As filed with the Securities and Exchange Commission on February 6, 2002
Registration No. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-----------------
THE COLONIAL BANCGROUP, INC.
(Exact name of Registrant as Specified in Its Charter)
-----------------
Delaware 6711 63-0661573
(State of Incorporation) (Primary Standard (I.R.S. Employer
Industrial Identification No.)
Classification Code
Number)
One Commerce Street, Suite 800
Montgomery, Alabama 36104
(334) 240-5000
(Address of principal executive offices) (Telephone No.)
-----------------
William A. McCrary
Senior Counsel
Post Office Box 1108
Montgomery, Alabama 36101-1108
(Name and address of agent for service)
-----------------
Copies to:
Willard H. Henson Charles E. Greef, Esq.
Miller, Hamilton, Snider Jenkens & Gilchrist, P.C.
& Odom, L.L.C.
One Commerce Street, 1445 Ross Avenue, Suite
Suite 305 3200
Montgomery, Alabama 36104 Dallas, Texas 75202-2799
Telephone: 334-834-5550 Telephone: 214-855-4337
Facsimile: 334-265-4533 Facsimile: 214-855-4300
-----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [_]
-----------------
CALCULATION OF REGISTRATION FEE(1)
================================================================================
Proposed Proposed
Maximum Maximum Amount of
Amount to be Offering Price Aggregate Registration
Title of Each Class of Securities to be Registered Registered (1) Per Unit Offering Price(2) Fee
---------------------------------------------------------------------------------------------------------------
Common Stock, par value $2.50 per share...... 6,275,008 Not Applicable $28,174,786 $2,592
================================================================================
(1) This Registration Statement covers the maximum number of shares of common
stock of the Registrant which is expected to be issued in connection with
the merger.
(2) Estimated solely for purposes of calculating the registration fee and
based, pursuant to Rule 457(f)(2) under the Securities Act of 1933, as
amended, based upon the December 31, 2001 book value of $17.96 per share of
1,568,752 shares of company acquired, including 232,000 shares subject to
employee stock options.
-----------------
The Registrant hereby amends this Registration Statement on each such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
================================================================================
[LOGO] First Mercantile Bank
Corporate Office
8144 Walnut Hill Lane
Suite 180
Dallas, Texas 75231
(214) 692-1717
MERCANTILE BANCORP, INC.
FEBRUARY , 2002
Dear Shareholder:
You are cordially invited to attend the special meeting of Shareholders of
Mercantile Bancorp, Inc., which will be held on March 19, 2002, at 6:00 p.m.
local time. The special meeting will be held at Mercantile's main office,
located at 8144 Walnut Hill Lane, Suite 180, Dallas, Texas.
At the special meeting, you will be asked to consider and vote on approval
of an Agreement and Plan of Merger, dated as of November 29, 2001, between
Mercantile and The Colonial BancGroup, Inc. The merger 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 Mercantile common stock held
by you. The exchange ratio, or number of shares of BancGroup common stock you
will receive for each share of Mercantile common stock you own, will be
determined by multiplying the number of shares of Mercantile common stock you
own immediately before the merger is completed by 3.4808. In other words,
BancGroup will exchange approximately 3.4808 shares of its common stock for
each share of Mercantile 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. The
affirmative vote of the holders of at least two-thirds of the outstanding
shares of Mercantile common stock is required to approve the merger agreement.
The second purpose of the meeting is to consider and vote upon approval of
certain proposed payments to Roy J. Salley, the Chief Executive Officer of
Mercantile and First Mercantile Bank, N.A., to the extent that such payments
may constitute "parachute payments" under Section 280G of the Internal Revenue
Code. These payments are separate from and do not affect the amounts to be
received by Mercantile shareholders pursuant to the merger agreement. The board
of directors of Mercantile, excluding Mr. Salley, has unanimously recommended
approval of the 280G payments to Mr. Salley. The affirmative vote of the
holders of at least 75% of the outstanding shares of Mercantile common stock,
excluding shares owned by Mr. Salley, is required to approve the 280G payments
to Mr. Salley.
This proxy statement-prospectus provides detailed information about the
merger, the terms of the merger agreement and the formula for converting shares
of Mercantile common stock into shares of BancGroup common stock in the merger.
In addition, detailed information regarding the 280G payments to Mr. Salley is
also provided in this proxy statement - prospectus. Please read carefully the
entire proxy statement-prospectus. You can find additional information about
BancGroup from documents filed with the Securities and Exchange Commission.
Your board of directors has unanimously approved the merger agreement as
being in the best interests of Mercantile shareholders and recommends that you
vote "FOR" the approval of the merger agreement. The Board of Directors
believes that the 280G payments are in the best interests of Mercantile and its
shareholders, and unanimously recommends that you vote "FOR" approval and
adoption of the proposal to make the 280G payments.
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/ JOE LONGBOTHAM
_____________________________________
JOE LONGBOTHAM
Chairman of the Board
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the Bancgroup common stock to be
issued in the merger or determined if this proxy statement-prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
[LOGO] First Mercantile Bank
8144 Walnut Hill Lane
Suite 180
Dallas, Texas 75231
(214) 692-1717
MERCANTILE BANCORP, INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
To Be Held on March 19, 2002, at 6:00 p.m.
NOTICE IS HEREBY GIVEN that a special meeting of Shareholders of Mercantile
Bancorp, Inc. will be held at Mercantile's main office location at 8144 Walnut
Hill Lane, Suite 180, Dallas, Texas 75231, on March 19, 2002, at 6:00 p.m.,
local time, for the following purposes:
1. Merger. To consider and vote upon the proposal to approve and adopt the
Agreement and Plan of Merger, dated November 29, 2001, by and between The
Colonial BancGroup, Inc. and Mercantile Bancorp, Inc. BancGroup will be the
surviving corporation in the merger. At the time of the merger, each share of
your Mercantile common stock will be converted into the right to receive the
number shares of BancGroup common stock as determined in accordance with the
terms of the merger agreement, 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-prospectus. The merger agreement is attached to
the accompanying proxy statement-prospectus as Appendix A.
2. 280G Payments. To consider and vote upon a proposal to approve certain
proposed payments to Roy J. Salley, the Chief Executive Officer of Mercantile
and First Mercantile Bank, N.A., to the extent such payments may constitute
"parachute payments" within the meaning of Section 280G of the Internal Revenue
Code.
We describe these items more fully in the proxy statement-prospectus
accompanying this notice. We encourage you to read the entire document
carefully.
3. 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 , 2002, as the record date for
the determination of Mercantile 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 Texas Business Corporation Act. A copy of
the dissenters' rights provisions is attached to the enclosed proxy
statement-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/ JOE LONGBOTHAM
_____________________________________
JOE LONGBOTHAM
Chairman of the Board
February , 2002
TABLE OF CONTENTS
Page
----
QUESTIONS AND ANSWERS ABOUT THE MERGER...................................................... i
SUMMARY..................................................................................... 1
A WARNING ABOUT FORWARD-LOOKING STATEMENTS.................................................. 12
THE SPECIAL MEETING......................................................................... 13
General.................................................................................. 13
Record Date; Shares Entitled to Vote; Vote Required for the Merger and the 280G Payments. 13
Solicitation, Voting and Revocation of Proxies........................................... 14
Effect of Merger on Outstanding BancGroup Common Stock................................... 15
PROPOSAL 1: APPROVAL OF THE MERGER AGREEMENT............................................... 16
The Merger............................................................................... 16
Background of the Merger................................................................. 16
Mercantile's Board of Directors' Reasons for the Merger.................................. 18
Fairness Opinion of SAMCO................................................................ 19
Recommendation of the Board of Directors of Mercantile................................... 22
BancGroup's Reasons for the Merger....................................................... 22
Interests of Certain Persons in the Merger............................................... 23
Conversion of Mercantile Common Stock.................................................... 25
Surrender of Mercantile Common Stock Certificates........................................ 26
Treatment of Mercantile Options.......................................................... 27
Certain Federal Income Tax Consequences.................................................. 28
Change in Shareholder Rights............................................................. 30
Conditions to Consummation of the Merger................................................. 30
Amendment or Termination of Agreement.................................................... 31
Commitment with Respect to Other Offers.................................................. 32
Regulatory Approvals..................................................................... 32
Conduct of Business Pending the Merger................................................... 34
Indemnification.......................................................................... 36
Rights of Dissenting Shareholders........................................................ 36
Resale of BancGroup Common Stock Issued in the Merger.................................... 38
Accounting Treatment..................................................................... 39
Mercantile Trust Preferred Securities.................................................... 39
NYSE Reporting of BancGroup Common Stock Issued in the Merger............................ 39
Management Following the Merger.......................................................... 39
PROPOSAL 2: THE 280G PAYMENTS.............................................................. 40
Summary of Payments...................................................................... 40
Approval of 280G Payments................................................................ 41
COMPARATIVE MARKET PRICES AND DIVIDENDS..................................................... 42
BANCGROUP CAPITAL STOCK AND DEBENTURES...................................................... 44
BancGroup Common Stock................................................................... 44
BancGroup Preference Stock............................................................... 44
BancGroup Debt........................................................................... 45
Changes in Control....................................................................... 46
COMPARATIVE RIGHTS OF SHAREHOLDERS.......................................................... 48
Director Elections....................................................................... 48
Removal of Directors..................................................................... 48
Voting................................................................................... 48
Preemptive Rights........................................................................ 48
Directors' Liability..................................................................... 49
Indemnification.......................................................................... 49
Special Meetings of Shareholders; Action Without a Meeting............................... 50
Mergers, Share Exchanges and Sales of Assets............................................. 50
Amendment of Articles or Certificate of Incorporation and Bylaws......................... 51
Rights of Dissenting Stockholders........................................................ 52
Page
----
Preferred Stock........................................................................ 52
Effect of the Merger on Mercantile Shareholders........................................ 52
BUSINESS OF BANCGROUP.................................................................... 54
General................................................................................ 54
Voting Securities and Principal Stockholders........................................... 54
Security Ownership of Management....................................................... 55
Management Information................................................................. 56
BUSINESS OF MERCANTILE................................................................... 56
General................................................................................ 56
First Mercantile Bank Activities........................................................ 56
Competition............................................................................ 57
Lending Activities..................................................................... 57
Deposit Activities..................................................................... 58
Investments............................................................................ 59
Employees.............................................................................. 59
Properties............................................................................. 59
Legal Proceedings...................................................................... 60
Information on Mercantile's Web Site................................................... 60
Security Ownership of Management and Certain Beneficial Owners......................... 61
ADJOURNMENT OF SPECIAL MEETING........................................................... 63
OTHER MATTERS............................................................................ 63
DATE FOR SUBMISSION OF BANCGROUP STOCKHOLDER PROPOSALS................................... 63
LEGAL MATTERS............................................................................ 63
EXPERTS.................................................................................. 64
WHERE YOU CAN FIND MORE INFORMATION...................................................... 65
APPENDIX A--Agreement and Plan of Merger................................................. A-1
APPENDIX B--Articles 5.11, 5.12, and 5.13 of the Texas Business Corporation Act Regarding
Dissenter's Rights..................................................................... B-1
APPENDIX C--Fairness Opinion of SAMCO dated __________, 2002............................. C-1
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: What should I do now?
A: Send in your proxy card. After reviewing this document, indicate on your
proxy card how you want to vote, and sign, date, and mail it in the enclosed
envelope as soon as possible to ensure that your shares will be represented at
the special meeting.
If you sign, date, and send in your proxy and do not indicate how you want to
vote, your proxy will be voted (i) in favor of the merger agreement and the
merger and (ii) in favor of the 280G payments. If you do not sign and send in
your proxy, and if you do not attend and cast your vote in person at the
special meeting, it will have the effect of voting against the merger and the
280G payments.
Q: If my shares are held in "street name" by my broker, will my broker vote my
shares for me?
A: Yes, if you give your broker instructions on how to do so. Your broker
will vote your shares of Mercantile common stock only if you provide your
broker with instructions on how to vote. You should instruct your broker how to
vote your shares by following the directions your broker provides. If you do
not provide instructions to your broker, your shares will not be voted and this
will have the effect of voting against the merger and the 280G payments.
Q: Can I revoke my proxy and change my mind?
A: Yes. You may revoke your proxy up to the time of the special meeting by
taking any of the actions explained under "The Special Meeting -- General" on
page of this proxy statement-prospectus, including by giving a written
notice of revocation, signing and delivering a new later-dated proxy, or by
attending the special meeting and voting in person.
Q: Can I vote my shares in person?
A: Yes. You may attend the special meeting and vote your shares in person
rather than signing and mailing your proxy card.
Q: Should I send in my stock certificates now?
A: No. After the merger is completed, BancGroup or its exchange agent will
send you written instructions explaining how you exchange your Mercantile
common stock certificates for certificates representing shares of BancGroup
common stock.
Q. When do you expect the merger to be completed?
A. We expect the merger to be completed in the first quarter of
2002. However, the timing of the completion of the merger is dependent on the
merger agreement being approved by our shareholders as well as the approval of
certain bank regulatory agencies.
Q: Whom can I call with questions?
A: If you want additional copies of this document, or if you want to ask any
questions about the merger or the 280G payments, you should contact: Malcolm
Holland, President of First Mercantile Bank, Telephone: (214) 692-1717.
i
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
). 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 Mercantile and "you" refers to
owners of record of Mercantile common stock on , 2002, the record
date.
The Companies
[LOGO] 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 December 31,
2001, BancGroup's total assets were approximately $13.2 billion, deposits were
approximately $8.3 billion and shareholders' equity was approximately $865
million.
[LOGO] First Mercantile Bank
Mercantile Bancorp, Inc.
8144 Walnut Hill Lane, Suite 180
Dallas, Texas 75231
(214) 692-1717
Mercantile is a bank holding company whose indirect and wholly-owned
subsidiary, First Mercantile Bank, N.A., provides corporate and retail banking
services principally in Dallas, Texas. As of September 30, 2001, Mercantile's
total assets were about $346.3 million, deposits were about $297.9 million and
shareholders' equity was about $24.6 million.
The Merger
Pursuant to the merger agreement, Mercantile will merge with and into
BancGroup and the separate legal existence of Mercantile will cease. As a
result of the merger, Mercantile shareholders will become stockholders of
BancGroup. We encourage you to read the entire merger agreement, which is
attached as Appendix A.
What Mercantile shareholders will receive in the merger (page )
When the merger becomes effective, Mercantile will cease to exist as a
separate entity and you, as a shareholder of Mercantile, will be entitled to
receive shares of BancGroup common stock. The exchange ratio, or the amount of
BancGroup common stock that you will receive, will be determined as follows:
. if the Market Value, which is an average of closing prices for BancGroup
common stock during a fixed period before the close of the merger, of
BancGroup common stock is between $11.00 and $15.00 per
1
share, then Mercantile shareholders will receive 3.4808 shares of
BancGroup common stock for each share of Mercantile common stock owned
just before the merger becomes effective;
. if the Market Value of BancGroup common stock is less than $11.00,
Mercantile shareholders will receive the number of shares of BancGroup
common stock equal to:
$38.29
the number of shares of Mercantile common stock owned
just before the
----
X
merger becomes effective; and
Market Value
. if the Market Value of BancGroup common stock is more than $15.00,
Mercantile shareholders will receive the number of shares of BancGroup
common stock equal to:
$52.21
the number of shares of Mercantile common stock owned
just before the
----
X
merger becomes effective.
Market Value
These formulas are designed to adjust the number of shares you receive
depending on whether the value of BancGroup common stock rises or falls before
the merger becomes effective. For example, if just before the merger becomes
effective, the Market Value of BancGroup common stock is $16.00 per share and
you owned 100 shares of Mercantile common stock, then you would receive:
$52.21
3.26 X 100 shares = 326 shares of BancGroup common stock.
-----
=
$16.00
If the market value of BancGroup common stock were $10.00, then you would
receive:
$38.29
3.82 X 100 shares = 382 shares of BancGroup common stock.
-----
=
$10.00
In the event that a business combination transaction is announced in which
BancGroup is the target, the exchange rate will be fixed at 3.4808,
irrespective of the Market Value of BancGroup common stock.
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 in an
amount equal to the fractional share multiplied by the Market Value of
BancGroup common stock instead of the fractional share.
Treatment of Mercantile Options
Holders of options to acquire shares of Mercantile common stock will have
their options treated in one of the following manners:
. each Mercantile option holder may elect to participate in a cash free
exchange of his Mercantile options for BancGroup common stock by providing
written notice to BancGroup, at least five days prior to the effective
date, of the option holder's desire to exchange his or her Mercantile
options for BancGroup common stock;
. each Mercantile option holder may elect to receive cash for the holder's
Mercantile options by providing written notice to Mercantile, at least
five days prior to the effective date, of the option holder's desire to
receive cash for his or her Mercantile option; or
. if a Mercantile option holder does not notify BancGroup of the option
holder's desire to exchange Mercantile options for BancGroup common stock
or cash, then BancGroup will assume the Mercantile options held by the
Mercantile option holder in accordance with the Mercantile stock option
plan.
2
Mercantile option holders who elect to exchange their Mercantile options for
BancGroup common stock will receive the number of shares of BancGroup common
stock equal to the value of such holder's Mercantile options, with cash in lieu
of any fractional shares. Mercantile option holders who elect to exchange their
Mercantile options for cash will receive an amount of cash equal to the value
of such holder's Mercantile options. For a discussion regarding the calculation
of the value of the Mercantile options, see "Proposal 1: Approval of the Merger
Agreement--Treatment of the Mercantile Options" beginning on page . Officers
of Mercantile who hold Mercantile options may be eligible to receive a cash
bonus in connection with the exchange of their Mercantile options for shares of
BancGroup common stock or cash. See "Proposal 1: Approval of the Merger
Agreement--Interests of Certain Persons in the Merger--Assumption of Mercantile
Options" beginning on page .
Comparative Market Prices (page )
BancGroup common stock is traded on the New York Stock Exchange. On November
29, 2001, the last trading day before we announced the merger, the closing
price of BancGroup common stock was $14.00. On January 23, 2002, BancGroup
common stock closed at $14.57.
Mercantile common stock is not publicly traded. Mercantile is not aware of
any trades of any shares of Mercantile common stock. The only sales of
Mercantile common stock known to management of Mercantile are original
issuances of Mercantile common stock by Mercantile to Mercantile shareholders.
The last known transaction before November 29, 2001, the last business day
before the merger was announced, was September 10, 2001 in connection with
Mercantile's acquisition of TownBank, N.A. pursuant to which Mercantile sold
shares of Mercantile common stock for $27.00 per share.
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 Mercantile common stock.
Equivalent price per
Mercantile's
BancGroup(1) Mercantile(2) share(3)
------------ ------------- --------------------
$14.00... $27.00 $48.73
--------
(1) Closing price on November 29, 2001.
(2) Price obtained for shares sold on September 10, 2001.
(3) If the merger had closed on November 29, 2001, you would have received
3.4808 shares of BancGroup common stock for each share of Mercantile common
stock you owned on that date.
Mercantile's Reasons for the Merger (page )
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;
. our need for greater access to capital to support growth;
. our need to provide additional banking related services and products to
meet the expanding needs of our customers;
. the fact that the merger will enable you to exchange your shares of
Mercantile common stock (for which there is no established public trading
market) for shares of BancGroup common stock, a larger and more
diversified entity, whose stock is widely held and actively traded;
We also took into account an opinion received from an independent financial
advisor, SAMCO Capital Markets, a Division of Service Asset Management Company,
that the terms of the exchange ratio are fair from a
3
financial point of view, to you. 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 )
We will hold a special meeting of our shareholders at 6:00 p.m. local time,
on Tuesday, March 19, 2002 at our main office located at 8144 Walnut Hill Lane,
Suite 180, Dallas, Texas. At the special meeting, we will ask our shareholders:
. to approve the merger agreement;
. to approve certain proposed payments to Roy J. Salley, the Chief Executive
Officer of Mercantile and First Mercantile Bank, to the extent such
payments may constitute "parachute payments" within the meaning of Section
280G of the Internal Revenue Code, generally referred to as the 280G
payments; and
. to act on any other matters that may be properly put to a vote at the
special meeting.
Our Recommendations to our Shareholders (page )
Your board of directors believes that the merger agreement and the 280G
payments are fair to you and in your best interests, and unanimously recommends
that you vote "FOR" the proposal to approve the merger agreement and "FOR"
approval of the proposal to make the 280G payments.
Record Date; Voting Power (page )
You may vote at the special meeting if you owned shares of Mercantile common
stock as of the close of business on , 2002. You will have one vote for
each share of Mercantile common stock you owned on that date.
Vote Required (page )
If a quorum is present at the special meeting, then the affirmative vote of
at least two-thirds of the outstanding shares will be sufficient to approve the
merger agreement. In order to approve the 280G payments to Mr. Salley, the
holders of more than 75% of all of the outstanding shares of Mercantile common
stock, excluding those shares held or constructively owned by Mr. Salley, must
approve the 280G payments. A quorum consists of a majority of the shares
outstanding on the record date.
On the record date, 1,336,752 shares of Mercantile common stock were
outstanding. The directors, executive officers and other affiliates of
Mercantile own 304,730 shares of Mercantile common stock representing
approximately 22.80% of the outstanding shares. These individuals have agreed
with BancGroup to vote their shares in favor of the merger agreement and, with
the exception of Mr. Salley who owns 100 shares and will abstain from the vote
on the proposal to approve the 280G payments, have expressed their intention to
vote for the 280G payments. In this regard, holders of at least an additional
586,439 shares of Mercantile common stock must vote "FOR" the merger agreement
and holders of at least an additional 697,860 shares of Mercantile common stock
must vote "FOR" the 280G payments.
Exchange of Certificates (page )
Shortly after we complete the merger, you will receive detailed instructions
on how to exchange your shares. PLEASE DO NOT SEND US ANY STOCK CERTIFICATES
UNTIL YOU RECEIVE THOSE INSTRUCTIONS.
4
Conditions to Completion of the Merger (page )
The completion of the merger depends on meeting a number of conditions,
including the following:
. the shareholders of Mercantile must approve the merger agreement;
. the receipt of all required regulatory approvals and any waiting periods
must have passed;
. no governmental order blocking completion of the merger, and no
proceedings by a government body trying to block the merger;
. all of the representations and warranties of Mercantile and BancGroup must
be true and correct including the representation by Mercantile that no
payments to any employees of Mercantile will fail to be deductible by
virtue of Section 280G of the Code;
. the existence of no material adverse changes in the results of operations,
financial conditions or affairs of either Mercantile or BancGroup;
. the shares of BancGroup common stock to be issued in the merger have been
approved for listing on the New York Stock Exchange;
. the holders of no more than 10% of the outstanding shares of Mercantile
common stock have elected to dissent from the merger;
. certain officers and directors of Mercantile must have delivered affiliate
agreements to BancGroup;
. the delivery of an executed employment agreement to BancGroup by each of
Roy J. Salley, C. Malcolm Holland and Michael A. Kowalski;
. the completion of the merger on or before August 31, 2002; and
. the receipt of certain professional opinions, including a letter from the
firm of SAMCO that the exchange ratio is fair, from a financial point of
view, to our shareholders and a letter from PricewaterhouseCoopers LLP
that the merger will qualify as a tax free reorganization.
Unless prohibited by law, either Mercantile 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 )
The two companies can agree at any time to terminate the merger agreement
before completing the merger, even if the shareholders of Mercantile 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 August 31, 2002, (provided that
the failure to complete has not been caused by the breach of the company
electing to terminate); or
. if Mercantile enters into a binding agreement with any third party to
merge with, or sell control to, that third party. In that event,
Mercantile may be required to pay liquidated damages to BancGroup.
Federal Income Tax Consequences (page )
We expect that neither of the two companies nor Mercantile's 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 Mercantile's
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.
5
This nonrecognition of gain or loss tax treatment will not apply to
Mercantile's shareholders who dissent from the transaction and receive cash
instead of BancGroup common stock for their Mercantile common stock as provided
under Texas law. The procedures for exercising dissenters' rights are discussed
at page .
None of the currently outstanding options to purchase Mercantile common
stock are qualified as "incentive" stock options. Therefore, holders of such
options will recognize taxable income if and when they exercise such options
equal to the fair market value of the stock subject to the option over the
exercise price at the date of exercise. Mercantile, or BancGroup if such
options are exercised after the completion of the merger, would be entitled to
a tax deduction for the same value. If a Mercantile option holder chooses to
exchange his or her options for cash or for BancGroup common stock, then such
holder will recognize taxable income for the value of such cash or stock and
taxable income for the cash bonus that will also be paid to such a holder. See
"Proposal 1: Approval of the Merger Agreement--Treatment of Mercantile Options."
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. See "Proposal 1: Approval of the Merger
Agreement--Federal Income Tax Consequences" for a more thorough discussion of
the tax consequences of the merger.
Accounting Treatment (page )
The merger will be accounted for as a purchase. The purchase price will be
assigned to the fair value of the net tangible and intangible assets acquired,
with any amounts in excess thereof being assigned to "goodwill." Goodwill will
be capitalized unless and until it is deemed to be impaired, in which case the
impairment will be measured and any such amount will be charged against current
earnings.
Interests of Persons Involved in the Merger that are Different from Yours (page
)
Certain directors, executive officers and employees of Mercantile have
interests in the merger that are different from your interests. These differing
interests include the following:
. BancGroup will assume outstanding options to acquire Mercantile common
stock. Certain officers and directors of Mercantile currently hold options
to acquire 232,000 shares of Mercantile common stock. In the merger, these
options will become rights to acquire BancGroup common stock in amounts
and at prices determined by the exchange ratio applicable in the merger
generally. Alternatively, the merger agreement allows the holders of these
options to exchange some or all of their options for cash or for BancGroup
common stock without paying an exercise price. If a holder chooses to
participate in the "cash free exchange", then he or she will receive an
amount of cash or BancGroup common stock equal to the value of such
holder's options less the exercise price of such options. Additionally, if
an officer elects to participate in the "cash free exchange," then that
officer will also receive a cash bonus equal to 34% of the value of such
options exchanged. For a discussion regarding the calculation of the value
of the Mercantile options, see "Proposal 1: Approval of the Merger
Agreement--Treatment of the Mercantile Options" beginning on page .
. Mercantile currently indemnifies its directors and certain officers,
employees and agents against loss from claims arising out of their
position with Mercantile. For a period of three 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, Mercantile. BancGroup has also agreed to use
commercially reasonable efforts to continue insurance coverage of
liability for a period of three years after the merger for directors and
executive officers for events which occur before the merger.
6
. Upon completion of the merger, Mercantile 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.
. Roy J. Salley, Chief Executive Officer of Mercantile and First Mercantile
Bank, has entered into an employment agreement with BancGroup that becomes
effective when, and if, the merger is completed. The agreement with Mr.
Salley provides for a term of three to five years, base annual
compensation of $210,000, eligibility to receive 10,000 shares of
BancGroup common stock in the form of a restricted stock award,
eligibility to receive options to acquire 25,000 shares of BancGroup
common stock, an incentive based cash bonus of up to $75,000, and various
other benefits. This agreement also contains a covenant prohibiting Mr.
Salley from competing with BancGroup for a period of time following
termination of employment.
. C. Malcolm Holland, President of First Mercantile Bank, has entered into
an employment agreement that will become effective when, and if, the
merger is completed. The agreement with Mr. Holland provides for a term of
three to five years, base annual compensation of $190,000, eligibility to
receive 5,000 shares of BancGroup common stock in the form of a restricted
stock award, eligibility to receive options to acquire 15,000 shares of
BancGroup common stock, an incentive-based cash bonus of up to $50,000,
and various other benefits. This agreement also contains a covenant
prohibiting Mr. Holland from competing with BancGroup for a period of time
following termination of employment.
. Michael A. Kowalski, Executive Vice President and Chief Financial Officer
of First Mercantile Bank, has entered into an employment agreement that
will become effective when, and if, the merger is completed. The agreement
with Mr. Kowalski provides for a term of two years, base annual
compensation of $115,000, the right to receive options to acquire 5,000
shares of BancGroup common stock, and various other benefits. This
agreement also contains a covenant prohibiting Mr. Kowalski from competing
with BancGroup for two years following the Effective Date.
. Mercantile's directors and certain executive officers have entered into
"affiliate agreements" with BancGroup regarding various issues associated
with the merger. These agreements provide that the director or executive
officer would, among other things:
-- agree to vote his or her shares for the merger;
-- not distribute BancGroup common stock issued in connection with the
merger except in accordance with certain rules of the SEC;
-- support the business of Colonial Bank after the merger; and
-- not sell, transfer or otherwise encumber 25% of the BancGroup common
stock such person receives in connection with the merger for two years
following the merger.
Additionally, Mercantile directors who are not also employees of
Mercantile agreed generally not to compete with Colonial Bank for a period
which is the longer of four years following the merger or two years after
such person ceases to be a regional or local director for Colonial Bank
and will be entitled to receive a cash payment of $125,000 for this
non-compete agreement.
. Prior to the signing of the merger agreement with BancGroup, Mercantile's
board of directors agreed to pay Roy J. Salley a cash bonus if certain
conditions were satisfied. These conditions included the successful sale
of Mercantile at a price of greater than $40.00 per share. Pursuant to
that agreement, Mr. Salley will receive at the closing of the merger a
cash bonus equal to 0.75% of the merger consideration paid to Mercantile
shareholders. The exact amount of the cash bonus cannot be determined
until the closing of the merger, but it will be no more than $523,439.
7
Fairness Opinion (page )
In deciding to approve the merger, your board of directors considered the
opinion of a financial advisor, SAMCO, that, as of the date of the opinion, the
exchange ratio is fair, from a financial point of view, to Mercantile
shareholders. We have attached as Appendix C the written opinion of SAMCO dated
as of the date of this proxy statement-prospectus. You should read it carefully
to understand the assumptions made, matters considered and limitations of the
review undertaken by SAMCO in providing its opinion.
Dissenters' Rights (page )
Mercantile shareholders entitled to vote at the special meeting are entitled
to exercise "dissenters' rights" of appraisal under Texas 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 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 common stock. The text of the applicable Texas statutes is set forth
in Appendix B.
Your Rights as a Stockholder Will Change (page )
Once the proposed merger occurs, Mercantile shareholders who do not dissent
from the merger will become stockholders of BancGroup. In this regard, your
rights as a stockholder of BancGroup will be governed by Delaware corporate law
instead of Texas corporate law, and they will be further governed by
BancGroup's Certificate of Incorporation and Bylaws instead of Mercantile's
Articles of Incorporation and Bylaws. Because of certain differences between
Texas corporate law and Delaware corporate law, and between Mercantile's
Articles of Incorporation and Bylaws and BancGroup's Certificate of
Incorporation and Bylaws, your current rights as a shareholder will change
after the merger. See "Comparative Rights of Stockholders."
BancGroup Common Stock is Publicly Traded and Most of You Will Be Free to Trade
the Shares of BancGroup Common Stock that You Receive in the Merger Whereas
Mercantile Common Stock is Not Publicly Traded (page )
BancGroup common stock is publicly traded on the New York Stock Exchange
under the symbol "CNB." BancGroup will register the shares of its common stock
to be issued in the merger and, as a result, most of you may sell such shares
without restriction; however, securities laws impose certain restrictions on
affiliates, generally directors, executive officers and 10% shareholders of
BancGroup, which after the merger may include certain Mercantile shareholders,
regarding how and when they may trade BancGroup common stock. Shares of
Mercantile common stock are not registered with the SEC and are not listed on
any exchange or quoted on any automated quotation system. As a result,
Mercantile common stock is not freely tradable. See "Proposal 1: The
Merger--Resale of BancGroup Common Stock Issued in the Merger."
Approval of the 280G Payments
In connection with the merger, Roy J. Salley, the Chief Executive Officer of
Mercantile and First Mercantile Bank, is entitled to receive certain payments.
These payments consist generally of the acceleration of Mr. Salley's vesting in
his Mercantile options, a cash bonus equal to 34% of the value of his
Mercantile options exchanged for either cash or Bancgroup common stock, to the
extent he elects to do so, and a performance cash bonus in connection with the
sale of Mercantile for more than $40.00 per share. You are being asked to
approve that portion of any payment that would cause the payment to constitute
a "parachute payment" under Section 280G of the Internal Revenue Code. Mr.
Salley may receive payments of up to $719,822 without having such
8
payments constitute parachute payments. At closing and irrespective of the
outcome of the Mercantile shareholder's vote on proposal 2 to approve the 280G
payments, Mr. Salley will receive payments equaling $719,822, which will be
comprised of the acceleration of his vesting in his Mercantile options, the
payment equal to 34% of the value of his Mercantile options exchanged for cash
or Bancgroup common stock, in the event he elects to do so, and, to the extent
those two payments do not exceed $719,822, that portion of the performance cash
bonus that when added to the first two payments would equal $719,822. If the
Mercantile shareholders approve proposal 2, Mr. Salley will receive the balance
of the performance cash bonus at closing. Until the Market Value of the
Bancgroup common stock is established, the exact amounts of the payments,
including any 280G payment, to Mr. Salley cannot be determined.
Where You Can Find More Information (page )
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 [10 days before special meeting] 2002,
in order to receive them before the special meeting.
9
Recent Developments--Bancgroup
The following table presents certain consolidated financial data for
BancGroup for the period ended December 31, 2001 which have been derived from
BancGroup's unaudited financial statements. The unaudited historical data
reflect, in the opinion of management, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair statement of such data and
is presented for informational purposes only.
The Colonial Bancgroup, Inc. And Subsidiaries
Financial Highlights
Unless otherwise noted, all amounts have been restated for the October 2001
merger with Manufacturers Bancshares Inc. accounted for as a pooling of
interest.
%
Change
Dec. 31, Dec. 31, Dec. 31,
2001 2000 '00 to '01
Statement of Condition Summary -------- -------- ----------
(Dollars in millions, except per share amounts)
Total assets................................... $13,185 $12,000 10%
Loans.......................................... 10,368 9,643 8%
Total earning assets........................... 12,301 11,194 10%
Deposits....................................... 8,323 8,356 0%
Long term debt................................. 1,786 862 107%
Shareholders' equity........................... 865 775 12%
Book value per share........................... $ 7.50 $ 6.93 8%
% %
Year ended Change Quarter ended Change
December 31, Dec. 31 December 31, Dec. 31
------------------ ---------- ---------------- ----------
Earnings Summary 2001 2000 '00 to '01 2001 2000 '00 to '01
-------- -------- ---------- -------- ------- ----------
(Dollars in thousands, except per share amounts)
Net interest income.................... $421,929 $400,322 5% $109,340 $99,752 10%
Provision for loan losses.............. 39,573 29,775 33% 14,730 7,857 87%
Noninterest income..................... 93,709 77,885 20% 29,909 19,209 56%
Noninterest expense.................... 284,168 258,691 10% 74,645 64,882 15%
Income from continuing operations before
tax................................... 191,897 189,741 49,874 46,222
Income tax............................. 69,181 69,556 17,955 16,945
Income from continuing operations...... 122,716 120,185 31,919 29,277
Discontinued operations, net of tax.... (613) (5,065) -- (366)
Net Income............................. 122,103 115,120 31,919 28,911
10
% %
Year ended Change Quarter ended Change
December 31, Dec. 31 December 31, Dec. 31
----------------- ---------- ----------------- ----------
2001 2000 '00 to '01 2001 2000 '00 to '01
-------- -------- ---------- -------- -------- ----------
(Dollars in thousands, except per share amounts)
Earnings Per Share:
Net Income........................
Basic........................... $ 1.06 $ 1.00 6% $ 0.28 $ 0.25 12%
Diluted......................... $ 1.06 $ 1.00 6% $ 0.28 $ 0.25 12%
Average shares outstanding........ 114,811 114,760 115,173 114,297
Average diluted shares outstanding 115,881 115,653 116,235 115,122
Dec. 31, Dec. 31,
2001 2000
Nonperforming Assets --------- --------
Total non-performing assets ratio..... 0.64% 0.53%
Allowance as a percent of nonperforming
loans................................ 239% 258%
Net charge-offs ratio (annualized):
Quarter to date...................... 0.34% 0.20%
Year to date......................... 0.28% 0.21%
Net income for the year ended December 31, 2001 was $122,103 compared to
$115,120 for the previous period, a 6% increase. Earnings per share for the
year were $1.06 on a diluted basis, a 6% increase over the year ended December
31, 2000 of $1.00.
Total nonperforming assets increased to approximately $66.7 million at
December 31, 2001 as compared to $51.6 million at December 31, 2000 and the
ratio of nonperforming assets to net loans and other real estate was 0.64% at
December 31, 2001 as compared to 0.53% in 2000. Annualized net charge offs were
0.28% of average loans in 2001 as compared to 0.21% in 2000.
The provision for loan loss for the year ended December 31, 2001 was $39.6
million, a 33% increase over the prior year's provision of $29.8 million. The
allowance for loan losses as a percent of total loans was 1.18% and 1.14%,
respectively at December 31, 2001 and 2000.
Gain on the sale of securities for the year ended December 31, 2001 were
$8.7 million as compared to $538,000 for the year ended December 31, 2000.
Recent Developments--Mercantile
Shortly after the announcement of the merger agreement by Bancgroup,
Mercantile was contacted by Hovde Financial, LLC, an investment banking firm.
Hovde Financial asserted that it was entitled to a fee based on an engagement
letter entered into between Hovde Financial and Mercantile in November 1999.
Mercantile believes that it effectively terminated the engagement letter and
that Hovde Financial is not entitled to any fees in connection with
Mercantile's business combination with Bancgroup. Mercantile, however, after
consultation with Bancgroup and to avoid costly litigation and to close the
merger as promptly as possible, has reached a settlement with Hovde Financial
concerning its claims. Mercantile has agreed to pay $425,000 to Hovde Financial
at closing in full satisfaction of any claims Hovde Financial has or, in the
future, may assert regarding the merger.
11
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 proxy statement-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:
. expected cost savings from reorganization into BancGroup are not fully
realized;
. deposit attrition, customer loss, or revenue loss following the
reorganization into BancGroup are greater than expected;
. deposit attrition, customer loss, or revenue loss in the ordinary course
of business;
. increases in competitive pressure in the banking industry;
. changes in the interest rate environment which reduce margins;
. general economic conditions, either nationally or regionally, that are
less favorable than expected, resulting in, among other things, a
deterioration in credit quality;
. changes which may occur in the regulatory environment;
. a significant rate of inflation or deflation;
. acts of terrorism, such as the events of September 11, 2001, and war; and
. 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, June 30, 2001 and September 30, 2001.
12
THE SPECIAL MEETING
General
This proxy statement-prospectus is being furnished to the shareholders of
Mercantile in connection with the solicitation of proxies by the board of
directors of Mercantile for use at the special meeting to be held on
, 2002, and at any adjournments or postponements thereof. The purpose of
the special meeting is to consider and vote upon the following matters:
. proposal 1: approve and adopt the merger agreement;
. proposal 2: approve the 280G payments to Roy J. Salley, the Chief
Executive Officer of Mercantile and First Mercantile Bank; and
. any and all other business that may properly come before the special
meeting or any adjournments thereof.
The board of directors of Mercantile believes that the merger is in the best
interests of Mercantile shareholders and unanimously recommends that
shareholders vote "FOR" the merger agreement (item 1 on the proxy card). The
board of directors of Mercantile believes that the 280G payments to Mr. Salley
are in the best interests of Mercantile shareholders and unanimously recommends
that shareholders vote "FOR" the 280G payments (item 2 on the proxy card).
This proxy statement-prospectus is also furnished by BancGroup in connection
with the offer of shares of BancGroup common stock to be issued in the merger.
No vote of BancGroup stockholders is required to approve the merger agreement
or the issuance of the BancGroup common stock.
Record Date; Shares Entitled to Vote; Vote Required for the Merger and the 280G
Payments
The board of directors of Mercantile has fixed the close of business on
, 2002, as the record date for determination of shareholders entitled to
vote at the special meeting. There were 266 record holders of Mercantile common
stock and 1,336,752 shares of Mercantile common stock outstanding, each
entitled to one vote per share, as of the record date. Mercantile is obligated
to issue up to an additional 232,000 shares of Mercantile common stock upon the
exercise of outstanding Mercantile options.
The presence at the special meeting, in person or by proxy, of the holders
of a majority of the outstanding shares of Mercantile 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 Mercantile shareholders holding the requisite
number of shares of Mercantile common stock are represented in person or by
proxy. The following votes are required to approve the proposal at the special
meeting:
. in order to approve and adopt the merger agreement, the affirmative vote
of the holders of at least two-thirds of the outstanding shares of
Mercantile common stock, whether or not present or represented at the
special meeting, is required to vote "FOR" proposal 1 to approve the
merger agreement; and
. in order to approve the 280G payments to the Chief Executive Officer of
Mercantile, the affirmative vote of holders of more than 75% of the voting
power of all outstanding shares of Mercantile common stock, excluding
those shares held or constructively owned by the Chief Executive Officer,
is required to vote "FOR" proposal 2 to approve the 280G payments.
Broker non-votes and abstentions will not be counted as votes "FOR" or
"AGAINST" either proposal and, as a result, such non-votes will have the same
effect as votes cast "AGAINST" the merger agreement and the 280G payments. Each
holder of record of shares of Mercantile common stock is entitled to cast, for
each share registered in his or her name, one vote on the merger agreement and
the 280G payments.
13
As of the record date, directors of Mercantile owned 304,730 shares of
Mercantile common stock representing approximately 22.80% of the outstanding
shares. These individuals have agreed with BancGroup to vote their shares in
favor of the merger agreement and indicated their intention to vote in favor of
the 280G payments. Mr. Salley will abstain from voting his 100 shares of
Mercantile common stock on the proposal to approve the 280G payments.
If the merger agreement is approved at the special meeting, Mercantile is
expected to merge with and into BancGroup promptly after the other conditions
to the merger agreement are satisfied. See "Proposal 1: Approval of the Merger
Agreement--Conditions of Consummation of the Merger."
THE BOARD OF DIRECTORS OF MERCANTILE URGES THE SHAREHOLDERS OF MERCANTILE TO
EXECUTE AND RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE AND UNANIMOUSLY
RECOMMENDS THAT THE SHARES REPRESENTED BY THE PROXY BE VOTED IN FAVOR OF THE
MERGER AGREEMENT AND THE 280G PAYMENTS.
Solicitation, Voting and Revocation of Proxies
In addition to soliciting proxies by mail, directors, officers and other
employees of Mercantile, without receiving special compensation therefor, may
solicit proxies from Mercantile 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 Mercantile
common stock.
Mercantile will bear the cost of assembling and mailing this proxy
statement-prospectus and other materials furnished to shareholders of
Mercantile. It will also pay all other expenses of solicitation, including the
expenses of brokers, custodians, nominees, and other fiduciaries who, at the
request of Mercantile, 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. Mercantile and BancGroup will bear and pay all
direct costs and expenses incurred by, or on behalf of, the party in question.
Shares of Mercantile 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 Mercantile common stock
represented by the proxy will be voted "FOR" the proposals to approve the
merger agreement, the 280G payments and in accordance with the determination of
the majority of the board of directors of Mercantile 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:
. delivering to the Secretary of Mercantile, prior to or at the special
meeting, a written notice revoking the proxy;
. delivering to the Secretary of Mercantile, at or prior to the special
meeting, a duly executed proxy relating to the same shares and bearing a
later date; or
. voting in person at the special meeting. Attendance at the special meeting
will not, in and of itself, constitute a revocation of a proxy.
14
All written notices of revocation and other communications with respect to
the revocation of Mercantile proxies should be addressed to:
Mercantile Bancorp, Inc.
8144 Walnut Hill Lane, Suite 180
Dallas, Texas 75231
Attention: Roy J. Salley
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 Mercantile is not aware of any business to be
acted upon at the special meeting other than consideration of the merger
agreement and the 280G payments 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 merger 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 merger agreement. Proxies voted against the approval of the
merger 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 common
stock will be the average of the closing prices of BancGroup common stock as
reported by the New York Stock Exchange ("NYSE") on each of the ten consecutive
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 1,568,752 shares of Mercantile common stock are
outstanding on the Effective Date, which consists of the 1,336,752 shares of
Mercantile common stock and options to acquire 232,000 shares of Mercantile
common stock outstanding on the date of this proxy statement-prospectus, and
the Market Value of BancGroup common stock is between $11.00 and $15.00 per
share on the Effective Date, then BancGroup would issue 5,460,511 shares of
BancGroup common stock pursuant to the merger. As of November 29, 2001 the
closing price of BancGroup common stock was $14.00. If the Market Value of
BancGroup common stock is equal to $14.00 on the Effective Date, then
approximately 5,460,511 shares of BancGroup common stock will be issued
pursuant to the merger. The issuance of 5,460,511 shares of BancGroup common
stock would represent approximately 4.5% of the total number of shares of
BancGroup common stock outstanding following the merger, not counting any
additional shares of BancGroup common stock which BancGroup may issue for
reasons unconnected to the merger. Depending on actual events, the foregoing
figures may be substantially different as of the Effective Date.
15
PROPOSAL 1: APPROVAL OF THE MERGER AGREEMENT
The following sets forth a summary of the material provisions of the merger
agreement and the transactions contemplated thereby. The description does not
purport to be complete and is qualified in its entirety by reference to the
merger agreement, a copy of which is attached hereto as Appendix A, and certain
provisions of Texas law relating to the rights of dissenting shareholders, a
copy of which is attached hereto as Appendix B. All Mercantile shareholders are
urged to read the merger agreement and the appendices in their entirety.
The Merger
The merger agreement provides that, subject to approval by the shareholders
of Mercantile, receipt of necessary regulatory approvals and satisfaction of
certain other conditions described below at "Conditions to Consummation of the
Merger," Mercantile will merge with and into BancGroup. Upon completion of the
merger, the corporate existence of Mercantile will cease, and BancGroup will
succeed to the business formerly conducted by Mercantile.
BancGroup currently anticipates that First Mercantile Bank will be merged
into BancGroup's subsidiary bank, Colonial Bank, after the merger. The timing
of such a merger, as well as its actual consummation, is within BancGroup's
discretion. First Mercantile Bank and Colonial Bank have entered into an
agreement providing for the merger of First Mercantile Bank with and into
Colonial Bank, subsequent to the consummation of the merger and receipt of
regulatory approvals.
Background of the Merger
Mercantile was established in 1998 and has enjoyed significant growth since
that time. Since inception, the board of directors has focused on analyzing
strategic alternatives available to Mercantile and developing Mercantile's
franchise. As a part of this continuing analysis, the board of directors sought
ways to access additional capital to support Mercantile's growth. One
alternative the board considered was a possible business combination
transaction.
On November 29, 1999, the board of directors engaged Hovde Financial LLC to
assist the board in formulating objectives based on the strategic options
identified by Hovde Financial. Hovde Financial is an investment banking firm
focused exclusively on the financial services industry and specializes in
providing investment banking and financial advisory services to banks and
thrifts. Representatives of Hovde Financial met with members of the board of
directors and executive officers of Mercantile to learn about Mercantile's
business and operations. Based on its analysis, Hovde Financial recommended to
the board of directors that Mercantile consider a business combination
transaction with another financial institution.
As a result of Hovde Financial's recommendation, the board authorized Hovde
Financial to perform limited marketing of Mercantile. Hovde Financial contacted
financial institutions that it believed might have an interest in acquiring
Mercantile. However, Mercantile did not receive any indications of interest
that were satisfactory to its board of directors and Hovde Financial's
engagement was terminated.
The board of directors continued to explore strategic alternatives for
Mercantile. On May 1, 2001, Mercantile entered into a definitive agreement to
acquire TownBank, N.A. in Mesquite, Texas. In connection with the TownBank
acquisition, which was completed in September 2001, the board of directors
determined that Mercantile would need to find a significant amount of
additional capital to continue to grow. In order to access this capital,
Mercantile would need either to raise significant additional capital or enter
into a business combination transaction. The board of directors assessed
whether seeking new sources of capital or finding a merger partner would better
serve to maximize shareholder value. Also, the board of directors recognized
that a viable and liquid market for shares of Mercantile common stock did not
exist and that many shareholders desired increased liquidity in their
investments. In evaluating its alternatives, the board of directors sought to
provide an alternative that would maximize shareholder value and provide
liquidity in their investments. Based on
16
Mercantile's size and the dilutive impact of a common stock offering, the board
decided to reinvestigate the possibility of a business combination transaction.
In February 2001, Mercantile engaged SAMCO to act as its financial advisor
in the TownBank merger and as its placement agent in the private placement of
$8 million of trust preferred securities. SAMCO is an investment banking firm
that provides financial advice to community banks. Mercantile and SAMCO also
discussed the possibility of SAMCO representing Mercantile in negotiations
leading to a business combination transaction. On February 28, 2001, Mercantile
engaged SAMCO to contact and screen potential buyers, prepare a marketing
memorandum, negotiate with potential buyers and assist Mercantile in all
aspects of a business combination transaction.
From March 2001 through October 2001, SAMCO contacted several financial
institutions to discuss the possibility of a business combination transaction
with Mercantile. Of the parties contacted, ten indicated an interest in a
possible business combination transaction, including BancGroup.
On October 3, 2001, representatives of SAMCO flew to Montgomery, Alabama to
meet with certain executive officers of BancGroup to discuss the Dallas market
generally and the attractiveness of Mercantile's franchise to BancGroup
particularly.
At the October 16, 2001 Mercantile board of directors meeting, Mr. Salley
informed the board that he had met with representatives of a financial
institution other than BancGroup that was interested in a business combination
transaction with Mercantile. As a result of the meeting, Mr. Salley informed
the Board that a letter of intent describing the proposed acquisition of
Mercantile was expected from this financial institution. On October 17, 2001,
Mercantile received a letter of intent from such other financial institution.
On October 25, 2001, representatives of SAMCO met with Mr. Salley to discuss
the results of SAMCO's October 3, 2001 meeting with BancGroup and its interest
in pursing a business combination transaction with Mercantile. A meeting was
arranged with representatives of BancGroup for October 29, 2001.
At the meeting on October 29, 2001, certain executive officers of Mercantile
met with representatives of BancGroup to discuss a possible business
combination transaction. As a result of this meeting, BancGroup and Mercantile
agreed to negotiate, in good faith, the terms of a proposed merger agreement.
Between October 29, 2001 and November 21, 2001, Mercantile and its legal
advisors negotiated the terms and conditions of a definitive merger agreement
with BancGroup.
The board of directors of Mercantile met on November 21, 2001 to discuss the
two competing offers it had received. During the meeting, the board met to
review in detail the offer from BancGroup and the existing offer from another
financial institution, including the merger agreement and the required
ancillary documents and agreements. Mercantile's legal counsel reviewed the
terms of the transaction documents proposed by the BancGroup with, and answered
questions from, the board of directors. Thereafter, the board of directors
considered the benefits and drawbacks, including a review of the financial and
other aspects, of a business combination transaction with either party. Based
on its discussions, the board of directors concluded that a business
combination transaction with BancGroup represented a better opportunity for
Mercantile and its shareholders. At the conclusion of the discussion,
Mercantile's board of directors voted unanimously to approve the business
combination transaction with BancGroup and to approve the merger and the merger
agreement transactions described thereby and to recommend that its shareholders
vote for approval and adoption of the merger, the merger agreement and the
transactions described thereby.
Final negotiations continued through November 29, 2001. On November 29,
2001, Mercantile and BancGroup executed the merger agreement and, on November
30, 2001, BancGroup issued a press release announcing the proposed merger.
17
Mercantile's Board of Directors' Reasons for the Merger
Mercantile's board of directors believes that the merger is advisable and in
the best interests of Mercantile and its shareholders. In reaching this
determination, Mercantile's board of directors considered a number of factors
including, without limitation, the following:
. The transaction would give Mercantile shareholders greater liquidity, as
currently no trading market exists for shares of Mercantile common
stock, while BancGroup common stock is listed and traded on the New York
Stock Exchange.
. Mercantile and BancGroup have structured the merger to qualify as a tax
free reorganization to Mercantile shareholders. The merger agreement
provides that it is a condition to Mercantile's obligations to complete
the merger that it will receive the opinion of PricewaterhouseCoopers
LLP, that no gain or loss will be recognized by Mercantile shareholders
to the extent they receive BancGroup common stock in the merger. See
"Proposal 1: Approval of the Merger Agreement--Certain Federal Income
Tax Consequences.
. The complementary nature of BancGroup's business, services and products
with those of Mercantile, and the opportunity to create a combined
business that offers a wider variety of services to Mercantile's
customers and enhances the ability to attract new customers in the
future.
. The consideration to be received by Mercantile shareholders in the
merger, which Mercantile's board of directors believed to represent an
attractive premium and to be fair to Mercantile shareholders from a
financial point of view. Mercantile's board of directors' determination
was based on, among other things, a comparison of the terms of the
proposed transaction with other recent bank mergers and acquisitions,
the evaluation of publicly available information regarding BancGroup,
the review and evaluation of other information concerning the valuation
of banks and analyses of recent bank acquisitions, the review and
evaluation of financial information and analyses regarding BancGroup and
advice provided by Mercantile's financial advisor, SAMCO. Mercantile's
board of directors determined that the premium to be received by the
Mercantile shareholders pursuant to the merger agreement represents an
attractive premium compared to recent comparable bank transactions in
the State of Texas and the Southwest generally, and represented more
value than management of Mercantile believed could be generated by
remaining independent.
. The opinion of SAMCO, Mercantile's financial advisor, that the
consideration to be received by Mercantile shareholders in the merger is
fair to the Mercantile shareholders from a financial point of view. See
"Proposal 1: Approval of the Merger Agreement--Fairness Opinion of
Mercantile's Financial Advisor."
. Mercantile's ability to provide value to Mercantile shareholders without
accessing significant amounts of additional capital.
. The ability of Mercantile's management to continue to manage BancGroup's
Texas operations upon completion of the merger.
. The access to greater capital that the merger provides to facilitate
more effectively the continued growth of Mercantile's operations and
franchise.
. The state of the banking industry generally and the increased
competition brought about by consolidation, deregulation and other
factors, as well as the financial size and resources necessary to
compete in this environment.
. BancGroup's record of paying cash dividends to its shareholders over the
past 15 years.
Mercantile's board of directors has approved the merger agreement and
unanimously recommends that Mercantile shareholders vote "FOR" the merger
agreement at the special meeting.
18
Fairness Opinion of SAMCO
The fairness opinion of Mercantile's financial advisor, SAMCO Capital
Markets, a Division of Service Asset Management Company, is described below.
The description contains SAMCO's projections, estimates and/or other forward
looking statements about the future earnings or other measures of the future
performance of BancGroup and Mercantile. You should not rely on any of these
statements as having been made or adopted by BancGroup or Mercantile.
Subsequent to Mercantile's engagement of SAMCO as placement agent of its
trust preferred securities, Mercantile engaged SAMCO as its independent
financial advisor in connection with Mercantile's consideration of a possible
business combination with a third party. Specifically, based on SAMCO's
reputation and qualifications in evaluating financial institutions,
Mercantile's board of directors requested that SAMCO render advice and analysis
in connection with a possible sale transaction, and to provide an opinion with
regard to the fairness--from the perspective of Mercantile shareholders--of the
financial terms of any proposed transaction. SAMCO is regularly engaged to
provide investment banking services to financial institutions and in the
valuation of financial institutions and their securities in connection with
mergers and acquisitions, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes.
Over the past two years, SAMCO has been engaged by Mercantile to provide
various financial advisory services, including rendering fairness opinions for
possible stock issuance, as well as for Mercantile's acquisition of TownBank,
SAMCO collected approximately $22,500 in fees related to these services. In
addition, SAMCO also served as placement agent for Mercantile's $8 million
Trust Preferred Securities offering, receiving fees totaling $208,498. SAMCO
was requested to, and did, solicit third party offers to acquire all or any
part of Mercantile.
In connection with providing its opinion of the financial fairness of the
exchange ratio to Mercantile shareholders, SAMCO was specifically instructed by
the Mercantile board of directors to provide the board with an evaluation, or
fair value appraisal, of the Mercantile common stock. Mercantile's board,
together with input from SAMCO, determined that fair value of the Mercantile
common stock for the purposes of the evaluation would be based on the value of
a pro rata share of Mercantile as a going concern. The fair value should not
include any consideration of the impact of the merger on the value of
Mercantile. In addition, SAMCO was instructed that in determining the fair
value to consider all usual and customary approaches to calculating value,
including net asset value, investment value and market value.
In making the final determination of fair value, Mercantile's board of
directors further instructed SAMCO that fair value is not intended to be
derived from a pro forma sale of Mercantile but rather assumes that the
Mercantile shareholders are willing to maintain their investment in Mercantile
as though the merger had not occurred. Accordingly, the final determination of
value should neither assume a sale of 100% of the stock of Mercantile nor
include an application of any discount or control premium.
As is mentioned above, in addition to providing the evaluation, Mercantile
retained SAMCO to render its fairness opinion and conditioned its obligations
to perform under the merger agreement on its receipt of a fairness opinion from
SAMCO. A copy of the fairness opinion of SAMCO, dated , 2002, which sets
forth certain assumptions made, matters considered and limits on the review
undertaken by SAMCO, is attached as Appendix C to this proxy
statement-prospectus. Mercantile shareholders are urged to read the fairness
opinion in its entirety.
In arriving at its fairness opinion, SAMCO reviewed and analyzed among other
things, the following:
. the merger agreement;
. the financial statements of Mercantile and First Mercantile Bank;
19
. certain other publicly available financial and other information
concerning Mercantile and First Mercantile Bank;
. publicly available information concerning other banks and bank holding
companies, the trading markets for their securities and the nature and
terms of certain other transactions relevant to SAMCO's inquiry;
. the competitive and economic outlook for Mercantile's trade area;
. the book value and financial condition of Mercantile and First
Mercantile Bank;
. the future earnings and dividend paying capacity of Mercantile and First
Mercantile Bank; and
. the prevailing market prices for selected publicly-traded banking
organizations in Texas.
SAMCO also held discussions with senior management of Mercantile concerning its
past and current operations, financial condition and prospects, as well as the
results of regulatory examinations.
In conducting its review and arriving at its fairness opinion, SAMCO relied
upon and assumed the accuracy and completeness of the financial and other
information provided to it or publicly available, and did not attempt to
independently verify the same. SAMCO did not make or obtain any evaluations or
appraisals of the properties of Mercantile, nor did it examine any individual
loan credit files. For purposes of the fairness opinion, SAMCO assumed that the
merger will have the tax, accounting and legal effects described in this proxy
statement-prospectus. SAMCO's fairness opinion is limited to the fairness, from
a financial point of view, of the exchange ratio as set forth in the merger
agreement.
As more fully discussed below, SAMCO considered such financial and other
factors as it deemed appropriate under the circumstances, including among
others the following:
. the historical and current financial position and results of operations
of Mercantile and First Mercantile Bank, including interest income,
interest expense, net interest income, net interest margin, provision
for loan losses, non-interest income, non-interest expense, earnings,
dividends, internal capital generation, book value, intangible assets,
return on assets, return on shareholders' equity, capitalization, the
amount and type of non-performing assets, loan losses and the reserve
for loan losses, all as set forth in the financial statements for
Mercantile and First Mercantile Bank;
. the assets and liabilities of Mercantile and First Mercantile Bank,
including the loan, investment and mortgage portfolios, deposits, other
liabilities, historical and current liability sources and costs and
liquidity; and
. the nature and terms of certain other merger transactions involving
banks and bank holding companies.
SAMCO also took into account its assessment of general economic, market and
financial conditions and its experience in other transactions, as well as its
experience in securities valuation and its knowledge of the banking industry
generally. SAMCO's fairness opinion is necessarily based upon conditions as
they existed and can be evaluated on the date of its fairness opinion and the
information made available to it through that date.
In connection with rendering its fairness opinion, SAMCO performed certain
financial analyses, which are summarized below. SAMCO believes that its
analysis must be considered as a whole, and that selecting portions of such
analysis and the factors considered therein, without considering all factors
and analysis, could create an incomplete view of the analysis and the processes
underlying the fairness opinion. The preparation of a fairness opinion is a
complex process involving subjective judgments and is not necessarily
susceptible to partial analysis or summary description. In its analyses, SAMCO
made numerous assumptions with respect to industry performance, business and
economic conditions, and other matters, many of which are beyond the control of
Mercantile and First Mercantile Bank. Any estimates contained in SAMCO's
analyses are not necessarily indicative of future results or values, which may
be significantly more or less favorable than such estimates. Estimates of
values of companies do not purport to be appraisals of such companies or
necessarily reflect the prices at which such companies or their securities may
actually be sold.
20
In order to determine the fairness of the consideration to be received by
Mercantile shareholders pursuant to the merger agreement, SAMCO utilized net
asset value, market value and investment value approaches, as explained below.
Net Asset Value Method. Net asset value is the value of the net equity of a
company, including every kind of property and value. This approach normally
assumes liquidation on the date of appraisal with recognition of securities
gains or losses, real estate appreciation or depreciation and any adjustments
to the loan loss reserve, discounts to the loan portfolio or changes in the net
value of other assets. As such, it is not the best approach to use when valuing
a going concern, because it is based on historical costs and varying accounting
methods. Even if the assets and liabilities are adjusted to reflect prevailing
prices and yields (which is often of limited accuracy because readily available
data is often lacking), it still results in a liquidation value for the
concern. Furthermore, since this method does not take into account the values
attributable to the going concern such as the interrelationship among
Mercantile's assets, liabilities, customer relations, market presence, image
and reputation, and staff expertise and depth, little or no weight is given to
the net asset value method of valuation.
Market Value Method. Market value is defined as the price at which property
would change hands between a willing seller and a willing buyer when both
parties have the same information and neither party is acting under compulsion.
This definition of value produces a result that could be achieved if the
property were to be sold in an arm's-length transaction. The market value
method is frequently used to determine the price of a smaller block of stock
when both the quantity and the quality of the "comparable" data are deemed
sufficient. However, the relative thinness of the specific market for the
Mercantile common stock being appraised may result in the need to review
alternative markets for comparative pricing purposes. The "hypothetical" fair
value for the shares of a small bank holding company with a thin market for its
stock is normally determined by creating a universe of regional or state
publicly-traded bank stock values and related financial traits within an
appropriate geography, then developing pricing statistics for the appraised
bank from the pricing characteristics of the regional or state publicly-traded
banking organizations. These pricing characteristics form the statistical basis
for developing indications of value based on applying the statistics derived
from the sample universe to the relevant financial values of the subject
company being valued. The statistical values used in this valuation study were:
. price to book value;
. price to earnings, and
. price to assets.
SAMCO's market value analysis, however, reflects the fact that:
. no company or transaction used in the comparison is identical to
BancGroup, Mercantile or the merger;
. the stocks of publicly-held banking organizations in Texas are far more
liquid than the Mercantile common stock;
. certain nonfinancial characteristics for the regional publicly-traded
Texas banking organizations vary substantially from Mercantile; and
. the average financial performance of publicly-held Texas banking
organizations vary, sometimes significantly from those of Mercantile.
Therefore, SAMCO chose to compare Mercantile to those acquired in merger and
acquisition transactions in Texas between January 1999 and December 2001
involving banks or bank holding companies with total assets between $100
million and $500 million. This comparison yielded pricing multiples that were
then applied to Mercantile, resulting in a range of per share values from
$26.42 per share to $51.50 per share. Additionally, SAMCO took into
consideration Mercantile's recent acquisition of TownBank as well as its growth
over the past three years, and recognized that the value of a share of the
Mercantile common stock would fall into the higher range of the per share
values calculated.
21
Investment Value Method. Investment value is sometimes referred to as the
income value or the earnings value. The investment value is frequently defined
as an estimate of the present value of future benefits. Another popular
investment value method is to determine the level of the current annual
benefits and then capitalize one or more of the benefit types using an
appropriate capitalization rate such as an earnings or dividend yield. SAMCO
used Mercantile's historical earnings over the past four years to arrive at a
normalized earnings figure. The weighted average of historical economic
earnings is most appropriately used for calculating future earnings when there
appears to be a general pattern that may be extrapolated into the future,
giving the highest weighting to the most recent year, and the lowest weighting
to the most distant year. Using a net present value discount rate of between
12% and 14% as an acceptable discount rate, and assuming a growth rate of 10%,
SAMCO calculated a range of value of between $8.00 and $12.00 per share of
Mercantile common stock.
Additionally, SAMCO developed earnings projections for Mercantile for the
years 2001 through 2005. The financial forecasts and projections of Mercantile
prepared by SAMCO were based on discussions with senior management of
Mercantile, projections provided by Mercantile, and SAMCO's own assessment of
general economic, market and financial conditions. All such information was
reviewed with management of Mercantile. The forecasts, and projections prepared
by SAMCO were based on numerous variables and assumptions which are inherently
uncertain, including, without limitation, factors related to general economic
and market conditions. Accordingly, actual results could vary significantly,
from those set forth in such forecasts and projections.
Capitalization of Dividends Method. Another method of valuing a block of
stock is the capitalization of dividends approach. Because closely-held banking
organizations, such as Mercantile, typically pay no dividends or lower
dividends per dollar of earnings capacities than do publicly-held banking
organizations, SAMCO determined that such an analysis was of limited usefulness.
While utilizing each approach discussed above to value Mercantile, SAMCO
gave greater consideration to the Market Value method, which supports the
financial fairness of the exchange ratio. Therefore, SAMCO is of the opinion
that the exchange ratio is fair, from a financial point of view, to the
Mercantile shareholders. Each Mercantile shareholder is encouraged to read the
fairness opinion in its entirety. The full text of the fairness opinion is
attached as Appendix C to this proxy statement-prospectus.
As mentioned above, the evaluation shall be made available for inspection
and copying by any interested Mercantile shareholder, or such shareholder's
authorized representative, at the principal offices of Mercantile during
Mercantile's regular business hours. A copy of the evaluation may also be
transmitted by Mercantile to any interested Mercantile shareholder, or such
shareholder's representative, upon written request and at the expense of such
shareholder. Mercantile shall be entitled to receive prior written evidence of
such shareholder's grant of authority to Mercantile shareholder's
representative to either examine or receive copies of the evaluation. Prior to
granting access to the evaluation, Mercantile shall, in its sole discretion,
also be entitled to require such interested shareholder or such shareholder's
representative to enter into a confidentiality agreement, in form and substance
satisfactory to Mercantile.
Recommendation of the Board of Directors of Mercantile
The Board of Directors of Mercantile has determined that the merger
agreement is in the best interest of Mercantile shareholders. THE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT THE SHAREHOLDERS OF MERCANTILE VOTE "FOR"
PROPOSAL 1: APPROVAL OF THE MERGER AGREEMENT.
BancGroup's Reasons for the Merger
The board of directors of BancGroup has unanimously approved the merger and
the merger agreement. The merger will allow BancGroup to expand its banking
operations in the Dallas market area. BancGroup currently operates a commercial
bank with three branches in Dallas, Texas. The board of directors of BancGroup
believes that the combination with Mercantile and First Mercantile Bank is
consistent with its current expansion strategy.
22
In approving the merger and the merger agreement, the Board of Directors of
BancGroup took into account:
. the financial performance and condition of Mercantile and First
Mercantile Bank, including its capital and asset quality;
. similarities in the philosophies of BancGroup and Mercantile, including
Mercantile's commitment to delivering high quality personalized
financial services to its customers; and
. Mercantile's management's knowledge of, and experience in, the Dallas,
Texas market.
Interests of Certain Persons in the Merger
Certain members of Mercantile's and First Mercantile Bank's management teams
and boards of directors may be deemed to have certain interests in the merger
in addition to their interest as shareholders of Mercantile generally.
Mercantile's board of directors was aware of these interests and considered
them, among other matters, in unanimously approving the merger agreement.
Assumption of Options. As of the date of this proxy statement-prospectus,
Mercantile had outstanding options that entitle the holders thereof to acquire
up to 232,000 shares of Mercantile common stock. The merger agreement provides
that the Mercantile options, to the extent not exercised prior to the Effective
Date, will be assumed by BancGroup on essentially the same terms as were
applicable to such options to acquire Mercantile common stock except that the
options will thereafter represent the right to acquire BancGroup common stock,
the number of shares BancGroup common stock represented by each Mercantile
option will equal the number of shares of Mercantile common stock subject to
the Mercantile 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 Mercantile common stock subject to such Mercantile
option divided by the Exchange Ratio. Alternatively, the merger agreement
allows the holders of these Mercantile options to exchange some or all of their
Mercantile options for cash or for BancGroup common stock without paying an
exercise price. If a holder chooses to participate in the "cash free exchange",
then pursuant to the merger agreement he or she will receive an amount of cash
or BancGroup common stock equal to the value of such holder's Mercantile
options less the exercise price of such options. Additionally, if a Mercantile
option holder is an officer of Mercantile and chooses to participate in the
"cash free exchange" then that holder will also receive a cash bonus equal to
34% of the value of their Mercantile options exchanged. See "Proposal 1:
Approval of the Merger Agreement--Treatment of Mercantile Options."
Employees. BancGroup has entered into an employment agreement with Roy J.
Salley, the Chief Executive Officer of Mercantile and First Mercantile Bank to
be effective upon the completion of the merger. Mr. Salley's employment
agreement provides that he will, among other things, act as President and Chief
Executive Officer of Colonial Bank's Texas Region, for compensation based upon
his current annual salary of $210,000 plus a car allowance of $750 per month
and club memberships of up to $10,000 per year. The employment agreement also
provides that Mr. Salley will be eligible to receive 10,000 shares of BancGroup
common stock in the form of a restricted stock award, an incentive-based bonus
of up to $75,000 and options to acquire 25,000 shares of BancGroup common
stock. The term of the employment agreement is three years after the Effective
Date, which shall automatically be extended to five years after the Effective
Date unless either Mr. Salley or BancGroup notifies the other of termination
prior to the second anniversary date of the Effective Date. BancGroup may
terminate the employment agreement prior to that date by paying Mr. Salley 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. Salley will not compete against BancGroup in Dallas or
Travis Counties, Texas or any county contiguous to either such county for
certain specific periods of time depending on certain contingencies outlined in
the employment agreement.
BancGroup has entered into an employment agreement with C. Malcolm Holland,
the President of First Mercantile Bank to be effective upon the completion of
the merger. Mr. Holland's employment agreement
23
provides that he will, among other things, act as the Chief Credit Officer of
Colonial Bank's Texas Region for compensation based upon his current annual
salary of $190,000 plus a car allowance of $500 per month and club memberships
of up to $5,000 per year. The employment agreement also provides that Mr.
Holland will be eligible to receive 5,000 shares of BancGroup common stock in
the form of a restricted stock award, an incentive-based cash bonus of up to
$50,000 and options to acquire 15,000 shares of BancGroup common stock. The
term of the employment agreement is three years after the Effective Date, which
shall automatically be extended by an additional two years unless either Mr.
Holland or BancGroup notifies the other of termination prior to the second
anniversary of the Effective Date. BancGroup may terminate the employment
agreement prior to that date by paying Mr. Holland 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. Holland
will not compete against BancGroup in Dallas or Travis Counties, Texas or any
county contiguous to either such county for certain specific periods of time
depending on certain contingencies outlined in the employment agreement.
BancGroup has entered into an employment agreement with Michael A. Kowalski,
Executive Vice President and Chief Financial Officer of First Mercantile Bank
to be effective upon the completion of the merger. Mr. Kowalski's employment
agreement provides that he will, among other things, act as an Branch President
of Colonial Bank's Mesquite Texas branch for an annual salary of $115,000. The
employment agreement also provides that Mr. Kowalski will be eligible to
receive options to acquire 5,000 shares of BancGroup common stock. The term of
the employment agreement is two years after the Effective Date. BancGroup may
terminate the employment agreement prior to that date by paying Mr. Kowalski 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. Kowalski will not compete against BancGroup in Dallas or
Travis Counties, Texas or any county contiguous to either such county for
certain specific periods of time depending on certain contingencies outlined in
the employment agreement.
On the Effective Date, all employees of Mercantile will, at BancGroup's
discretion, 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 merger agreement. All employees of Mercantile 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.
Affiliate Agreements. Mercantile's directors and certain executive officers
have entered into affiliate agreements with BancGroup regarding various issues
associated with the merger. These agreements provide that the director or
executive officer would, among other things:
. agree to vote his or her shares for the merger;
. not distribute BancGroup common stock issued in connection with the
merger except in accordance with certain rules of the SEC;
. support the business of Colonial Bank after the merger; and
. not sell, transfer or otherwise encumber 25% of the BancGroup common
stock such person receives in connection with the merger for two years
following the merger.
Additionally, Mercantile directors who are not also employees of Mercantile
agreed generally not to compete with Colonial Bank for the longer of four years
following the merger or two years after such person ceases to be a regional or
local director for Colonial Bank and will be entitled to receive a cash payment
of $125,000 for this non-compete agreement.
Cash Bonus to Chief Executive Officer. Prior to the signing of the merger
agreement with BancGroup, Mercantile's board of directors agreed to pay Roy J.
Salley a cash bonus if certain conditions were satisfied. These conditions
included the successful sale of Mercantile at a price of greater than $40.00
per share. Pursuant to that agreement, Mr. Salley will receive at the closing
of the merger a cash bonus of 0.75% of the merger
24
consideration paid to Mercantile shareholders. Although the exact amount of the
cash bonus to Mr. Salley cannot be known until the Market Value of BancGroup
common stock is established, if the Market Value of BancGroup common stock as
of the Effective Date is $15.00 or greater per share, and the Mercantile
shareholders approve the 280G payments then Mr. Salley will receive a cash
bonus of approximately $523,439. In the event the Mercantile shareholders do
not approve the 280G payments, Mr. Salley will still receive a portion of the
cash bonus. See "Proposal 2: 280G Payments" for a more thorough discussion of
the 280G payments to Mr. Salley.
Indemnification. Under the merger agreement, BancGroup has agreed for a
period of three years to indemnify the directors and executive officers of
Mercantile 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 Mercantile would have been authorized under Texas law, or under its
Articles of Incorporation or Bylaws, to indemnify such persons.
BancGroup has also agreed to use commercially reasonable efforts to maintain
in effect for a period of three years following the merger the current policies
of directors' and officers' liability insurance currently maintained by
Mercantile with respect to claims arising from facts or events that occurred
before the merger became effective.
Conversion of Mercantile Common Stock
On the Effective Date, each share of Mercantile common stock outstanding and
held by the Mercantile 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 3.4808 shares of BancGroup common stock,
provided that the Market Value for BancGroup common stock is not less than
$11.00 per share nor greater than $15.00 per share.
. If the Market Value is less than $11.00, then each share of Mercantile
common stock outstanding at the Effective Date shall be converted into the
number of shares of BancGroup common stock that shall equal $38.29 divided
by the Market Value of BancGroup common stock.
. If the Market Value is greater than $15.00, then each share of Mercantile
common stock shall be converted into such number of shares of BancGroup
common stock that shall equal $52.21 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 consecutive 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 1,336,752 shares of
Mercantile common stock outstanding and 232,000 stock options outstanding as of
the date of this proxy statement-prospectus, and assuming that the Market Value
of BancGroup common stock is not less than $11.00 nor more than $15.00, the
maximum number of shares of BancGroup common stock that may be issued in the
merger will be 5,460,511 (which assumes all stock options of mercantile will be
converted into common stock). The number of shares of BancGroup common stock to
be issued in the merger will increase proportionally with each share of
Mercantile common stock issued pursuant to the exercise, before the Effective
Date, of the Mercantile Options. See "Proposal 1: Approval of the Merger
Agreement--Interests of Certain Persons in the Merger" and "Proposal 1:
Approval of the Merger Agreement--Treatment of Mercantile Options."
No fractional shares of BancGroup common stock will be issued in connection
with the merger. Each shareholder of Mercantile 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.
25
The merger agreement provides that if it is announced between the date of
the merger agreement and the Effective Date:
. 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
. 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 Mercantile common stock will be converted into
3.4808 shares of BancGroup common stock without reference to the Market
Value of BancGroup common stock.
As of January 23, 2002, the closing price of BancGroup common stock was
$14.57. If, upon the Effective Date, the Market Value is equal to $14.57, then
each share of Mercantile common stock will be converted into 3.4808 shares of
BancGroup common stock. As a result, a shareholder of Mercantile who owns 500
shares of Mercantile common stock would be entitled to receive 1,740 shares of
BancGroup common stock (500 multiplied by 3.4808, rounded down to the nearest
whole number) and $5.83 in cash (0.4 multiplied by $14.57) in lieu of a
fractional share of BancGroup common stock. Assuming that the Market Value is
either greater than $15.00 or less than $11.00, as the Market Value of the
BancGroup common stock rises above $15.00 per share, the number of shares of
BancGroup common stock to be issued in the merger will decrease, and as the
Market Value falls below $11.00 per share, the number of such shares to be
issued will increase.
The closing sales price on the NYSE of the BancGroup common stock on January
23, 2002 was $14.57 per share. Mercantile shareholders are advised to obtain
current market quotations for BancGroup common stock under the symbol "CNB" on
the NYSE. The Market Value of the BancGroup common stock at the Effective Date
may be higher or lower than the market price of BancGroup common stock as of
the record date or at the time of the special meeting.
The merger 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 Mercantile common stock will be converted in the merger.
Surrender of Mercantile Common Stock Certificates
On the Effective Date and subject to the conditions described at "Conditions
to Consummation of the Merger," Mercantile 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 in the merger agreement.
Outstanding certificates representing shares of the Mercantile common stock
will, after the close of the merger, represent shares of BancGroup common
stock. Thereafter, upon surrender of the certificates formerly representing
shares of Mercantile 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 Mercantile unless and until such
shareholder surrenders for cancellation his certificate for Mercantile common
stock. SunTrust Bank, Atlanta, Georgia, transfer agent for BancGroup common
stock, will act as the Exchange Agent with respect to the shares of Mercantile
common stock surrendered in connection with the merger. The Exchange Agent will
mail a detailed explanation of these arrangements to Mercantile shareholders
promptly following the Effective Date. Stock certificates should not be sent to
the exchange agent until such notice is received.
26
Treatment of Mercantile Options
Assumption of Options. As of the date of this proxy statement-prospectus,
Mercantile had granted options, which entitle the holders thereof to acquire up
to 232,000 shares of Mercantile common stock. The Mercantile options are
issuable pursuant to the Mercantile Bancorp, Inc. Amended and Restated Stock
Option Plan, a conversion of a stock option plan originally adopted by First
Mercantile Bank on March 8, 1998, and a stock option plan for outside directors
originally adopted by Mercantile on April 13, 1999 (collectively, 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. Mercantile options are not transferable except under the
laws of descent and distribution. Except for the Mercantile options exercised,
exchanged or terminated prior to the Effective Date, BancGroup will assume all
Mercantile options outstanding on the Effective Date, and each such option will
represent the right to acquire the BancGroup common stock on substantially the
same terms applicable to the Mercantile 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 Mercantile 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 Mercantile common stock subject to such Mercantile 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 Mercantile 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.
For a description of how Market Value is calculated see "Proposal 1: Approval
of the Merger Agreement--Conversion of Mercantile Common Stock." The exercise
price for the acquisition of BancGroup common stock will be the exercise price
for each share of Mercantile common stock subject to such options divided by
the Exchange Ratio, adjusted appropriately for any rounding to whole shares
that may be done.
In lieu of the exercise procedure set forth in the previous paragraph, a
holder of outstanding Mercantile options may, no later that five days prior to
the Effective Date, provide written notice to Mercantile that he or she wishes
to exchange his or her Mercantile options, as of the Effective Date, and, to
receive an amount of BancGroup common stock or cash. If the holder of
Mercantile options elects to receive cash by providing such notice, the amount
of cash to be received shall be the difference between the number obtained by
multiplying the number of shares of Mercantile common stock issuable pursuant
to his or her Mercantile options times the Exchange Ratio times Market Value
less the number obtained by multiplying the number of shares of Mercantile
common stock issuable pursuant to his or her Mercantile options times the
exercise price per share determined pursuant to the Option Plan. The difference
is referred to herein as the "Option Consideration".
If the holder of Mercantile options elects to receive BancGroup common stock
in lieu of cash, the Option Consideration shall be divided by Market Value to
determine the number of shares of BancGroup common stock to be received. In the
event that the exercise prices of all Mercantile options are not the same, the
Option Consideration shall be determined for each series of options and the
number of shares of BancGroup common stock issued shall be totaled to obtain
the aggregate number of shares to be received by that holder of such Mercantile
options. No fractional shares shall be issued and fractions shall be paid in
cash at the Market Value. If an officer of Mercantile elects to participate in
the cash free exchange of his Mercantile options by giving notice five days
prior to the Effective Date, he shall also receive a cash bonus equal to Option
Consideration multiplied by 0.34 less any consideration due such Mercantile
employee under any "Tax Gross Up Bonus" or any other bonus related in any way
to the exercise of Mercantile options. If less than all such options are
exchanged, the bonus shall be reduced pro rata for those options not exchanged.
Purpose of the Option Plan. The purpose of the Option Plan is to provide an
incentive for key employees and directors of Mercantile to remain in the
service of Mercantile, to extend to them the opportunity to acquire a
proprietary interest in Mercantile so that they will apply their best efforts
for the benefit of Mercantile and its affiliates, and to aid Mercantile and its
affiliates in attracting and retaining key personnel. BancGroup believes
27
that its assumption of the Mercantile options will be consistent with this
purpose. No further options will be granted under the Option Plan after the
merger. A total of 18 persons currently hold Mercantile options that represent
the right to acquire 232,000 shares of Mercantile common stock.
Tax Consequences. Mercantile options issued and held under the Option Plan
by employees are not 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. Therefore, 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.
The foregoing statements concerning federal income tax treatment are
necessarily general and may not apply in a particular instance. Option holders
should contact their own professional tax advisors for advice concerning their
particular tax situation and any changes in the tax law since the date of this
proxy statement-prospectus.
Exercise of Options. After the merger, all Mercantile options will be
exercisable in accordance with their terms and 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 Mercantile 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, Mercantile.
Administration. The Option Plan is administered by the Board of Directors
of Mercantile.
Other Matters. It is not anticipated that BancGroup will make any reports
to option holders regarding the amount or status of Mercantile options held.
Option holders may obtain such information from BancGroup at the address given
above on page of this proxy statement-prospectus.
The shares subject to options will be issued by BancGroup from authorized
but unissued shares of BancGroup common stock, including treasury shares or
from shares purchased by BancGroup on the open market.
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 Mercantile 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 and
Mercantile have received this opinion. In delivering its opinion,
PricewaterhouseCoopers LLP received and relied upon certain representations
contained in certificates of
28
officers of BancGroup and Mercantile and certain other information, data,
documentation and other materials as it deemed necessary. The tax opinion is
based upon customary assumptions contained therein.
Neither Mercantile nor BancGroup intends to seek a ruling from the IRS as to
the federal income tax consequences of the merger. Mercantile shareholders
should be aware that the opinion will not be binding on the IRS or the courts.
Mercantile 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 Mercantile shareholders who exchange their shares of Mercantile
common stock for shares of BancGroup common stock:
. No gain or loss will be recognized by Mercantile shareholders on the
exchange of shares of Mercantile common stock for shares of BancGroup
common stock;
. The aggregate basis of BancGroup common stock received by each Mercantile
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 Mercantile common stock surrendered
in exchange therefor;
. The holding period of the shares of BancGroup common stock received by
each Mercantile shareholder will include the period during which the
shares of Mercantile common stock exchanged therefor were held, provided
that the shares of Mercantile common stock were a capital asset in the
holder's hands as of the Effective Date;
. Cash payments received by each Mercantile 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 Mercantile common stock is a capital asset in the
hands of the holder;
. No gain or loss will be recognized by Mercantile 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 Mercantile;
. The basis of the assets of Mercantile acquired by BancGroup will be the
same as the basis of the assets in the hands of Mercantile immediately
prior to the merger;
. The holding period of the assets of Mercantile in the hands of BancGroup
will include the period during which such assets were held by Mercantile;
. No gain or loss will be recognized by Mercantile option holders on the
assumption and conversion of Mercantile options into options to acquire
BancGroup common stock; and
. A Mercantile shareholder who dissents and receives only cash pursuant to
dissenter's 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
Mercantile common stock converted, if the shares of Mercantile common
stock were held as capital assets. However, a Mercantile 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.
None of the currently outstanding options to purchase Mercantile common
stock are qualified as "incentive" stock options. Therefore, holders of such
options will recognize taxable income if and when they exercise such
29
options equal to the fair market value of the stock subject to the option over
the exercise price at the date of exercise. Mercantile (or BancGroup if such
options are exercised after the completion of the merger) would be entitled to
a tax deduction for the same value. If a Mercantile option holder chooses to
exchange his or her options for cash or for BancGroup common stock, then such
holder will recognize taxable income for the value of such cash or stock and
taxable income for the cash bonus that will also be paid to such a holder. See
"Proposal 1: Approval of the Merger Agreement--Treatment of Mercantile Options."
Each Mercantile 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 MERCANTILE, TO
MERCANTILE AND TO BANCGROUP AND DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION
OF ALL POTENTIAL TAX EFFECTS OF THE MERGER. THE DISCUSSION DOES NOT ADDRESS THE
TAX CONSEQUENCES THAT MAY BE RELEVANT TO A PARTICULAR SHAREHOLDER SUBJECT TO
SPECIAL TREATMENT UNDER CERTAIN FEDERAL INCOME TAX LAWS, SUCH AS DEALERS IN
SECURITIES, BANKS, INSURANCE COMPANIES, TAX-EXEMPT ORGANIZATIONS, NON-UNITED
STATES PERSONS, SHAREHOLDERS WHO DO NOT HOLD THEIR SHARES OF MERCANTILE COMMON
STOCK AS "CAPITAL ASSETS" WITHIN THE MEANING OF SECTION 1221 OF THE CODE, NOR
ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY OR FOREIGN
JURISDICTION; THE DISCUSSION IS BASED UPON THE CODE, TREASURY REGULATIONS
THEREUNDER AND ADMINISTRATIVE RULINGS AND COURT DECISIONS AS OF THE DATE
HEREOF. ALL OF THE FOREGOING IS SUBJECT TO CHANGE, AND ANY SUCH CHANGE COULD
AFFECT THE CONTINUING VALIDITY OF THIS DISCUSSION. MERCANTILE SHAREHOLDERS ARE
URGED TO CONSULT THEIR OWN TAX ADVISORS CONCERNING THE PARTICULAR FEDERAL,
STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE MERGER TO THEM.
Change in Shareholder Rights
If the merger is consummated, the shareholders of Mercantile, a Texas
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 Mercantile 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 merger agreement.
The obligations of Mercantile and BancGroup to consummate the merger are
conditioned upon, among other things:
. the approval of the merger agreement by the holders of at least two-thirds
of the outstanding shares of Mercantile common stock;
. the notification to, or approval of the merger by, the Board of Governors
of the Federal Reserve System;
. 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;
. the absence of any investigation by any governmental agency which might
result in any such proceeding;
. consummation of the merger no later than August 31, 2002;
30
. the effectiveness of the registration statement;
. the receipt of the opinion regarding certain tax matters from
PricewaterhouseCoopers LLP; and
. receipt of opinions of counsel regarding certain matters.
The obligation of Mercantile to consummate the merger is further subject to
several other conditions, including:
. the absence of any material adverse change in the financial condition or
affairs of BancGroup;
. SAMCO shall not have withdrawn as of the Effective Date its opinion
attached as Appendix C to this proxy statement-prospectus that the terms
of the merger are fair, from a financial point of view, to the
shareholders of Mercantile;
. the shares of BancGroup common stock to be issued under the merger
agreement shall have been approved for listing on the NYSE; and
. the accuracy in all material respects of the representations and
warranties of BancGroup contained in the merger agreement and the
performance by BancGroup of all of its covenants and agreements under the
merger agreement.
The obligation of BancGroup to consummate the merger is subject to several
other conditions, including:
. the absence of any material adverse change in the financial condition or
affairs of Mercantile;
. the number of shares as to which holders of Mercantile common stock
exercise dissenters' rights not exceeding 10% of the outstanding shares of
Mercantile common stock; and
. the accuracy in all material respects of the representations and
warranties of Mercantile contained in the merger agreement and the
performance by Mercantile of all of its covenants and agreements under the
merger agreement.
It is anticipated that the foregoing conditions, as well as certain other
conditions contained in the merger agreement, such as the receipt of
certificates of officers of each party as to compliance with the merger
agreement and satisfaction of each party of all representations, warranties and
covenants, will either be satisfied or waived by the parties. The merger
agreement provides that each of Mercantile 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 merger agreement by the shareholders of Mercantile. In making any
decision regarding a waiver of one or more conditions to consummation of the
merger or an amendment of the merger agreement, the boards of directors of
Mercantile 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 merger 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
merger agreement by the holders of Mercantile common stock, no amendment
affecting the consideration to be received by Mercantile shareholders may be
made without the further approval of such shareholders. The merger agreement
may be terminated at any time prior to or on the Effective Date, whether before
or after approval of the merger agreement by the shareholders of Mercantile, by
the mutual consent of the respective boards of directors of Mercantile and
BancGroup or by the board of directors of either BancGroup or Mercantile under
certain circumstances including, but not limited to:
. 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;
31
. failure to consummate the transactions contemplated under the merger
agreement by August 31, 2002, provided that such failure to consummate is
not caused by any breach of the merger agreement by the party electing to
terminate; and
. without further action by either party, upon the execution by Mercantile
of a legally binding agreement between Mercantile 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 merger agreement, neither Mercantile 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, Mercantile or any
business combination involving Mercantile (collectively, an "Acquisition
Proposal") other than as contemplated by the merger agreement. Mercantile is
required to notify BancGroup immediately if any such inquiries or proposals are
received by Mercantile, if any such information is requested from Mercantile,
or if any such negotiations or discussions are sought to be initiated with
Mercantile. Mercantile is required to instruct its officers, directors, agents
or affiliates or their subsidiaries to refrain from doing any of the above.
Mercantile may communicate information about an Acquisition Proposal to its
shareholders if and to the extent that legal counsel provides a written opinion
to Mercantile that it is required to do so in order to comply with its legal
obligations. If Mercantile 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 merger agreement (subject to certain
exceptions) or receives an Acquisition Proposal and consummates a transaction
pursuant to it within 24 months of termination of the merger agreement (subject
to certain exceptions), then Mercantile will pay BancGroup the sum of
$6,000,000 as liquidated damages.
Regulatory Approvals
An application must be filed with the Federal Reserve pursuant to Section 3
of the Bank Holding Company Act of 1956, as amended (the "BHCA") and the
regulations promulgated pursuant thereto for its prior approval of the merger.
In addition, notice of the merger must be filed with the Texas Department of
Banking (the "Texas Department") pursuant to Texas Finance Code (S) 202.001.
Subsequent to the merger, it is anticipated that First Mercantile Bank will be
merged with and into Colonial Bank (the "Bank Merger"). Prior to the
consummation of the Bank Merger, the approval of the Bank Merger by the Federal
Reserve and the Alabama State Banking Department ("Alabama Department") must be
obtained, and notice of the Bank Merger must be filed with the Office of the
Comptroller of the Currency (the "OCC"). With respect to the Bank Merger,
applications were filed with the Federal Reserve and the Alabama Department,
and a notification was filed with the OCC, on January 16, 2002. With respect to
the merger, an application was filed with the Federal Reserve and a
notification was filed with the Texas Department on January 16, 2002. The
regulatory approval process is expected to take approximately six weeks from
this date.
Federal Reserve Approval. Pursuant to Section 3 of the BHCA, and the
regulations promulgated pursuant thereto, the approval of the Federal Reserve
must be obtained prior to completion of 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
32
and managerial resources of BancGroup, its subsidiaries, any banks related to
BancGroup through common ownership or management, and First Mercantile 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.
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.
Pursuant to Section 18(c) of the Federal Deposit Insurance Act (the "Bank
Merger Act"), the Federal Reserve's prior approval of the Bank Merger must be
obtained. The Federal Reserve is prohibited from approving the Bank Merger if
it would result in a monopoly or would be in furtherance of any combination or
conspiracy to monopolize or to attempt to monopolize the business of banking in
any part of the United States. In addition, the Federal Reserve is prohibited
from approving the Bank Merger if its effect, in any section of the country,
would be substantially to lessen competition, or to tend to create a monopoly,
or which in any other manner would be in restraint of trade, unless it finds
that the anti-competitive effects of the Bank Merger are clearly outweighed in
the public interest by the probable effect of the Bank Merger in meeting the
convenience and needs of the community to be served. The Federal Reserve is
required to take into consideration the financial and managerial resources and
future prospects of the existing and proposed institutions, and the convenience
and needs of the community to be served. Finally, the Federal Reserve will
consider the compliance records of the applicant bank under the Community
Reinvestment Act.
In that the Bank Merger constitutes an interstate bank merger, certain
additional requirements are applicable to the Bank Merger. For example, the
Federal Reserve is prohibited from approving the Bank Merger if the bank
resulting from the Bank Merger, including all insured depository institutions
which are affiliates of such resulting bank, upon consummation of the
transaction, would control more than 10% of the total amount of deposits of
insured depository institutions in the United States. The Federal Reserve is
also prohibited from approving the Bank Merger if either party to the Bank
Merger has a branch in any state in which any other bank involved in the Bank
Merger has a branch, and the resulting bank, upon consummation of the Bank
Merger, would control 30% or more of the total amount of deposits of insured
depository 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.
33
The Bank Merger Act and the Federal Reserve regulations provide 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 Bank Merger. The Bank
Merger Act imposes a waiting period which prohibits consummation of the Bank
Merger, in ordinary circumstances, for a period ranging from 15 to 30 days
following the Federal Reserve's approval of the Bank Merger. During such
period, the United States Department of Justice, should it object to the merger
for antitrust reasons, may challenge the consummation of the merger.
Alabama Department Approval. The Bank Merger must be approved by the
Alabama Department pursuant to applicable provisions of the Alabama Banking
Code. The Superintendent of the Alabama Department will approve the Bank
Merger, if he finds that:
. the proposed transaction will not be detrimental to the safety and
soundness of the bank resulting from the Bank Merger,
. 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
. the proposed Bank Merger is consistent with the convenience and needs of
the communities to be served by the resulting bank in the State of Alabama
and is otherwise in the public interest.
The merger agreement provides that the obligation of each of BancGroup and
Mercantile to consummate the merger is conditioned upon the receipt of all
necessary regulatory approvals to merge Mercantile with and into BancGroup. The
approval of the Bank Merger is not required to consummate the merger. There can
be no assurance that the application necessary for BancGroup to consummate the
merger with Mercantile will be approved, and, if such approval is received,
that such approval 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 prior approval of the
Federal Reserve and notification to the Texas Department described above.
Should any such approval or action be required, it is presently contemplated
that such approval or action would be sought.
Conduct of Business Pending the Merger
The merger agreement contains certain restrictions on the conduct of the
business of Mercantile pending consummation of the merger. The merger agreement
prohibits Mercantile 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 Mercantile:
. 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 Mercantile common stock issued upon the
exercise of Mercantile options;
. 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;
. 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;
34
. 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 if the merger is not
consummated prior to the record date for BancGroup's second quarter
dividend (which is usually declared in July), Mercantile may pay to its
shareholders a cash dividend equal to what they would have received if the
merger had already been consummated, however, in no event shall Mercantile
shareholders be entitled to a dividend from both Mercantile and BancGroup
in the quarter that the merger is consummated;
. 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;
. 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;
. Waiving any rights of value which in the aggregate are material;
. 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;
. Except in accordance with past practice and set forth in schedules to the
merger agreement, 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;
. 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;
. 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
. Entering into any other material transaction other than in the ordinary
course of business.
The merger agreement provides that prior to the Effective Date, no director
or officer of Mercantile 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 Mercantile or its subsidiaries.
The merger agreement also provides that (i) at the request of BancGroup,
Mercantile 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) Mercantile will
consult with BancGroup respecting business issues that Mercantile believes
should be brought to the attention of BancGroup.
The merger agreement also provides that Mercantile, or any agent of
Mercantile, will not solicit or negotiate with any other entity with the
purpose of allowing Mercantile, or substantially all of its assets, to be
purchased by an entity other than BancGroup. Likewise, Mercantile has agreed
not to enter into any contract that would result in the sale of Mercantile, or
substantially all of its assets, to an entity other than BancGroup. Under most
circumstances, if Mercantile is acquired by an entity other than BancGroup
within 24 months of the termination of the merger agreement (other than if such
termination is caused by BancGroup's breach of the merger agreement), then
Mercantile, or the acquiring entity, will be obligated to pay the principal sum
of $6,000,000 to BancGroup.
35
Indemnification
BancGroup has agreed to indemnify for three years present and former
directors and officers of Mercantile 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 Texas Business Corporation Act, or the TBCA, and
Mercantile's Articles of Incorporation and Bylaws. BancGroup has also agreed to
use commercially reasonable efforts to maintain in effect for a period of three
years following the merger the current policies of directors' and officers'
liability insurance currently maintained by Mercantile with respect to claims
arising from facts or events that occurred before the merger became effective.
Rights of Dissenting Shareholders
Shareholders of Mercantile as of the record date may exercise dissenters'
rights in connection with the merger by complying with Articles 5.11, 5.12 and
5.13 of the TBCA. Consummation of the merger is subject to, among other things,
the holders of no more than 10% of the outstanding Mercantile common stock
electing to exercise their dissenters' rights. By exercising dissenters'
rights, you will be entitled to receive, if the merger is consummated, the
"fair value" of the shares of Mercantile common stock that you owned as of the
day immediately prior to the date of the special meeting. This value may differ
from the value of the consideration that you would otherwise receive in the
merger. The following is a summary of the statutory procedures that you must
follow in the event you elect to exercise your dissenters' rights under the
TBCA. This summary is not complete and is qualified in its entirety by
reference to Articles 5.11, 5.12 and 5.13 of the TBCA, the text of which is set
forth in full in Appendix B to this proxy statement-prospectus.
How to exercise and perfect your right to dissent. In order to be eligible
to exercise your right to dissent to the merger and to receive, upon compliance
with the statutory requirements summarized below, the fair value of your shares
of Mercantile common stock as of the day immediately preceding the special
meeting, excluding any appreciation or depreciation in anticipation of the
merger:
. you must, prior to the special meeting, provide Any written objection with notice of intent to exercise
Mercantile with a written objection to the the right of dissent should be addressed as follows:
merger that states that you intend to exercise Mercantile Bancorp, Inc.
your right to dissent if the merger is 8144 Walnut Hill Lane, Suite 180
consummated and that provides an address to Dallas, Texas, 75231
which a notice about the outcome of the vote Attention: Corporate Secretary
on the merger may be sent; and
. you must not vote your shares of Mercantile You should sign every communication
common stock in favor of the merger
agreement
In order to exercise properly dissenter's rights, you must refrain from
voting by proxy or in person in favor of the merger agreement. A shareholder
who executes and returns an unmarked proxy will have his or her shares voted
"for" the merger agreement and, as a consequence thereof, such shareholder will
be foreclosed from exercising rights as a dissenting shareholder.
Your demand for payment. If you comply with the two items described above
and the merger is completed, BancGroup, as the surviving corporation, will
within 10 days of the completion of the merger deliver or mail to all holders
of Mercantile common stock who satisfied the foregoing requirements a written
notice that the merger has been completed. You must, within 10 days of the date
the notice was sent to you by BancGroup, send a written demand to BancGroup for
payment of the fair value of your shares of Mercantile common stock. Such
written demand must state the number and class of the shares that you owned as
of the record date and your estimate of the fair value of the shares. The fair
value of your shares of Mercantile common stock will be the value of the shares
on the day immediately preceding the special meeting, excluding any
appreciation or
36
depreciation in anticipation of the merger. If you should fail to make such a
demand within the ten-day period, you will lose the right to dissent and will
be bound by the terms of the merger agreement. In order to preserve dissenters'
rights, you must also submit your stock certificates to BancGroup within 20
days of making a demand for payment for notation thereon that such demand has
been made. The failure to do so shall, at BancGroup's option, terminate your
rights to dissent and appraisal unless a court of competent jurisdiction for
good and sufficient cause shown shall direct otherwise. Any notice addressed to
BancGroup must be addressed to:
Office of the Senior Counsel
The Colonial BancGroup, Inc.
Colonial Financial Center
Once Commerce Street
Fifth Floor
Montgomery, Alabama 36104
(334) 240-5000
BancGroup's action upon receipt of your demand for payment. Within 20 days
of receiving your written demand for payment and estimate of the fair value of
your shares of Mercantile common stock, BancGroup must mail or deliver to you a
written notice that either:
. Accepts the amount declared in the demand and agrees to pay that amount
within 90 days after the effective date of the merger and upon surrender
of your certificate representing your shares of Mercantile common stock; or
. States BancGroup's estimate of the fair value of the shares and offers to
pay the amount of that estimate within 90 days after the effective date of
the merger and upon surrender of your certificate representing your shares
of Mercantile common stock and upon receipt of notice within 60 days after
the completion of the merger that you agree to accept BancGroup's estimate.
Payment of the fair value of yours shares of Mercantile common stock upon
agreement of an estimate. If you and BancGroup agree upon the fair value of
your shares of Mercantile common stock within 60 days after completion of the
merger, BancGroup shall pay the amount of the agreed value to you upon receipt
of your duly endorsed share certificates within 90 days of the completion of
the merger. Upon payment of the agreed fair value, you will cease to have any
interest in such shares.
Commencement of legal proceedings if a demand for payment remains
unsettled. If you and BancGroup have not agreed upon the fair value of your
shares of Mercantile common stock within the 60-day period immediately
subsequent to the completion of the merger, then either you or BancGroup may,
within 60 days of the expiration of the 60 days after the effective date of the
merger, file a petition in any court of competent jurisdiction in Dallas
County, Texas, asking for a finding and determination of the fair value of the
shares. If filed by a shareholder, service of the petition shall be had upon
BancGroup as the surviving corporation and BancGroup must within 10 days after
service file with the clerk of the court a list with the names and addresses of
all shareholders who have demanded payment and not reached agreement as to the
fair value. If filed by BancGroup, the petition must be accompanied by such a
list. The clerk of the court shall give notice to BancGroup and all
shareholders named on the list of the time and place fixed for the hearing of
the petition. After the hearing of the petition, the court shall determine the
stockholders who have complied with the statutory requirements and have become
entitled to the valuation of and payment for their shares, and the court shall
appoint one or more qualified appraisers to determine the fair value.
The appraisers may examine the books and records of Mercantile and shall
afford the interested parties a reasonable opportunity to submit pertinent
evidence. The appraisers are to make a determination of the fair value upon
such examination as they deem proper. The appraisers shall file a report of the
value in the office of the clerk of the court, notice of which shall be given
to the parties in interest. The parties in interest may submit exceptions to
the report, which will be heard before the court upon the law and the facts.
The court shall adjudge the fair value of the shares of the shareholders
entitled to payment for their shares and shall direct the payment
37
thereof by BancGroup as the surviving corporation, together with interest which
shall begin to accrue 91 days after the effective date of the merger. However,
the judgment shall be payable only upon and simultaneously with surrender of
the certificates representing your shares, duly endorsed. Upon BancGroup's
payment of the judgment, you shall cease to have any interest in the shares.
The court shall allow the appraisers a reasonable fee as court costs, and all
court costs shall be allotted between the parties in the manner that the court
determines to be fair and equitable, with the respective parties to bear their
own attorneys' fees. Any shareholder who has demanded payment for such holder's
shares may withdraw such demand at any time before payment or before any
petition has been filed for valuation by the court. A demand may not be
withdrawn after payment or, unless BancGroup consents, after such a petition
has been filed in court. After a demand has been withdrawn, the stockholder and
all persons claiming under the shareholder shall be conclusively presumed to
have approved the Agreement and shall be bound by its terms.
Federal income tax consequences. See "Proposal 1: Approval of the Merger
Agreement--Certain Federal Income Tax Consequences," beginning on page for a
discussion on how the federal income tax consequences of your action will
change if you elect to dissent from the merger.
Resale of BancGroup Common Stock Issued in the Merger
The shares of BancGroup common stock to be issued to Mercantile shareholders
pursuant to the merger agreement, including any shares to be issued pursuant to
Mercantile options, have been registered under the Securities Act of 1933 (the
"Securities Act"). As a result, shareholders of Mercantile who are not
"affiliates" of Mercantile 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 Mercantile are subject to restrictions
on the resale of the BancGroup common stock which they receive in the merger.
The definition of "affiliate" is complex and depends on the specific facts of
each individual, but generally includes directors, executive officers, 10%
shareholders and other persons with the power to direct management policies of
the corporation in question.
The BancGroup common stock received by affiliates of Mercantile 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 Mercantile affiliate has held the BancGroup
common stock for at least one year. BancGroup common stock held by affiliates
of Mercantile who become affiliates of BancGroup, if any, will be subject to
additional restrictions on the ability of such persons to resell such shares.
Mercantile has provided BancGroup with the identity of individuals
(primarily officers, directors and principal shareholders) who may be deemed to
be affiliates of Mercantile. BancGroup has obtained from those individuals a
written undertaking to the effect that the individual agrees not to make a
distribution within the meaning of Rule 145 under the Securities Act or to
sell, transfer or otherwise dispose of the shares of BancGroup common stock
received in the merger except in accordance with the Securities Act.
In addition, directors and certain executive officers of Mercantile and
First Mercantile Bank have agreed in the affiliate agreements they entered into
with BancGroup to certain additional restrictions on resale of the BancGroup
common stock issued to them in the merger. For a description of the affiliate
agreements, see "Proposal 1: Approval of the Merger Agreement--Interests of
Certain Persons in the Merger--Affiliate Agreements" on page .
38
Accounting Treatment
BancGroup will account for the merger as a purchase transaction in
accordance with generally accepted accounting principles. Under this accounting
treatment, and in accordance with Statement of Financial Accounting Standards
No. 141, Business Combinations, the purchase price will be assigned to the fair
value of the net tangible and intangible assets acquired, with any amounts in
excess thereof being assigned to "goodwill." The valuation of intangibles, if
any, will be made as of the Effective Date of the merger. In accordance with
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets, qualifying intangibles, such as core deposit intangibles,
will be amortized by charges to future earnings over their expected useful
lives. Amortization of core deposit intangibles is non-deductible for tax
purposes. The remaining goodwill will be capitalized and evaluated for
impairment on an annual basis, or if circumstances arise in which it is more
likely than not the fair value of the related reporting unit has been reduced.
If such goodwill were to be deemed impaired, such impairment would be measured
and any such amount would be charged against current earnings.
Mercantile Trust Preferred Securities
In September 2001, MBI Capital Trust I, a special purpose finance subsidiary
of Mercantile, issued 800,000 of its floating rate cumulative preferred
securities having an aggregate liquidation value of $8,000,000 in a private
placement exempt from the registration requirements of the Securities Act. At
that time, Mercantile acquired 25,000 of the trust's floating rate cumulative
common securities having an aggregate liquidation value of $250,000. The
preferred securities and the common securities represent undivided beneficial
interests in the assets of the trust, which consist solely of a floating rate
subordinated debenture, due September 2031, issued by Mercantile in aggregate
principal amount of $8,250,000. The subordinated debenture accrues interest at
a floating rate of 125 basis points over the prime rate per annum as published
in The Wall Street Journal, and the rate is adjusted quarterly. Through March
31, 2002, the subordinated debenture accrues interest at a rate of 6.00% per
annum. Mercantile makes quarterly interest only payments under the subordinated
debenture to the trust which, in turn, remits payment to the holders of the
preferred securities and the common securities in the form of a quarterly
dividend. The principal amount of the subordinated debenture is not due until
maturity.
Mercantile created the trust for the sole and limited purpose of issuing the
preferred securities and the common securities and investing the proceeds from
the sale of securities in the subordinated debenture. Mercantile used the
proceeds from the sale of the trust preferred securities to finance a portion
of the purchase price it paid to acquire TownBank. SAMCO acted as co-placement
agent in the trust preferred securities offering.
In addition to its obligation to make quarterly payments of interest under
the subordinated debenture, Mercantile has, under the preferred securities
guarantee agreement, guaranteed to pay directly any amount held by the trust
but not distributed to the holders of the preferred securities. Mercantile's
obligation under the guarantee would arise only to the extent that the trust
receives payments on the subordinated debenture, but does not, for whatever
reason, distribute the full amount of the proceeds to the holders of the
preferred securities.
The merger agreement requires BancGroup to assume Mercantile's obligations
related to the trust preferred securities, which includes its obligations under
the indenture, including the obligation to make quarterly payments on the
subordinated debenture, and the preferred securities guarantee agreement.
NYSE Reporting of BancGroup Common Stock Issued in the Merger
The shares of BancGroup common stock to be issued in the merger will be
listed on the NYSE. Subsequent sales of BancGroup common stock issued in the
merger will generally be reported on the NYSE.
Management Following the Merger
The management of BancGroup will not change in connection with the merger.
39
PROPOSAL 2: THE 280G PAYMENTS
In addition to voting on the proposal to approve the merger agreement,
Mercantile shareholders are being asked to consider and approve certain 280G
payments to Roy J. Salley, the Chief Executive Officer of Mercantile and its
subsidiary First Mercantile Bank. Mercantile, however, has agreed not to make
any payments to any employee of Mercantile that would fail to be deductible for
federal income tax purposes by virtue of Section 280G of the Internal Revenue
Code. Section 280G provides that payments to officers, employees or
shareholders of more than 1% of the outstanding shares of Mercantile common
stock, which would otherwise be deductible expenses of an employer for federal
income tax purposes, will not be deductible to the extent such payment may be
characterized as a "parachute payment." Generally speaking, a "parachute
payment" occurs when there is a change in control of an employer and, as a
result, certain employees receive payments in the nature of compensation equal
to or greater than three times their average annual compensation for the five
years preceding the taxable year in which the change in control occurs. The
amount of the payment that exceeds 299% of the employee's average annual
compensation constitutes a "parachute payment," or a 280G payment. Any payment
in violation of Section 280G will not be deductible by Mercantile and will be
subject to a 20% excise tax payable by the recipient.
In connection with the merger, it is possible that the following payments
would constitute 280G payments:
. the rights of the officers and directors to the automatic accelerated
vesting of Mercantile options under the existing Mercantile option
agreements,
. the payments made to certain officers pursuant to the merger agreement, or
. the potential payments under certain other agreements.
The Internal Revenue Code contains an exemption for 280G payments by a
corporation whose stock is not publicly traded on an established securities
market if disinterested shareholders owning more than 75% of the voting power
of such corporation's stock approve the payment. The shares of Mercantile
common stock are not considered publicly traded on an established securities
market for this purpose. Accordingly, to the extent the shareholder approval
requirements of Section 280G are satisfied with respect to the payments to Mr.
Sally, such payments will not be considered to be parachute payments and
therefore would not give rise to an excess parachute payment subject to loss of
deductibility and the 20% excise tax.
Summary of Payments
Mr. Salley is entitled to receive the following payments in connection with
the consummation of the merger:
. on December 31, 1997, Mr. Salley received a grant of options to purchase
40,000 shares of Mercantile common stock at an exercise price of $10.00
per share, of which 8,000 options remain unvested. Although the exact
amount of the payment resulting from the acceleration of Mr. Salley's
Mercantile options cannot be known until the Market Value of the BancGroup
common stock is established, if the Market Value of the BancGroup common
stock as of the Effective Date is $15.00 or higher per share, the amount
of the payment resulting from the acceleration of Mr. Salley's vesting in
the options, calculated in accordance with Section 280G, is estimated to
be $41,933.
. in the event Mr. Salley elects to participate in the cash free exchange of
his Mercantile options and receive either cash or BancGroup common stock,
he will be entitled to receive a cash bonus equal to 34% of the value of
the cash or BancGroup common stock received. Although the exact amount of
this cash bonus cannot be known until the Market Value of the BancGroup
common stock is established, if the Market Value of BancGroup common stock
as of the Effective Date is $15.00 or more per share, Mr. Salley would be
entitled to a payment of $574,056 at closing.
. the Mercantile Board of Directors agreed to pay Mr. Salley a cash bonus if
certain conditions were satisfied. These conditions included the
successful sale of Mercantile at a price greater than $40.00 per share.
Pursuant to that agreement, Mr. Salley will receive at the closing of the
merger a cash bonus of
40
0.75% of the merger consideration paid to Mercantile shareholders.
Although the exact amount of this performance cash bonus cannot be known
until the Market Value of BancGroup common stock is established, if the
Market Value of the BancGroup common stock as of the Effective Date is
$15.00 or greater per share, Mr. Salley will be entitled to receive a cash
bonus of approximately $523,439.
Pursuant to Section 280G of the Code, only that portion of the payments to
Mr. Salley described above that exceeds $719,822 needs to be approved by the
Mercantile shareholders.
Approval of 280G Payments
In order to avoid the loss of deductibility to Mercantile and the 20% excise
tax to Mr. Salley and to ensure that Mercantile will not breach the merger
agreement, Mercantile shareholders are being asked to approve the 280G payments
to Mr. Salley. Mr. Salley has executed a waiver letter, pursuant to which he
waives his right to that portion of any 280G payment that would cause the 280G
payment to constitute a parachute payment under Section 280G of the Code in the
event Mercantile fails to obtain the requisite shareholder approval. Even if
the proposal to approve the 280G payments is not approved by the Mercantile
shareholders, Mr. Salley will still receive $719,822 at the closing of the
merger. This payment will consist of the acceleration of Mr. Salley's vesting
in his options, the payment equal to 34% of the value of his Mercantile options
exchanged for cash or BancGroup common stock, to the extent that he elects to
do so, and to the extent those two payments do not exceed $719,822, that
portion of the performance cash bonus that when added to the first two payments
would equal $719,822. If Mercantile's shareholders approve proposal 2, Mr.
Salley will receive the balance of the performance cash bonus at closing.
As described above, Section 280G provides an exemption from the adverse
federal income tax consequences if the disinterested shareholders holding more
than 75% of the voting power of Mercantile common stock immediately preceding
the effective time of the merger approve the 280G payments then the 280G
payments will not be considered parachute payments and, therefore, will not
cause a loss of deductability or a 20% excise tax.
Mr. Salley and his spouse, parents, children and grandchildren are
disqualified from voting on the proposal to approve the 280G payments, and
shares of Mercantile common stock beneficially owned by such persons will not
be treated as outstanding for purposes of computing the necessary vote to
approve their payment.
At the record date, Mr. Salley owned 100 shares of Mercantile common stock,
representing less then 1% of the shares of Mercantile common stock entitled to
vote at the special meeting. Accordingly, the approval of the 280G payments for
Mr. Salley will require the affirmative vote of more than 75% of the remaining
1,336,652 shares, or at least 1,002,489 shares of Mercantile common stock.
Finally, even without the shareholder vote referenced above, any portion of
a 280G payment will be reduced to the extent, if any, that Mercantile
demonstrates by clear and convincing evidence that some or all of such 280G
payment is "reasonable compensation" for services to be rendered to BancGroup
after the merger. Any portion of a 280G payment will be reduced to the extent,
if any, that Mercantile demonstrates by clear and convincing evidence that some
or all of such 280G payment is "reasonable compensation" for services rendered
to Mercantile prior to the merger.
The approval of the 280G payments is not a condition precedent to
consummation of the merger. If the Mercantile shareholders do not approve any
of the payments, Mr. Salley will not receive any payment that would violate
Section 280G of the Code. Payment of the 280G payments will not affect the
amount to be received by the Mercantile shareholders if the merger agreement is
approved.
THE BOARD OF DIRECTORS OF MERCANTILE BELIEVES THAT THE 280G PAYMENTS TO MR.
SALLEY IS IN THE BEST INTEREST OF THE SHAREHOLDERS AND UNANIMOUSLY RECOMMENDS A
VOTE "FOR" THE PROPOSAL TO APPROVE THE 280G PAYMENTS TO MR. SALLEY.
41
COMPARATIVE MARKET PRICES AND DIVIDENDS
Mercantile. Presently, no active trading market exists for the Mercantile
common stock and management of Mercantile does not anticipate that a market for
Mercantile common stock will develop. No registered broker/dealer makes a
market in Mercantile common stock, and Mercantile common stock is not listed or
quoted on any stock exchange or automated quotation system. Mercantile acts as
its own transfer agent and registrar.
Occasionally, management of Mercantile becomes aware of trades of shares of
its common stock and the prices at which these trades were executed. The
following table sets forth the high and low sales price to the extent known to
management of Mercantile for trades in its common stock for each quarter during
1999, 2000 and 2001:
Number
Number of Shares
High Low of Trades Traded
------ ------ --------- ---------
1999
First Quarter. $ -- $ -- -- --
Second Quarter -- -- -- --
Third Quarter. -- -- -- --
Fourth Quarter --
-- -- --
2000
First Quarter. $ -- $ -- -- --
Second Quarter 22.50 22.50 56 145,140(1)
Third Quarter. 22.50 22.50 58 119,195(1)
Fourth Quarter 68,350(1)
22.50 22.50 24
2001
First Quarter. $22.50 $22.50 49 131,400(1)
Second Quarter 22.50 22.50 4 166,667(1)
Third Quarter. 27.00 27.00 20 37,037(2)
Fourth Quarter -- -- -- --
--------
(1) Represents the issuance of shares of Mercantile common stock for $22.50 per
share, in cash, in an offering exempt from registration under the
Securities Act.
(2) Represents the issuance of 37,037 shares of Mercantile common stock for
$27.00 per share, in cash, in order to fund a part of the TownBank
acquisition.
The prices given above represent actual trades but may not include all
trades that occurred during the reported period. The prices given are the
result of limited trading and may not be representative of the actual fair
market value of the Mercantile common stock.
Mercantile is not obligated to register its common stock or, upon any
registration, to create a market for its shares. Thus, a holder of Mercantile
common stock may be unable to liquidate his or her investment and must be able
to bear the economic risk of such investment indefinitely.
42
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 .11
Second Quarter.......................... 11.250 9.000 .11
Third Quarter........................... 10.750 9.688 .11
Fourth Quarter.......................... 11.125 8.313 .11
2001
First Quarter........................... $ 13.12 $ 10.75 .12
Second Quarter.......................... 14.75 12.05 .12
Third Quarter........................... 14.94 12.02 .12
Fourth Quarter.......................... 14.98 12.07 .12
2002
First Quarter (through January 23, 2002) $ 14.70 $ 14.01 .13
On November 29, 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 $14.00 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 Mercantile common stock on that date:
Equivalent
BancGroup Mercantile Price Per
Common Common Mercantile
Stock(1) Stock(2) Share(3)
--------- ---------- ----------
Comparative Market Value $14.00 $27.00 $48.73
--------
(1) Closing price as reported by the NYSE on November 29, 2001.
(2) No established public trading market exists for the shares of Mercantile
common stock. The comparative market value shown for Mercantile common
stock represents the price at which shares of Mercantile common stock were
sold on September 10, 2001, which was the last sale price prior to the
public announcement of the merger on November 30, 2001, of which management
of Mercantile is aware.
(3) If the merger had closed on November 29, 2001, and assuming that the Market
Value of BancGroup common stock had also been $14.00, 3.4808 shares of
BancGroup common stock would have been exchanged for each share of
Mercantile common stock.
43
BANCGROUP CAPITAL STOCK AND DEBENTURES
BancGroup's authorized capital stock consists of 200,000,000 shares of
BancGroup common stock, par value $2.50 per share and 1,000,000 shares of
preference stock. As of December 31, 2001, there were issued and outstanding a
total of 115,244,185 shares of BancGroup common stock. No shares of BancGroup
preference stock are issued and outstanding. Additionally, BancGroup has
various issuances of long term debt outstanding at December 31, 2001 summarized
as follows and described more fully below, under BancGroup debt.
December 31, 2001
-----------------
(in thousands)
71/2% Convertible Subordinated Debentures $ 2,795
7% Convertible Subordinated Debentures... 725
Variable Rate Subordinated Debentures.... 7,725
Subordinated Notes....................... 254,306
Trust Preferred Securities............... 70,000
FHLB Advances............................ 1,361,938
Reverse Repurchase Agreements............ 88,063
Other Long Term Debt..................... 588
----------
Total................................. $1,786,140
==========
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 of BancGroup, 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.
BancGroup Preference Stock
The BancGroup preference stock may be issued from time to time as a class
without series, or if so determined by the board of directors of BancGroup,
either in whole or in part in one or more series. The voting
44
rights, and such designations, preferences and relative, participating,
optional or other special rights, if any, and the qualifications, limitations
or restrictions thereof, if any, including, but not limited to, the dividend
rights, conversion rights, redemption rights and liquidation preferences, if
any, of any wholly unissued series of preference stock, or of the entire class
of preference stock if none of such shares has been issued, the number of
shares constituting any such series and the terms and conditions of the issue
thereof may be fixed by resolution of the board of directors of BancGroup.
Preference stock may have a preference over the BancGroup common stock with
respect to the payment of dividends and the distribution of assets in the event
of the liquidation or winding-up of BancGroup and such other preferences as may
be fixed by the board of directors of BancGroup.
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 399,000 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 96,000 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% per annum 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%
per annum and are subject to redemption by BancGroup, in whole or in part at
any time after January 29, 2007 until maturity in January 2027. 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% per annum due June 1, 2011 for general corporate and banking purposes in
the ordinary course of business. This debt qualifies as Tier 2 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 fourth quarter
ending December 31, 2001 of 6.32% per annum.
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 $1,361,938,000 at
December 31, 2001. These advances bear interest rates of 3.635% to 6.58% per
annum and mature from .
45
BancGroup has received funds under reverse repurchase agreements with Keefe,
Bruyette & Woods. At December 31, 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 5.84% to
6.03% per annum and mature in 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 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 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.
46
Director Authority. The BancGroup Certificate prohibits stockholders from
calling special stockholders' meetings and acting by written consent. It also
provides that only BancGroup's board of directors has the authority to
undertake certain actions with respect to governing BancGroup such as
appointing committees, electing officers, and establishing compensation of
officers, and it allows the board of directors to act by majority vote.
Bylaw Provisions. The BancGroup Bylaws provide that stockholders wishing to
propose nominees for the board of directors or other business to be taken up at
an annual meeting of BancGroup shareholders must comply with certain advance
written notice provisions. These bylaw provisions are intended to provide for
the more orderly conduct of stockholders' meetings but could make it more
difficult for shareholders to nominate directors or introduce business at
shareholders' meetings.
Delaware Business Combination Statute. Subject to some exceptions, Delaware
law prohibits BancGroup from entering into certain "business combinations"
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
. the business combination, or
. 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
. 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
. 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 transaction. 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.
47
COMPARATIVE RIGHTS OF SHAREHOLDERS
If the merger is consummated, shareholders of Mercantile, except those
perfecting dissenters' rights, will become holders of BancGroup common stock.
The rights of the holders of the Mercantile 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 Mercantile
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 of Incorporation
and the DGCL that might limit the circumstances under which a change in control
of BancGroup could occur, see "BancGroup Capital Stock and Debentures."
The following information is qualified in its entirety by the BancGroup
Certificate and the BancGroup Bylaws, and Mercantile's Articles of
Incorporation and Bylaws, the DGCL and the TBCA.
Director Elections
Mercantile. Mercantile's Bylaws provide for a board of directors consisting
of not less than one nor more than 15 directors. Currently, the number of
directors is fixed at 13. Directors are elected at the annual meeting of
shareholders and hold office until the next annual meeting of shareholders. The
Articles of Mercantile deny shareholders the right to cumulate votes in the
election of directors.
BancGroup. BancGroup's directors are elected to terms of three years with
approximately one-third of the Board to be elected annually. There is no
cumulative voting in the election of directors. See "BancGroup Capital Stock
and Debentures--Changes in Control--Classified Board."
Removal of Directors
Mercantile. A director may be removed at any time, with or without cause,
at any duly called special or annual meeting of the shareholders of Mercantile,
by the affirmative vote of a majority in number of shares present at such
meeting and entitled to vote for the election of such director.
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
Mercantile. Shareholders of Mercantile are entitled to one vote for each
share of Mercantile common stock held. The Articles of Mercantile deny
stockholders the right to cumulate votes in the election of directors.
BancGroup. Each stockholder of BancGroup is entitled to one vote for each
share of BancGroup common stock held, and such holders are not entitled to
cumulative voting rights in the election of directors.
Preemptive Rights
Mercantile. Mercantile's Articles deny holders of Mercantile common stock
any preemptive rights to subscribe for or acquire additional shares of common
stock that may be issued by Mercantile.
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.
48
Directors' Liability
Mercantile. The Articles of Mercantile provide that a director will not
incur liability to Mercantile and its stockholders for monetary damages for an
act or omission that occurs in the director's capacity as a director, unless
that director
. commits a breach of his or her duty of loyalty to Mercantile and its
stockholders;
. commits an act or omission not in good faith that constitutes a breach of
the duty of the director to Mercantile or an act or omission that involves
intentional misconduct or a knowing violation of the law;
. engages in a transaction from which the director receives an improper
benefit, whether or not the benefit resulted from an action taken within
the scope of the director's office; or
. engages in an act or omission for which the liability of a director is
expressly provided for by statute.
This provision protects Mercantile's directors against personal liability for
monetary damages from breaches of their duty of care. It does not eliminate the
director's duty of care and has no effect on the availability of equitable
remedies such as injunction or rescission, based upon a director's breach of a
director's duty of care.
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
. for any breach of the director's duty of loyalty to the corporation or its
stockholders;
. for acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law;
. for the payment of certain unlawful dividends and the making of certain
stock purchases or redemptions; or
. 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
Mercantile will only indemnify a person that:
. acted in good faith,
. reasonably believed that any actions taken in an official capacity were in
Mercantile's best interests and that any actions taken outside an official
capacity were not opposed to Mercantile's best interests, and
. in the case of any criminal proceeding, had no reasonable cause to believe
his conduct was unlawful.
A person found liable to Mercantile or found liable on the basis that the
person improperly received a personal benefit may only be indemnified for
reasonable expenses actually incurred by the person in connection with the
proceeding; however, if the person is found liable for willful or intentional
misconduct in the performance of his duty to Mercantile, Mercantile shall not
indemnify him in any respect. Mercantile is required to indemnify an officer,
director or past director against reasonable expenses he or she incurs in
connection with a proceeding in which he or she is a party because he or she is
a director or officer of Mercantile, or, while a director, has served as a
director, officer or other functionary of another entity, if he or she has been
wholly successful in the defense of the proceeding. Mercantile may purchase and
maintain insurance on behalf of any person who is or was a director or officer
of Mercantile against any liability asserted against that person and incurred
by that person in such a capacity, whether or not Mercantile would have the
power to indemnify that person against that liability under the TBCA.
49
Mercantile maintains an officers' and directors' insurance policy pursuant
to which officers and directors of Mercantile would be entitled to
indemnification beyond that permitted by the Articles.
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.
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
Mercantile. Pursuant to the Mercantile's Bylaws and the TBCA, the
president, the board of directors, or the holders of not less than 10 percent
of the shares of Mercantile common stock entitled to vote at a meeting may call
a special meeting of the shareholders of Mercantile. Any action required to be
taken at a meeting pursuant to the TBCA may be taken without a meeting if a
consent in writing setting forth the action taken is signed by the holders of
not less than the minimum number of votes that would have been necessary to
take such action at a meeting at which the holders of all of the shares
entitled to vote on the action 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
Mercantile. Under the TBCA, the holders of at least two-thirds of the
outstanding shares entitled to vote thereon as a class must approve an
agreement for the merger, consolidation, sale of substantially all of the
assets, or dissolution, of a Texas corporation. The TBCA also provides,
however, that the stockholders of a Texas corporation need not vote on the
transaction if:
. the corporation is the sole surviving corporation in the merger;
. the articles of incorporation of the corporation will not differ from its
articles before the merger;
. each shareholder before the merger will own the same number of shares,
with identical preferences and designations, immediately after the
effective date of the merger;
50
. the number of shares issued in connection with the merger does not exceed
20% of the voting power immediately before the merger;
. the number of shares issued in the merger does not exceed 20% of the
number of shares outstanding immediately before the merger; and
. the board of directors of the corporation adopts a resolution approving
the plan of merger.
BancGroup. The DGCL provides the 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:
. the agreement of merger does not amend in any respect the certificate of
incorporation of such corporation;
. 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
. 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 Articles or Certificate of Incorporation and Bylaws
Mercantile. The TBCA provides that pursuant to a resolution adopted by the
board of directors of a Texas corporation and written notice of a special or
annual meeting to each shareholder of record, a proposed amendment to the
corporation's articles of incorporation is adopted upon the receipt of the
affirmative vote of the holders of two-thirds of the shares entitled to vote,
unless any class of shares is entitled to vote as a class, in which event the
proposed amendment is adopted upon receiving the affirmative vote of the
holders of at least two-thirds of the shares within each class entitled to vote
thereon as a class and two-thirds of the total outstanding shares entitled to
vote thereon. The Articles of Mercantile do not contain any provision altering
the statutory provisions governing amendment of the articles of incorporation.
The board of directors of Mercantile may amend the Bylaws at any meeting of
the directors at which a quorum is present, provided notice of the proposed
amendment was given, upon the affirmative vote of a majority of directors
present. At a duly called meeting of the shareholders of Mercantile, a majority
of the shareholders present may amend or repeal such amendment to 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:
. the election or removal of directors;
51
. business combinations between BancGroup and a Related Person; and
. 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
Mercantile. Holders of Mercantile common stock have dissenter's and
appraisal rights under Articles 5.11, 5.12 and 5.13 of the TBCA. Under these
provisions, Mercantile shareholders may dissent from certain corporate actions
proposed by Mercantile's management and receive the fair value of their shares
of Mercantile common stock as of or immediately prior to the effective time of
the proposed corporate action. A summary of Articles 5.11, 5.12 and 5.13 is set
forth under the caption "The Merger--Rights of Dissenting Shareholders," and
such provisions are included as Appendix B.
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:
. 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
. stockholders are permitted by the terms of the merger or consolidation to
accept in exchange for their shares:
. shares of stock of the surviving or resulting corporation;
. shares of stock of another corporation listed on a national securities
exchange or held of record by more than 2,000 stockholders;
. cash in lieu of fractional shares of such stock; or
. 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
Mercantile. Mercantile's Articles do not authorize the issuance of
preferred stock.
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. Such preferred stock is denominated as "preference
stock" in the BancGroup Certificate. Currently, no shares of preference stock
are issued and outstanding. See "BancGroup Capital Stock and
Debentures--Preference Stock."
Effect of the Merger on Mercantile Shareholders
As of , 2002, Mercantile had 266 shareholders of record and 1,336,752
outstanding shares of common stock. As of December 31, 2001, there were
115,244,185 shares of BancGroup common stock outstanding held by 9,179
stockholders of record.
52
Assuming that no dissenters' rights of appraisal are exercised in the
merger, that the Mercantile options are exercised prior to the Effective Date,
and the Market Value of BancGroup common stock is $14.57 (the closing price of
BancGroup common stock as of January 23, 2002) on the Effective Date, an
aggregate number of 5,460,511 shares of BancGroup common stock will be issued
to the shareholders of Mercantile pursuant to the merger. These shares would
represent approximately 4.5% 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. Depending on actual
events, the foregoing figures may be substantially different as of the
Effective Date.
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 8.1% of BancGroup's outstanding shares would
own approximately 7.4% after the merger. See "Business of BancGroup--Voting
Securities and Principal Stockholders."
[INTENTIONALLY LEFT BLANK]
53
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 December 31, 2001, BancGroup had assets of $13.2 billion.
As of December 31, 2001 Colonial Bank has a total of 261 branches, with 123
branches in Alabama, 98 branches in Florida, 23 branches in Georgia, 3 branches
in Tennessee, 3 branches in Texas and 11 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 services, 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.
Voting Securities and Principal Stockholders
As of December 31, 2001, BancGroup had issued and outstanding 115,244,185
shares of BancGroup common stock with approximately 9,179 stockholders of
record. Each such share is entitled to one vote. In addition, as of that date,
3,577,421 shares of BancGroup common stock were subject to issuance upon
exercise of options pursuant to BancGroup's stock option plans and up to
495,000 shares of BancGroup common stock were issuable upon conversion of
BancGroup's 1986 Debentures and 1994 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.
54
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.
55
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 MERCANTILE
General
Mercantile was organized under the laws of the State of Texas on November
18, 1998, for the purpose of indirectly acquiring all of the outstanding
capital stock of First Mercantile Bank and becoming a bank holding company
under the Bank Holding Company Act of 1956, as amended. Mercantile indirectly
acquired all of the issued and outstanding stock of First Mercantile Bank in
May 1999. Mercantile indirectly owns 100% of First Mercantile Bank through its
direct ownership of 100% of the capital stock of Mercantile Delaware Bancorp,
Inc., a Delaware corporation and intermediate bank holding company. In
addition, Mercantile formed MBI Capital Trust I, a special purpose finance
subsidiary, in August 2001 of which Mercantile owns all of the common
securities. As of September 30, 2001, Mercantile had, on a consolidated basis,
total assets of approximately $346.3 million, total loans (net of unearned
discount and allowance for loan losses) of approximately $237.2 million, total
deposits of approximately $297.9 million and approximately $24.6 million of
stockholders' equity.
Since becoming a bank holding company, Mercantile has sought to capitalize
on the opportunities presented by the continued consolidation in the banking
industry. Since opening in January 1998, Mercantile has grown steadily to a
financial institution with over $300 million in assets as of September 30,
2001. A significant portion of that growth occurred in September 2001 when
Mercantile acquired TownBank, a National Association, located in Mesquite,
Texas (approximately 14 miles east of Dallas, Texas), which had immediately
prior to Mercantile's acquisition, total assets of approximately $85.0 million,
total loans (net of unearned discount and allowance for loan losses) of
approximately $48.2 million, and total deposits of approximately $75.1 million.
Mercantile conducts its community banking business through five banking
offices: four in the greater Dallas metropolitan area and one in Austin, Texas.
Through its banking offices, Mercantile offers a variety of traditional loan
and deposit products to its customers, primarily small to medium-sized
businesses and individual consumers. For businesses, Mercantile provides term
loans, lines of credit and loans for working capital, business expansion and
the purchase of equipment and machinery, interim construction loans for
builders and owner occupied commercial real estate loans. Mercantile offers
consumers automobile loans, home mortgage loans, debit cards, cash management
services and Internet banking. Customers of Mercantile are provided with a full
complement of traditional deposit products.
Along with steady asset growth, Mercantile's financial performance has
historically been characterized by consistent core earnings and low net
charge-offs. The diverse economic nature of the local markets that it serves
provide Mercantile with a varied customer base and allows it to spread its
lending risks among different industries. Mercantile's market area consists of
a dynamic metropolitan area with a correspondingly broad array of economic
activities including public, financial and medical services, real estate
development and technology. Mercantile derives its revenues primarily from the
operations of its subsidiary bank in the form of dividends.
First Mercantile Bank Activities
First Mercantile Bank is a national banking association that was organized
in January 1998 and is regulated by the Office of the Comptroller of the
Currency and the FDIC. First Mercantile Bank considers its primary market areas
to be in the cities of Dallas and Austin, Texas and surrounding areas. First
Mercantile Bank serves
56
this market through its main office and two branches in Dallas, Texas, one
branch in Mesquite, Texas and a branch located in Austin, Texas. First
Mercantile Bank also has a mobile branch to service the needs of its customers.
First Mercantile Bank is engaged in substantially all of the business
operations customarily conducted by independent financial institutions in
Texas, including the acceptance of checking, savings and certificates of
deposit and the making of commercial and consumer loans, real estate loans, and
other installment and term loans. First Mercantile Bank does not offer trust
services. First Mercantile Bank does a substantial amount of business with
individuals, as well as with customers in small to medium-sized commercial,
industrial and professional businesses.
For the convenience of its customers, First Mercantile Bank offers
drive-through banking facilities, automated teller machines, night
depositories, personalized checks, charge cards through correspondent banks and
safe deposit boxes. First Mercantile Bank's services include cashier's checks,
travelers' checks, domestic and foreign wire transfers, account research, stop
payments, telephone transfers between accounts and photocopies.
Competition
Mercantile experiences competition in both lending and attracting funds from
other commercial banks, savings banks, savings and loan associations, credit
unions, finance companies, pension trusts, mutual funds, insurance companies,
mortgage bankers and brokers, brokerage and investment banking firms,
asset-based non-bank lenders, government agencies and certain other
non-financial institutions, including retail stores, which may offer more
favorable financing alternatives than Mercantile.
Mercantile also competes with companies located outside of the Dallas and
Austin markets that provide financial services to persons within these markets.
Some of Mercantile's current and potential competitors have larger customer
bases, greater brand recognition, and significantly greater financial,
marketing and other resources than First Mercantile Bank, and some of them are
not subject to the same degree of regulation as Mercantile.
Lending Activities
Mercantile offers a range of lending services, including real estate,
consumer and commercial and industrial loans. Mercantile provides general
commercial lending services for corporate and other business clients as a part
of its efforts to serve the local communities in which it operates. In
addition, Mercantile provides loans for 1-4 family residences and, to a lesser
extent, for consumer purposes. Mercantile had consolidated net loans of $237.2
million at September 30, 2001, representing 68.5% of Mercantile's consolidated
assets.
Mercantile's commercial and industrial loans include operating lines of
credit and term loans made to small businesses primarily based on their ability
to repay the loan from the business's cash flow. Business assets such as
equipment, accounts receivable and inventory typically secure these loans.
These loans typically involve larger loan balances than consumer or residential
loans and are generally dependent on the business's cash flow and, thus, may be
subject to adverse conditions in the general economy or in a specific industry.
Management of Mercantile reviews the borrower's cash flows when deciding
whether to grant the credit to evaluate whether estimated future cash flows
will be adequate to service the principal and interest of the loan.
Commercial real estate loans are primarily secured by borrower-occupied
business real estate and rely on the ability of the related business to
generate adequate cash flow to service the debt. Mercantile generally
originates commercial real estate loans with a loan-to-value ratio of 80% or
less. Management performs an analysis that is similar to the analysis used for
commercial loans when deciding whether to grant a commercial real estate loan.
57
Mercantile provides construction loans secured by residential and business
real estate. Management of Mercantile believes that it established its
construction lending program in a manner to minimize the risks inherent in this
type of lending by limiting the size of its loans on speculative projects.
Mercantile does not generally make the permanent loan at the end of the
construction phase. Construction loans also are generally made in amounts of
80% or less of the value of collateral.
Residential real estate loans consist mainly of first and second mortgages
on single family homes, with some multifamily loans. Loan-to-value ratios for
these instruments are generally limited to 80%. The repayment of residential
real estate loans is dependent primarily on the income and cash flows of the
borrowers, with the real estate serving as a secondary or liquidation source of
repayment. Mercantile periodically sells longer-term, lower-yielding mortgages
on 1-4 family residences to the Federal National Mortgage Association, or FNMA,
and other money center banks The rationale for these sales is to mitigate
interest rate risk associated with holding long-term residential mortgages in
the loan portfolio, to generate fee revenue from servicing, and still maintain
the primary customer relationship.
Although not a significant portion of Mercantile's loan portfolio, on
occasion, Mercantile originates short-term residential real estate loans and
home equity lines of credit that are secured by the borrower's residence. Such
loans are made based on the borrower's ability to make repayment from
employment and other income. Management of Mercantile assesses the borrower's
ability to repay the debt through review of credit history and ratings,
verification of employment and other income, review of debt-to-income ratios
and other measures of repayment ability. Mercantile generally makes these loans
in amounts of 80% or less of the value of collateral.
Consumer installment loans to individuals include loans secured by
automobiles and other consumer assets. Consumer loans for purchase of new
automobiles do not exceed 100% of the retail price of the automobile. Loans for
used cars generally do not exceed average loan value as stipulated in a recent
auto industry used car price guide. Overdraft protection loans are unsecured
personal lines of credit to individuals of demonstrated good credit character
with reasonably assured sources of income and satisfactory credit histories.
Consumer loans generally involve more risk than residential mortgage loans
because of the type and nature of collateral and, in certain types of consumer
loans, the absence of collateral. Because borrowers generally repay these loans
from ordinary income, repayment may be adversely affected by job loss, divorce,
illness or by general decline in economic conditions. Mercantile assesses the
borrower's ability to make repayment through a review of credit history, credit
ratings, debt-to-income ratios and other measures of repayment ability.
Mercantile may renew loans at maturity when requested by a customer whose
financial strength appears to support such renewal or when such renewal appears
to be in the best interests of Mercantile. Mercantile requires payment of
accrued interest in such instances and may adjust the rate of interest, require
a principal reduction or modify other terms of the loan at the time of renewal.
Deposit Activities
Deposits represent the major source of Mercantile's funds for lending and
other investment activities. Mercantile attracts deposits principally from
within its primary market areas through the offering of a broad selection of
deposit instruments, including checking accounts, money market accounts,
regular savings accounts, term certificate accounts and individual retirement
accounts. Although Mercantile will occasionally utilize Federal Home Loan Bank
borrowings to provide a hedge on certain mortgages, it does not extensively
engage in such activities.
Interest rates paid, maturity terms, service fees and withdrawal penalties
for the various types of accounts are established periodically by management
based on Mercantile's liquidity requirements, growth goals and interest rates
paid by competitors. Mercantile does not use brokers to attract deposits.
At September 30, 2001, Mercantile had, on a consolidated basis, total
deposits of approximately $297.9 million. Approximately 27% of Mercantile's
consolidated deposits at September 30, 2001 were certificates of deposit.
Generally, Mercantile attempts to maintain the rates paid on its deposits at a
competitive level. Time
58
deposits of $100,000 and over made up approximately 20% of Mercantile's
consolidated total deposits at September 30, 2001.
Investments
Mercantile invests a portion of its assets in obligations of the U.S.
Treasury and other government agencies, obligations of state and municipal
subdivisions, corporate obligations, collateralized mortgage obligations and
pass-through certificates guaranteed by FNMA, Federal Home Loan Mortgage
Corporation and Government National Mortgage Association. Mercantile classifies
these securities as either held to maturity or available for sale according to
management's intent. Mercantile manages its investments in relation to loan
demand and deposit growth, and generally invests its excess funds at minimal
risks while providing liquidity to fund increases in loan demand or to offset
fluctuations in deposits. Federal funds sold represent the excess cash
Mercantile has available over and above its daily cash needs. Mercantile
invests this money on an overnight basis with approved correspondent banks. At
September 30, 2001, Mercantile held, on a consolidated basis, approximately
$44.0 million in various securities, which represented 13% of total
consolidated assets.
Employees
As of September 30, 2001, Mercantile had 105 full-time and equivalent
employees. Mercantile believes that it has a good relationship with its
employees.
Properties
. Mercantile operates from five locations.
. Mercantile's main office is located at 8144 Walnut Hill Lane, Suite 180,
Dallas, Texas 75231 and is housed in an approximately 600,000 square foot
16-story building. This banking center is equipped with three teller
stations, four drive-through banking lanes and an automated teller machine.
. Mercantile's Preston Road branch is located at 17950 Preston Road, Suite
100, Dallas, Texas and is housed in an approximately 260,000 square foot
building. The Preston Road branch is equipped with three teller stations,
three drive-through banking lanes and an automated teller machine.
. Mercantile's Sherry Lane branch is located at 6071 Sherry Lane, Dallas,
Texas 75225 and is housed in an approximately 6,000 square foot 1-story
building. The Sherry Lane branch is equipped with three teller stations,
one drive-through banking lane and an automated teller machine.
. Mercantile's Austin branch is located at 12007 Technology Blvd., Austin,
Texas 78727 and is housed in an approximately 20,000 square foot building.
The Austin branch is equipped with four teller stations, three
drive-through banking lanes and an automated teller machine.
. Mercantile's Mesquite branch is located at 1522 Gross Road, Mesquite,
Texas 75149 and is housed in an approximately 11,500 square foot building.
This branch is equipped with 6 teller stations, 6 drive-through banking
lanes and an automated teller machine.
59
In addition to the locations described above, Mercantile also has a mobile
branch. Mercantile believes that its facilities are adequate for its current
needs. The following table sets forth the amount of deposits (unaudited) as of
September 30, 2001 for each of Mercantile's office locations:
Deposits at
Location September 30, 2001
-------- ----------------------
(Dollars in thousands)
Main Office--Dallas, Texas........ $107.9
Preston Road Branch--Dallas, Texas 39.8
Sherry Lane Branch--Dallas, Texas. 53.3
Austin, Texas Branch.............. 22.6
Mesquite, Texas Branch............ 75.3
------
Total.......................... $298.9
Legal Proceedings
From time to time, litigation arises in the normal conduct of business.
However, Mercantile is currently not involved in any litigation that management
of Mercantile believes, either singularly or in the aggregate, could be
reasonably expected to have a material adverse effect on its business,
financial condition or results of operations.
Information on Mercantile's Web Site
Information on the Internet web site of Mercantile or First Mercantile Bank
is not part of this proxy statement-prospectus, and you should not rely on that
information in deciding whether to approve the merger unless that information
is also in this document or in a document that is incorporated by reference
into this proxy statement-prospectus.
60
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 Mercantile common stock by (1) each
director and executive officer of Mercantile, (2) each stockholder whom we know
to own beneficially more than 5% of the Mercantile common stock and (3) all of
our directors and executive officers as a group. No person, to the knowledge of
Mercantile, beneficially owns more than 5% of the Mercantile common stock.
Unless otherwise indicated, based on information furnished by such stockholder,
management believes that each person has sole voting and dispositive power with
respect to all shares of common stock of which he or she is the beneficial
owner.
Number of Shares Percentage of
of Mercantile Total Shares of
Common Stock Mercantile
Name and Address of Beneficial Owner Beneficially Owned Common Stock(2)
------------------------------------ ------------------ ---------------
Joe Alcantar............................... 5,000 *
Rhett D. Bentley........................... 29,100(3) 2.16%
Patrick Q. Crow............................ 54,100(4) 4.02%
Clinton J. David........................... 29,000(5) 2.08%
Tom Davis.................................. 20,350 1.52%
Dennis M. Elmore........................... 58,000(6) 4.46%
C. Malcolm Holland......................... 34,400(7) 2.66%
Casey Hozer................................ 16,500(8) 1.22%
H. Craig Kinney............................ 68,000(9) 5.05%
Michael A. Kowalski........................ 28,060(10) 1.64%
Kent Lance................................. 15,000 1.12%
Joe C. Longbotham.......................... 47,000(11) 3.49%
Roy J. Salley.............................. 40,100(12) 2.91%
J. Craig Wallis............................ 12,000(13) *
William K. Wells........................... 28,500(14) 2.12%
Directors and Executive Officers as a Group 593,230(15) 39.22%
--------
* Represents less than 1%.
(1) Information relating to beneficial ownership is based upon information
available to Mercantile 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, individuals are named as beneficial
owners as shares as to which they may disclaim any beneficial interest.
Unless otherwise noted, the indicated owner has sole voting and investment
power.
(2) Based upon 1,512,752 shares of Mercantile common stock issued and
outstanding. Shares issuable to an individual or a group under stock
options exercisable within 60 days of the record date are considered
outstanding for the purpose of calculating the percentage of total
outstanding shares of Mercantile common stock owned by such individual or
group.
(3) Includes 9,000 shares that may be acquired upon exercise of options
exercisable within 60 days of the record date.
(4) Includes 100 shares held jointly by Mr. Crow with his wife as to which
voting and investment power are shared; 34,900 shares held by the Crow
family limited partnership over which Mr. Crow has sole voting on
investment power; 5,100 shares held by three separate trusts of which Mr.
Crow and his wife are co-trustees and share voting and investment power;
and 9,000 shares that may be acquired upon exercise of options exercisable
within 60 days of the record date.
(5) Includes 9,000 shares that may be acquired upon exercise of options
exercisable within 60 days of the record date.
(6) Includes 33,000 shares held in the name of The Raymond Fund over which Mr.
Elmore has sole voting and investment power; 2,000 shares held by Mr.
Elmore's daughter as to which Mr. Elmore disclaims beneficial
61
ownership and 9,000 shares that may be acquired upon exercise of options
exercisable within 60 days of the record date.
(7) Includes 2,000 share held in a self directed IRA; and 30,000 shares that
may be acquired upon exercise of options exercisable within 60 days of the
record date./ /
(8) Includes 15,000 shares that may be acquired upon exercise of options
exercisable within 60 days of the record date/ /
(9) Includes 44,000 shares held by various trusts as to which Mr. Kinney is
trustee and has sole voting and investment power; and 9,000 shares that may
be acquired upon exercise of options exercisable within 60 days of the
record date.
(10) Includes 16,000 shares that may be acquired upon exercise of options
exercisable within 60 days of the record date.
(11) Includes 3,000 shares held by a trust as to which Mr. Longbotham directs
the trustee and has voting and investment power; and 9,000 shares that may
be acquired upon exercise of options exercisable within 60 days of the
record date.
(12) Includes 40,000 shares that may be acquired upon exercise of options
exercisable within 60 days of the record date.
(13) Includes 12,000 shares that may be acquired upon exercise of options
exercisable within 60 days of the record date.
(14) Includes 9,000 shares that may be acquired upon exercise of options
exercisable within 60 days of the record date.
(15) Includes 176,000 shares that may be acquired upon exercise of options
exercisable within 60 days of the record date.
62
ADJOURNMENT OF SPECIAL MEETING
In the event there are an insufficient number of shares of Mercantile common
stock present in person or by proxy at the special meeting to approve the
merger agreement and the 280G payments, Mercantile's Board of Directors intends
to adjourn the special meeting to a later date provided a majority of the
shares present and voting on the motion have voted in favor of such
adjournment. The place and date to which the special meeting would be adjourned
would be announced at the special meeting. Proxies voted against the merger
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 Mercantile shareholders, other than an announcement
made at the special meeting.
The effect of any such adjournment would be to permit Mercantile to solicit
additional proxies for approval of the merger agreement and the 280G payments.
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 merger agreement or the 280G
payments.
OTHER MATTERS
The Board of Directors of Mercantile is not aware of any business to come
before the special meeting other than those matters described above in this
proxy statement-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 Mercantile.
DATE FOR SUBMISSION OF BANCGROUP STOCKHOLDER PROPOSALS
The deadline for the inclusion of a stockholder proposal in BancGroup's
proxy solicitation material for its 2002 annual meeting has already passed. In
order to be eligible for inclusion in BancGroup's proxy solicitation materials
for its 2003 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 15, 2003 (November 16, 2002),
for inclusion in the proxy or information statement relating to the 2003 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 2001 of $1,781,996. As of February 5, 2002, John C. H.
Miller, Jr. beneficially owned 92,844 shares of BancGroup common stock. Mr.
Miller also received employee-related compensation from BancGroup in 2001 of
$41,000. Certain legal matters relating to the merger are being passed upon for
Mercantile by the law firm of Jenkens & Gilchrist, a Professional Corporation,
Dallas, Texas.
63
EXPERTS
The consolidated financial statements of BancGroup incorporated in this
proxy statement-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.
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 MERCANTILE PRIOR TO THE
SPECIAL MEETING, BY EXECUTING A LATER DATED PROXY AND DELIVERING IT TO THE
PRESIDENT OF MERCANTILE PRIOR TO THE SPECIAL MEETING OR BY ATTENDING THE
SPECIAL MEETING VOTING IN PERSON.
64
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,
June 30, 2001, and September 30, 2001,
. BancGroup's Current Report on Form 8-K, dated as of January 28, 2002,
providing restated financial statements to reflect its recent acquisition
of Manufacturers Bancshares, Inc.
. 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) 240-5315
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.
65
APPENDIX A
AGREEMENT AND PLAN OF MERGER
by and between
THE COLONIAL BANCGROUP, INC.,
and
MERCANTILE BANCORP, INC.
dated as of
November 29, 2001
TABLE OF CONTENTS
Caption Page
------- ----
ARTICLE 1 -- NAME
1.1 Name........................................ A-5
ARTICLE 2 -- MERGER--TERMS AND CONDITIONS
2.1 Applicable Law.............................. A-5
2.2 Corporate Existence......................... A-5
2.3 Article of Incorporation and Bylaws......... A-6
2.4 Resulting Corporation's Officers and Board.. A-6
2.5 Stockholder Approval........................ A-6
2.6 Further Acts................................ A-6
2.7 Effective Date and Closing.................. A-6
2.8 Subsidiary Bank Merger...................... A-6
ARTICLE 3 -- CONVERSION OF ACQUIRED CORPORATION STOCK
3.1 Conversion of Acquired Corporation Stock.... A-7
3.2 Surrender of Acquired Corporation Stock..... A-8
3.3 Fractional Shares........................... A-9
3.4 Adjustments................................. A-9
3.5 BancGroup Stock............................. A-9
3.6 Dissenting Rights........................... A-9
ARTICLE 4 -- REPRESENTATIONS, WARRANTIES AND COVENANTS OF
BANCGROUP
4.1 Organization................................ A-9
4.2 Capital Stock............................... A-9
4.3 Financial Statements; Taxes................. A-10
4.4 No Conflict with Other Instrument........... A-10
4.5 Absence of Material Adverse Change.......... A-11
4.6 Approval of Agreement....................... A-11
4.7 Tax Treatment............................... A-11
4.8 Title and Related Matters................... A-11
4.9 Subsidiaries................................ A-11
4.10 Contracts................................... A-11
4.11 Litigation.................................. A-11
4.12 Compliance.................................. A-12
4.13 Registration Statement...................... A-12
4.14 SEC Filings................................. A-12
4.15 Form S-4.................................... A-12
4.16 Brokers..................................... A-12
4.17 Government Authorization.................... A-13
4.18 Absence of Regulatory Communications........ A-13
4.19 Disclosure.................................. A-13
4.20 Computer Hardware and Software.............. A-13
A-1
Page
----
ARTICLE 5 -- REPRESENTATIONS, WARRANTIES AND COVENANTS OF
ACQUIRED CORPORATION
5.1 Organization..................................... A-13
5.2 Capital Stock.................................... A-13
5.3 Subsidiaries..................................... A-13
5.4 Financial Statements; Taxes...................... A-14
5.5 Absence of Certain Changes or Events............. A-15
5.6 Title and Related Matters........................ A-16
5.7 Commitments...................................... A-17
5.8 Charter and Bylaws............................... A-17
5.9 Litigation....................................... A-17
5.10 Material Contract Defaults....................... A-17
5.11 No Conflict with Other Instrument................ A-17
5.12 Governmental Authorization....................... A-18
5.13 Absence of Regulatory Communications............. A-18
5.14 Absence of Material Adverse Change............... A-18
5.15 Insurance........................................ A-18
5.16 Pension and Employee Benefit Plans............... A-18
5.17 Buy-Sell Agreements.............................. A-18
5.18 Brokers.......................................... A-19
5.19 Approval of Agreements........................... A-19
5.20 Disclosure....................................... A-19
5.21 Registration Statement........................... A-19
5.22 Loans; Adequacy of Allowance for Loan Losses..... A-19
5.23 Environmental Matters............................ A-20
5.24 Collective Bargaining............................ A-20
5.25 Labor Disputes................................... A-20
5.26 Derivatives Contracts............................ A-20
5.27 Non-Terminable Contracts and Severance Agreements A-20
5.28 Absence of Gross Up Bonuses...................... A-20
ARTICLE 6 -- ADDITIONAL COVENANTS
6.1 Additional Covenants of BancGroup................ A-21
6.2 Additional Covenants of Acquired Corporation..... A-23
ARTICLE 7 -- MUTUAL COVENANTS AND AGREEMENTS
7.1 Best Efforts; Cooperation........................ A-26
7.2 Press Release.................................... A-27
7.3 Mutual Disclosure................................ A-27
7.4 Access to Properties and Records................. A-27
7.5 Notice of Adverse Changes........................ A-27
ARTICLE 8 -- CONDITIONS TO OBLIGATIONS OF ALL PARTIES
8.1 Approval by Shareholders......................... A-27
8.2 Regulatory Authority Approval A-27
A-2
Page
----
8.3 Litigation............ A-28
8.4 Registration Statement A-28
8.5 Tax Opinion........... A-28
ARTICLE 9 -- CONDITIONS TO OBLIGATIONS OF ACQUIRED CORPORATION
9.1 Representations, Warranties and Covenants........ A-29
9.2 Adverse Changes.................................. A-29
9.3 Closing Certificate.............................. A-29
9.4 Opinion of Counsel............................... A-30
9.5 NYSE Listing..................................... A-30
9.6 Other Matters.................................... A-30
9.7 Material Events.................................. A-30
ARTICLE 10 -- CONDITIONS TO OBLIGATIONS OF BANCGROUP
10.1 Representations, Warranties and Covenants........ A-30
10.2 Adverse Changes.................................. A-30
10.3 Closing Certificate.............................. A-30
10.4 Opinion of Counsel............................... A-31
10.5 Controlling Shareholders......................... A-31
10.6 Other Matters.................................... A-31
10.7 Dissenters....................................... A-31
10.8 Material Events.................................. A-31
10.9 Agreements....................................... A-32
ARTICLE 11 -- TERMINATION OF REPRESENTATIONS AND WARRANTIES....
ARTICLE 12 -- NOTICES..........................................
ARTICLE 13 -- AMENDMENT OR TERMINATION
13.1 Amendment........................................ A-32
13.2 Termination...................................... A-33
13.3 Damages.......................................... A-33
ARTICLE 14 -- DEFINITIONS......................................
ARTICLE 15 -- MISCELLANEOUS
15.1 Expenses......................................... A-39
15.2 Benefit and Assignment........................... A-39
15.3 Governing Law.................................... A-39
15.4 Counterparts..................................... A-39
15.5 Headings......................................... A-39
15.6 Severability..................................... A-39
15.7 Construction..................................... A-39
15.8 Return of Information............................ A-40
15.9 Equitable Remedies............................... A-40
A-3
Page
----
15.10 Attorneys' Fees.... A-40
15.11 No Waiver.......... A-40
15.12 Remedies Cumulative A-40
15.13 Entire Contract.... A-40
A-4
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into as of this the
/29th/ day of November, 2001, by and between MERCANTILE BANCORP, INC.
("Acquired Corporation"), a Texas corporation, and THE COLONIAL BANCGROUP, INC.
("BancGroup"), a Delaware corporation.
WITNESSETH
WHEREAS, Acquired Corporation operates as a bank holding company for its
indirect 100% owned subsidiary, First Mercantile Bank, National Association, a
national banking association (the "Bank"), with its principal office in Dallas,
Texas; and
WHEREAS, BancGroup is a bank holding company with a Subsidiary bank,
Colonial Bank, operating in Alabama, Florida, Georgia, Tennessee, Texas, and
Nevada and another subsidiary bank, Manufacturers Bank of Florida, operating in
Florida; and
WHEREAS, both BancGroup and Acquired Corporation wish to merge (the
"Merger") with each other; 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 (as defined in Section 2.7 of
this Agreement), Acquired Corporation shall be merged with and into BancGroup
(herein referred to as the "Resulting Corporation" whenever reference is made
to it as of the time of merger or thereafter). The Merger shall be undertaken
pursuant to the provisions of and with the effect provided in the Delaware
General Corporation Law (the "DGCL") and, to the extent applicable, the Texas
Business Corporation Act (the "TBCA"). 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
TBCA, 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,
A-5
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. At and
after the Effective Date, the Merger shall also have the effects set forth in
Section 5.07 of the TBCA.
2.3 Certificate 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, as amended, and bylaws of BancGroup
as they exist immediately before the Effective Date.
2.4 Resulting Corporation's Officers and Board. The board of directors and
the officers of the Resulting Corporation on the Effective Date shall consist
of those persons serving in such capacities of BancGroup as of the Effective
Date.
2.5 Shareholder Approval. This Agreement shall be submitted to the
shareholders of Acquired Corporation at a special or annual meeting of Acquired
Corporation's shareholders (the "Shareholders Meeting") to be held as promptly
as practicable consistent with the satisfaction of the conditions set forth in
this Agreement. Upon approval by the requisite vote of the shareholders of
Acquired Corporation as required by applicable Law, the Merger shall become
effective as soon as practicable thereafter in the manner provided in Section
2.7 hereof.
2.6 Further Acts. If, at any time after the Effective Date, the Resulting
Corporation shall consider or be advised that any further assignments or
assurances in law or any other acts are necessary or desirable (i) to vest,
perfect, confirm or record, in the Resulting Corporation, title to and
possession of any property or right of Acquired Corporation or BancGroup,
acquired as a result of the Merger, or (ii) otherwise to carry out the purposes
of this Agreement, BancGroup and its officers and directors shall execute and
deliver all such proper deeds, assignments and assurances in law and do all
acts necessary or proper to vest, perfect or confirm title to, and possession
of, such property or rights in the Resulting Corporation and otherwise to carry
out the purposes of this Agreement; and the proper officers and directors of
the Resulting Corporation are fully authorized in the name of Acquired
Corporation or BancGroup, or otherwise, to take any and all such action.
2.7 Effective Date and Closing. Subject to the terms of all requirements
of Law and the conditions specified in this Agreement, the Merger shall become
effective on the date specified in the Certificate of Merger to be filed with
the Secretary of State of the State of Delaware (such time being herein called
the "Effective Date"), which shall be the date of the Closing unless the
parties otherwise agree. 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
agreed to by Acquired Corporation and BancGroup that shall be as soon as
reasonably practicable after the later to occur of (i) the Shareholders
Meeting, (ii) receipt of all required regulatory approvals under Section 8.2,
and satisfaction of all other conditions precedent set forth in Articles 8 and
9, which are required to be satisfied prior to Closing, 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 ("the Bank Merger"). The exact timing and structure of the Bank Merger has
not been finalized at this time, and BancGroup in its sole discretion will
finalize such timing and structure at a later date, including whether the Bank
shall be merged into Colonial Bank ("Resulting Bank"), provided, however, the
Bank Merger will be structured such that it will not have a negative impact on
the fax consequences of the Merger to the Acquired Corporation Shareholders and
will not materially delay the consummation of the Merger. Acquired Corporation,
as sole shareholder of Mercantile Delaware Bancorp, Inc. ("MDBI"), a Delaware
corporation, which is the sole shareholder of Bank, will cause all necessary
steps be taken to consummate the Bank Merger, including the calling of any
special meetings of the board of directors or shareholders of the Bank, voting
its shares of stock of the Bank in favor of the Bank Merger and the filing of
any regulatory applications.
A-6
ARTICLE 3
CONVERSION OF ACQUIRED CORPORATION STOCK
3.1 Conversion of Acquired Corporation Stock.
(a) On the Effective Date, each share of common stock, $5.00 par value,
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 (as defined in Section 14). Specifically, each
outstanding share of Acquired Corporation Stock shall (subject to Section 3.3
hereof), be converted into 3.4808 shares of BancGroup Common Stock (the
"Exchange Ratio"), provided that the Market Value for BancGroup Common Stock is
not less than $11.00 per share nor greater than $15.00 per share. If Market
Value is less than $11.00, the Exchange Ratio shall equal $38.29 divided by the
Market Value of BancGroup Common Stock (rounded to the nearest one-thousandth).
If the Market Value is greater than $15.00, then the Exchange Ratio shall equal
$52.21 divided by the Market Value of BancGroup Common Stock (rounded to the
nearest one-thousandth). The Market Value shall 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. 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 3.4808
shares of BancGroup Common Stock without reference to the Market Value of
BancGroup Common Stock.
(b) (i) On the Effective Date, and subject to Section 3.1(c) below,
BancGroup shall assume all Acquired Corporation Options outstanding in
accordance with the applicable terms of the Acquired Corporation stock option
plans ("Acquired Corporation Stock Option Plan"). Such assumption shall be in a
manner consistent with the terms of the Acquired Corporation Stock Option Plan
and any Acquired Corporation Stock Option agreement pursuant to which such
Acquired Corporation Stock Options were issued and granted. Each such option
shall cease to represent a right to acquire Acquired Corporation 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 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 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", "extension", or "renewal" as defined in Section
424 of the Internal Revenue Code of 1986, as amended (the "Code") as to any
stock option which is an "incentive stock option." Schedule 3.1 hereto sets
forth the names of all persons holding Acquired Corporation Options, the number
of shares of Acquired Corporation Stock subject to such options, the exercise
price and the expiration date of such options. As soon as reasonably
practicable after the Effective Date, BancGroup shall deliver to each
shareholder an appropriate notice setting forth such person's rights and the
number of shares and the exercise price thereof of BancGroup Common Stock
applicable to such option. Schedule 3.1 also contains complete and accurate
copies of all Acquired Corporation's Stock Option Plans and forms of Acquired
Corporation Stock Option Agreements used, and the most recent prospectus sent
to stock option holders, if applicable.
A-7
(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.
(c) In lieu of the conversion specified in paragraph (b)(i) of Section
3, no later than five days prior to the Effective Date, each holder of
outstanding Acquired Corporation Options may provide written notice to Acquired
Corporation (in form and substance reasonably satisfactory to BancGroup) that
he or she wishes to exchange his or her Acquired Corporation Options, as of the
Effective Date, and, to receive an amount of BancGroup Common Stock or cash, in
exchange therefor. The amount of cash to be received shall be determined by
calculating the difference between (i) the number obtained by multiplying the
number of shares of Acquired Corporation Stock issuable pursuant to his or her
Acquired Corporation Options times the Exchange Ratio times Market Value and
(ii) the number obtained by multiplying the number of shares of Acquired
Corporation Stock issuable pursuant to his or her Acquired Corporation Options
times the exercise price per share (as determined pursuant to the applicable
stock option plan and stock option agreement of the Acquired Corporation) (such
difference is referred to herein as the "Option Consideration"). If the holder
of Acquired Corporation Options elects to receive BancGroup Common Stock in
lieu of cash, the Option Consideration shall be divided by Market Value to
determine the number of shares of BancGroup Common Stock to be received. In the
event that the exercise prices of all Acquired Corporation Options are not the
same, The Option Consideration shall be determined for each series of options
and the number of shares of BancGroup Common Stock issued shall be totaled to
obtain the aggregate number of shares to be received by that holder of such
Acquired Corporation Options. No fractional shares shall be issued and
fractions shall be paid in cash at the Market Value. If an Acquired Corporation
Company Employee chooses to exchange his or her options in accordance with this
Section 3.1(c), he or she shall also receive a cash bonus equal to the Option
Consideration multiplied by 0.34 less any consideration due such Acquired
Corporation Company Employee under any "Tax Gross Up Bonus" or any other bonus
related in any way to the exercise of the Acquired Corporation Options. If less
than all such options are exchanged the bonus shall be reduced pro rata for
those options not exchanged. For example, if an individual who holds 100
options of a particular class as of the Effective Date and whose bonus set out
on Schedule 3.1(c) is $1,000, elects to exchange 80 options pursuant to this
Section 3.1(c) (leaving 20 options remaining); then such individual's bonus
shall be $800 (800/100 x $100).
3.2 Surrender of Acquired Corporation Stock. After the Effective Date,
each holder of an outstanding certificate or certificates which represented
shares of Acquired Corporation Stock who is entitled to receive BancGroup
Common Stock shall be entitled, upon surrender to BancGroup or an exchange
agent appointed by BancGroup, of their certificate or certificates representing
shares of Acquired Corporation Stock (or an affidavit or affirmation by such
holder of the loss, theft, or destruction of such certificate or certificates
in such form as BancGroup may reasonably require and, if BancGroup reasonably
requires, a bond of indemnity in form and amount, and issued by such sureties,
as BancGroup may reasonably require), to receive in exchange therefor a
certificate or certificates representing the number of whole shares of
BancGroup Common Stock into and for which the shares of Acquired Corporation
Stock so surrendered shall have been converted, such certificates to be of such
denominations and registered in such names as such holder may reasonably
request. Such holder shall receive cash for fractional shares. 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, but upon surrender such dividends and distributions shall be
paid (without interest). Within a reasonable time after the Effective Date the
Exchange Agent shall send a notice and transmittal form to each Acquired
Corporation shareholder advising as to the effectiveness of the Merger and the
procedure for exchange of stock certificates.
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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, or changed into or exchanged for a different kind or number of
securities, then an appropriate and proportionate adjustment shall be made in
the number of shares of BancGroup Common Stock (or such other company the
shares of BancGroup Common Stock shall have been changed or exchanged for) into
which the Acquired Corporation Stock shall be converted. Appropriate and
proportionate adjustments shall also be made in the maximum and minimum
Exchange Ratios set forth in this Agreement.
3.5 BancGroup Stock. The shares of BancGroup Common Stock 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 TBCA, 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
October 31, 2001, 115,202,034 shares were validly issued and outstanding, fully
paid and nonassessable and are not subject to preemptive rights (not counting
additional shares subject to issue pursuant to stock option and other plans and
convertible debentures), and (B) 1,000,000 shares of Preference Stock, $2.50
par value per share, none of which are issued and outstanding. The shares of
BancGroup Common Stock to be issued in the Merger are duly authorized and, when
so issued, will be validly issued and outstanding, fully paid and
nonassessable, will have been registered under the 1933 Act, and will have been
registered or qualified under the securities laws of all jurisdictions in which
such registration or qualification is required, based upon information provided
by Acquired Corporation.
(b) The authorized capital stock of each Subsidiary of BancGroup is
validly issued and outstanding, fully paid and nonassessable, and each
Subsidiary is wholly owned, directly or indirectly, by BancGroup.
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4.3 Financial Statements; Taxes.
(a) BancGroup has delivered to Acquired Corporation copies of the
following financial statements of BancGroup:
(i) Consolidated balance sheets as of December 31, 1999, December
31, 2000, and September 30, 2001;
(ii) Consolidated statements of operations for each of the three
years ended December 31, 1998, 1999 and 2000, and for the nine months ended
September 30, 2001;
(iii) Consolidated statements of cash flows for each of the three
years ended December 31, 1998, 1999 and 2000, and for the nine months ended
September 30, 2001;
(iv) Consolidated statements of changes in stockholders' equity for
the three years ended December 31, 1998, 1999 and 2000, and for the nine months
ended September 30, 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, 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, stockholders 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 financial information listed above for the years ended December 31, 2000,
1999 and 1998 has been audited by BancGroup's independent auditor. The
foregoing representations, insofar as they relate to the unaudited interim
financial statements of BancGroup for the nine months ended September 30, 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 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, as amended, 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.
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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; each of the
banking Subsidiaries of BancGroup has its deposits fully insured by the Federal
Deposit Insurance Corporation to the extent provided by the Federal Deposit
Insurance Act; and the businesses of the non-bank Subsidiaries of BancGroup are
permitted to subsidiaries of registered financial 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 BancGroup's SEC filings or
reserved for in BancGroup's financial statements, there is no Litigation before
or by any court or Agency, domestic or foreign, now pending, or, to the
Knowledge of BancGroup, threatened against or affecting BancGroup or any of its
Subsidiaries (nor is BancGroup aware of any facts which could give rise to any
such Litigation) which is required to be disclosed in the Registration
Statement (other than as disclosed therein), or which is likely to have any
Material Adverse Effect or prospective Material Adverse Effect, or which is
likely to materially and adversely affect the properties or Assets thereof or
which is likely to materially affect or delay the consummation of the
transactions contemplated by this Agreement; all pending legal or governmental
proceedings to which BancGroup or any
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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. In the conduct of their respective businesses, BancGroup
and its Subsidiaries are, to the Knowledge of BancGroup, in material compliance
with all material federal, state or local Laws applicable to their or the
conduct of such businesses.
4.13 Registration Statement. At the time the Registration Statement
becomes effective and at the time of the Shareholders Meeting, the Registration
Statement, including the Proxy Statement which shall constitute a part thereof,
will comply in all material respects with the requirements of the 1933 Act and
the rules and regulations thereunder, will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and
warranties in this subsection shall not apply to statements in or omissions
from the Proxy Statement made in reliance upon and in conformity with
information furnished in writing to BancGroup by Acquired 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) the Quarterly
Report on Form 10-Q for the fiscal quarter ended June 30, 2001; and (iv) any
reports on Form 8-K, filed by BancGroup with the SEC since December 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 Shareholders Meeting.
4.15 Form S-4. The conditions for use of a registration statement on SEC
Form S-4 set forth in the General Instructions on Form S-4 have been or will be
satisfied with respect to BancGroup and the Registration Statement.
4.16 Brokers. Except for negotiations with SAMCO Capital Markets, a
Division of Service Asset Management Company ("SAMCO"), all negotiations
relative to this Agreement and the transactions contemplated by this Agreement
have been carried on by BancGroup directly with Acquired Corporation and
without the intervention of any other person, either as a result of any act of
BancGroup or otherwise in such manner as to give rights to any valid claim
against BancGroup for finders fees, brokerage commissions or other like
payments.
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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 Texas corporation, and the
Bank is a national banking association. Acquired Corporation wholly owns MDBI,
and MDBI is the sole stockholder of the Bank. Each Acquired Corporation Company
(as defined in Section 14) is duly organized, validly existing and in good
standing under the Laws of its respective 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. As of the date of this Agreement, the authorized
capital stock of Acquired Corporation consisted of 2,000,000 shares of common
stock, $5.00 par value, 1,336,752 shares of which are issued and outstanding.
All of such shares which are outstanding are validly issued, fully paid and
nonassessable and not subject to preemptive rights. Acquired Corporation has
232,000 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.
5.3 Subsidiaries. Except for MDBI and MBI Capital Trust I (the "MBI
Trust"), a Delaware Business Trust, Acquired Corporation has no direct
Subsidiaries. MDBI owns all of the issued and outstanding shares of the
Bank, and there are no Subsidiaries of the Bank. Acquired Corporation owns all
of the issued and outstanding capital stock of MDBI free and clear of any
liens, claims or encumbrances of any kind. Acquired Corporation owns all of the
issued and outstanding common securities of MBI Trust free and clear of any
liens, claims or encumbrances of any kind. MDBI 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, except as such shares of the Bank may be deemed assessable
under 12 U.S.C. (S)55. As of the date of this Agreement, there were 1,000,000
shares of the common stock, $5.00 par value, authorized by the Bank, and
700,000 of which are issued and outstanding. The Bank has no arrangements or
commitments obligating it to issue shares of its capital stock or any
securities convertible into or having the right to purchase shares of its
capital stock. As of the date of this Agreement, there were 1,000 shares of the
common stock, $1.00 par value, authorized by MDBI, and 1,000 of which are
issued and outstanding. MDBI has no arrangements or commitments obligating it
to issue shares of its
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capital stock or any securities convertible into or having the right to
purchase shares of its capital stock. As of the date of this Agreement, there
were 24,743 shares of the common securities (having a $10.00 liquidation
amount) and 800,000 shares of trust preferred securities (having a $10.00
liquidation amount), authorized by MBI Trust, all of which are issued and
outstanding. MBI Trust 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 balance sheet as of December 31, 1999, and December
31, 2000;
(ii) Consolidated statements of income for each of the two years ended
December 31, 1999 and 2000;
(iii) Consolidated statements of shareholders equity for each of the two
years ended December 31, 1999, and 2000; and
(iv) An unconsolidated balance sheet, statement of income, and statement
of shareholders equity as of and for the nine-month period ended September
30, 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, shareholders
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 financial information contained in the above statements for the
years ended December 31, 1999 and 2000, has been audited by the independent
auditor for Acquired Corporation. The foregoing representations, insofar as
they relate to the unaudited interim financial statements of Acquired
Corporation for the nine months ended September 30, 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.
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(c) Each Acquired Corporation Company has withheld from its employees (and
timely paid to the appropriate governmental entity) proper and accurate amounts
for all periods in material compliance with all Tax withholding provisions of
applicable federal, state, foreign and local Laws (including without
limitation, income, social security and employment Tax withholding for all
types of compensation). Each Acquired Corporation Company is in compliance
with, and its records contain all information and documents (including properly
completed IRS Forms W-9) necessary to comply with, all applicable information
reporting and Tax withholding requirements under federal, state and local Tax
Laws, and such records identify with specificity all accounts subject to backup
withholding under Section 3406 of the Code.
5.5 Absence of Certain Changes or Events. Except as set forth on Schedule
5.5, since the date of the most recent balance sheet provided under Section
5.4(a)(i) above, no Acquired Corporation Company has:
(a) issued, delivered or agreed to issue or deliver any stock or other
corporate equity 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. In no event shall the shareholders of Acquired Corporation be
entitled to both an Acquired Corporation dividend and to BancGroup's regular
dividend during the quarter in which the Effective Date occurs. Notwithstanding
the foregoing, nothing in this Agreement shall prevent the Bank and MDBI from
paying dividends to the Acquired Corporation in such amount necessary for the
Acquired Corporation to make any interest payments on its debentures or other
indebtedness outstanding as of the date of this Agreement. Provided, further,
that in the event the Merger does not close prior to the record date for the
second quarter dividend at BancGroup (such dividend generally being declared in
the July meeting of the board of directors of BancGroup), the Acquired
Corporation may pay a dividend to its Shareholders in an amount equal to the
amount of dividend such Shareholders would have received if they were
shareholders of BancGroup on such record date. For purposes of determining the
amount of such dividend the Acquired Corporation may use the exchange ratio of
3.4808 in calculating the number of shares of BancGroup Common Stock that would
have been received by the Shareholders.
(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 would have a Material Adverse Effect on Acquired Corporation
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 would have a Material Adverse Effect on
Acquired Corporation considering its business as a whole;
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(i) except as set forth in Schedule 5.5(i) or in accordance with normal and
usual practice, and as previously disclosed to BancGroup, 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, and as previously
disclosed to BancGroup, 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) other than this Agreement and the Stock Option Agreement, entered into
any material transaction other than in the ordinary course of business; or
(n) agreed in writing, or otherwise, to take any action described in
clauses (a) through (m) above.
Between the date hereof and the Effective Date, no Acquired Corporation
Company, without the express written approval of BancGroup, will do any of the
things listed in clauses (a) through (n) of this Section 5.5 except as
permitted therein or as contemplated in this Agreement, and no Acquired
Corporation Company will enter into or amend any material Contract, other than
Loans or renewals thereof entered into in the ordinary course of business,
without the express written consent of BancGroup.
5.6 Title and Related Matters.
(a) Title. Each Acquired Corporation Company has good and indefeasible
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. Complete and accurate copies of the deeds to all real property owned by
each Acquired Corporation Company are attached hereto as Schedule 5.6(a).
(b) Leases. Schedule 5.6(b) sets forth a list and description of all real
and personal property owned or leased by any Acquired Corporation Company,
either as lessor or lessee. Complete and accurate copies of all such leases are
attached to Schedule 5.6(b).
(c) Personal Property. Schedule 5.6(c) sets forth a depreciation schedule
of each Acquired Corporation Company's fixed Assets as of the latest
practicable date.
(d) Computer Hardware and Software. Schedule 5.6(d) contains a listing of
all agreements relating to data processing computer software and hardware now
being used in the business operations of any Acquired Corporation Company.
Except as set forth in Schedule 5.6(d), Acquired Corporation is not aware of
any defects,
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irregularities or problems with any of its computer hardware or software which
renders such hardware or software unable to perform satisfactorily the tasks
and functions to be performed by them in the business of any Acquired
Corporation Company. Complete and accurate copies of all Contracts, plans and
other items so listed have been attached to Schedule 5.6(d).
5.7 Commitments. Except as set forth in Schedule 5.7, no Acquired
Corporation Company is a party to any oral or written (i) Contracts for the
employment of any officer or employee which is not terminable on 30 days' (or
less) notice, (ii) profit sharing, bonus, benefit deferred compensation,
savings, stock option, severance pay, pension or retirement plan, agreement or
arrangement, (iii) loan agreement, indenture or similar agreement relating to
the borrowing of money by such party, (iv) guaranty of any obligation for the
borrowing of money or otherwise, excluding endorsements made for collection,
and guaranties made in the ordinary course of business, (v) consulting or other
similar material Contracts, (vi) collective bargaining agreement, (vii)
agreement with any present or former officer, director or shareholder of such
party, or (viii) other Contract, agreement or other commitment which is
material to the business, operations, property, prospects or Assets or to the
condition, financial or otherwise, of any Acquired Corporation Company.
Complete and accurate copies of all Contracts, plans and other items so listed
have been made available to BancGroup for inspection.
5.8 Charter and Bylaws. Schedule 5.8 contains true and correct copies of
the articles of incorporation and bylaws (or comparable organizational
documents in the case of MBI Trust) of each Acquired Corporation Company,
including all amendments thereto, as currently in effect. There will be no
changes in such articles of incorporation or bylaws prior to the Effective
Date, without the prior written consent of BancGroup.
5.9 Litigation. Except as set out in Schedule 5.9, there is no Litigation
(whether or not purportedly on behalf of Acquired Corporation) pending or, to
the Knowledge of Acquired Corporation, threatened against or affecting any
Acquired Corporation Company (nor does Acquired Corporation have Knowledge of
any facts which are likely to give rise to any such Litigation) at law or in
equity, or before or by any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, or before any arbitrator of any
kind, which involves the reasonable likelihood of any judgment or Liability not
fully covered by insurance in excess of a reasonable deductible amount or which
may have a Material Adverse Effect on Acquired Corporation, and no Acquired
Corporation Company is in Default with respect to any judgment, order, writ,
injunction, decree, award, rule or regulation of any court, arbitrator or
governmental department, commission, board, bureau, agency or instrumentality,
which Default would have a Material Adverse Effect on Acquired Corporation.
Except as set out in Schedule 5.9, 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. Except as disclosed in Schedule
5.11, 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.
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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 disclosed 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. Except as disclosed in Schedule
5.14, 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 according to their respective terms, 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
(i) each Acquired Corporation Company and (ii) any entity from which any
Acquired Corporation Company may lease employees have been established in
compliance with, and such plans have been operated in material compliance with,
all applicable Laws. Except as set forth in Schedule 5.16, no Acquired
Corporation Company sponsors or otherwise maintains a "pension plan" within the
meaning of Section 3(2) of ERISA or any other retirement plan that is intended
to qualify under Section 401 of the Code, nor do any unfunded Liabilities exist
with respect to any employee benefit plan, past or present. To the Knowledge of
Acquired Corporation, no employee benefit plan, any trust created thereunder or
any trustee or administrator thereof has engaged in a "prohibited transaction,"
as defined in Section 4975 of the Code, which may have a Material Adverse
Effect on the condition, financial or otherwise, of any Acquired Corporation
Company.
(b) To the Knowledge of Acquired Corporation, no amounts payable to any
employee of any Acquired Corporation Company will fail to be deductible for
federal income tax purposes by virtue of Section 280G of the Code and
regulations thereunder.
5.17 Buy-Sell Agreements. To the Knowledge of Acquired Corporation, there
are no agreements among any shareholder of any Acquired Corporation Company
granting to any person or persons a right of first refusal in respect of the
sale, transfer, or other disposition of shares of outstanding securities by any
shareholder of Acquired Corporation Company, any similar agreement or any
voting agreement or voting trust in respect of any such shares.
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5.18 Brokers. Except with respect to SAMCO, 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. However, Acquired Corporation will pay fees to a financial
advisor for the issuance of a fairness opinion as described on Schedule 5.18.
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.
(a) 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.
(b) On or before the date hereof the Acquired Corporation has delivered to
BancGroup its Disclosure Schedules setting forth, among other things,
exceptions to any and all of its representations and warranties in Article 5.
While Acquired Corporation has used commercially reasonable efforts to identify
in the Disclosure Schedule the particular representation or warranty to which
each such disclosure or exception relates, each such disclosure or exception
shall be deemed disclosed for purposes of all representations and warranties in
Article 5 and the Disclosure Schedule. The mere inclusion of an exception in
the Disclosure Schedule shall not be deemed an admission by Acquired
Corporation that such exception represents a material fact, event, or
circumstance.
5.21 Registration Statement. At the time the Registration Statement
becomes effective and at the time of the Shareholders Meeting, the Registration
Statement, including the Proxy Statement which shall constitute part thereof,
will not contain an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided,
however, that the representations and warranties in this Section shall only
apply to statements in or omissions from the Proxy Statement relating to
descriptions of the business of Acquired 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 all
known and reasonably anticipated risk inherent in the loans of Acquired
Corporation to the Knowledge of Acquired Corporation. Acquired Corporation has
no Knowledge of any fact which is likely to require a future material increase
in the provision for loan losses or a material decrease in the loan loss
reserve reflected in such financial statements. Each loan reflected as an Asset
on the financial statements of Acquired Corporation is the legal, valid and
binding obligation of the obligor of each loan, enforceable in accordance with
its terms subject to the effect of bankruptcy, insolvency, reorganization,
moratorium, or other similar laws relating to creditors' rights generally and
to general equitable principles and complies with all Laws to which it is
subject. Acquired Corporation does not have in its portfolio any loan exceeding
its legal lending limit, and except as disclosed on Schedule 5.22, Acquired
Corporation has no known significant delinquent, substandard, doubtful, loss,
nonperforming or problem loans.
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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 now or previously owned or leased by any Acquired
Corporation Company. Acquired Corporation has no Knowledge of any facts which
would 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 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.
5.25 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.
5.26 Derivative Contracts. Except for the Stock Option Agreement, no
Acquired Corporation Company is a party to or has agreed to enter into a swap,
forward, future, option, cap, floor or collar financial contract, or any other
interest rate or foreign currency protection contract or derivative security
not included in Acquired Corporation's financial statements delivered under
Section 5.4 hereof which is a financial derivative contract (including various
combinations thereof).
5.27 Non-Terminable Contracts or Severance Agreements. Except as listed in
Schedule 5.28, no Acquired Corporation Company is a party to or has agreed to
enter into an employment or vendor contract that is not terminable without
penalty within 90 days or contains an extraordinary buyout. With the exception
of certain agreements otherwise referenced in this Agreement, no Acquired
Corporation Company is a party to or has agreed to enter into any employment
agreement, non-competition agreement, salary continuation plan or severance
agreement or similar arrangement with any Acquired Corporation Company
employee. Complete and accurate copies to all contracts or agreements listed in
Schedule 5.28 are attached thereto.
5.28 Absence of Gross Up Bonuses. Notwithstanding any provision hereof to
the contrary and/or any disclosure contained in any schedule hereto, Acquired
Corporation hereby represents and warrants that no
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Acquired Corporation Company is a party to any existing agreement with any
holder of an Acquired Corporation Option which creates an obligation,
contingent or otherwise, to pay any "gross up" bonus or any other bonus of any
nature whatsoever related to or arising out of the exercise of the Acquired
Corporation Options.
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,
with the assistance of Acquired Corporation, 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, which filing shall include the
prospectus and proxy statement for the Shareholders Meeting, in form reasonably
satisfactory to Acquired Corporation and its counsel, with respect to the
Common Stock to be issued pursuant to this Agreement and the matters to be
considered at the Shareholders Meeting. BancGroup shall, as soon as reasonably
practicable, prepare, with the assistance of Acquired Corporation, all
necessary filings with any Federal or State banking Agencies which may be
necessary for approval to consummate the transactions contemplated by this
Agreement and shall use commercially reasonable efforts to secure all such
approvals as soon as practicable, and shall also use commercially 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 commercially reasonable efforts
to obtain, prior to the effective date of the Registration Statement, all
necessary state securities Law or "blue sky" Permits and approvals required to
carry out the transactions contemplated by this Agreement.
(c) Financial Statements. BancGroup shall furnish to Acquired Corporation:
(i) As soon as practicable and in any event within forty-five (45) days
after the end of each quarterly period (other than the last quarterly period)
in each fiscal year, consolidated statements of operations of BancGroup for
such period and for the period beginning at the commencement of the fiscal year
and ending at the end of such quarterly period, and a consolidated statement of
financial condition of BancGroup as of the end of such quarterly period,
setting forth in each case in comparative form figures for the corresponding
periods ending in the preceding fiscal year, subject to changes resulting from
year-end adjustments;
(ii) Promptly upon receipt thereof, copies of all audit reports
submitted to BancGroup by independent auditors in connection with each annual,
interim or special audit of the books of BancGroup made by such accountants;
(iii) As soon as practicable, copies of all such financial statements
and reports as it shall send to its stockholders and of such regular and
periodic reports as BancGroup may file with the SEC or any other Agency; and
(iv) With reasonable promptness, such additional financial data as
Acquired Corporation may reasonably request.
(d) No Control of Acquired Corporation by BancGroup. Notwithstanding any
other provision hereof, until the Effective Date, the authority to establish
and implement the business policies of Acquired Corporation shall continue to
reside solely in Acquired Corporation's officers and board of directors.
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(e) Listing. Prior to the Effective Date, BancGroup shall use commercially
reasonable efforts to list the shares of BancGroup Common Stock to be issued in
the Merger on the NYSE or other quotations system on which such shares are
primarily traded.
(f) Employee Benefit Matters. (i) On the Effective Date, all employees of
any Acquired 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 in
effect 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 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.
(ii) For the purposes of this Section 6.1(f), an employee of Acquired
Corporation Company shall include any leased employee.
(g) Indemnification.
(i) Subject to the conditions set forth in the succeeding paragraph, for a
period of three (3) years after the Effective Date, BancGroup shall, and shall
cause Resulting Bank to indemnify, defend, and hold harmless (including
advancement of expenses consistent with Texas Law) each director and officer of
each Acquired Corporation Company (each being an "Indemnified Party") against
all liabilities arising out of actions or omissions occurring upon or prior to
the Effective Date (including without limitation the transactions contemplated
by this Agreement) to the extent authorized under the articles of incorporation
and bylaws of the applicable Acquired Corporation Company and applicable Law.
(ii) Any Indemnified Party wishing to claim indemnification under this
subsection (g), upon learning of any such liability or Litigation, shall
promptly notify BancGroup thereof. In the event of any such Litigation (whether
arising before or after the Effective Date) (i) BancGroup or Resulting 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 Resulting 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
Resulting 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 or 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
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effected without its prior consent; and provided further that BancGroup and
Resulting 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 any Acquired Corporation Company, such
director or officer of the Acquired Corporation Company shall have delivered to
BancGroup on or prior to the Effective Date an affidavit in form reasonably
satisfactory to BancGroup concerning claims such directors or officers may have
against any Acquired Corporation Company. 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 any Acquired Corporation Company 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 any
Acquired Corporation Company; and (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.
(iv) Acquired Company 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.
(v) BancGroup shall use commercially reasonable efforts (and Acquired
Corporation shall cooperate prior to the Effective Date of the Merger in these
efforts) to maintain in effect for a period of three (3) years after the
Effective Date of the Merger, Acquired Corporation's existing directors' and
officer's liability insurance policy (provided that BancGroup may substitute
therefor (i) policies of at least the same coverage and amounts containing
terms and conditions which are substantially no less advantageous or (ii) with
the consent of Acquired Corporation (given prior to the Effective Date of the
Merger) any other policy with respect to claims arising from facts or events
which occurred prior the Effective Date.
(vi) The obligations of BancGroup under this Section 6.1(g) are
intended to be enforceable against BancGroup directly by the Indemnified
Parties and shall be binding on all respective successors and assigns of
BancGroup.
(h) Assumption of Obligations Related to the Trust Preferred
Securities. At or prior to the Closing Date, BancGroup shall take all steps
and enter into all documentation necessary for the Acquired Corporation to
continue its obligations under that certain Indenture, dated as of September 7,
2001, by and between the Acquired Corporation and First Union Trust Company,
National Association ("First Union"), and that certain Trust Preferred
Securities Guarantee Agreement, dated as of September 7, 2001, by and between
the Acquired Corporation and First Union, relating to the trust preferred
securities issued by MBI Trust. Additionally, BancGroup shall take all steps
and enter into all documentation necessary for BancGroup to assume the
obligations of the Acquired Corporation under the Indenture and Trust Preferred
Securities Guarantee Agreement, including, without limitation, the execution
and delivery of a supplemental indenture satisfactory in form to First Union,
as trustee of MBI Trust.
6.2 Additional Covenants of Acquired Corporation. Acquired Corporation
covenants to and with BancGroup as follows:
(a) Operations. Acquired Corporation will conduct its business and the
business of each Acquired Corporation Company in a proper and prudent manner
and will use commercially reasonable efforts to maintain
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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 take any action
to permit the occurrence of any change or event which would render any of the
representations and warranties in Article 5 hereof untrue in any material
respect at and as of the Effective Date with the same effect as though such
representations and warranties had been made at and as of such Effective Date.
Acquired Corporation shall contact any person who may be required to execute an
undertaking under Section 10.5 hereof to request such undertaking and shall
take all such reasonable steps as are necessary to obtain such undertaking.
Acquired Corporation will take no action that would prevent or impede the
Merger from qualifying as a tax-free reorganization within the meaning of
Section 368 of the Code. Notwithstanding the foregoing, nothing in this
Agreement shall prevent the Bank and MDBI from paying dividends to the Acquired
Corporation in such amount necessary for the Acquired Corporation to make any
interest payments on its debentures or other indebtedness outstanding as of the
date of this Agreement.
(b) Stockholders Meeting; Best Efforts. Acquired Corporation will
cooperate with BancGroup in the preparation of the Registration Statement
(which shall include the prospectus/proxy statement for the Shareholder
Meeting) and any regulatory filings and will cause the Shareholders Meeting to
be held for the purpose of approving the Merger as soon as practicable after
the effective date of the Registration Statement, and will use commercially
reasonable efforts (subject to compliance with their fiduciary duties) to bring
about the transactions contemplated by this Agreement, including shareholder
approval of this Agreement, as soon as practicable unless this Agreement is
terminated as provided herein.
(c) Prohibited Negotiations. (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 deemed necessary to comply with
the fiduciary duties of Acquired Corporation's board of directors under
applicable law (based on the written advice by counsel to such board of
directors that failure to do so may constitute a breach of their fiduciary
duties), 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 such action is based on the written advice at counsel to such board of
directors that failure to do so may constitute a breach of their fiduciary
duties under applicable law. Acquired Corporation shall promptly notify
BancGroup orally and in writing in the event that any Acquired Corporation
Company receives any inquiry or proposal relating to any such Acquisition
Proposal. Acquired Corporation shall immediately cease and cause to be
terminated any existing activities, discussions, or negotiations with any
Persons other than BancGroup conducted heretofore with respect to any of the
foregoing. Acquired Corporation shall enter into the Stock Option Agreement
with BancGroup dated as of the date of this Agreement.
(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 24 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
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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 Acquisition Proposal, which ever is the first to occur,
the principal sum of $6,000,000. 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 subject to compliance
with their fiduciary duties upon written advice of counsel.
(e) Shareholder Voting. Acquired Corporation shall, on or before the date
of execution of this Agreement, obtain and submit to BancGroup an agreement
from each of its directors, executive officers and affiliates substantially in
the form set forth in Exhibit A as BancGroup may require.
(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 which
event the period shall be ninety (90) days) 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 shareholders 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 (with the
understanding that the litigation portion of the report need only contain
changes in prior reported information that have been brought to the attention
of Acquired Corporation by its counsel or otherwise, and that Acquired
Corporation is not obligated to poll its outside counsel each month for such
litigation information); (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,
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including all documents presented to the directors at such meetings, provided,
however, the Acquired Corporation may redact such portions of its minutes and
omit such documents that pertain or relate to the advisability of the
transactions contemplated hereby, or which information to be disclosed is of a
nature such that, in the reasonable opinion of the body holding the meeting
following consultation with counsel, disclosure would be inappropriate based on
restrictions imposed by applicable antitrust, competition or similar laws or
regulations; and (d) monthly financial statements, including a balance sheet
and income statement.
(g) Fiduciary Duties. Except as set out in Schedule 6.2(g), prior to the
Effective Date, (i) no director or officer (each an "Executive") of any
Acquired Corporation Company shall, directly or indirectly, own, manage,
operate, join, control, be employed by or participate in the ownership,
proposed ownership, management, operation or control of or be connected in any
manner with, any business, corporation or partnership which is competitive to
the business of any Acquired Corporation Company, (ii) all Executives, at all
times, shall satisfy their fiduciary duties to Acquired Corporation and its
Subsidiaries, and (iii) such Executives shall not (except as required in the
course of his or her employment with any Acquired Corporation Company)
communicate or divulge to, or use for the benefit of himself or herself or any
other person, firm, association or corporation, without the express written
consent of Acquired Corporation, any confidential information which is
possessed, owned or used by or licensed by or to any Acquired Corporation
Company or confidential information belonging to third parties which any
Acquired Corporation Company shall be under obligation to keep secret or which
may be communicated to, acquired by or learned of by the Executive in the
course of or as a result of his or her employment with any Acquired Corporation
Company, except as otherwise required by law, regulation or court order, in the
defense of litigation for which Acquired Corporation or BancGroup may be
liable, or in any actions relating to this Agreement and the transactions
contemplated hereby.
(h) Certain Practices. At the request of BancGroup, (i) Acquired
Corporation shall cause the Bank to consult with BancGroup and advise BancGroup
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.
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 commercially
reasonably 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 shareholder 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. No Acquired Corporation Company shall
take any action which would cause the merger to fail to qualify as a
reorganization within the meaning of Section 368 of the Code. No Acquired
Corporation Company shall take any action which would materially affect or
delay receipt of the approval contemplated in Section 8.2 herein or materially
delay performance of its covenants under this Agreement.
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7.2 Press Release. Each Party hereto agrees that, unless approved by the
other Parties in advance, such Party will not make any public announcement,
issue any press release or other publicity or confirm any statements by any
person not a party to this Agreement concerning the transactions contemplated
hereby. Notwithstanding the foregoing, each Party hereto reserves the right to
make any disclosure if such Party, in its reasonable discretion and as advised
by counsel, 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 (or Y-10, as
applicable), 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 the Confidentiality Agreements, 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 or Parties relying
upon such conditions, on or before the Effective Date of all the following
conditions, except as such Party or Parties may waive such conditions in
writing:
8.1 Approval by Shareholders. At the Shareholders Meeting, this Agreement
and the matters contemplated by this Agreement shall have been duly approved by
the vote of the holders of not less than the requisite number of the issued and
outstanding voting securities of Acquired 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 Merger, and (ii) satisfying all other requirements prescribed by Law
(including without limitation, the expiration of any mandatory waiting
periods). 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.
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(b) Each Party shall have obtained any and all other Consents required for
consummation of the Merger (other than those referred to in Section 8.2(a) of
this Agreement) for the preventing of any Default under any Contract or Permit
of such Party which, if not obtained or made, is reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on such Party. No
Consent obtained which is necessary to 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. None of the Parties shall be subject to any order, decree,
or injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the Merger. 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 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 Stock
exchanged therefor if such shares of Acquired Corporation 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 Stock was a capital asset in his or her hands as of the
Effective Date). BancGroup shall pay the fees of PricewaterhouseCoopers LLP
incurred in preparing and issuing the above mentioned opinion.
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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, except to the extent
that the failure to be true shall not either individually or in the aggregate
have a Material Adverse Effect on BancGroup and its subsidiaries, taken as a
whole, 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, except to the extent that the failure to perform
shall not have a Material Adverse Effect either individually or in the
aggregate on BancGroup and its subsidiaries as a whole.
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.
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(g) BancGroup has authorized sufficient shares of its common stock for
issuance to satisfy its obligations under this Agreement.
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. All documents required to be executed and delivered
by BancGroup as provided in this Agreement shall have been so executed and
delivered.
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, federally declared state of national
emergency, or a general suspension of trading on the NYSE or any other exchange
on which BancGroup Common Stock may be traded.
9.8 Receipt of Fairness Opinion. The board of directors of Acquired
Corporation shall have received, on or before the date of the mailing of the
Proxy Statement, from its investment advisor, SAMCO, a written opinion to the
effect that the Merger is fair to the shareholders of Acquired Corporation from
a financial point of view.
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, except to the extent
that the failure to be true shall not, either individually or in the aggregate,
have a Material Adverse Effect on Acquired Corporation and its subsidiaries
taken as a whole, 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, except to the extent that
the failure to perform shall not have a Material Adverse Effect on Acquired
Corporation and its subsidiaries, either individually or in the aggregate taken
as a whole.
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 in their total effect 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
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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 Merger and such resolutions have not been amended or
modified and remain in full force and effect;
(b) the shareholders of Acquired Corporation have duly adopted resolutions
approving the substantive terms of the Merger and the transactions contemplated
thereby and such resolutions have not been amended or modified and remain in
full force and effect;
(c) each person executing this Agreement on behalf of Acquired Corporation
is an officer of Acquired Corporation holding the office or offices specified
therein and the signature of each person set forth on such certificate is his
or her genuine signature;
(d) the articles of incorporation and bylaws of Acquired Corporation and
the Bank referenced in Section 5.8 hereof remain in full force and effect and
have not been amended or modified since the date hereof;
(e) to such persons' knowledge, the Proxy Statement delivered to Acquired
Corporation's shareholders, or any amendments or revisions thereto so
delivered, as of the date thereof, did not contain or incorporate by reference
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made (it being
understood that such persons need only express a statement as to information
concerning or provided by Acquired Corporation for inclusion in such Proxy
Statement); and
(f) the conditions set forth in this Article 10 insofar as they relate to
Acquired Corporation have been satisfied.
10.4 Opinion of Counsel. BancGroup shall have received the opinions of
Jenkens & Gilchrist, a Professional Corporation, counsel to Acquired
Corporation, dated as of the Closing, substantially as set forth in Exhibit C.
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 except in compliance
with the 1933 Act and the rules and regulations of the SEC thereunder. 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 Stock.
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.
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10.9 Agreements. The officers and key employees of Acquired Corporation
and/or Bank listed on
Schedule 10.9 to this Agreement shall have entered into employment /
non-compete agreements in a form and on terms acceptable to BancGroup.
ARTICLE 11
TERMINATION OF REPRESENTATIONS AND WARRANTIES
All representations and warranties provided in Articles 4 and 5 of this
Agreement or in any closing certificate pursuant to Articles 9 and 10 shall
terminate and be extinguished at and shall not survive the Effective Date. All
covenants, agreements and undertakings required by this Agreement to be
performed by any Party hereto following the Effective Date shall survive such
Effective Date and be binding upon such Party. If the Merger is not
consummated, all representations, warranties, obligations, covenants, or
agreements hereunder or in any certificate delivered hereunder relating to the
transaction which is not consummated shall be deemed to be terminated or
extinguished, except that the last sentences of Section 7.4 and 6.2(c), and
Sections 7.2, 13.3, Article 11, Article 12, Article 15, any applicable
definitions of Article 14 shall survive. Items disclosed in the Exhibits and
Schedules attached hereto are incorporated into this Agreement and form a part
of the representations, warranties, covenants or agreements to which they
relate.
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, Mr. Roy J. Salley, President, Mercantile
Bancorp, Inc., 8144 Walnut Hill Lane, Suite 180, Dallas, Texas 75231, facsimile
(214)373-5858, with copies to Charles E. Greef, Esq. Jenkens & Gilchrist, a
Professional Corporation, 1445 Ross Avenue, Suite 3200, Dallas, Texas
75202-2799, facsimile (214)855-4300, or as may otherwise be specified by
Acquired Corporation in writing by Acquired Corporation to BancGroup.
(b) If to BancGroup, to W. Flake Oakley, IV, One Commerce Street, Suite
803, Montgomery, Alabama, 36104, facsimile (334) 240-5069, with copies to
William A. McCrary, Esquire, One Commerce Street, Suite 500, Montgomery,
Alabama 36104, facsimile (334) 240-5326, 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, provided that
after any such approval by the shareholders of Acquired Corporation, no
amendment shall be made that modifies in any material respect the consideration
to be received by the shareholders of Acquired Corporation without the further
approval of such shareholders.
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;
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(b) by the board of directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the
event of a material breach by the other Party of any representation or warranty
contained in this Agreement which cannot be or has not been cured within thirty
(30) days after the giving of written notice to the breaching Party of such
breach and which breach would provide the non-breaching Party the ability to
refuse to consummate the Merger under the standard set forth in Section 10.1 of
this Agreement in the case of BancGroup and section 9.1 of this Agreement in
the case of Acquired Corporation;
(c) by the board of directors of either Party (provided that the
terminating Party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in this Agreement) in the
event of a material breach by the other party of any covenant or agreement
contained in this Agreement which cannot be or has not been cured within thirty
(30) days after the giving of written notice to the breaching Party of such
breach, 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, 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;
(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 August 31, 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);
(e) without further action by either Party, upon the execution by Acquired
Corporation of an agreement which is legally binding on Acquired Corporation
with any third party (other than BancGroup or its Subsidiaries) with respect to
an Acquisition Proposal if, in connection therewith, BancGroup will have the
right to demand Acquired Corporations' performance under the Stock Option
Agreement.
13.3 Damages. In the event of termination pursuant to Section 13.2, this
Agreement shall become void and have no effect except as provided in Article
11, and except that Acquired Corporation and BancGroup shall be liable for
damages for any fraud, gross negligence and/or willful breach of warranty,
representation, covenant or other agreement contained in this Agreement.
ARTICLE 14
DEFINITIONS
The following terms, which are capitalized in this Agreement, shall have the
meanings set forth below for the purpose of this Agreement:
Acquired Corporation........ Mercantile Bancorp, Inc.
Acquired Corporation Company Shall mean Acquired Corporation, MDBI, 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 Company Employee Shall include those employees whom Acquired Corporation
Company leases from a third party.
Acquired Corporation Options Options respecting the issuance of a maximum of 232,000
shares of Acquired Corporation common stock pursuant to
Acquired Corporation's stock option plans.
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Acquired Corporation Stock............ Shares of common stock, $5.00 par value, of Acquired
Corporation.
Acquired Corporation Stock Option Plan The Mercantile Bancorp, Inc. Amended and Restated Stock
Option Plan
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.
Affiliate............................. Shall have the meaning set forth in Rule 145 under the 1933
Act.
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 Comptroller of the Currency, the
Office of Thrift Supervision, all state regulatory agencies
(including those of the States of Texas and Alabama) 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.................................. First Mercantile Bank, National Association, a national
banking association.
Bank Merger........................... The merger of Bank into Colonial Bank, as described in
Section 2.8.
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.
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Confidentiality Agreements The Confidentiality Agreement, dated as of August 6, 2001,
by and between BancGroup and SAMCO and the
Confidentiality Agreement, dated as of November 5, 2001, by
and among BancGroup, Colonial Bank, Acquired
Corporation, and Bank.
Consent................... Any consent, approval, authorization, clearance, exemption,
waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
Contract.................. Any written or oral agreement, arrangement, authorization,
commitment, contract, indenture, instrument, lease,
obligation, plan, practice, restriction, understanding or
undertaking of any kind or character, or other document to
which any Person is a party or that is binding on any Person
or its capital stock, Assets or business.
Default........... Shall mean (i) any breach or violaion of or default under any
Contract, Order or Permit, (ii) any occurrence of any event
that with the passage of time or the giving of notice or both
would constitute a breach or violation of or default under any
Contract, Order or Permit, or (iii) any occurrence of any event
that with or without the passage of time or the giving of notice
would give rise to a right to terminate or revoke, change the
current terms of, or renegotiate, or to accelerate, increase, or
impose any Liability under, any Contract, Order or Permit.
DGCL.............. The Delaware General Corporation Law.
Effective Date.... Means the date and time at which the Merger becomes
effective as defined in Section 2.7 hereof.
Environmental Laws Means the laws, regulations and governmental requirements
referred to in Section 5.23 hereof.
ERISA............. The Employee Retirement Income Security Act of 1974, as
amended.
Exchange Ratio The ratio used to calculate the Merger Consideration as set
forth in Section 3.1(a).
Exhibits A through C, inclusive, shall mean the Exhibits so marked,
copies of which are attached to this Agreement. Such Exhibits
are hereby incorporated by reference herein and made a part
hereof, and may be referred to in this Agreement and any
other related instrument or document without being attached
hereto.
GAAP.... 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 which should
have been obtained) after due investigation and inquiry of the
Chairman, President, Chief Financial Officer, and/or any
other Executive Vice President of any entity to which such
knowledge is attributed.
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Law...... Any code, law, ordinance, regulation, reporting or licensing
requirement, rule, or statute applicable to a Person or its
Assets, Liabilities or business, including, without limitation,
those promulgated, interpreted or enforced by any Agency, or
any interpretations thereof by courts and/or governmental
authorities.
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, reser-va-tion, restriction, security
interest, title retention or other security arrangement, or any
ad-verse 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, com-plaint, criminal prosecution,
governmental or other examination or investi-ga-tion, 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 trans-ac-tions
con-templated by this Agreement. relating to or affecting a
Party, its business, its Assets (including Contracts related to
it), or the trans-ac-tions con-templated 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.
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Loss................... Any and all direct or indirect payments, obligations,
recoveries, deficiencies, fines, penalties, interest, assessments,
losses, diminution in the value of Assets, damages, punitive,
exemplary or consequential damages (including, but not
limited to, lost income and profits and interruptions of
business), liabilities, costs, expenses (including without
limitation, reasonable attorneys' fees and expenses, and
consultant's fees and other costs of defense or investigation),
and interest on any amount payable to a third party as a result
of the foregoing.
Market Value........... Shall represent the per share market value of the BancGroup
Common Stock at the Effective Date and shall be determined
by calculating the average of the closing prices of the
Common Stock of BancGroup as reported by the NYSE on
each of the ten (10) consecutive trading days ending on the
trading day five trading days preceding the Effective Date.
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
(v) changes in generally accepted accounting principles or
regulatory accounting principles generally applicable to banks
and their holding companies, (w) 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, (x) changes resulting from changes in
interest rates, (y) changes in general economic conditions, and
(z) the Merger and compliance with the provisions of this
Agreement on the operating performance of the Parties.
MBI Trust.............. MBI Capital Trust I, a Delaware Business Trust.
MDBI................... Mercantile Delaware Bancorp, Inc., a Delaware Corporation.
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 appro-val,
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 shareholders of the transactions
contemplated by this Agreement, which shall include the
prospectus of BancGroup relating to the issuance of the
BancGroup Common Stock to the shareholders of Acquired
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
shareholders of Acquired Corporation pursuant to this
Agreement, including the Proxy Statement.
Resulting Bank....... Colonial Bank as provided in Section 2.8.
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; 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.
TBCA........ Texas Business Corporation Act.
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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 Texas apply to the Merger, this Agreement shall be governed
by, and construed in accordance with the Laws of the State of Alabama without
regard to any conflict of Laws.
15.4 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to constitute an original. Each such counterpart shall
become effective when one counterpart has been signed by each Party thereto.
15.5 Headings. The headings of the various articles and sections of this
Agreement are for convenience of reference only and shall not be deemed a part
of this Agreement or considered in construing the provisions thereof.
15.6 Severability. Any term or provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining terms and provisions thereof or affecting the
validity or enforceability of such provision in any other jurisdiction, and if
any term or provision of this Agreement is held by any court of competent
jurisdiction to be void, voidable, invalid or unenforceable in any given
circumstance or situation, then all other terms and provisions, being
severable, shall remain in full force and effect in such circumstance or
situation and the term or provision shall remain valid and in effect in any
other circumstances or situation.
15.7 Construction Use of the masculine pronoun herein shall be deemed to
refer to the feminine and neuter genders and the use of singular references
shall be deemed to include the plural and vice versa, as
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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 reasonable 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, the Confidentiality Agreements and
the documents and instruments referred to herein constitute the entire contract
between the parties to this Agreement and supersede all other understandings
with respect to the subject matter of this Agreement.
IN WITNESS WHEREOF, Acquired Corporation and BancGroup have caused this
Agreement to be signed by their respective duly authorized officers as of the
date first above written.
ATTEST: MERCANTILE BANCORP, INC.
BY:. /s/ J. CRAIG WALLIS BY: /s/ Roy J. Salley
----------------------------------- ----------------------------------
J. Craig Wallis Roy J. Salley
ITS: Secretary ITS: President and Chief Executive
Officer
(CORPORATE SEAL)
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ATTEST: THE COLONIAL BANCGROUP, INC.
BY: /s/ WILLIAM A. MCCRARY BY: /s/ W. FLAKE OAKLEY, IV
----------------------------------- ----------------------------------
William A. McCrary W. Flake Oakley, IV
ITS: Assistant Secretary ITS: Executive Vice President, Chief
Financial Officer, and Secretary
(CORPORATE SEAL)
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APPENDIX B
Art. 5.11 Rights of Dissenting Shareholders in the Event of Certain Corporate
Actions
A. Any shareholder of any domestic corporation shall have the right to
dissent from any of the following corporate actions:
(1) Any plan of merger to which the corporation is a party if shareholder
approval is required by Article 5.03 or 5.16 of this Act and the shareholder
holds shares of a class or series that was entitled to vote thereon as a class
or otherwise;
(2) Any sale, lease, exchange or other disposition (not including any
pledge, mortgage, deed of trust or trust indenture unless otherwise provided in
the articles of incorporation) of all, or substantially all, the property and
assets, with or without good will, of a corporation if special authorization of
the shareholders is required by this Act and the shareholders hold shares of a
class or series that was entitled to vote thereon as a class or otherwise;
(3) Any plan of exchange pursuant to Article 5.02 of this Act in which the
shares of the corporation of the class or series held by the shareholder are to
be acquired.
B. Notwithstanding the provisions of Section A of this Article, a
shareholder shall not have the right to dissent from any plan of merger in
which there is a single surviving or new domestic or foreign corporation, or
from any plan of exchange, if: (1) the shares held by the shareholder are part
of a class or series, shares of which are on the record date fixed to determine
the shareholders entitled to vote on the plan of merger or plan of exchange:
(a) listed on a national securities exchange; (b) listed on the Nasdaq Stock
Market (or successor quotation system) or designated as a national market
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc., or successor entity; or (c) held of record by not
less than 2,000 holders; (2) the shareholder is not required by the terms of
the plan of merger or plan of exchange to accept for the shareholder's shares
any consideration that is different than the consideration (other than cash in
lieu of fractional shares that the shareholder would otherwise be entitled to
receive) to be provided to any other holder of shares of the same class or
series of shares held by such shareholder; and (3) the shareholder is not
required by the terms of the plan of merger or the plan of exchange to accept
for the shareholder's shares any consideration other than: (a) shares of a
domestic or foreign corporation that, immediately after the effective time of
the merger or exchange, will be part of a class or series, shares of which are:
(i) listed, or authorized for listing upon official notice of issuance, on a
national securities exchange; (ii) approved for quotation as a national market
security on an interdealer quotation system by the National Association of
Securities Dealers, Inc., or successor entity; or (iii) held of record by not
less than 2,000 holders; (b) cash in lieu of fractional shares otherwise
entitled to be received; or (c) any combination of the securities and cash
described in Subdivisions (a) and (b) of this subsection.
Art. 5.12 Procedure for Dissent by Shareholders as to Said Corporate Actions
A. Any shareholder of any domestic corporation who has the right to dissent
from any of the corporate actions referred to in Article 5.11 of this Act may
exercise that right to dissent only by complying with the following procedures:
(1) (a) With respect to proposed corporate action that is submitted to a
vote of shareholders at a meeting, the shareholder shall file with the
corporation, prior to the meeting, a written objection to the action, setting
out that the shareholder's right to dissent will be exercised if the action is
effective and giving the shareholder's address, to which notice thereof shall
be delivered or mailed in that event. If the action is effected and the
shareholder shall not have voted in favor of the action, the corporation, in
the case of action other than a merger, or the surviving or new corporation
(foreign or domestic) or other entity that is liable to discharge the
shareholder's right of dissent, in the case of a merger, shall, within ten (10)
days after the action is effected, deliver or mail to the shareholder written
notice that the action has been effected, and the shareholder may, within ten
(10) days from the delivery or mailing of the notice, make written demand on
the existing, surviving,
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or new corporation (foreign or domestic) or other entity, as the case may be,
for payment of the fair value of the shareholder's shares. The fair value of
the shares shall be the value thereof as of the day immediately preceding the
meeting, excluding any appreciation or depreciation in anticipation of the
proposed action. The demand shall state the number and class of the shares
owned by the shareholder and the fair value of the shares as estimated by the
shareholder. Any shareholder failing to make demand within the ten (10) day
period shall be bound by the action.
(b) With respect to proposed corporate action that is approved pursuant to
Section A of Article 9.10 of this Act, the corporation, in the case of action
other than a merger, and the surviving or new corporation (foreign or domestic)
or other entity that is liable to discharge the shareholder's right of dissent,
in the case of a merger, shall, within ten (10) days after the date the action
is effected, mail to each shareholder of record as of the effective date of the
action notice of the fact and date of the action and that the shareholder may
exercise the shareholder's right to dissent from the action. The notice shall
be accompanied by a copy of this Article and any articles or documents filed by
the corporation with the Secretary of State to effect the action. If the
shareholder shall not have consented to the taking of the action, the
shareholder may, within twenty (20) days after the mailing of the notice, make
written demand on the existing, surviving or new corporation (foreign or
domestic) or other entity, as the case may be, for payment of the fair value of
the shareholder's shares. The fair value of the shares shall be the value
thereof as of the date the written consent authorizing the action was delivered
to the corporation pursuant to Section A of Article 9.10 of this Act, excluding
any appreciation or depreciation in anticipation of the action. The demand
shall state the number and class of shares owned by the dissenting shareholder
and the fair value of the shares as estimated by the shareholder. Any
shareholder failing to make demand within the twenty (20) day period shall be
bound by the action.
(2) Within twenty (20) days after receipt by the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, of a
demand for payment made by a dissenting shareholder in accordance with
Subsection (1) of this Section, the corporation (foreign or domestic) or other
entity shall deliver or mail to the shareholder a written notice that shall
either set out that the corporation (foreign or domestic) or other entity
accepts the amount claimed in the demand and agrees to pay that amount within
ninety (90) days after the date on which the action was effected, and, in the
case of shares represented by certificates, upon the surrender of the
certificates duly endorsed, or shall contain an estimate by the corporation
(foreign or domestic) or other entity of the fair value of the shares, together
with an offer to pay the amount of that estimate within ninety (90) days after
the date on which the action was effected, upon receipt of notice within sixty
(60) days after that date from the shareholder that the shareholder agrees to
accept that amount and, in the case of shares represented by certificates, upon
the surrender of the certificates duly endorsed.
(3) If, within sixty (60) days after the date on which the corporate action
was effected, the value of the shares is agreed upon between the shareholder
and the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, payment for the shares shall be made within ninety
(90) days after the date on which the action was effected and, in the case of
shares represented by certificates, upon surrender of the certificates duly
endorsed. Upon payment of the agreed value, the shareholder shall cease to have
any interest in the shares or in the corporation.
B. If, within the period of sixty (60) days after the date on which the
corporate action was effected, the shareholder and the existing, surviving, or
new corporation (foreign or domestic) or other entity, as the case may be, do
not so agree, then the shareholder or the corporation (foreign or domestic) or
other entity may, within sixty (60) days after the expiration of the sixty (60)
day period, file a petition in any court of competent jurisdiction in the
county in which the principal office of the domestic corporation is located,
asking for a finding and determination of the fair value of the shareholder's
shares. Upon the filing of any such petition by the shareholder, service of a
copy thereof shall be made upon the corporation (foreign or domestic) or other
entity, which shall, within ten (10) days after service, file in the office of
the clerk of the court in which the petition was filed a list containing the
names and addresses of all shareholders of the domestic corporation who have
demanded payment for their shares and with whom agreements as to the value of
their shares have not been reached by the corporation (foreign or domestic) or
other entity. If the petition shall be filed by the corporation
B-2
(foreign or domestic) or other entity, the petition shall be accompanied by
such a list. The clerk of the court shall give notice of the time and place
fixed for the hearing of the petition by registered mail to the corporation
(foreign or domestic) or other entity and to the shareholders named on the list
at the addresses therein stated. The forms of the notices by mail shall be
approved by the court. All shareholders thus notified and the corporation
(foreign or domestic) or other entity shall thereafter be bound by the final
judgment of the court.
C. After the hearing of the petition, the court shall determine the
shareholders who have complied with the provisions of this Article and have
become entitled to the valuation of and payment for their shares, and shall
appoint one or more qualified appraisers to determine that value. The
appraisers shall have power to examine any of the books and records of the
corporation the shares of which they are charged with the duty of valuing, and
they shall make a determination of the fair value of the shares upon such
investigation as to them may seem proper. The appraisers shall also afford a
reasonable opportunity to the parties interested to submit to them pertinent
evidence as to the value of the shares. The appraisers shall also have such
power and authority as may be conferred on Masters in Chancery by the Rules of
Civil Procedure or by the order of their appointment.
D. The appraisers shall determine the fair value of the shares of the
shareholders adjudged by the court to be entitled to payment for their shares
and shall file their report of that value in the office of the clerk of the
court. Notice of the filing of the report shall be given by the clerk to the
parties in interest. The report shall be subject to exceptions to be heard
before the court both upon the law and the facts. The court shall by its
judgment determine the fair value of the shares of the shareholders entitled to
payment for their shares and shall direct the payment of that value by the
existing, surviving, or new corporation (foreign or domestic) or other entity,
together with interest thereon, beginning 91 days after the date on which the
applicable corporate action from which the shareholder elected to dissent was
effected to the date of such judgment, to the shareholders entitled to payment.
The judgment shall be payable to the holders of uncertificated shares
immediately but to the holders of shares represented by certificates only upon,
and simultaneously with, the surrender to the existing, surviving, or new
corporation (foreign or domestic) or other entity, as the case may be, of duly
endorsed certificates for those shares. Upon payment of the judgment, the
dissenting shareholders shall cease to have any interest in those shares or in
the corporation. The court shall allow the appraisers a reasonable fee as court
costs, and all court costs shall be allotted between the parties in the manner
that the court determines to be fair and equitable.
E. Shares acquired by the existing, surviving, or new corporation (foreign
or domestic) or other entity, as the case may be, pursuant to the payment of
the agreed value of the shares or pursuant to payment of the judgment entered
for the value of the shares, as in this Article provided, shall, in the case of
a merger, be treated as provided in the plan of merger and, in all other cases,
may be held and disposed of by the corporation as in the case of other treasury
shares.
F. The provisions of this article shall not apply to a merger if, on the
date of the filing of the articles of merger, the surviving corporation is the
owner of all the outstanding shares of the other corporations, domestic or
foreign, that are parties to the merger.
G. In the absence of fraud in the transaction, the remedy provided by this
Article to a shareholder objecting to any corporate action referred to in
Article 5.11 of this Act is the exclusive remedy for the recovery of the value
of his shares or money damages to the shareholder with respect to the action.
If the existing, surviving, or new corporation (foreign or domestic) or other
entity, as the case may be, complies with the requirements of this Article, any
shareholder who fails to comply with the requirements of this Article shall not
be entitled to bring suit for the recovery of the value of his shares or money
damages to the shareholder with respect to the action.
Art. 5.13 Provisions Affecting Remedies of Dissenting Shareholders
A. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act shall not thereafter be entitled
to vote or exercise any other rights of a shareholder except the right to
receive payment for his shares pursuant to the provisions of those articles and
the right to maintain an appropriate action to obtain relief on the ground that
the corporate action would be or was fraudulent, and the respective shares for
which payment has been demanded shall not thereafter be considered outstanding
for the purposes of any subsequent vote of shareholders.
B-3
B. Upon receiving a demand for payment from any dissenting shareholder, the
corporation shall make an appropriate notation thereof in its shareholder
records. Within twenty (20) days after demanding payment for his shares in
accordance with either Article 5.12 or 5.16 of this Act, each holder of
certificates representing shares so demanding payment shall submit such
certificates to the corporation for notation thereon that such demand has been
made. The failure of holders of certificated shares to do so shall, at the
option of the corporation, terminate such shareholder's rights under Articles
5.12 and 5.16 of this Act unless a court of competent jurisdiction for good and
sufficient cause shown shall otherwise direct. If uncertificated shares for
which payment has been demanded or shares represented by a certificate on which
notation has been so made shall be transferred, any new certificate issued
therefor shall bear similar notation together with the name of the original
dissenting holder of such shares and a transferee of such shares shall acquire
by such transfer no rights in the corporation other than those which the
original dissenting shareholder had after making demand for payment of the fair
value thereof.
C. Any shareholder who has demanded payment for his shares in accordance
with either Article 5.12 or 5.16 of this Act may withdraw such demand at any
time before payment for his shares or before any petition has been filed
pursuant to Article 5.12 or 5.16 of this Act asking for a finding and
determination of the fair value of such shares, but no such demand may be
withdrawn after such payment has been made or, unless the corporation shall
consent thereto, after any such petition has been filed. If, however, such
demand shall be withdrawn as hereinbefore provided, or if pursuant to Section B
of this Article the corporation shall terminate the shareholder's rights under
Article 5.12 or 5.16 of this Act, as the case may be, or if no petition asking
for a finding and determination of fair value of such shares by a court shall
have been filed within the time provided in Article 5.12 or 5.16 of this Act,
as the case may be, or if after the hearing of a petition filed pursuant to
Article 5.12 or 5.16, the court shall determine that such shareholder is not
entitled to the relief provided by those articles, then, in any such case, such
shareholder and all persons claiming under him shall be conclusively presumed
to have approved and ratified the corporate action from which he dissented and
shall be bound thereby, the right of such shareholder to be paid the fair value
of his shares shall cease, and his status as a shareholder shall be restored
without prejudice to any corporate proceedings which may have been taken during
the interim, and such shareholder shall be entitled to receive any dividends or
other distributions made to shareholders in the interim.
B-4
APPENDIX C
______________, 2002
The Board of Directors
Mercantile Bancorp, Inc.
8144 Walnut Hill Lane, Suite 172
Dallas, Texas 75231
Attn: Mr. Roy J. Salley, President & CEO
Members of the Board:
We understand that Mercantile Bancorp, Inc. ("MBI"), a Texas Corporation,
and The Colonial BancGroup, Inc., a Delaware corporation ("BancGroup"), have
entered into an Agreement and Plan of Reorganization (the "Reorganization
Agreement") dated November 29, 2001, which provides for the merger (the
"Merger") of MBI with and into BancGroup. Pursuant to the terms of the
Reorganization Agreement, each issued and outstanding share of common stock,
par value $5.00 per share, of MBI, as of the date the Merger becomes effective
(the "Effective Date"), will be converted into the right to receive 3.4808
shares of BancGroup common stock, subject to adjustment as described in the
Reorganization Agreement (the "Exchange Ratio"). The terms and conditions of
the Merger are more fully set forth in the Reorganization Agreement.
You have asked for our opinion ("Opinion"), as independent financial
advisors, as to whether the Exchange Ratio, as set forth in the Reorganization
Agreement, is fair from a financial point of view, to holders of MBI common
stock.
Our Opinion is based on information furnished to us by MBI and BancGroup,
their accountants, or obtained by us from published and other sources we
consider relevant. We have relied upon and assumed the accuracy and
completeness of all information submitted to us or that was publicly available
and have made no independent verification of this information. We have not
conducted any valuation or appraisal of any assets or liabilities, nor have any
such valuations or appraisals been provided to us. In relying upon financial
analyses and forecasts provided to us, we have assumed that they have been
reasonably prepared based on assumptions reflecting the best currently
available estimates and judgments by management of MBI and BancGroup as to the
expected future results of operations and financial condition of MBI and
BancGroup to which such analyses or forecasts relate. We have relied as to all
legal matters relevant to rendering our Opinion upon the advice of our counsel.
MBI and BancGroup 's management have informed us that they know of no
additional information that would have a material effect upon our Opinion.
In arriving at our Opinion, we have followed generally accepted industry
practices for the valuation of commercial banks and have used such valuation
methodologies as we have deemed necessary or appropriate for the purposes of
this Opinion. We have given consideration to all available financial data and
other relevant factors affecting fair value including, but not limited to the
following, (i) certain publicly available financial statements and other
information of MBI and BancGroup, including but not limited to the September
30, 2001 Regulatory Call Report of First Mercantile Bank, N.A. (the "Bank"),
FRY-9C Consolidated Financial Reports of MBI and Form 10Q (Quarterly Report) of
BancGroup, (ii) certain internal financial statements and other financial and
operating data concerning MBI and BancGroup prepared by the management of MBI
and BancGroup, respectively, (iii) certain summary financial projections
concerning MBI and BancGroup prepared by the management of MBI and BancGroup,
respectively; (iv) discussions with senior executives of MBI regarding the past
and current operations and prospects of MBI, (v) discussions with senior
executives of BancGroup regarding the past and current operations and financial
condition and the prospects of BancGroup, (vi) discussions with senior
executives of MBI and BancGroup as to the strategic objectives of the Merger
and the long term benefits expected to result from the Merger, including
without limitation, certain estimates
C-1
and timing of synergies and other cost savings for the continued company, (vii)
reported prices and trading activity for transactions in MBI stock and
BancGroup stock, (viii) the financial performance of MBI and BancGroup and the
prices and trading activity of MBI and BancGroup with that of certain other
comparable publicly traded companies and their securities, (ix) the financial
terms, to the extent publicly available, of certain comparable transactions,
(x) the Reorganization Agreement and certain related documents, and (xi) such
other factors as we have deemed appropriate.
Over the past two years, SAMCO Capital Markets ("SAMCO") has been engaged by
MBI to provide various financial advisory services, including rendering a
fairness opinion for the Company's acquisition of TownBank, NA. SAMCO also
served as placement agent for MBI's $8 million Trust Preferred Securities
offering. We were requested to, and did, solicit third party offers to acquire
all or any part of MBI. Neither SAMCO nor the individuals involved in this
valuation have any present or contemplated future financial interest in MBI or
BancGroup which might prevent them from rendering a fair and unbiased Opinion.
Our Opinion is necessarily based upon the business, market, economic and other
conditions as they exist on, and can be evaluated as of, the date of this
letter, and does not address MBI's underlying business decision to enter into
the Reorganization Agreement or constitute any recommendations to any holder of
common stock of MBI as to how such holder should vote with respect to the
Reorganization Agreement.
In reaching our Opinion, we have assumed that the Merger will be consummated
in accordance with the terms described in the Reorganization Agreement. Based
on the foregoing and in consideration of all relevant factors, it is our
Opinion, as of the date of this letter, that the Exchange Ratio is fair, from a
financial point of view, to all holders of MBI common stock.
We consent to the reference to our firm and the inclusion of our Opinion in
its entirety in any filing with the Securities and Exchange Commission related
to the Merger and the Proxy Statement - Prospectus sent to MBI Shareholders.
SAMCO Capital Markets appreciates the opportunity to be of service to you in
this matter.
Very truly yours,
SAMCO Capital Markets
By: _________________________________________________________________
Dory A. Wiley, CPA, CVA, CFA
C-2
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Pursuant to section 145 of the Delaware General Corporation Law, as
amended, and the Restated Certificate of Incorporation of the Registrant,
officers, directors, employees, and agents of the Registrant are entitled to
indemnification against liabilities incurred while acting in such capacities on
behalf of the Registrant, including reimbursement of certain expenses. In
addition, the Registrant maintains an officers and directors insurance policy
pursuant to which certain officers and all directors of the Registrant are
entitled to indemnification against certain liabilities, including reimbursement
of certain expenses, and the Registrant has indemnity agreements
("Indemnification Agreements") with certain officers and all of its directors
pursuant to which such persons may be indemnified by the Registrant against
certain liabilities, including expenses.
The Indemnification Agreements are intended to provide additional
indemnification to directors and officers of BancGroup beyond the specific
provisions of the Delaware General Corporation Law. Under the Delaware General
Corporation Law, a company may indemnify its directors and officers in
circumstances other than those under which indemnification and the advance of
expenses are expressly permitted by applicable statutory provisions.
Under the Delaware General Corporation Law, a director, officer, employee
or agent of a corporation (i) must be indemnified by the corporation for all
expenses incurred by him (including attorneys' fees) when he is successful on
the merits or otherwise in defense of any action, suit or proceeding brought by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation, (ii) may be indemnified by the corporation against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement of
any such proceeding (other than a proceeding by or in the right of the
corporation) even if he is not successful on the merits if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the best
interest of the corporation (and, in the case of a criminal proceeding, had no
reasonable cause to believe his conduct was unlawful), and (iii) may be
indemnified by the corporation for expenses (including attorneys' fees) incurred
by him in the defense or settlement of a proceeding brought by or in the right
of the corporation, if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the corporation;
provided that no indemnification may be made under the circumstances described
in clause (iii) if the director, officer, employee or agent is adjudged liable
to the corporation, unless a court determines that, despite the adjudication of
liability but in view of all of the circumstances, he is fairly and reasonably
entitled to indemnification for the expenses which the court shall deem proper.
The indemnification described in clauses (ii) and (iii) above (unless ordered by
a court) may be made only as authorized in a specific case upon determination by
(i) a majority of a quorum of disinterested directors, (ii) independent legal
counsel in a written opinion, or (iii) the stock holders, that indemnification
is proper in the circumstances because the applicable standard of conduct has
been met. Expenses (including attorneys' fees) incurred by an officer or
director in defending a proceeding may be advanced by the corporation prior to
the final disposition of the proceeding upon receipt of an undertaking by or on
behalf of the director or officer to repay the advance if it is ultimately
determined that he is not entitled to be indemnified by the corporation.
Expenses (including attorneys' fees) incurred by other employees and agents may
be advanced by the corporation upon terms and conditions deemed appropriate by
the board of directors.
The indemnification provided by the Delaware General Corporation Law has
at least two limitations that are addressed by the Indemnification Agreements:
(i) BancGroup is under no obligation to advance expenses to a director or
officer, and (ii) except in the case of a proceeding in which a director or
officer is successful on the merits or otherwise, indemnification of a director
or officer is discretionary rather than mandatory.
The Indemnification Agreements, therefore, cover any and all expenses
(including attorneys' fees and all other charges paid or payable in connection
therewith) incurred in connection with investigating, defending, being a witness
or participating in (including an appeal), or preparing to defend, be a witness
in or participate in, any threatened, pending or completed action, suit or
proceeding, or any inquiry or investigation, whether civil, criminal,
administrative or otherwise, related to the fact that such director or officer
is or was a director, officer, employee or agent of BancGroup or is or was
serving at the request of BancGroup as a director, officer, employee, agent,
partner, committee member or fiduciary of another corporation, partnership,
joint venture, employee benefit plan, trust or other enterprise, or by reason of
anything done or not done by such director or officer in any such capacity.
The Indemnification Agreements also provide for the prompt advancement of
all expenses incurred in connection with any proceeding and obligate the
director or officer to reimburse BancGroup for all amounts so advanced if it is
subsequently determined, as provided in the Indemnification Agreements, that the
director or officer is not entitled to indemnification.
The Indemnification Agreements further provide that the director or officer
is entitled to indemnification for, and advancement of, all expenses (including
attorneys' fees) incurred in any proceeding seeking to collect from BancGroup an
indemnity claim or advancement of expenses under the Indemnification Agreements,
BancGroup's Certificate of Incorporation, or the Delaware General Corporation
Law, regardless of whether the director or officer is successful in such
proceeding.
The Indemnification Agreements impose upon BancGroup the burden of proving
that the director or officer is not entitled to indemnification in any
particular case, and the Indemnification Agreements negate certain presumptions
which might otherwise be drawn against a director or officer in certain
circumstances. Further, the Indemnification Agreements provide that if BancGroup
pays a director or officer pursuant to an Indemnification Agreement, BancGroup
will be subrogated to such director's or officer's rights to recover from third
parties.
The Indemnification Agreements stipulate that a director's or officer's
rights under such contracts are not exclusive of any other indemnity rights a
director or officer may have; however, the Indemnification Agreements prevent
double payment. The Indemnification Agreements require the maintenance of
directors' and officers' liability insurance if such insurance can be maintained
on terms, including rates, satisfactory to BancGroup.
The benefits of the Indemnification Agreements would not be available if
(i) the action with respect to which indemnification is sought was initiated or
brought voluntarily by the officer or director (other than an action to enforce
the right to indemnification under the Indemnification Agreements); (ii) the
officer or director is paid for such expense or liability under an insurance
policy; (iii) the proceeding is for an accounting of profits pursuant to Section
16(b) of the Securities Exchange Act of 1934, as amended; (iv) the conduct of
the officer or director is adjudged as constituting an unlawful personal
benefit, or active or deliberate dishonesty or willful fraud or illegality; or
(v) a court determines that indemnification or advancement of expenses is
unlawful under the circumstances.
The Indemnification Agreements would provide indemnification for
liabilities arising under the Securities Act of 1933, as amended. BancGroup has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in such act and is,
therefore, unenforceable.
Item 21. Exhibits.
The following is a list of exhibits that are included in Part II of the
Registration Statement. Such exhibits are separately indexed elsewhere in
the Registration Statement.
Description
-----------
2.1 Agreement and Plan of Merger between The Colonial BancGroup, Inc. and
Mercantile Bancorp, Inc., dated as of November 29, 2001, included in the
Prospectus portion of this registration statement at Appendix A and
incorporated herein by reference.
2.2 Mercantile Bancorp, Inc. Outside Directors Stock Option Plan and Amended
and Restated Stock Option Plan.
4.1 Article 4 of the Restated Certificate of Incorporation of the Registrant
filed as Exhibit 4.1 to the Registrant's Current Report on Form 8-K,
dated February 21, 1995, including the amendment to Article 4 noted at
Exhibit 4(B) above, and incorporated herein by reference.
4.2 Amendment to Article 4 of Registrant's Restated Certificate of
Incorporation, dated May 15, 1998, filed as Exhibit 4.2 to the
Registrant's Registration Statement on Form S-4 (File No. 333-56241),
effective June 22, 1998, and incorporated herein by reference.
4.3 Article II of the Bylaws of the Registrant filed as Exhibit 4.2 to the
Registrant's Current Report on Form 8-K, dated February 21, 1995, and
incorporated herein by reference.
4.4 Restated Dividend Reinvestment Plan of the Registrant dated April 18,
2001, Amendment No. 1 thereto dated as of June 10, 1986, filed as Exhibit
4(C) to the Registrant's Registration Statement on Form S-4 (File No.
33-07015), effective July 15, 1986, and Amendment No. 2 thereto filed as
a Post-Effective Amendment to Form S-3 (File No. 33-62071) on June 18,
2001, and incorporated herein by reference.
4.5 Trust Indenture dated as of March 25, 1986, included as Exhibit 4 to the
Registrant's Amendment No. 1 to Registration Statement on Form S-2, file
number 33-4004, effective March 25, 1986, and incorporated herein by
reference.
4.6 All other instruments defining the rights of holders of long-term debt of
the Registrant and its subsidiaries - not filed pursuant to clause 4(iii)
of Item 601(b) of Regulation S-K to be furnished upon request of the
Commission.
5 Opinion of Miller, Hamilton, Snider & Odom, L.L.C. as to certain Delaware
law issues of the securities being registered.
8 Tax Opinion of PricewaterhouseCoopers LLP.
12 Statements Regarding Computation of Earnings to Fixed Charges, filed as
Exhibit 12 to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 2000, and incorporated herein by reference.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Miller, Hamilton, Snider & Odom, L.L.C.
24 Power of Attorney.
99.1 Form of Proxy of Mercantile Bancorp, Inc.
Item 22. Undertakings.
(a) The undersigned hereby undertakes as follows as required by Item 512 of
Regulation S-K:
(1) That prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a
part of this Registration Statement, by any person or party who
is deemed to be an underwriter within the meaning of Rule
145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable
registration form with respect to reofferings by persons who
may be deemed underwriters, in addition to the information
called for by the other Items of the applicable form.
(2) That every prospectus (i) that is filed pursuant to paragraph
(1) immediately above, or (ii) that purports to meet the
requirements of section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415,
will be filed as a part of an amendment to the Registration
Statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective
amendment shall be deemed to be a new Registration Statement
relating to such securities offered therein, and the offering
of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) Insofar as indemnification for liabilities arising under the
Act may be permitted to directors, officers, and controlling
persons of the Registrant, the Registrant has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant
will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such
issue.
(b) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the prospectus
pursuant to Items 4, 10(b), 11, or 13 of Form S-4, within one
business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the
effective date of the Registration Statement through the date of
responding to the request.
(c) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the
subject of and included in the Registration Statement when it became
effective.
(d) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration
Statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement
(or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a
fundamental change in the information set forth in the
Registration Statement;
(iii) To include any material information with respect to the
plan of distribution not previously disclosed in the
Registration Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide
offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(e) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each
filing of the Registrant's annual report pursuant to section 13(a) or
section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the Registration Statement shall
be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Montgomery, Alabama, on
the 5th day of February, 2002.
THE COLONIAL BANCGROUP, INC.
By: /s/ Robert E. Lowder
---------------------------------------
Robert E. Lowder
Its Chairman of the Board of Directors,
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
SIGNATURES TITLE DATE
---------- ----- ----
/s/ Robert E. Lowder Chairman of the Board of Directors, President and Chief Executive Officer **
---------------------------------
Robert E. Lowder
/s/ W. Flake Oakley, IV Chief Financial Officer, Secretary and Treasurer (Principal Financial Officer and **
--------------------------------- Principal Accounting Officer)
W. Flake Oakley, IV
* Director **
---------------------------------
Lewis E. Beville
* Director **
---------------------------------
William Britton
* Director **
---------------------------------
Jerry J. Chesser
* Director **
---------------------------------
Augustus K. Clements, III
* Director **
---------------------------------
Robert C. Craft
* Director **
---------------------------------
Patrick F. Dye
* Director **
---------------------------------
Clinton O. Holdbrooks
* Director **
---------------------------------
Harold D. King
* Director **
---------------------------------
John Ed Mathison
* Director **
---------------------------------
Milton E. McGregor
* Director **
---------------------------------
John C. H. Miller, Jr.
SIGNATURES TITLE DATE
---------- ----- ----
* Director **
----------------------------------
Joe D. Mussafer
* Director **
----------------------------------
William E. Powell, III
* Director **
----------------------------------
James W. Rane
* Director **
----------------------------------
Frances E. Roper
* Director **
----------------------------------
Simuel Sippial
* Director **
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Edward V. Welch
* The undersigned, acting pursuant to a power of attorney, has signed this
Registration Statement on Form S-4 for and on behalf of the persons
indicated above as such persons' true and lawful attorney-in-fact and in
their names, places and stead, in the capacities indicated above and on
the date indicated below.
/s/ W. Flake Oakley, IV
----------------------------------
W. Flake Oakley, IV
Attorney-in-Fact
** Dated: February 5, 2002
EXHIBIT INDEX
EXHIBIT
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2.1 Agreement and Plan of Merger between The Colonial BancGroup,
Inc. and Mercantile Bancorp, Inc., dated as of November 29,
2001, included in the Prospectus portion of this registration
statement at Appendix A and incorporated herein by reference.
2.2 Mercantile Bancorp, Inc. Outside Directors Stock Option Plan
and Amended and Restated Stock Option Plan.
4.1 Article 4 of the Restated Certificate of Incorporation of the
Registrant filed as Exhibit 4.1 to the Registrant's Current
Report on Form 8-K, dated February 21, 1995, including the
amendment to Article 4 noted at Exhibit 4(B) above, and
incorporated herein by reference.
4.2 Amendment to Article 4 of Registrant's Restated Certificate of
Incorporation, dated May 15, 1998, filed as Exhibit 4.2 to the
Registrant's Registration Statement on Form S-4 (File No.
333-56241), effective June 22, 1998, and incorporated herein
by reference.
4.3 Article II of the Bylaws of the Registrant filed as Exhibit
4.2 to the Registrant's Current Report on Form 8-K, dated
February 21, 1995, and incorporated herein by reference.
4.4 Restated Dividend Reinvestment Plan of the Registrant dated
April 18, 2001, Amendment No. 1 thereto dated as of June 10,
1986, filed as Exhibit 4(C) to the Registrant's Registration
Statement on Form S-4 (File No. 33-07015), effective July 15,
1986, and Amendment No. 2 thereto filed as a Post-Effective
Amendment to Form S-3 (File No. 33- 62071) on June 18, 2001,
and incorporated herein by reference.
4.5 Trust Indenture dated as of March 25, 1986, included as
Exhibit 4 to the Registrant's Amendment No. 1 to Registration
Statement on Form S-2, file number 33-4004, effective
March 25, 1986, and incorporated herein by reference.
4.6 All other instruments defining the rights of holders of
long-term debt of the Registrant and its subsidiaries - not
filed pursuant to clause 4(iii) of Item 601(b) of Regulation
S-K to be furnished upon request of the Commission.
5 Opinion of Miller, Hamilton, Snider & Odom, L.L.C. as to
certain Delaware law issues of the securities being
registered.
8 Tax Opinion of PricewaterhouseCoopers LLP.
12 Statements Regarding Computation of Earnings to Fixed Charges,
filed as Exhibit 12 to the Registrant's Annual Report on Form
10-K for the year ended December 31, 2000, and incorporated
herein by reference.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of PricewaterhouseCoopers LLP.
23.3 Consent of Miller, Hamilton, Snider & Odom, L.L.C.
24 Power of Attorney.
99.1 Form of Proxy of Mercantile Bancorp, Inc.