Corporation does not have in its portfolio any loan exceeding
its legal lending limit, and except as disclosed on Schedule 5.22, Acquired
Corporation has no known significant delinquent, substandard, doubtful, loss,
nonperforming or problem loans.
5.23 Environmental Matters. Except as provided in Schedule 5.23, to the
Knowledge of Acquired Corporation, each Acquired Corporation Company is in
material compliance with all Laws and other governmental requirements relating
to the generation, management, handling, transportation, treatment, disposal,
storage, delivery, discharge, release or emission of any waste, pollution, or
toxic, hazardous or other substance (the "Environmental Laws"), and Acquired
Corporation has no Knowledge that any Acquired Corporation Company has not
complied with all regulations and requirements promulgated by the Occupational
Safety and Health Administration that are applicable to any Acquired
Corporation Company. To the Knowledge of Acquired Corporation, there is no
Litigation pending or threatened with respect to any violation or alleged
violation of the Environmental Laws. To the Knowledge of Acquired Corporation,
with respect to Assets of any Acquired Corporation Company, including any Loan
Property, (i) there has been no spillage, leakage, contamination or release of
any substances for which the appropriate remedial action has not been
completed; (ii) no owned or leased property is contaminated with or contains
any hazardous substance or waste; and (iii) there are no underground storage
tanks on any premises owned or leased by any Acquired Corporation Company.
Acquired Corporation has no Knowledge of any facts which might suggest that any
Acquired Corporation Company has engaged in any management practice with
respect to any of its past or existing borrowers which could reasonably be
expected to subject any Acquired Corporation Company to any Liability, either
directly or indirectly, under the principles of law as set forth in United
States v. Fleet Factors Corp., 901 F.2d 1550 (11th Cir. 1990) or any similar
principles. Moreover, to the Knowledge of Acquired Corporation, no Acquired
Corporation Company has extended credit, either on a secured or unsecured
basis, to any person or other entity engaged in any activities which would
require or requires such person or entity to obtain any Permits which are
required under any Environmental Law which has not been obtained.
5.24 Transfer of Shares. Acquired Corporation has no Knowledge of any plan
or intention on the part of any affiliate of Acquired Corporation to sell or
otherwise dispose of any of Acquired Corporation Common Stock, or the BancGroup
Common Stock to be received by them in the Merger, that could cause the Merger
to fail to qualify for the pooling of interests method of accounting under
generally accepted accounting principles.
5.25 Collective Bargaining. There are no labor contracts, collective
bargaining agreements, letters of undertakings or other arrangements, formal or
informal, between any Acquired Corporation Company and any union or labor
organization covering any Acquired Corporation Company's employees and none of
said employees are represented by any union or labor organization.
5.26 Labor Disputes. To the Knowledge of Acquired Corporation, each Acquired
Corporation Company is in material compliance with all federal and state laws
respecting employment and employment practices, terms and conditions of
employment, wages and hours. No Acquired Corporation Company is or has been
engaged in any unfair labor practice, and, to the Knowledge of Acquired
Corporation, no unfair labor practice complaint against any Acquired
Corporation Company is pending before the National Labor Relations Board.
Relations between management of each Acquired Corporation Company and the
employees are amicable and there have not been, nor to the Knowledge of
Acquired Corporation, are there presently, any attempts to organize employees,
nor to the Knowledge of Acquired Corporation, are there plans for any such
attempts.
5.27 Derivative Contracts. No Acquired Corporation Company is a party to or
has agreed to enter into a swap, forward, future, option, cap, floor or collar
financial contract, or any other interest rate or foreign currency protection
contract or derivative security not included in Acquired Corporation's
financial statements delivered under Section 5.4 hereof which is a financial
derivative contract (including various combinations thereof).
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5.28 Non-Terminable Contracts or Severance Agreements. With the exception
the contracts listed on Schedule 5.28, no Acquired Corporation Company is a
party to or has agreed to enter into a contract that is not terminable within
90 days or contains an extraordinary buyout. With the exception of certain
agreements otherwise referenced in this Agreement, no Acquired Corporation
Company is a party to or has agreed to enter into any employment agreement,
non-competition agreement, salary continuation plan or severance agreement or
similar arrangement with any Acquired Corporation Company employee. Acquired
Corporation has provided BancGroup a copy of each contract listed on Schedule
5.28.
ARTICLE 6
ADDITIONAL COVENANTS
6.1 Additional Covenants of BancGroup. BancGroup covenants to and with
Acquired Corporation as follows:
(a) Registration Statement and Other Filings. As soon as reasonably
practicable after the execution of this Agreement, BancGroup shall prepare
and file with the SEC the Registration Statement on Form S-4 (or such other
form as may be appropriate) and all amendments and supplements thereto, in
form reasonably satisfactory to Acquired Corporation and its counsel, with
respect to the Common Stock to be issued pursuant to this Agreement.
BancGroup shall use reasonable good faith efforts to prepare all necessary
filings with any Agencies which may be necessary for approval to consummate
the transactions contemplated by this Agreement and shall use its
reasonable efforts to cause the Registration Statement to become effective
under the 1933 Act as soon as reasonably practicable after the filing
thereof and take any action required to be taken under other applicable
securities Laws in connection with the issuance of the shares of BancGroup
Common Stock upon consummation of the Merger. Copies of all such filings
shall be furnished in advance to Acquired Corporation and its counsel.
(b) Blue Sky Permits. BancGroup shall use its best efforts to obtain,
prior to the effective date of the Registration Statement, all necessary
state securities Law or "blue sky" Permits and approvals required to carry
out the transactions contemplated by this Agreement.
(c) Financial Statements. BancGroup shall furnish to Acquired
Corporation:
(i) As soon as practicable and in any event within forty-five (45)
days after the end of each quarterly period (other than the last
quarterly period) in each fiscal year, consolidated statements of
operations of BancGroup for such period and for the period beginning at
the commencement of the fiscal year and ending at the end of such
quarterly period, and a consolidated statement of financial condition
of BancGroup as of the end of such quarterly period, setting forth in
each case in comparative form figures for the corresponding periods
ending in the preceding fiscal year, subject to changes resulting from
year-end adjustments;
(ii) Promptly upon receipt thereof, copies of all audit reports
submitted to BancGroup by independent auditors in connection with each
annual, interim or special audit of the books of BancGroup made by such
accountants;
(iii) As soon as practicable, copies of all such financial
statements and reports as it shall send to its stockholders and of such
regular and periodic reports as BancGroup may file with the SEC or any
other Agency; and
(iv) With reasonable promptness, such additional financial data as
Acquired Corporation may reasonably request.
(d) No Control of Acquired Corporation by BancGroup. Notwithstanding any
other provision hereof, until the Effective Date, the authority to operate
the Acquired Corporation and the Bank and
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establish and implement the business policies of Acquired Corporation and
the Bank shall continue to reside solely in Acquired Corporation's and
Bank's officers and board of directors.
(e) Listing. Prior to the Effective Date, BancGroup shall use its
reasonable efforts to list the shares of BancGroup Common Stock to be
issued in the Merger on the NYSE or other quotations system on which such
shares are primarily traded.
(f) Employee Benefit Matters. On the Effective Date, all employees of
any Acquired Corporation Company shall, at BancGroup's option, either
become employees of the Resulting Corporation or its Subsidiaries or be
entitled to severance benefits in accordance with Colonial Bank's severance
policy as of the date of this Agreement. All employees of any Acquired
Corporation Company who become employees of the Resulting Corporation or
its Subsidiaries on the Effective Date shall be entitled, to the extent
permitted by applicable Law, to participate in all benefit plans of
Colonial Bank to the same extent as Colonial Bank employees, except as
stated otherwise in this section. Employees of any Acquired Corporation
Company who become employees of the Resulting Corporation or its
Subsidiaries on the Effective Date shall be allowed to participate as of
the Effective Date in the medical and dental benefits plan of Colonial Bank
as new employees of Colonial Bank, and the time of employment of such
employees who are employed at least 30 hours per week with any Acquired
Corporation Company as of the Effective Date shall be counted as employment
under such dental and medical plans of Colonial Bank for purposes of
calculating any 30 day waiting period and pre-existing condition
limitations. To the extent permitted by applicable Law, the period of
service with the appropriate Acquired Corporation Company of all employees
who become employees of the Resulting Corporation or its Subsidiaries on
the Effective Date shall be recognized only for vesting and eligibility
purposes under Colonial Bank's benefit plans. In addition, if the Effective
Date falls within an annual period of coverage under the medical plan of
the Resulting Corporation and its Subsidiaries, each such Acquired
Corporation Company employee shall be given credit for covered expenses
paid by that employee under comparable employee benefit plans of the
Acquired Corporation Company during the applicable coverage period through
the Effective Date towards satisfaction of any annual deductible limitation
and out-of-pocket maximum that may apply under that group health plan of
the Resulting Corporation and its Subsidiaries.
(g) Indemnification. (i) Subject to the conditions set forth in the
succeeding paragraphs, for a period of six years after the Effective Date
BancGroup shall, and shall cause Colonial Bank to, indemnify, defend and
hold harmless each person entitled to indemnification from the Acquired
Corporation (each being an "Indemnified Party") against all liabilities
arising out of actions or omissions occurring upon or prior to the
Effective Date (including without limitation the transactions contemplated
by this Agreement) to the maximum extent authorized under the articles of
incorporation and bylaws of Acquired Corporation and Section 607.0850 of
the Florida Business Corporation Act.
(ii) Any Indemnified Party wishing to claim indemnification under
this subsection (g), upon learning of any such liability or Litigation,
shall promptly notify BancGroup thereof. In the event of any such
Litigation (whether arising before or after the Effective Date) (i)
BancGroup or Colonial Bank shall have the right to assume the defense
thereof with counsel reasonably acceptable to such Indemnified Party
and, upon assumption of such defense, BancGroup shall not be liable to
such Indemnified Parties for any legal expenses of other counsel or any
other expenses subsequently incurred by such Indemnified Parties in
connection with the defense thereof, except that if BancGroup or
Colonial Bank elects not to assume such defense or counsel for the
Indemnified Parties advises that there are substantive issues which
raise conflicts of interest between BancGroup and the Indemnified
Parties, the Indemnified Parties may retain counsel satisfactory to
them, and BancGroup or Colonial Bank shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as
statements therefor are received; provided, that BancGroup shall be
obligated pursuant to this subsection to pay for only one firm of
counsel for all Indemnified Parties in any jurisdiction, (ii) the
Indemnified Parties will cooperate in the defense of any such
Litigation; and (iii) BancGroup shall not be liable for any settlement
effected without its prior consent; and provided
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further that BancGroup and Colonial Bank shall not have any obligation
hereunder to any Indemnified Party when and if a court of competent
jurisdiction shall determine, and such determination shall have become
final, that the indemnification of such Indemnified Party in the manner
contemplated hereby is prohibited by applicable Law.
(iii) In consideration of and as a condition precedent to the
effectiveness of the indemnification obligations provided by BancGroup
in this section to a director or officer of the Acquired Corporation,
such director or officer of the Acquired Corporation shall have
delivered to BancGroup on or prior to the Effective Date a letter in
form reasonably satisfactory to BancGroup concerning claims such
directors or officers may have against Acquired Corporation. In the
letter, the directors or officers shall: (i) acknowledge the assumption
by BancGroup as of the Effective Date of all Liability (to the extent
Acquired Corporation is so liable) for claims for indemnification
arising under section 6.1(g) hereof; (ii) affirm that they do not have
nor are they aware of any claims they might have (other than those
referred to in the following clause (iii)) against Acquired
Corporation; (iii) identify any claims or any facts or circumstances of
which they are aware that could give rise to a claim for
indemnification under section 6.1(g)(i) hereof; and (iv) release as of
the Effective Date any and all claims that they may have against any
Acquired Corporation Company other than (A) those referred to in the
foregoing clause (iii) and disclosed in the letter of the director or
officer, (B) claims by third parties which have not yet been asserted
against such director or officer (other than claims arising from facts
and circumstances of which such director or officer is aware but which
are not disclosed in such director or executive officer's letter), (C)
claims by third parties arising from any transaction contemplated by
this Agreement or disclosed in any schedule to this Agreement, and (D)
claims by third parties arising in the ordinary course of business of
any Acquired Corporation Company after the date of the letter.
(iv) Acquired Corporation hereby represents and warrants to
BancGroup that it has no Knowledge of any claim, pending or threatened,
or of any facts or circumstances that could give rise to any obligation
by BancGroup to provide the indemnification required by this section
6.1(g) other than as disclosed in the letters of the directors and
executive officers referred to in section 6.1(g)(iii) hereof or
described in any schedule to this Agreement and claims arising from any
transaction contemplated by this Agreement.
(h) Subject to any limitations imposed by its fiduciary duties to
BancGroup and its stockholders, in the first proxy statement mailed after
the Effective Date to BancGroup's stockholders in connection with an annual
meeting of its stockholders, the Board of Directors of BancGroup will
recommend that Anthony F. Gonzalez be elected to BancGroup's Board of
Directors.
(i) BancGroup will take no action that would prevent or impede the
merger from qualifying as a tax-free reorganization within the meaning of
Section 368 of the Code.
6.2 Additional Covenants of Acquired Corporation. Acquired Corporation
covenants to and with BancGroup as follows:
(a) Operations. (i) Acquired Corporation will conduct its business and
the business of each Acquired Corporation Company in a proper and prudent
manner and will use its best efforts to maintain its relationships with its
depositors, customers and employees. No Acquired Corporation Company will
engage in any material transaction outside the ordinary course of business
or make any material change in its accounting policies or methods of
operation, nor will Acquired Corporation permit the occurrence of any
change or event which would render any of the representations and
warranties in Article 5 hereof untrue in any material respect at and as of
the Effective Date with the same effect as though such representations and
warranties had been made at and as of such Effective Date. Acquired
Corporation shall contact any person who may be required to execute an
undertaking under Section 10.5 hereof to request such undertaking and shall
take all such reasonable steps as are necessary to obtain such undertaking.
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Acquired Corporation will take no action that would prevent or impede the
Merger from qualifying (i) for pooling of interests accounting treatment or
(ii) as a tax-free reorganization within the meaning of Section 368 of the
Code.
(ii) If requested by BancGroup, Acquired Corporation shall use its
best efforts to cause all officers and directors who own any stock of
Acquired Corporation and all other shareholders of Acquired Corporation
who own more than five percent (5%) of Acquired Corporation Stock, to
execute an acknowledgment that such person has no present plan,
intention, or binding commitment to sell or otherwise dispose Acquired
Corporation Common Stock or of the BancGroup Common Stock to be
received in the Merger from the date of this Agreement to the date that
financial results concerning at least 30 days of post-merger combined
operations have been published by BancGroup within the meaning of
Section 201.01 of the SEC's codification of Financial Reporting
Policies.
(b) Stockholders' Meeting; Best Efforts. Acquired Corporation will
cooperate with BancGroup in the preparation of the Registration Statement
and any regulatory filings and will cause the Stockholders' Meeting to be
held for the purpose of approving the Merger as soon as practicable after
the effective date of the Registration Statement, and will use its best
efforts to bring about the transactions contemplated by this Agreement,
including stockholder approval of this Agreement, as soon as practicable
unless this Agreement is terminated as provided herein.
(c) Prohibited Negotiations. (i) Except with respect to this Agreement
and the transactions contemplated hereby, no Acquired Corporation Company
nor any affiliate thereof nor any investment banker, attorney, accountant,
or other representative (collectively, "Representatives") retained by an
Acquired Corporation Company shall directly or indirectly solicit any
Acquisition Proposal by any Person. Except to the extent necessary to
comply with the fiduciary duties of Acquired Corporation's Board of
Directors as advised in writing by counsel to such Board of Directors, no
Acquired Corporation Company or any Representative thereof shall furnish
any non-public information that it is not legally obligated to furnish,
negotiate with respect to, or enter into any Contract with respect to, any
Acquisition Proposal, and each Acquired Corporation Company shall direct
and use its reasonable efforts to cause all of its Representatives not to
engage in any of the foregoing, but Acquired Corporation may communicate
information about such an Acquisition Proposal to its shareholders if and
to the extent that it is required to do so in order to comply with its
legal obligations as advised in writing by counsel to such Board of
Directors. Acquired Corporation shall promptly notify BancGroup orally and
in writing in the event that any Acquired Corporation Company receives any
inquiry or proposal relating to any such Acquisition Proposal. Acquired
Corporation shall immediately cease and cause to be terminated any existing
activities, discussions, or negotiations with any Persons other than
BancGroup conducted heretofore with respect to any of the foregoing.
(ii) If Acquired Corporation (A) enters into a letter of intent or
definitive agreement regarding an Acquisition Proposal with any third
party (other than BancGroup or any of its Subsidiaries) prior to the
earlier of (i) the Effective Date or (ii) the termination of this
Agreement pursuant to Article 13 hereof (other than a termination
pursuant to paragraph (a) of section 13.2 hereof or by Acquired
Corporation pursuant to paragraphs (b), (c) or (d) of section 13.2
hereof), or (B) if Acquired Corporation receives or is the subject of
an Acquisition Proposal from a third party (other than BancGroup or its
Subsidiaries) prior to the termination of this Agreement pursuant to
Article 13 hereof (other than a termination pursuant to paragraph (a)
of section 13.2 hereof or by Acquired Corporation pursuant to
paragraphs (b), (c) or (d) of section 13.2 hereof), and within 18
months after termination of this Agreement pursuant to Article 13
hereof (other than a termination pursuant to paragraph (a) of section
13.2 hereof or by Acquired Corporation pursuant to paragraphs (b), (c)
or (d) of section 13.2 hereof) an Acquisition Proposal is consummated
with such third party, Acquired Corporation covenants and agrees that
it shall pay to BancGroup upon demand at any time (Y) after Acquired
Corporation enters into an agreement which is legally binding on
Acquired Corporation regarding an Acquisition Proposal or (Z) at any
time on or after the date of consummation of such
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Acquisition Proposal, which ever is the first to occur, the principal
sum of $3,000,000. Such payment shall compensate BancGroup for its
direct and indirect costs and expenses in connection with the
transactions contemplated by this Agreement, including BancGroup's
management time devoted to negotiation and preparation for the Merger
and BancGroup's loss as a result of the Merger not being consummated.
The Parties acknowledge and agree that it would be impracticable or
extremely difficult to fix the actual damages resulting from the
foregoing events and, therefore, the Parties have agreed upon the
foregoing payment as liquidated damages which shall not be deemed to be
in the nature of a penalty. Other than the payment provided for in this
section 6.2(c)(ii) and any Liability for expenses as set forth in
Section 15.10 hereof, there shall be no other Liability or obligation
on the part of any Acquired Corporation Company or their respective
directors or officers resulting from any of the events described in
this section 6.2(c)(ii).
(d) Director Recommendation. The members of the Board of Directors of
Acquired Corporation agree to support publicly the Merger and to vote to
approve the Merger at any meeting of the shareholders in which the Merger
is considered.
(e) Shareholder Voting. Acquired Corporation shall on the date of
execution of this Agreement obtain and submit to BancGroup an agreement
from its directors, executive officers and affiliates substantially in the
form set forth in Exhibit A.
(f) Financial Statements and Monthly Status Reports. Acquired
Corporation shall furnish to BancGroup:
(i) As soon as practicable and in any event within 45 days after the
end of each quarterly period (other than the last quarterly period) in
each fiscal year, consolidated statements of operations of Acquired
Corporation for such period and for the period beginning at the
commencement of the fiscal year and ending at the end of such quarterly
period, and a consolidated statement of financial condition of Acquired
Corporation as of the end of such quarterly period, setting forth in
each case in comparative form figures for the corresponding periods
ending in the preceding fiscal year, subject to changes resulting from
year-end adjustments;
(ii) Promptly upon receipt thereof, copies of all audit reports
submitted to Acquired Corporation by independent auditors in connection
with each annual, interim or special audit of the books of Acquired
Corporation made by such accountants;
(iii) As soon a practicable, copies of all such financial statements
and reports as it shall send to its stockholders and of such regular
and periodic reports as Acquired Corporation may file with the SEC or
any other Agency;
(iv) With reasonable promptness, such additional financial data as
BancGroup may reasonably request; and
(v) Within 10 calendar days after the end of each month (or, if the
financial statements referred to in clause (d) are not then available,
as soon as possible thereafter) commencing with the next calendar month
following the date of this Agreement and ending at the Effective Date,
a written description of (a) any non-compliance with the terms of this
Agreement, together with its then current estimate of the out-of-pocket
costs and expenses incurred or reasonably accruable in connection with
the transactions contemplated by this Agreement; (b) the status, as of
the date of the report, of all existing or threatened litigation
against any Acquired Corporation Company; (c) copies of minutes of any
meeting of the board of directors of any Acquired Corporation Company
and any committee thereof occurring in the month for which such report
is made, including all documents presented to the directors at such
meetings; and (d) monthly financial statements, including a balance
sheet and income statement.
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(g) Fiduciary Duties. Prior to the Effective Date, Acquired Corporation
will use its best efforts so that (i) no director or officer (each an
"Executive") of any Acquired Corporation Company shall, directly or
indirectly, own, manage, operate, join, control, be employed by or
participate in the ownership, proposed ownership, management, operation or
control of or be connected in any manner with, any business, corporation or
partnership which is competitive to the business of any Acquired
Corporation Company, (ii) all Executives, at all times, shall satisfy their
fiduciary duties to Acquired Corporation and its Subsidiaries, and (iii)
such Executives shall not (except as required in the course of his or her
employment with any Acquired Corporation Company) communicate or divulge
to, or use for the benefit of himself or herself or any other person, firm,
association or corporation, without the express written consent of Acquired
Corporation, any confidential information which is possessed, owned or used
by or licensed by or to any Acquired Corporation Company or confidential
information belonging to third parties which any Acquired Corporation
Company shall be under obligation to keep secret or which may be
communicated to, acquired by or learned of by the Executive in the course
of or as a result of his or her employment with any Acquired Corporation
Company.
(h) Certain Practices. At the request of BancGroup, (i) Acquired
Corporation shall consult with BancGroup and advise BancGroup through Caryn
Cope (334-240-5002) or Art Barksdale (407-648-1570) of all of the Bank's
loan requests over $500,000 that are not single-family residential loan
requests or of any other loan request outside the normal course of
business, and (ii) Acquired Corporation will consult with BancGroup to
coordinate various business issues on a basis mutually satisfactory to
Acquired Corporation and BancGroup. Acquired Corporation and the Bank shall
not be required to undertake any of such activities, however, except as
such activities may be in compliance with existing Law and Regulations.
(i) Trust Preferred Capital Securities. Not later than 30 days before
the date of the Shareholders Meeting, Acquired Corporation will give
BancGroup written notice of whether it will redeem its Trust Preferred
Securities as of the Effective Date or whether the Trust Preferred
Securities will remain outstanding in accordance with their terms, provided
that Acquired Corporation may only elect to redeem the Trust Preferred
Securities if (i) such redemption was permissible under the original
creation documents of the Trust Preferred Securities, (ii) such redemption
would not have the effect of causing Acquired Corporation or the Bank to
become less than "well capitalized," and (iii) such redemption will not
prevent, in the opinion of PricewaterhouseCoopers LLP, the Merger from
qualifying for the pooling of interests method of accounting under
generally accepted accounting principles.
ARTICLE 7
MUTUAL COVENANTS AND AGREEMENTS
7.1 Best Efforts; Cooperation. Subject to the terms and conditions herein
provided, BancGroup and Acquired Corporation each agrees to use its best
efforts promptly to take, or cause to be taken, all actions and do, or cause to
be done, all things necessary, proper or advisable under applicable Laws or
otherwise, including, without limitation, promptly making required deliveries
of stockholder lists and stock transfer reports and attempting to obtain all
necessary Consents and waivers and regulatory approvals, including the holding
of any regular or special board meetings, to consummate and make effective, as
soon as practicable, the transactions contemplated by this Agreement. The
officers of each Party to this Agreement shall fully cooperate with officers
and employees, accountants, counsel and other representatives of the other
Parties not only in fulfilling the duties hereunder of the Party of which they
are officers but also in assisting, directly or through direction of employees
and other persons under their supervision or control, such as stock transfer
agents for the Party, the other Parties requiring information which is
reasonably available from such Party.
7.2 Press Release. Each Party hereto agrees that, unless approved by the
other Parties in advance, such Party will not make any public announcement,
issue any press release or other publicity or confirm any statements by any
person not a party to this Agreement concerning the transactions contemplated
hereby.
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Notwithstanding the foregoing, each Party hereto reserves the right to make any
disclosure if such Party, in its reasonable discretion, deems such disclosure
required by Law. In that event, such Party shall provide to the other Party the
text of such disclosure sufficiently in advance to enable the other Party to
have a reasonable opportunity to comment thereon.
7.3 Mutual Disclosure. Each Party hereto agrees to promptly furnish to each
other Party hereto its public disclosures and filings not precluded from
disclosure by Law including but not limited to call reports, Form 8-K, Form 10-
Q and Form 10-K filings, Y-3 applications, reports on Form Y-6, quarterly or
special reports to shareholders, Tax returns, Form S-8 registration statements
and similar documents.
7.4 Access to Properties and Records. Each Party hereto shall afford the
officers and authorized representatives of the other Party full access to the
Assets, books and records of such Party in order that such other Parties may
have full opportunity to make such investigation as they shall desire of the
affairs of such Party and shall furnish to such Parties such additional
financial and operating data and other information as to its businesses and
Assets as shall be from time to time reasonably requested. All such information
that may be obtained by any such Party will be held in confidence by such
party, will not be disclosed by such Party or any of its representatives except
in accordance with this Agreement, and will not be used by such Party for any
purpose other than the accomplishment of the Merger as provided herein.
7.5 Notice of Adverse Changes. Each Party agrees to give written notice
promptly to the other Party upon becoming aware of the occurrence or impending
occurrence of any event or circumstance relating to it or any of its
Subsidiaries which (i) is reasonably likely to have, individually or in the
aggregate, a Material Adverse Effect on it or (ii) would cause or constitute a
material breach of any of its representations, warranties, or covenants
contained herein, and to use its reasonable efforts to prevent or promptly to
remedy the same.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF ALL PARTIES
The obligations of BancGroup and Acquired Corporation to cause the
transactions contemplated by this Agreement to be consummated shall be subject
to the satisfaction, in the sole discretion of the Party relying upon such
conditions, on or before the Effective Date of all the following conditions,
except as such Parties may waive such conditions in writing:
8.1 Approval by Shareholders. At the Stockholders Meeting, this Agreement
and the matters contemplated by this Agreement shall have been duly approved by
the vote of the holders of not less than the requisite number of the issued and
outstanding voting securities of Acquired Corporation as is required by
applicable Law and Acquired Corporation's articles of incorporation and bylaws.
8.2 Regulatory Authority Approval. (a) Orders, Consents and approvals, in
form and substance reasonably satisfactory to BancGroup and Acquired
Corporation, shall have been entered by the Board of Governors of the Federal
Reserve System and other appropriate bank regulatory Agencies (i) granting the
authority necessary for the consummation of the transactions contemplated by
this Agreement, including the merger of the Bank with Colonial Bank as
contemplated pursuant to section 2.8 hereof and (ii) satisfying all other
requirements prescribed by Law. No Order, Consent or approval so obtained which
is necessary to consummate the transactions as contemplated hereby shall be
conditioned or restricted in a manner which in the reasonable good faith
judgment of the Board of Directors of BancGroup would so materially adversely
impact the economic benefits of the transaction as contemplated by this
Agreement so as to render inadvisable the consummation of the Merger.
(b) Each Party shall have obtained any and all other Consents required for
consummation of the Merger (other than those referred to in Section 8.2(a) of
this Agreement) for the preventing of any Default under any Contract or Permit
of such Party which, if not obtained or made, is reasonably likely to have,
individually or in
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the aggregate, a Material Adverse Effect on such Party. No Consent obtained
which is necessary to consummate the transactions contemplated hereby shall be
conditioned or restricted in a manner which in the reasonable judgment of the
Board of Directors of BancGroup would so materially adversely impact the
economic or business benefits of the transactions contemplated by this
Agreement so as to render inadvisable the consummation of the Merger.
8.3 Litigation. There shall be no pending or threatened Litigation in any
court or any pending or threatened proceeding by any governmental commission,
board or Agency, with a view to seeking or in which it is sought to restrain or
prohibit consummation of the transactions contemplated by this Agreement or in
which it is sought to obtain divestiture, rescission or damages in connection
with the transactions contemplated by this Agreement and no investigation by
any Agency shall be pending or threatened which might result in any such suit,
action or other proceeding.
8.4 Registration Statement. The Registration Statement shall be effective
under the 1933 Act and no stop order suspending the effectiveness of the
Registration Statement shall be in effect; no proceedings for such purpose, or
under the proxy rules of the SEC or any bank regulatory authority pursuant to
the 1934 Act, with respect to the transactions contemplated hereby, shall be
pending before or threatened by the SEC or any bank regulatory authority; and
all approvals or authorizations for the offer of BancGroup Common Stock shall
have been received or obtained pursuant to any applicable state securities
Laws, and no stop order or proceeding with respect to the transactions
contemplated hereby shall be pending or threatened under any such state Law.
8.5 Tax Opinion. An opinion of PricewaterhouseCoopers LLP, shall have been
received in form and substance reasonably satisfactory to the Acquired
Corporation and BancGroup to the effect that (i) the Merger will constitute a
"reorganization" within the meaning of section 368 of the Code; (ii) no gain or
loss will be recognized by BancGroup or Acquired Corporation; (iii) no gain or
loss will be recognized by the shareholders of Acquired Corporation who receive
shares of BancGroup Common Stock except to the extent of any taxable "boot"
received by such persons from BancGroup, and except to the extent of any
dividends received from Acquired Corporation prior to the Effective Date; (iv)
the basis of the BancGroup Common Stock received in the Merger will be equal to
the sum of the basis of the shares of Acquired Corporation common stock
exchanged in the Merger and the amount of gain, if any, which was recognized by
the exchanging Acquired Corporation shareholder, including any portion treated
as a dividend, less the value of taxable boot, if any, received by such
shareholder in the Merger; (v) the holding period of the BancGroup Common Stock
will include the holding period of the shares of Acquired Corporation common
stock exchanged therefor if such shares of Acquired Corporation common stock
were capital assets in the hands of the exchanging Acquired Corporation
shareholder; and (vi) cash received by an Acquired Corporation shareholder in
lieu of a fractional share interest of BancGroup Common Stock will be treated
as having been received as a distribution in full payment in exchange for the
fractional share interest of BancGroup Common Stock which he or she would
otherwise be entitled to receive and will qualify as capital gain or loss
(assuming the Acquired Corporation common stock was a capital asset in his or
her hands as of the Effective Date).
ARTICLE 9
CONDITIONS TO OBLIGATIONS OF ACQUIRED CORPORATION
The obligations of Acquired Corporation to cause the transactions
contemplated by this Agreement to be consummated shall be subject to the
satisfaction on or before the Effective Date of all the following conditions
except as Acquired Corporation may waive such conditions in writing:
9.1 Representations, Warranties and Covenants. Notwithstanding any
investigation made by or on behalf of Acquired Corporation, all representations
and warranties of BancGroup contained in this Agreement shall be true in all
material respects on and as of the Effective Date as if such representations
and warranties were made on and as of such Effective Date, and BancGroup shall
have performed in all material respects all agreements and covenants required
by this Agreement to be performed by it on or prior to the Effective Date.
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9.2 Adverse Changes. There shall have been no changes after the date of the
most recent balance sheet provided under section 4.3(a)(i) hereof in the
results of operations (as compared with the corresponding period of the prior
fiscal year), Assets, Liabilities, financial condition or affairs of BancGroup
which in their total effect constitute a Material Adverse Effect, nor shall
there have been any material changes in the Laws governing the business of
BancGroup which would impair the rights of Acquired Corporation or its
shareholders pursuant to this Agreement.
9.3 Closing Certificate. In addition to any other deliveries required to be
delivered hereunder, Acquired Corporation shall have received a certificate
from the President or an Executive Vice President and from the Secretary or
Assistant Secretary of BancGroup dated as of the Closing certifying that:
(a) the Board of Directors of BancGroup has duly adopted resolutions
approving the substantive terms of this Agreement and authorizing the
consummation of the transactions contemplated by this Agreement and such
resolutions have not been amended or modified and remain in full force and
effect;
(b) each person executing this Agreement on behalf of BancGroup is an
officer of BancGroup holding the office or offices specified therein and
the signature of each person set forth on such certificate is his or her
genuine signature;
(c) the certificate of incorporation and bylaws of BancGroup referenced
in section 4.4 hereof remain in full force and effect;
(d) such persons have no knowledge of a basis for any material claim, in
any court or before any Agency or arbitration or otherwise against, by or
affecting BancGroup or the business, prospects, condition (financial or
otherwise), or Assets of BancGroup which would prevent the performance of
this Agreement or the transactions contemplated by this Agreement or
declare the same unlawful or cause the rescission thereof;
(e) to such persons' knowledge, the Proxy Statement delivered to
Acquired Corporation's shareholders, or any amendments or revisions thereto
so delivered, as of the date thereof, did not contain or incorporate by
reference any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they were made (it being understood that such persons need not express a
statement as to information concerning or provided by Acquired Corporation
for inclusion in such Proxy Statement); and
(f) the conditions set forth in this Article 9 insofar as they relate to
BancGroup have been satisfied.
9.4 Opinion of Counsel. Acquired Corporation shall have received an opinion
of Miller, Hamilton, Snider & Odom, L.L.C., counsel to BancGroup, dated as of
the Closing, substantially in the form set forth in Exhibit B hereto.
9.5 NYSE Listing. The shares of BancGroup Common Stock to be issued under
this Agreement shall have been approved for listing on the NYSE.
9.6 Other Matters. There shall have been furnished to such counsel for
Acquired Corporation certified copies of such corporate records of BancGroup
and copies of such other documents as such counsel may reasonably have
requested for such purpose.
9.7 Material Events. There shall have been no determination by the board of
directors of Acquired Corporation that the transactions contemplated by this
Agreement have become impractical because of any state of war, declaration of
a banking moratorium in the United States or a general suspension of trading
on the NYSE or any other exchange on which BancGroup Common Stock may be
traded.
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9.8 Fairness Opinion. Acquired Corporation shall have received from Allen C.
Ewing & Co., within five business days prior to the mailing of the Proxy
Statement, a letter setting forth its opinion that the Merger Consideration to
be received by the shareholders of Acquired Corporation under the terms of this
Agreement is fair to them from a financial point of view, and such opinion
shall not have been withdrawn as of the Effective Date.
ARTICLE 10
CONDITIONS TO OBLIGATIONS OF BANCGROUP
The obligations of BancGroup to cause the transactions contemplated by this
Agreement to be consummated shall be subject to the satisfaction on or before
the Effective Date of all of the following conditions except as BancGroup may
waive such conditions in writing:
10.1 Representations, Warranties and Covenants. Notwithstanding any
investigation made by or on behalf of BancGroup, all representations and
warranties of Acquired Corporation contained in this Agreement shall be true in
all material respects on and as of the Effective Date as if such
representations and warranties were made on and as of the Effective Date, and
Acquired Corporation shall have performed in all material respects all
agreements and covenants required by this Agreement to be performed by it on or
prior to the Effective Date.
10.2 Adverse Changes. There shall have been no changes after the date of the
most recent balance sheet provided under section 5.4(a)(i) hereof in the
results of operations (as compared with the corresponding period of the prior
fiscal year), Assets, Liabilities, financial condition, or affairs of Acquired
Corporation which constitute a Material Adverse Effect, nor shall there have
been any material changes in the Laws governing the business of Acquired
Corporation which would impair BancGroup's rights pursuant to this Agreement.
10.3 Closing Certificate. In addition to any other deliveries required to be
delivered hereunder, BancGroup shall have received a certificate from Acquired
Corporation executed by the President or Vice President and from the Secretary
or Assistant Secretary of Acquired Corporation dated as of the Closing
certifying that:
(a) the Board of Directors of Acquired Corporation has duly adopted
resolutions approving the substantive terms of this Agreement and
authorizing the consummation of the transactions contemplated by this
Agreement and such resolutions have not been amended or modified and remain
in full force and effect;
(b) the shareholders of Acquired Corporation have duly adopted
resolutions approving the substantive terms of the Merger and the
transactions contemplated thereby and such resolutions have not been
amended or modified and remain in full force and effect;
(c) each person executing this Agreement on behalf of Acquired
Corporation is an officer of Acquired Corporation holding the office or
offices specified therein and the signature of each person set forth on
such certificate is his or her genuine signature;
(d) the articles of incorporation and bylaws of Acquired Corporation and
the Bank referenced in section 5.8 hereof remain in full force and effect
and have not been amended or modified since the date hereof;
(e) to such persons' knowledge, the Proxy Statement delivered to
Acquired Corporation's shareholders, or any amendments or revisions thereto
so delivered, as of the date thereof, did not contain or incorporate by
reference any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which
they were made (it being understood that such persons need only express a
statement as to information concerning or provided by Acquired Corporation
for inclusion in such Proxy Statement); and
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(f) the conditions set forth in this Article 10 insofar as they relate
to Acquired Corporation have been satisfied.
10.4 Opinion of Counsel. BancGroup shall have received an opinion of Smith,
Mackinnon, Greeley, Bowdoin & Edwards, P.A., counsel to Acquired Corporation,
dated as of the Closing, substantially as set forth in Exhibit C hereto.
10.5 Controlling Shareholders. Each shareholder of Acquired Corporation who
may be an "affiliate" of Acquired Corporation, within the meaning of Rule 145
of the general rules and regulations under the 1933 Act shall have executed and
delivered an agreement satisfactory to BancGroup to the effect that such person
shall not make a "distribution" (within the meaning of Rule 145) of the Common
Stock which he receives upon the Effective Date and that such Common Stock will
be held subject to all applicable provisions of the 1933 Act and the rules and
regulations of the SEC thereunder, and that such person will not sell or
otherwise reduce risk relative to any shares of BancGroup Common Stock received
in the Merger until financial results concerning at least 30 days of post-
Merger combined operations have been published by BancGroup within the meaning
of Section 201.01 of the SEC's Codification of Financial Reporting Policies.
Acquired Corporation recognizes and acknowledges that BancGroup Common Stock
issued to such persons may bear a legend evidencing the agreement described
above.
10.6 Other Matters. There shall have been furnished to counsel for BancGroup
certified copies of such corporate records of Acquired Corporation and copies
of such other documents as such counsel may reasonably have requested for such
purpose.
10.7 Dissenters. The number of shares as to which shareholders of Acquired
Corporation have exercised dissenters rights of appraisal under section 3.6
does not exceed 10% of the outstanding shares of common stock of Acquired
Corporation.
10.8 Material Events. There shall have been no determination by the board of
directors of BancGroup that the transactions contemplated by this Agreement
have become impractical because of any state of war, declaration of a banking
moratorium in the United States or general suspension of trading on the NYSE or
any exchange on which BancGroup Common Stock may be traded.
10.9 Pooling of Interest. BancGroup shall have received the written opinion
of PricewaterhouseCoopers LLP, that the Merger will qualify for the pooling of
interests method of accounting under generally accepted accounting principles,
provided that, if BancGroup has taken some action that will prevent
PricewaterhouseCoopers LLP from delivering said opinion, then BancGroup will be
deemed to have waived this condition.
10.10 Employment or Non Compete Agreements. Key employees as shown by
Schedule 5.5(i) will, prior to the Effective Date, execute agreements in form
and substance reasonably acceptable to BancGroup.
10.11 Amendments to Leases. As of the Effective Date, the leases listed on
Schedule 10.11 shall be amended as shown on said Schedule.
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
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or in any certificate delivered hereunder relating to the transaction which is
not consummated shall be deemed to be terminated or extinguished, except that
the last sentence of Section 7.4, and Sections 6.2(c)(ii), 7.2, 13.3, Article
11, Article 12, Article 15, any applicable definitions of Article 14 and the
Confidentiality Agreement 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.
ARTICLE 12
NOTICES
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered by hand, by facsimile
transmission, by registered or certified mail, postage pre-paid, or by courier
or overnight carrier, to the persons at the addresses set forth below (or at
such other address as may be provided hereunder), and shall be deemed to have
been delivered as of the date so received:
(a) If to Acquired Corporation to Alfred T. Rogers and Anthony F.
Gonzalez, Manufacturers Bancshares, Inc., 4144 N. Armenia Avenue Tampa,
Florida 33607, facsimile (407) 872-0668, with copies to John P. Greeley,
Esq., Smith Mackinnon, P.A., Suite 800 Citrus Center, 255 South Orange
Avenue, Orlando, Florida 32801, facsimile (407) 843-2448, or as may
otherwise be specified by Acquired Corporation in writing to BancGroup.
(b) If to BancGroup, to W. Flake Oakley, IV, One Commerce Street, Suite
803, Montgomery, Alabama, 36104, facsimile (334) 240-5069, with copies to
William A. McCrary, Esquire, One Commerce Street, fifth floor, Montgomery,
Alabama 36104, facsimile (334) 240-5069, and Willard H. Henson, Miller,
Hamilton, Snider & Odom, L.L.C., One Commerce Street, Suite 305,
Montgomery, Alabama 36104, facsimile (334) 265-4533, or as may otherwise be
specified in writing by BancGroup to Acquired Corporation.
ARTICLE 13
AMENDMENT OR TERMINATION
13.1 Amendment. This Agreement may be amended by the mutual consent of
BancGroup and Acquired Corporation before or after approval of the transactions
contemplated herein by the shareholders of Acquired Corporation.
13.2 Termination. This Agreement may be terminated at any time prior to or
on the Effective Date whether before or after action thereon by the
shareholders of Acquired Corporation, as follows:
(a) by the mutual consent of the respective boards of directors of
Acquired Corporation and BancGroup;
(b) by the board of directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the
event of a material breach by the other Party of any representation or
warranty contained in this Agreement which cannot be or has not been cured
within thirty (30) days after the giving of written notice to the breaching
Party of such breach and which breach would provide the non-breaching Party
the ability to refuse to consummate the Merger under the standard set forth
in section 10.1 of this Agreement in the case of BancGroup and section 9.1
of this Agreement in the case of Acquired Corporation;
(c) by the board of directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the
event of a material breach by the other Party of any covenant or agreement
contained in
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this Agreement which cannot be or has not been cured within thirty (30)
days after the giving of written notice to the breaching Party of such
breach, or if any of the conditions to the obligations of such Party
contained in this Agreement in Article 9 as to Acquired Corporation or
Article 10 as to BancGroup shall not have been satisfied in full; or
(d) by the board of directors of either BancGroup or Acquired
Corporation if all transactions contemplated by this Agreement shall not
have been consummated on or prior to February 28, 2002, 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) provided, that if
the Registration Statement on Form S-4 has not been declared effective by
the SEC by November 30, 2001, then the deadline set forth in this Section
13.2(d) shall be extended to March 15, 2002.
(e) without further action by either Party, upon the execution by
Acquired Corporation of an agreement which is legally binding on Acquired
Corporation with any third party (other than BancGroup or its Subsidiaries)
with respect to an Acquisition Proposal if, in connection therewith,
BancGroup will have the right to demand the payment of the sum described in
section 6.2(c)(ii) by the Acquired Corporation.
13.3 Damages. In the event of termination pursuant to section 13.2, this
Agreement shall become void and have no effect other than as set forth in
section 6.2(c)(ii) and except as provided in Article 11, and except that
Acquired Corporation and BancGroup shall be liable for damages for any wilful
breach of a warranty, representation, covenant or other agreement contained in
this Agreement.
ARTICLE 14
DEFINITIONS
(a) The following terms, which are capitalized in this Agreement, shall have
the meanings set forth below for the purpose of this Agreement:
Acquired Corporation.............. Manufacturers Bancshares, Inc., a Florida
corporation.
Acquired Corporation Company...... Shall mean Acquired Corporation, the
Bank, any Subsidiary of Acquired
Corporation or the Bank, or any person or
entity acquired as a Subsidiary of
Acquired Corporation or the Bank in the
future and owned by Acquired Corporation
or the Bank at the Effective Date.
Acquired Corporation Options...... Options respecting the issuance of a
maximum of 206,110 shares of Acquired
Corporation common stock pursuant to
Acquired Corporation's stock option
plans.
Acquired Corporation Stock........ Shares of common stock, par value $0.01
per share, of Acquired Corporation.
Acquisition Proposal.............. Shall mean, with respect to a Party, any
tender offer or exchange offer or any
proposal for a merger, acquisition of all
of the stock or assets of, or other
business combination involving such Party
or any of its Subsidiaries or the
acquisition of a substantial equity
interest in, or a substantial portion of
the assets of, such Party or any of its
Subsidiaries.
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Agencies.......................... Shall mean, collectively, the Federal
Trade Commission, the United States
Department of Justice, the Board of the
Governors of the Federal Reserve System,
the Federal Deposit Insurance
Corporation, the Office of Thrift
Supervision, all state regulatory
agencies having jurisdiction over the
Parties and their respective
Subsidiaries, HUD, the VA, the FHA, the
GNMA, the FNMA, the FHLMC, the NYSE, and
the SEC.
Agreement......................... Shall mean this Agreement and Plan of
Merger and the Exhibits and Schedules
delivered pursuant hereto and
incorporated herein by reference.
Assets............................ Of a Person shall mean all of the assets,
properties, businesses and rights of such
Person of every kind, nature, character
and description, whether real, personal
or mixed, tangible or intangible, accrued
or contingent, or otherwise relating to
or utilized in such Person's business,
directly or indirectly, in whole or in
part, whether or not carried on the books
and records of such Person, and whether
or not owned in the name of such Person
or any Affiliate of such Person and
wherever located.
BancGroup......................... The Colonial BancGroup, Inc., a Delaware
corporation with its principal offices in
Montgomery, Alabama.
Bank.............................. Manufacturers Bank of Florida, a Florida
state bank.
Closing........................... The submission of the certificates of
officers, legal opinions and other
actions required to be taken in order to
consummate the Merger in accordance with
this Agreement.
Code.............................. The Internal Revenue Code of 1986, as
amended.
Common Stock...................... BancGroup's Common Stock authorized and
defined in the restated certificate of
incorporation of BancGroup, as amended.
Confidentiality Agreement......... Confidentiality Agreement executed by
BancGroup and Acquired Corporation on or
around April 18, 2001.
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.
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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 appropriate ratio calculated in the
manner set forth in Section 3.1(a).
Exhibits.......................... A through C, inclusive, shall mean the
Exhibits so marked, copies of which are
attached to this Agreement. Such Exhibits
are hereby incorporated by reference
herein and made a part hereof, and may be
referred to in this Agreement and any
other related instrument or document
without being attached hereto.
FBCA.............................. The Florida Business Corporation Act
GAAP.............................. Means generally accepted accounting
principles applicable to banks and bank
holding companies consistently applied
during the periods involved.
Knowledge......................... Means the actual knowledge (or the
knowledge that should have been obtained)
after due investigation and inquiry of
the Chairman, President, Chief Financial
Officer, Chief Operating Officer, Senior
Counsel or any Senior or Executive Vice
President of BancGroup, in the case of
knowledge of BancGroup. In the case of
Acquired Corporation it means the actual
knowledge (or the knowledge that should
have been obtained) after due
investigation and inquiry by the
Chairman, President, Chief Financial
Officer, Chief Credit Officer, or any
other Executive Officer of Acquired
Corporation or the Bank, in the case of
knowledge of Acquired Corporation.
Law............................... Any code, law, ordinance, regulation,
reporting or licensing requirement, rule,
or statute applicable to a
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Person or its Assets, Liabilities or
business, including, without limitation,
those promulgated, interpreted or
enforced by any Agency.
Liability......................... Any direct or indirect, primary or
secondary, liability, indebtedness,
obligation, penalty, cost or expense
(including, without limitation, costs of
investigation, collection and defense),
deficiency, guaranty or endorsement of or
by any Person (other than endorsements of
notes, bills, checks, and drafts
presented for collection or deposit in
the ordinary course of business) of any
type, whether accrued, absolute or
contingent, liquidated or unliquidated,
matured or unmatured, or otherwise.
Lien.............................. Any conditional sale agreement, default
of title, easement, encroachment,
encumbrance, hypothecation, infringement,
lien, mortgage, pledge, reservation,
restriction, security interest, title
retention or other security arrangement,
or any adverse right or interest, charge,
or claim of any nature whatsoever of, on,
or with respect to any property or
property interest, other than (i) Liens
for current property Taxes not yet due
and payable, (ii) for depository
institution Subsidiaries of a Party,
pledges to secure deposits and other
Liens incurred in the ordinary course of
the banking business, (iii) Liens in the
form of easements and restrictive
covenants on real property which do not
materially adversely affect the use of
such property by the current owner
thereof, and (iv) Liens which are not
reasonably likely to have, individually
or in the aggregate, a Material Adverse
Effect on a Party.
Litigation........................ Any action, arbitration, complaint,
criminal prosecution, governmental or
other examination or investigation,
hearing, inquiry, administrative or other
proceeding but shall not include regular,
periodic examinations of depository
institutions and their Affiliates by
Regulatory Authorities, relating to or
affecting a Party, its business, its
Assets (including Contracts related to
it), or the transactions contemplated by
this Agreement. relating to or affecting
a Party, its business, its Assets
(including Contracts related to it), or
the transactions contemplated by this
Agreement.
Loan Property..................... Any property owned by the Party in
question or by any of its Subsidiaries or
in which such Party or Subsidiary holds a
security interest, and, where required by
the context, includes the owner or
operator of such property, but only with
respect to such property.
Loss.............................. Any and all direct or indirect payments,
obligations, recoveries, deficiencies,
fines, penalties, interest, assessments,
losses, diminution in the value of
Assets,
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damages, punitive, exemplary or
consequential damages (including, but not
limited to, lost income and profits and
interruptions of business), liabilities,
costs, expenses (including without
limitation, reasonable attorneys' fees
and expenses, and consultant's fees and
other costs of defense or investigation),
and interest on any amount payable to a
third party as a result of the foregoing.
Market Value...................... Shall represent the per share market
value of the BancGroup Common Stock at
the Effective Date and shall be
determined by calculating the average of
the closing prices of the Common Stock of
BancGroup as reported by the NYSE on each
of the ten (10) consecutive trading days
ending on the trading day five calendar
days preceding the Effective Date.
Material.......................... For purposes of this Agreement shall be
determined in light of the facts and
circumstances of the matter in question;
provided that any specific monetary
amount stated in this Agreement shall
determine materiality in that instance.
Material Adverse Effect........... On a Party shall mean an event, change or
occurrence which has a material adverse
impact on (i) the financial position,
Assets, business, or results of
operations of such Party and its
Subsidiaries, taken as a whole, or (ii)
the ability of such Party to perform its
obligations under this Agreement or to
consummate the Merger or the other
transactions contemplated by this
Agreement, provided that "material
adverse effect" shall not be deemed to
include the impact of (w) changes in
banking and similar laws of general
applicability or interpretations thereof
by courts or governmental authorities,
(x) changes in generally accepted
accounting principles or regulatory
accounting principles generally
applicable to banks and their holding
companies, (y) actions and omissions of a
Party (or any of its Subsidiaries) taken
with the prior informed consent of the
other Party in contemplation of the
transactions contemplated hereby, and (z)
the Merger and compliance with the
provisions of this Agreement on the
operating performance of the Parties.
Merger............................ The merger of Acquired Corporation with
BancGroup as contemplated in this
Agreement.
Merger Consideration.............. The distribution of BancGroup Common
Stock for each share of Acquired
Corporation Stock (and cash for
fractional shares) as provided in section
3.1(a) hereof.
Net Income........................ Net income in accordance with GAAP.
NYSE..............................
The New York Stock Exchange.
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Order............................. Any administrative decision or award,
decree, injunction, judgment, order,
quasi-judicial decision or award, ruling,
or writ of any federal, state, local or
foreign or other court, arbitrator,
mediator, tribunal, administrative agency
or Agency.
Party............................. Shall mean Acquired Corporation or
BancGroup, and "Parties" shall mean both
Acquired Corporation and BancGroup.
Permit............................ Any federal, state, local, and foreign
governmental approval, authorization,
certificate, easement, filing, franchise,
license, notice, permit, or right to
which any Person is a party or that is or
may be binding upon or inure to the
benefit of any Person or its securities,
Assets or business.
Person............................ A natural person or any legal, commercial
or governmental entity, such as, but not
limited to, a corporation, general
partnership, joint venture, limited
partnership, limited liability company,
trust, business association, group acting
in concert, or any person acting in a
representative capacity.
Proxy Statement................... The proxy statement used by Acquired
Corporation to solicit the approval of
its stockholders of the transactions
contemplated by this Agreement, which
shall include the prospectus of BancGroup
relating to the issuance of the BancGroup
Common Stock to the shareholders of
Acquired Corporation.
Registration Statement............ The registration statement on Form S-4,
or such other appropriate form, to be
filed with the SEC by BancGroup, and
which has been agreed to by Acquired
Corporation, to register the shares of
BancGroup Common Stock offered to
stockholders of the Bank pursuant to his
Agreement, including the Proxy Statement.
Resulting Corporation............. BancGroup, as the surviving corporation
resulting from the Merger.
SEC............................... United States Securities and Exchange
Commission.
Shareholders Meeting.............. The special meeting of shareholders of
Acquired Corporation called to approve
the transactions contemplated by this
Agreement.
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;
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provided, however, there shall not be
included any such entity acquired through
foreclosure or any such entity the equity
securities of which are owned or
controlled in a fiduciary capacity.
Tax or Taxes...................... Means any federal, state, county, local,
foreign, and other taxes, assessments,
charges, fares, and impositions,
including interest and penalties thereon
or with respect thereto.
1933 Act.......................... The Securities Act of 1933, as amended.
1934 Act.......................... The Securities Exchange Act of 1934, as
amended.
ARTICLE 15
MISCELLANEOUS
15.1 Expenses. (a) Except as otherwise provided in this Section 15.1, each
of the Parties shall bear and pay all direct costs and expenses incurred by it
or on its behalf in connection with the transactions contemplated hereunder,
including filing, registration and application fees, printing fees, and fees
and expenses of its own financial or other consultants, investment bankers,
accountants, and counsel, except that BancGroup shall bear and pay the filing
fees payable in connection with the Registration Statement and printing costs
incurred in connection with the printing of the Registration Statement.
(b) Nothing contained in this Section 15.1 shall constitute or shall be
deemed to constitute liquidated damages for the willful breach by a Party of
the terms of this Agreement or otherwise limit the rights of the nonbreaching
Party.
15.2 Benefit and Assignment. Except as expressly contemplated hereby,
neither this Agreement nor any of the rights, interests, or obligations
hereunder shall be assigned by any Party hereto (whether by operation of Law or
otherwise) without the prior written consent of the other Party. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by, the Parties and their respective successors and
assigns.
15.3 Governing Law. Except to the extent the Laws of the State of Delaware
and the State of Florida apply to the Merger, this Agreement shall be governed
by, and construed in accordance with the Laws of the State of Alabama without
regard to any conflict of Laws.
15.4 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to constitute an original. Each such counterpart shall
become effective when one counterpart has been signed by each Party thereto.
15.5 Headings. The headings of the various articles and sections of this
Agreement are for convenience of reference only and shall not be deemed a part
of this Agreement or considered in construing the provisions thereof.
15.6 Severability. Any term or provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining terms and provisions thereof or affecting the
validity or enforceability of such provision in any other jurisdiction, and if
any term or provision of this Agreement is held by any court of competent
jurisdiction to be void, voidable, invalid or unenforceable in any given
circumstance or situation, then all other terms and provisions, being
severable, shall remain in full force and effect in such circumstance
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or situation and the term or provision shall remain valid and in effect in any
other circumstances or situation, except if such omitted term or provision
would so materially adversely impact the economic benefits of the transaction
to a Party as contemplated by this Agreement so as to render inadvisable the
consummation of the Merger.
15.7 Construction. Use of the masculine pronoun herein shall be deemed to
refer to the feminine and neuter genders and the use of singular references
shall be deemed to include the plural and vice versa, as appropriate. No
inference in favor of or against any Party shall be drawn from the fact that
such Party or such Party's counsel has drafted any portion of this Agreement.
15.8 Return of Information. In the event of termination of this Agreement
prior to the Effective Date, each Party shall return to the other, without
retaining copies thereof, all confidential or non-public documents, work papers
and other materials obtained from the other Party in connection with the
transactions contemplated in this Agreement and shall keep such information
confidential, not disclose such information to any other person or entity, and
not use such information in connection with its business.
15.9 Equitable Remedies. The parties hereto agree that, in the event of a
breach of this Agreement by either Party, the other Party may be without an
adequate remedy at law owing to the unique nature of the contemplated
transactions. In recognition thereof, in addition to (and not in lieu of) any
remedies at law that may be available to the non-breaching Party, the non-
breaching Party shall be entitled to obtain equitable relief, including the
remedies of specific performance and injunction, in the event of a breach of
this Agreement by the other Party, and no attempt on the part of the non-
breaching Party to obtain such equitable relief shall be deemed to constitute
an election of remedies by the non-breaching Party that would preclude the non-
breaching Party from obtaining any remedies at law to which it would otherwise
be entitled.
15.10 Attorneys' Fees. If any Party hereto shall bring an action at law or
in equity to enforce its rights under this Agreement (including an action based
upon a misrepresentation or the breach of any warranty, covenant, agreement or
obligation contained herein), the prevailing Party in such action shall be
entitled to recover from the other Party its costs and expenses incurred in
connection with such action (including fees, disbursements and expenses of
attorneys and costs of investigation).
15.11 No Waiver. No failure, delay or omission of or by any Party in
exercising any right, power or remedy upon any breach or Default of any other
Party shall impair any such rights, powers or remedies of the Party not in
breach or Default, nor shall it be construed to be a wavier of any such right,
power or remedy, or an acquiescence in any similar breach or Default; nor shall
any waiver of any single breach or Default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any Party of any
provisions of this Agreement must be in writing and be executed by the Parties
to this Agreement and shall be effective only to the extent specifically set
forth in such writing.
15.12 Remedies Cumulative. All remedies provided in this Agreement, by law
or otherwise, shall be cumulative and not alternative.
15.13 Entire Contract. This Agreement and the documents and instruments
referred to herein constitute the entire contract between the parties to this
Agreement and supersede all other understandings with respect to the subject
matter of this Agreement.
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IN WITNESS WHEREOF, Acquired Corporation and BancGroup have caused this
Agreement to be signed by their respective duly authorized officers as of the
date first above written.
ATTEST: MANUFACTURERS BANCSHARES, INC.
BY: /s/ Alfred T. Rogers BY: /s/ Anthony F. Gonzalez
---------------------------------- ----------------------------------
Alfred T. Rogers Anthony F. Gonzalez
ITS: President ITS: Chairman of the Board and CEO
(CORPORATE SEAL)
ATTEST: THE COLONIAL BANCGROUP, INC.
BY: /s/ Glenda Allred BY: /s/ W. Flake Oakley
---------------------------------- ----------------------------------
Glenda Allred W. Flake Oakley, IV
ITS: Assistant Secretary ITS: Executive Vice President,
Chief Financial Officer and Secretary
(CORPORATE SEAL)
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APPENDIX B
607.1301 DISSENTER'S RIGHTS; DEFINITIONS.--The following definitions apply
to (S)(S) 607.1302 and 607.1302 and 607.1320:
(1) "Corporation" means the issuer of the shares held by a dissenting
shareholder before the corporate action or the surviving or acquiring
corporation by merger or share exchange of that issuer.
(2) "Fair Value," with respect to a dissenter's shares, means the value of
the shares as of the close of business on the day prior to the shareholders'
authorized date, excluding any appreciation or depreciation in anticipation of
the corporate action unless exclusion would be inequitable.
(3) "Shareholders' authorization date" means the date on which the
shareholders' vote authorizing the proposed action was taken, the date on which
the corporation received written consents without a meeting from the requisite
number of shareholders in order to authorize the action, or, in the case of a
merger pursuant to (S) 607.1104, the day prior to the date on which a copy of
the plan of merger was mailed to each shareholder or record of the subsidiary
corporation.
607.1302 RIGHT OF SHAREHOLDERS TO DISSENT.--(1) Any shareholder has the
right to dissent from, and obtain payment of the fair value of his shares in
the event of, any of the following corporate actions:
(a) Consummation of a plan of merger to which the corporation is a
party:
1. If the shareholder is entitled to vote on the merger, or
2. If the corporation is a subsidiary that is merged with its parent
under (S) 607.1104, and the shareholders would have been entitled to
vote on action taken, except for the applicability of 607.1104;
(b) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation, other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or exchange
pursuant to (S) 607.1202, including a sale in dissolution but not including
a sale pursuant to court order or a sale of cash pursuant to a plan by
which all or substantially all of the net proceeds of the sale will be
distributed to the shareholders within 1 year after the date of sale;
(c) As provided in (S) 607.0902(11), the approval of a control-share
acquisition;
(d) Consummation of a plan of share exchange to which the corporation is
a party as the corporation the shares of which will be acquired, if the
shareholder is entitled to vote on the plan;
(e) Any amendment of the articles of incorporation if the shareholder is
entitled to vote on the amendment and if such amendment would adversely
affect such shareholder by:
1. Altering or abolishing any preemptive rights attached to any of
his shares;
2. Altering or abolishing the voting rights pertaining to any of his
shares, except as such rights may be affected by the voting rights of
new shares then being authorized of any existing or new class or series
of shares;
3. Effecting an exchange, cancellation, or reclassification of any of
his shares, when such exchange, cancellation, or reclassification would
alter or abolish his voting rights or alter his percentage or equity in
the corporation, or effecting a reduction or cancellation of accrued
dividends or other arrearages in respect to such shares;
4. Reducing the stated reduction price of any of his redeemable
shares, altering or abolishing any provision relating to any sinking
fund for the redemption or purchase of any of his shares, or making any
of his shares subject to redemption when they are not otherwise
redeemable;
5. Making noncumulative, in whole or in part, dividends of any of his
preferred shares which had theretofore been cumulative;
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6. Reducing the stated dividend preference to any of his preferred
shares; or
7. Reducing any stated preferential amount payable on any of his
preferred shares upon voluntary or involuntary liquidation; or
(f) Any corporate action taken, to the extent the articles of
incorporation provide that a voting or nonvoting shareholder is entitled to
dissent and obtain payment for his shares.
(2) A shareholder dissenting from any amendment specified in paragraph
(1)(e) has the right to dissent only as to those of his shares which are
adversely affected by the amendment.
(3) A Shareholder may dissent as to less than all the shares registered in
his name. In that event, his rights shall be determined as if the shares as to
which he has dissented and his other shares were registered in the names of
different shareholders.
(4) Unless the articles of incorporation otherwise provide, this section
does not apply with respect to a plan of merger or share exchange or a proposed
sale or exchange of property, to the holders of shares of any class or series
which, on the record date fixed to determine the shareholders entitled to vote
at the meeting of shareholders at which such action is to be acted upon or to
consent to any such action without a meeting, were either registered on a
national securities exchange or designated as a national market system security
on a interdealer quotation system by the National Association of Securities
Dealers, Inc., or held of record by not fewer than 2,000 shareholders.
(5) A shareholder entitled to dissent and obtain payment for his shares
under this section may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
607.1320 PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS.--(1)(a) If a proposed
corporate section creating dissenters' rights under (S) 607.1320 is submitted
to a vote at a shareholders' meeting, the meeting notice shall state that
shareholders are or may be entitled to assert dissenters' rights and be
accompanied by a copy of (S)(S) 607.1301, 607.1302, and 607.1320. A shareholder
who wishes to assert dissenter's rights shall:
1. Deliver to the corporation before the vote is taken written notice of his
intent to demand payment for his shares if the proposed action is effectuated,
and
2. Not vote his shares in favor of the proposed action. A proxy or vote
against the proposed action does not constitute such a notice of intent to
demand payment.
(b) If proposed corporate action creating dissenters' rights under (S)
607.1302 is effectuated by written consent without a meeting, the
corporation shall deliver a copy of (S)(S) 607.1301, 607.1302, and 607.1320
to each shareholder simultaneously with any request for his written consent
or, if such a request is not made, within 10 days after the date the
corporation received written consents without a meeting from the requisite
number of shareholders necessary to authorize the action.
(2) Within 10 days after the shareholders' authorization date, the
corporation shall give written notice of such authorization or consent or
adoption of the plan of merger, as the case may be, to each shareholder who
filed a notice of intent to demand payment for his shares pursuant to paragraph
(1)(a) or, in the case of action authorized by written consent, to each
shareholder, excepting any who voted for, or consented in writing to, the
proposed action.
(3) Within 20 days after the giving of notice to him, any shareholder who
elects to dissent shall file with the corporation a notice of such election,
stating his name and address, the number, classes, and series of shares. Any
shareholder failing to file such election to dissent within the period set
forth shall be bound by the terms of the proposed corporate action. Any
shareholder filing an election to dissent shall deposit his certificates for
certificated shares with the corporation simultaneously with the filing of the
election to dissent. The corporation may restrict the transfer of
uncertificated shares from the date the shareholder's election to dissent is
filed with the corporation.
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(4) Upon filing a notice of election to dissent, the shareholder shall
thereafter be entitled only to payment as provided in this section and shall
not be entitled to vote or to exercise any other rights of a shareholder. A
notice of election may be withdrawn in writing by the shareholder at any time
before an offer is made by the corporation, as provided in subsection (5), to
pay for his shares. After such offer, no such notice of election may be
withdrawn unless the corporation consents thereto. However, the right of such
shareholder to be paid the fair value of his shares shall cease, and he shall
be reinstated to have all right of such shareholder to be paid the fair value
of his shares shall cease, and he shall be reinstated to have all his rights as
a shareholder as of the filing of his notice of election, including any
intervening preemptive rights and the right to payment of any intervening
dividend or other distribution or, if any such rights have expired or any such
dividend or distribution other than in cash has been completed, in lieu
thereof, at the election of the corporation, the fair value thereof in cash as
determined by the board as of the time of such expiration or completion, but
without prejudice otherwise to any corporate proceeding that may have been
taken in the interim, if:
(a) Such demand is withdrawn as provided in this section;
(b) The proposed corporate action is abandoned or rescinded or the
shareholders revoke the authority to effect such action;
(c) No demand or petition for the determination of fair value by a court
has been made or filed within the time provided in this section; or
(d) A court of competent jurisdiction determines that such shareholder
is not entitled to the relief provided by this section.
(5) Within 10 days after the expiration of the period in which shareholders
may file their notices of election to dissent, or within 10 days after such
corporate action is effected, whichever is later (but in no case later than 90
days from the shareholders' authorization date), the corporation shall make a
written offer to each dissenting shareholder who has made demand as provided in
this section to pay an amount the corporation estimates to be the fair value
for such shares. If the corporate action has not been consummated before the
expiration of the 90-day period after the shareholders' authorization date, the
offer may be made conditional upon the consummation of such action. Such notice
and offer shall be accompanied by:
(a) A balance sheet of the corporation, the shares of which the
dissenting shareholder holds, as of the latest available date and not more
than 12 months prior to the making of such offer; and
(b) A profit and loss statement of such corporation for the 12-month
period ended on the date of such balance sheet or, if the corporation was
not in existence throughout such 12-month period, for the portion thereof
during which it was in existence.
(6) If within 30 days after the making of such offer any shareholder accepts
the same, payment for his shares shall be made within 90 days after the making
of such offer or the consummation of the proposed action, whichever is later.
Upon payment of the agreed value, the dissenting shareholder shall cease to
have any interest in such shares.
(7) If the corporation fails to make such offer within the period specific
therefor in subsection (5) or if it makes the offer and any dissenting
shareholder or shareholders fail to accept the same within the period of 30
days thereafter, then the corporation, within 30 days after receipt of written
demand from any dissenting shareholder given within 60 days after the date on
which such corporate action was effected, shall, or at its election at any time
within such period of 60 days may, file an action in any court of competent
jurisdiction in the county in this state where the registered office of the
corporation is located requesting that the fair value of such shares be
determined. The court shall also determine whether each dissenting shareholder,
as to whom the corporation requests the court to make such determination, is
entitled to receive payment for his shares. If the corporation fails to
institute the proceeding as herein provided, any dissenting shareholders
(whether or not residents of this state), other than shareholders who have
agreed with the corporation as to the value of their shares, shall be made
parties to the proceeding as an action against their shares. The corporation
shall serve a copy of the initial pleading in such proceeding upon each
dissenting shareholder who is a resident of this state
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in the manner provided by law for the service of a summons and complaint and
upon each nonresident dissenting shareholder either by registered or certified
mail and publication or in such other manner as is permitted by law. The
jurisdiction of the court is plenary and exclusive. All shareholders who are
proper parties to the proceeding are entitled to judgment against the
corporation for the amount of the fair value of their shares. The court may, if
it so elects, appoint one or more persons as appraisers to receive evidence and
recommend a decision on the question of fair value. The appraisers shall have
such power and authority as is specified in the order of their appointment or
an amendment thereof. The corporation shall pay each dissenting shareholder the
amount found to be due him within 10 days after final determination of the
proceedings. Upon payment of the judgment, the dissenting shareholder shall
cease to have any interest in such shares.
(8) The judgment may, at the discretion of the court, include a fair rate of
interest, to be determined by the court.
(9) The costs and expenses of any such proceeding shall be determined by the
court and shall be assessed against the corporation, but all or any part of
such costs and expenses may be apportioned and assessed as the court deems
equitable against any or all of the dissenting shareholders who are parties to
the proceeding, to whom the corporation has made an offer to pay for the
shares, if the court finds that action of such shareholders in failing to
accept such offer was arbitrary, vexatious, or not in good faith. Such expenses
shall include reasonable compensation for, and reasonable expenses of, the
appraisers, but shall exclude the fees and expenses of counsel for, and experts
employed by, any party. If the fair value of the shares, as determined,
materially exceeds the amount which the corporation offered to pay therefor or
if no offer was made, the court in its discretion may award to any shareholder
who is a party to the proceeding such sum as the court determines to be
reasonable compensation to any attorney or expert employed by the shareholder
in the proceeding.
(10) Shares acquired by a corporation pursuant to payment of the agreed
value thereof or pursuant to payment of the judgment entered therefor, as
provided in this action, may be held and disposed of by such corporation as
authorized but unissued shares of the corporation, except that, in the case of
a merger, they may be held and disposed of as the plan of merger otherwise
provides. The shares of the surviving corporation into which the shares of such
dissenting shareholders would have been converted had they assented to the
merger shall have the status of authorized but unissued shares of the surviving
corporation.
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APPENDIX C
[ALLEN C. EWING & CO. LETTERHEAD]
September 14, 2001
Board of Directors
Manufacturers Bancshares, Inc.
4144 Armenia Avenue
Tampa, Florida 33607-1000
Ladies and Gentlemen:
You have requested the opinion of Allen C. Ewing & Co. ("Ewing") as to the
fairness, from a financial point of view, to the shareholders of Manufacturers
Bancshares, Inc. (the "Company") of Tampa, Florida, the registered bank holding
for Manufacturers Bank of Florida (the "Bank"), in regard to the terms of the
proposed acquisition of 100% of the shares of the Company by The Colonial
BancGroup, Inc. ("Colonial"), a Delaware corporation, of Montgomery, Alabama
(the "Merger"). The shareholders of the Company will receive registered shares
of Colonial in a tax-free reorganization pursuant to Section 368(a) of the
Internal Revenue Code.
In arriving at its opinion, Ewing relied upon the accuracy and completeness
of the information provided by the Company, which was used in the preparation
of the accompanying analysis. Ewing did not conduct an independent verification
of such information or perform an independent appraisal of the Company's assets
and liabilities.
Based upon the accompanying analysis and our knowledge of and experience in
the valuation of Florida banks and their securities, it is our opinion that the
terms of the Merger are fair, from a financial point of view, to the
shareholders of the Company.
The opinion of Ewing is directed to the Board of Directors and does not
constitute a recommendation to any shareholder as to how such shareholder
should vote at the shareholders' meeting held in connection with the proposed
Merger. Ewing has not been requested to opine as to, and the opinion does not
address, the Board's underlying business decision to support and recommend the
Merger to the shareholders.
Very truly yours,
ALLEN C. EWING & CO.
By:/s/ Benjamin C. Bishop, Jr.
Benjamin C. Bishop, Jr.
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