<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For fiscal year ended DECEMBER 31, 1997
[_] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ______________to _______________
Commission file number 333-14355
DECATUR FIRST BANK GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Small Business Issuer in Its Charter)
GEORGIA 58-2254289
- ------------------------------- -------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
1120 COMMERCE DRIVE, DECATUR, GEORGIA 30030
- ---------------------------------------- -------------------
(Address of Principal Executive Offices) (Zip Code)
Securities registered pursuant to Section 12(b) of the Act: NONE.
Securities registered pursuant to Section 12(g) of the Act: NONE.
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for past 90 days. Yes [X] No [_]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or a
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year: $342,489
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the stock was
sold, or the average bid and asked prices of such common equity, as of a
specified date within the past 60 days: $9,415,440
APPLICABLE ONLY TO CORPORATE REGISTRANTS
State the number of shares outstanding of each of the issuer's classes of
common equity, as of the latest practicable date. 941,544 AS OF MARCH 20, 1998.
Transitional Small Business Disclosure format (check one): Yes [_] No [X]
DOCUMENTS INCORPORATED BY REFERENCE
None.
<PAGE>
TABLE OF CONTENTS
PART I ....................................................................
ITEM 1. DESCRIPTION OF BUSINESS.............................................
ITEM 2. DESCRIPTION OF PROPERTIES...........................................
ITEM 3. LEGAL PROCEEDINGS...................................................
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.................
PART II ....................................................................
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.........................................
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS...............................................
ITEM 7. FINANCIAL STATEMENTS................................................
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE................................................
PART III ....................................................................
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT..........
ITEM 10. EXECUTIVE COMPENSATION..............................................
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT..........................................................
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS......................
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 10-KSB..........................
2
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
THE COMPANY
The Company was incorporated as a Georgia business corporation on August 2,
1996, and became a bank holding company by acquiring all of the Common Stock of
Decatur First Bank (the "Bank"). The Bank is the only subsidiary of the Company.
The Company was organized to facilitate the Bank's ability to serve its
customers' requirements for financial services. The holding company structure
will provide flexibility for expansion of the Company's banking business through
the possible acquisition of other financial institutions and the provision of
additional banking-related services that a traditional commercial bank may not
provide under present laws. For example, banking regulations require the Bank
to maintain a minimum ratio of capital to assets. In the event that the Bank's
growth prevents it from maintaining this minimum ratio, the Company may borrow
funds, subject to capital adequacy guidelines of the Federal Reserve and
contribute them to the capital of the Bank and otherwise raise capital in a
manner unavailable to the Bank under the existing banking regulations.
The Company has no present plans to acquire any additional operating
subsidiaries. The Company may, however, make additional acquisitions in the
future in the event that the acquisitions are deemed to be in the best interests
of the Company and its shareholders. Such acquisitions, if any, will be subject
to certain regulatory approvals and requirements. See "Business - Bank Holding
Company Regulation.
THE BANK
GENERAL
The Bank began business in the third quarter of 1997 as a full-service
commercial bank. The Bank offers personal and business checking accounts,
interest-bearing checking accounts, savings accounts and various types of
certificates of deposit. The Bank also offers installment loans, real estate
loans, construction loans, second mortgage loans, commercial and SBA loans and
home equity lines of credit. In addition, the Bank provides such services as
official bank checks and money orders, Mastercard credit cards, safe deposit
box, traveler's checks, bank-by-mail, direct deposit of payroll and Social
Security check and U.S. Savings Bonds.
PHILOSOPHY
The philosophy of the Bank's management ("Management") is to emphasize
prompt and responsive personal service to residents of Decatur, Georgia, as well
as other communities located in DeKalb County, in order to attract customers and
acquire market share controlled by other financial institutions in the Bank's
market area. Management believes that the Bank offers residents of Decatur and
surrounding counties the benefits associated with a locally owned and managed
community bank. Management has implemented an active call program, by which
officers and directors promote these efforts by personally describing the
products, services and philosophy of the Bank. The Bank's directors are active
members in the Decatur community and their continued active community
involvement provides them with an opportunity to promote the Bank and its
products and services.
3
<PAGE>
MARKET AREA AND COMPETITION
The Bank is located in Decatur, Georgia. The Bank's primary market area is
defined as the five mile radius of the Center of Decatur, Georgia. Decatur is
the county seat of DeKalb County and is located 12 minutes east of downtown
Atlanta, Georgia. Decatur is four square miles in size and there are over 12
distinct neighborhoods within the City of Decatur. The Bank competes for
deposits and loan customers with other financial institutions whose resources
are equal to or greater than those available to the Bank and the Company.
Decatur is served by eleven commercial banks, two savings institutions and four
credit unions, which, collectively, operate 38 banking offices. These financial
institutions offer all of the services that the Bank offers.
LOAN PORTFOLIO
LENDING POLICY. The Bank was established to support Decatur and
surrounding areas of DeKalb County. The Bank aggressively seeks creditworthy
loans within a limited geographic area. The Bank's primary commercial lending
function is to make consumer loans to individuals and commercial loans to small
and medium-sized businesses and professional concerns. In addition, the bank
makes real-estate-related loans, including construction loans for residential
and commercial properties, and primary and secondary mortgage loans for the
acquisition or improvement of personal residences. The Bank avoids
concentrations of loans to a single industry or based on a single type of
collateral.
The Bank's legal lending limits are 15% of its statutory capital base for
unsecured loans and 25% of its statutory capital base for secured loans. The
Bank's statutory capital base is determined by the sum of its common stock,
paid-in capital, appropriated retained earnings, and capital debt, or the amount
of net assets of the Bank, whichever is the lower amount. Accordingly, the
Bank's initial legal lending limits are approximately $1,135,000 for unsecured
loans and approximately $1,892,000 for secured loans. While the Bank generally
employs more conservative lending limits, the Board of Directors has discretion
to lend up to the legal lending limits as described above.
CONSUMER LOANS. The Bank makes consumer loans, consisting primarily of
installment loans to individuals for personal, family and household purposes,
including loans for automobiles, home improvements and investments. Risks
associated with consumer loans include, but are not limited to, fraud,
deteriorated or non-existing collateral, general economic downturn and customer
financial problems.
COMMERCIAL LOANS. The Bank's commercial lending is directed principally
toward small to mid-size businesses whose demand for funds falls within the
legal lending limits of the Bank. This category of loans includes loans made to
individual, partnership or corporate borrowers, and obtained for a variety of
business purposes. Risks associated with these loans can be significant and
include, but are not limited to, fraud, bankruptcy, economic downturn,
deteriorated or non-existing collateral and changes in interest rates.
REAL ESTATE LOANS. The Bank makes and holds real estate loans, consisting
primarily of single-family residential construction loans for one-to-four unit
family structures. The Bank requires a first lien position on the land
associated with the construction project and offers these loans to professional
building contractors and homeowners. Loan disbursements require on-site
inspections to assure the project is on budget and that the loan proceeds are
being used for the construction project and not being diverted to another
project. The loan-to-value ratio for such loans are predominantly 80% of the
lower of the as-built appraised value or project cost, and a maximum of 90% if
the loan is amortized. Loans for construction can present a high degree of risk
to the lender, depending upon, among other things, whether the builder can sell
the home to a buyer, whether the buyer can obtain
4
<PAGE>
permanent financing, whether the transaction produces income in the interim and
the nature of changing economic conditions.
INVESTMENTS. In addition to loans, the Bank makes other investments
primarily in obligations of the United States or obligations guaranteed as to
principal and interest by the United States and other taxable securities. No
investment in any of those instruments will exceed any applicable limitation
imposed by law or regulation.
DEPOSITS. The Bank plans to establish solid core deposits, including
checking accounts, money market accounts, a variety of certificates of deposit,
and IRA accounts. The Bank employs an aggressive marketing plan in the overall
service area, a broad product line, and competitive services as its primary
means to attract deposits. The primary sources of deposits are residents of,
and businesses and their employees located in, the Bank's primary service area
obtained through personal solicitation by the Bank's officers and directors,
direct mail solicitations and advertisements published in the local media.
Deposits are generated by offering a broad array of competitively priced deposit
services, including demand deposits, regular savings accounts, money market
deposits (transaction and investment), certificates of deposit, retirement
accounts, and other deposit or funds transfer services which may be permitted by
law or regulation and which may be offered to remain competitive in the market.
ASSET AND LIABILITY MANAGEMENT. The Bank manages its assets and
liabilities to provide an optimum and stable net interest margin, a profitable
after-tax return on assets and return on equity, and adequate liquidity. These
management functions are conducted within the framework of written loan and
investment policies adopted by the Bank. The Bank attempts to maintain a
balanced position between rate sensitive assets and rate sensitive liabilities.
Specifically, it charts assets and liabilities on a matrix by maturity,
effective duration, and interest adjustment period, and endeavor to manage any
gaps in maturity ranges.
EMPLOYEES
At December 31, 1997, the Company employed eleven full-time employees. The
Company considers its relationship with its employees to be excellent.
SUPERVISION AND REGULATION
The following discussion sets forth the material elements of the regulatory
framework applicable to banks and bank holding companies and provides certain
specific information related to the Company.
GENERAL
The Company is a bank holding company registered with the Board of
Governors of the Federal Reserve System (the "Federal Reserve") under the Bank
Holding Company Act of 1956, as amended (the "BHC Act"). As such, the Company
and, if applicable, its non-bank subsidiaries are subject to the supervision,
examination, and reporting requirements of the BHC Act and the regulations of
the Federal Reserve.
The BHC Act requires every bank holding company to obtain the prior
approval of the Federal Reserve before: (a) it may acquire direct or indirect
ownership or control of any voting shares of any bank if, after such
acquisition, the bank holding company will directly or indirectly own or control
5
<PAGE>
more than 5% of the voting shares of the bank; (b) it or any of its
subsidiaries, other than a bank, may acquire all or substantially all of the
assets of any bank; or (c) it may merge or consolidate with any other bank
holding company.
The BHC Act further provides that the Federal Reserve may not approve any
transaction that would result in a monopoly or would be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any section of the United States, or the effect of which may be
substantially to lessen competition or to tend to create a monopoly in any
section of the country, or that in any other manner would be in restraint of
trade, unless the anticompetitive effects of the proposed transaction are
clearly outweighed by the public interest in meeting the convenience and needs
of the community to be served. The Federal Reserve is also required to consider
the financial and managerial resources and future prospects of the bank holding
companies and banks concerned and the convenience and needs of the community to
be served. Consideration of financial resources generally focuses on capital
adequacy, which is discussed below.
The BHC Act, as amended by the interstate banking provisions of the Riegle-
Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Interstate
Banking Act"), which became effective on September 29, 1995, repealed the prior
statutory restrictions on interstate acquisitions of banks by bank holding
companies, such that the Company, and any other bank holding company located in
Georgia may now acquire a bank located in any other state, and any bank holding
company located outside Georgia may lawfully acquire any Georgia-based bank,
regardless of state law to the contrary, in either case subject to certain
deposit-percentage, aging requirements, and other restrictions. The Interstate
Banking Act also generally provides that, as of June 1, 1997, national and
state-chartered banks may branch interstate through acquisitions of banks in
other states. By adopting legislation prior to that date, a state had the
ability either to "opt in" and accelerate the date after which interstate
branching is permissible or "opt out" and prohibit interstate branching
altogether.
In response to the Interstate Banking Act, the Georgia General Assembly
adopted the Georgia Interstate Banking Act, which was effective on July 1, 1995.
The Georgia Interstate Banking Act provides that (a) interstate acquisitions by
institutions located in Georgia will be permitted in states that also allow
national interstate acquisitions and (b) interstate acquisitions of institutions
located in Georgia will be permitted by institutions in states that allow
national interstate acquisitions.
Additionally, on January 26, 1996, the Georgia General Assembly adopted the
Georgia Interstate Branching Act which permits Georgia-based banks and bank
holding companies owning or acquiring banks outside of Georgia and all non-
Georgia banks and bank holding companies owning or acquiring banks in Georgia to
merge any lawfully acquired bank into an interstate branch network. The Georgia
Interstate Branching Act also allows banks to establish de novo branches on a
limited basis as of July 1, 1996. Beginning July 1, 1998, the number of de novo
branches that may be established will no longer be limited.
The BHC Act generally prohibits the Company from engaging in activities
other than banking or managing or controlling banks or other permissible
subsidiaries and from acquiring or retaining direct or indirect control of any
company engaged in any activities other than those activities determined by the
Federal Reserve to be so closely related to banking or managing or controlling
banks as to be a proper incident thereto. In determining whether a particular
activity is permissible, the Federal Reserve must consider whether the
performance of such an activity reasonably can be expected to produce benefits
to the public, such as greater convenience, increased competition, or gains in
efficiency, that outweigh possible adverse effects, such as undue concentration
of resources, decreased or unfair competition, conflicts of interest, or unsound
banking practices. For example, factoring accounts receivable, acquiring or
servicing loans, leasing personal property, conducting discount securities
brokerage activities, performing certain data processing services, acting as
agent or broker in
6
<PAGE>
selling credit life insurance and certain other types of insurance in connection
with credit transactions, and performing certain insurance underwriting
activities all have been determined by the Federal Reserve to be permissible
activities of bank holding companies. The BHC Act does not place territorial
limitations on permissible non-banking activities of bank holding companies.
Despite prior approval, the Federal Reserve has the power to order a holding
company or its subsidiaries to terminate any activity or to terminate its
ownership or control of any subsidiary when it has reasonable cause to believe
that continuation of such activity or such ownership or control constitutes a
serious risk to the financial safety, soundness, or stability of any bank
subsidiary of that bank holding company.
The bank subsidiary of the Company is a member of the Federal Deposit
Insurance Corporation (the "FDIC"), and as such, its deposits are insured by the
FDIC to the maximum extent provided by law. Such subsidiary is also subject to
numerous state and federal statutes and regulations that affect its business,
activities, and operations, and it is supervised and examined by one or more
state or federal bank regulatory agencies.
The FDIC and the Georgia Department of Banking and Finance (the "Georgia
Department") regularly examine the operations of the Bank and is given authority
to approve or disapprove mergers, consolidations, the establishment of branches,
and similar corporate actions. The FDIC and the Georgia Department also have
the power to prevent the continuance or development of unsafe or unsound banking
practices or other violations of law.
PAYMENT OF DIVIDENDS
The Company is a legal entity separate and distinct from its banking
subsidiary. The principal sources of cash flow of the Company, including cash
flow to pay dividends to its shareholders, are dividends by the Bank. There are
statutory and regulatory limitations on the payment of dividends by the Bank to
the Company as well as by the Company to its shareholders.
If, in the opinion of the federal banking regulator, a depository
institution under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
depository institution, could include the payment of dividends), such authority
may require, after notice and hearing, that such institution cease and desist
from such practice. The federal banking agencies have indicated that paying
dividends that deplete a depository institution's capital base to an inadequate
level would be an unsafe and unsound banking practice. Under the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), a depository
institution may not pay any dividend if payment would cause it to become
undercapitalized or if it already is undercapitalized. See "-- Prompt
Corrective Action." Moreover, the federal agencies have issued policy
statements that provide that bank holding companies and insured banks should
generally only pay dividends out of current operating earnings.
At January 1, 1998, under dividend restrictions imposed under federal and
state laws, and the conditions included in the Georgia Department's approval of
the Bank's charter application, the Bank could not declare dividends to the
Company.
The payment of dividends by the Company and the Bank may also be affected
or limited by other factors, such as the requirement to maintain adequate
capital above regulatory guidelines.
CAPITAL ADEQUACY
The Company and the Bank are required to comply with the capital adequacy
standards established by the Federal Reserve and the appropriate federal banking
regulator in the case of Bank. There are two basic measures of capital adequacy
for bank holding companies that have been
7
<PAGE>
promulgated by the Federal Reserve: a risk-based measure and a leverage measure.
All applicable capital standards must be satisfied for a bank holding company to
be considered in compliance.
The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profile among banks and bank
holding companies, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.
The minimum guideline for the ratio (the "Total Risk-Based Capital Ratio")
of total capital ("Total Capital") to risk-weighted assets (including certain
off-balance-sheet items, such as standby letters of credit) is 8%. At least
half of Total Capital must comprise common stock, minority interests in the
equity accounts of consolidated subsidiaries, noncumulative perpetual preferred
stock, and a limited amount of cumulative perpetual preferred stock, less
goodwill and certain other intangible assets ("Tier 1 Capital"). The remainder
may consist of subordinated debt, other preferred stock, and a limited amount of
loan loss reserves ("Tier 2 Capital"). At December 31, 1997, the Company's
consolidated Total Risk-Based Capital Ratio and its Tier 1 Risk-Based Capital
Ratio (i.e., the ratio of Tier 1 Capital to risk-weighted assets) were 158.14%
and 157.56%, respectively.
In addition, the Federal Reserve has established minimum leverage ratio
guidelines for bank holding companies. These guidelines provide for a minimum
ratio (the "Leverage Ratio") of Tier 1 Capital to average assets, less goodwill
and certain other intangible assets, of 3% for bank holding companies that meet
certain specified criteria, including having the highest regulatory rating. All
other bank holding companies generally are required to maintain a Leverage Ratio
of at least 3%, plus an additional cushion of 100 to 200 basis points. The
Company's Leverage Ratio at December 31, 1997 was 60.66%. The guidelines also
provide that bank holding companies experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels without significant reliance on intangible
assets. Furthermore, the Federal Reserve has indicated that it will consider a
"tangible Tier 1 Capital Leverage Ratio" (deducting all intangibles) and other
indicia of capital strength in evaluating proposals for expansion or new
activities.
The Bank is subject to risk-based and leverage capital requirements adopted
by the FDIC, which are substantially similar to those adopted by the Federal
Reserve for bank holding companies.
The Bank was in compliance with applicable minimum capital requirements as
of December 31, 1997. The Company has not been advised by any federal banking
agency of any specific minimum capital ratio requirement applicable to it or its
subsidiary depository institution.
Failure to meet capital guidelines could subject a bank to a variety of
enforcement remedies, including issuance of a capital directive, the termination
of deposit insurance by the FDIC, a prohibition on the taking of brokered
deposits, and certain other restrictions on its business. As described below,
substantial additional restrictions can be imposed upon FDIC-insured depository
institutions that fail to meet applicable capital requirements. See "-- Prompt
Corrective Action."
The federal bank regulators continue to indicate their desire to raise
capital requirements applicable to banking organizations beyond their current
levels. In this regard, the Federal Reserve and the FDIC have, pursuant to
FDICIA, recently adopted final regulations, which will become mandatory on
January 1, 1998, requiring regulators to consider interest rate risk (when the
interest rate sensitivity of an institution's assets does not match the
sensitivity of its liabilities or its off-balance-sheet position) in the
evaluation of a bank's capital adequacy. The bank regulatory agencies'
methodology for evaluating interest rate risk requires banks with excessive
interest rate risk exposure to hold
8
<PAGE>
additional amounts of capital against such exposures. The market risk rules
apply to any bank or bank holding company whose trading activity equals 10% or
more of its total assets, or whose trading activity equals $1 billion or more.
SUPPORT OF SUBSIDIARY INSTITUTIONS
Under Federal Reserve policy, the Company is expected to act as a source of
financial strength for, and to commit resources to support, each of its banking
subsidiaries. This support may be required at times when, absent such Federal
Reserve policy, the Company may not be inclined to provide it. In addition, any
capital loans by a bank holding company to any of its banking subsidiaries are
subordinate in right of payment to deposits and to certain other indebtedness of
such banks. In the event of a bank holding company's bankruptcy, any commitment
by the bank holding company to a federal bank regulatory agency to maintain the
capital of a banking subsidiary will be assumed by the bankruptcy trustee and
entitled to a priority of payment.
Under the Federal Deposit Insurance Act ("FDIA"), a depository institution
insured by the FDIC can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC after August 9, 1989, in connection with
(a) the default of a commonly controlled FDIC-insured depository institution or
(b) any assistance provided by the FDIC to any commonly controlled FDIC-insured
depository institution "in danger of default." "Default" is defined generally
as the appointment of a conservator or receiver, and "in danger of default" is
defined generally as the existence of certain conditions indicating that a
default is likely to occur in the absence of regulatory assistance. The FDIC's
claim for damages is superior to claims of shareholders of the insured
depository institution or its holding company, but is subordinate to claims of
depositors, secured creditors, and holders of subordinated debt (other than
affiliates) of the commonly controlled insured depository institution. The
subsidiary depository institutions of the Company are subject to these cross-
guarantee provisions. As a result, any loss suffered by the FDIC in respect of
these subsidiaries would likely result in assertion of the cross-guarantee
provisions, the assessment of such estimated losses against the depository
institution's banking affiliates, and a potential loss of the Company's
investment in such other subsidiary depository institutions.
PROMPT CORRECTIVE ACTION
FDICIA establishes a system of prompt corrective action to resolve the
problems of undercapitalized institutions. Under this system, which became
effective in December 1992, the federal banking regulators are required to
establish five capital categories (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized, and critically
undercapitalized) and to take certain mandatory supervisory actions, and are
authorized to take other discretionary actions, with respect to institutions in
the three undercapitalized categories, the severity of which will depend upon
the capital category in which the institution is placed. Generally, subject to
a narrow exception, FDICIA requires the banking regulator to appoint a receiver
or conservator for an institution that is critically undercapitalized. The
federal banking agencies have specified by regulation the relevant capital level
for each category.
9
<PAGE>
The capital levels established for each of the categories are as follows:
============================================================================
Total
Capital Tier 1 Risk-Based Tier 1 Risk-
Category Capital Capital Based Capital Other
================================================================================
Well 5% or more 10% or more 6% or more Not subject
Capitalized to a capital
directive
- --------------------------------------------------------------------------------
Adequately 4% or more 8% or more 4% or more --
Capitalized
- --------------------------------------------------------------------------------
Undercapitalized less than 4% Less than 8% less than 4% --
- --------------------------------------------------------------------------------
Significantly less than 3% Less than 6% less than 3% --
Undercapitalized
- --------------------------------------------------------------------------------
Critically 2% or less -- -- --
Undercapitalized tangible equity
================================================================================
For purposes of the regulation, the term "tangible equity" includes core
capital elements counted as Tier 1 Capital for purposes of the risk-based
capital standards, plus the amount of outstanding cumulative perpetual preferred
stock (including related surplus), minus all intangible assets with certain
exceptions. A depository institution may be deemed to be in a capitalization
category that is lower than is indicated by its actual capital position if it
receives an unsatisfactory examination rating.
An institution that is categorized as undercapitalized, significantly
undercapitalized, or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency.
Under FDICIA, a bank holding company must guarantee that a subsidiary depository
institution meets its capital restoration plan, subject to certain limitations.
The obligation of a controlling holding company under FDICIA to fund a capital
restoration plan is limited to the lesser of 5% of an undercapitalized
subsidiary's assets or the amount required to meet regulatory capital
requirements. An undercapitalized institution is also generally prohibited from
increasing its average total assets, making acquisitions, establishing any
branches, or engaging in any new line of business, except in accordance with an
accepted capital restoration plan or with the approval of the FDIC. In
addition, the appropriate federal banking agency is given authority with respect
to any undercapitalized depository institution to take any of the actions it is
required to or may take with respect to a significantly undercapitalized
institution as described below if it determines "that those actions are
necessary to carry out the purpose" of FDICIA.
At December 31, 1997, the Bank had the requisite capital levels to qualify
as well capitalized.
FDIC INSURANCE ASSESSMENTS
Pursuant to FDICIA, the FDIC adopted a risk-based assessment system for
insured depository institutions that takes into account the risks attributable
to different categories and concentrations of assets and liabilities. The system
assigns an institution to one of three capital categories: (a) well capitalized;
(b) adequately capitalized; and (c) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the "undercapitalized" category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. An institution is also
assigned by the FDIC to one of three supervisory subgroups within each capital
group. The
10
<PAGE>
supervisory subgroup to which an institution is assigned is based on a
supervisory evaluation provided to the FDIC by the institution's primary federal
regulator and information which the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds (which may include, if applicable, information provided by the
institution's state supervisor). An institution's insurance assessment rate is
then determined based on the capital category and supervisory category to which
it is assigned. Under the risk-based assessment system, there are nine
assessment risk classifications (i.e., combinations of capital groups and
supervisory subgroups) to which different assessment rates are applied.
Assessment rates for members of both the Bank Insurance Fund ("BIF") and the
Savings Association Insurance Fund ("SAIF") for the first half of 1995 ranged
from 23 basis points (0.23% of deposits) for an institution in the highest
category (i.e., "well capitalized" and "healthy") to 31 basis points (0.31% of
deposits) for an institution in the lowest category (i.e., "undercapitalized"
and "substantial supervisory concern"). These rates were established for both
funds to achieve a designated ratio of reserves to insured deposits (i.e.,
1.25%) within a specified period of time.
Once the designated ratio for the BIF was reached in May 1995, the FDIC
reduced the assessment rate applicable to BIF deposits in two stages, so that,
beginning in 1996, the deposit insurance premiums for 92% of all BIF members in
the highest capital and supervisory categories were set at $2,000 per year,
regardless of deposit size. The FDIC elected to retain the existing assessment
rate range of 23 to 31 basis points for SAIF members for the foreseeable future
given the undercapitalized nature of that insurance fund.
Recognizing that the disparity between the SAIF and BIF premium rates
had adverse consequences for SAIF-insured institutions and other banks with SAIF
assessed deposits, including reduced earnings and an impaired ability to raise
funds in capital markets and to attract deposits, the Deposit Insurance Funds
Act of 1996 (the "Funds Act") was enacted by Congress as part of the omnibus
budget legislation and signed into law on September 30, 1996. As directed by
the Funds Act, the FDIC implemented a special one-time assessment of
approximately 65.7 basis points (0.657%) on a depository institution's SAIF-
insured deposits held as of March 31, 1995 (or approximately 52.6 basis points
on SAIF deposits acquired by banks in certain qualifying transactions).
In addition, the FDIC has implemented a revision in the SAIF assessment
rate schedule that effected, as of October 1, 1996 (a) a widening in the
assessment rate spread among institutions in the different capital and risk
assessment categories, (b) an overall reduction of the assessment rate range
assessable on SAIF deposits of from 0 to 27 basis points, and (c) a special
interim assessment rate range for the last quarter of 1996 of from 18 to 27
basis points on institutions subject to Financing Corporation ("FICO")
assessments. Effective January 1, 1997, assessments to help pay off the $780
million in annual interest payments on the $8 billion FICO bonds issued in the
late 1980s as part of the government rescue of the thrift industry were imposed
on both BIF- and SAIF-insured deposits in annual amounts presently estimated at
1.29 basis points and 6.44 basis points, respectively. Beginning in January
2000, BIF- and SAIF- insured institutions will share the FICO interest costs at
equal rates currently estimated 2.43 basis points.
Under the FDIA, insurance of deposits may be terminated by the FDIC upon a
finding that the institution has engaged in unsafe and unsound practices, is in
an unsafe or unsound condition to continue operations, or has violated any
applicable law, regulation, rule, order, or condition imposed by the FDIC.
11
<PAGE>
PROPOSED LEGISLATION AND REGULATORY ACTION
New regulations and statutes are regularly proposed that contain wide-
ranging proposals for altering the structures, regulations and competitive
relationships of the nation's financial institutions. It cannot be predicted
whether or what form any proposed regulation or statute will be adopted or the
extent to which the business of the Company may be affected by such regulation
or statute.
SELECTED STATISTICAL INFORMATION
Required information presented in Item 6 - Management's Discussion and
Analysis of Financial Condition and Results of Operations.
ITEM 2. DESCRIPTION OF PROPERTIES
BANK LOCATION AND FACILITIES. The Company and the Bank are located at 1120
Commerce Drive, Decatur Georgia. The Company has leased this landmark site in
the financial district of downtown Decatur.
The Company entered into an Agreement to Lease, dated August 20, 1996, with
Daniel B. Pattillo, pursuant to which the Company leases the building from Mr.
Pattillo. The term of the lease expires June 1, 2002. The Agreement to Lease
provides that the Company has an option to purchase the building under certain
conditions.
The building currently contains 5,600 square feet of usable space. Prior to
opening the Bank, the Company renovated the building. The top floor contains
4,113 square feet and was converted into the banking lobby and bank operations.
The lower level, which contains 1,487 square feet, is used for executive
offices. Most of the operations and back-room work is outsourced so less space
is needed. Video drive-ups are used instead of physical drive-ups. The lower
parking lot has sufficient room for two drive-up lanes in addition to employee
parking. The property fronts Commerce Drive, which is a main thoroughfare in
Decatur, and backs up to a retail area and residential property. Access to the
drive-ups is available through a side street off of Commerce Drive. The main
parking lot is accessible from Commerce Drive.
The Company does not invest in real estate, interests in real estate, real
estate mortgages, or securities of or interests in persons primarily engaged in
real estate activities.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company is a
party or of which any of its properties are subject; nor are there material
proceedings known to the Company to be contemplated by any governmental
authority; nor are there material proceedings known to the Company, pending or
contemplated, in which any director, officer or affiliate or any principal
security holder of the Company or any associate of any of the foregoing, is a
party or has an interest adverse to the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is currently no market for the shares of Common Stock and it is not
likely that an active trading market will develop for the shares in the future.
There are no present plans for the Company's Common Stock to be traded on any
stock exchange or over-the-counter market. As a result, investors who need or
wish to dispose of all or part of their shares may be unable to do so except in
private, directly negotiated sales.
13
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Decatur First Bank Group, Inc. (the "Company") was organized on August 2,
1996 and from that date until September 2, 1997 its principal activities have
been related to its organization, the conducting of its initial public offering,
the pursuit of approvals from the Georgia Department of Banking and Finance and
Federal Deposit Insurance Corporation of its application to charter Decatur
First Bank (the "Bank"), and the pursuit of approvals from the Federal Reserve
Board for the Company to acquire control of the Bank.
On June 30, 1997, the Company concluded its offering in which it sold
941,544 shares of common stock at $10.00 per share. The offering provided the
Company with $9,375,756 in capital after deducting offering expenses of $39,684.
After receiving all applicable regulatory approvals and satisfying pre-opening
examination procedures, the Bank opened for business to the public on September
2, 1997 in banking facilities located on Commerce Drive in Decatur, Georgia.
These facilities are leased with an option to purchase and serve as the main
office of the Company and the Bank.
FINANCIAL CONDITION AT DECEMBER 31, 1997
Total assets at December 31, 1997, were $17,626,000, principally composed
of $6,327,000 in cash and cash equivalents, $8,590,000 in investment securities,
and $1,531,000 in loans. In addition to the capital of $8,826,000, these assets
are funded by $8,666,000 in deposits. Deposit composition at December 31, 1997
included $1,557,000 of demand deposits, $4,689,000 in interest bearing demand
and savings deposits, and $2,419,000 in certificates of deposit.
RESULTS OF OPERATIONS
The results of operations of the Company and the Bank are dependent on net
interest income, which is the difference between interest earned on earning
assets and the interest paid on interest bearing liabilities, and the ability to
minimize loan losses and to control operation expenses.
The Company's net loss was $439,378 for the period ended December 31, 1997.
Interest income for the period was $398,529, while interest expense was $67,051.
At December 31, 1997, investment securities had a weighted average yield of
5.91%, and certificates of deposit had a weighted average interest rate of
5.45%.
Management provided $32,000 for loan losses based on loan growth since
opening. The estimate for loan losses represents an amount, in management's
judgment, which will be adequate to absorb possible losses on existing loans
that may become uncollectible.
Other expenses totaled $749,855 and primarily consisted of salaries and
employee benefits of $346,273 and other operating expenses of $300,033. Some of
the most significant amounts of other operating expenses were for professional
fees ($31,703), advertising ($47,909), data processing fees ($32,612), and
supplies ($33,069).
No income tax benefit was provided for the tax effect of the net loss, as
the recognition of this benefit is heavily dependent on future taxable income.
For more information about the tax attributes of the Company at December 31,
1997, see note 6 to the Audited Financial Statements.
<PAGE>
LIQUIDITY
The Bank must maintain a certain portion of its assets in funds that are
readily available to pay deposit withdrawals and to meet expected loan demands.
Cash and cash equivalents totaled $6,327,000 at December 31, 1997. Cash outflows
from operations totaled $430,040, while outflows totaled $11,108,402 from
investing activities which were primarily investment purchases and a net
increase in loans. Inflows from financing activities totaled $17,841,298 and
resulted from increases in deposits and the stock sale. For more detailed
information about the cash sources and uses for the period ended December 31,
1997, see the Statement of Cash Flows included in the Audited Financial
Statements.
CAPITAL RESOURCES
The Company and the Bank are required to maintain minimum amounts of
capital to total "risk weighted" assets, as defined by the banking regulators.
At December 31, 1997, the Company was required to have Tier I and Total Capital
to "risk weighted" assets ratios of 4% and 8%, respectively. The Company's and
the Bank's ratios as of December 31, 1997 were in excess of these requirements.
Additionally, the Company and the Bank are required to maintain a Tier I
leverage ratio of at least 4%. At December 31, 1997, the leverage ratio was in
excess of 57%. For more information about the actual and required capital
ratios of the Company and the Bank, see note 10 to the Audited Financial
Statements. While the current level of capital meets the regulatory requirements
and the Company's current and foreseeable needs, management will continue to
evaluate the capital needs of the Company as the Bank experiences growth.
YEAR 2000
The Company is aware of the issues associated with computer systems as the
millennium (Year 2000) approaches. Systems that do not properly recognize date
sensitive information when the year changes to 2000 could generate erroneous
data or cause a system to fail. The Bank is utilizing both internal and
external resources to identify, correct and test the systems for year 2000
compliance. All re-programming efforts will be complete by December 31, 1998 to
allow for adequate testing in 1999. To date, confirmations have been received
from the Bank's primary processing vendors that plans are being developed to
address processing of transactions in the year 2000. Management estimates the
year 2000 compliance expense and its related potential effect on the Company's
earnings to be less than $50,000.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
<PAGE>
DECATUR FIRST BANK GROUP, INC.
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(WITH INDEPENDENT ACCOUNTANTS' REPORT THEREON)
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
TO THE BOARD OF DIRECTORS
DECATUR FIRST BANK GROUP, INC.
We have audited the accompanying consolidated balance sheets of Decatur First
Bank Group, Inc. as of December 31, 1997 and 1996, and the related statements of
operations, changes in shareholders' equity and cash flows for the year ended
December 31, 1997 and the period from August 2, 1996 (inception) to December 31,
1996. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Decatur First Bank
Group, Inc. as of December 31, 1997 and 1996 and the results of their operations
and their cash flows for the year ended December 31, 1997 and the period from
August 2, 1996 (inception) to December 31, 1996 in conformity with generally
accepted accounting principles.
Porter Keadle Moore, LLP
/s/ Porter Keadle Moore, LLP
Atlanta, Georgia
February 6, 1998
<PAGE>
DECATUR FIRST BANK GROUP, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Assets
------
1997 1996
---- ----
<S> <C> <C>
Cash and due from banks $ 1,966,791 23,935
Federal funds sold 4,360,000 -
----------- --------
Cash and cash equivalents 6,326,791 23,935
Restricted cash - 260,750
Investment securities available for sale 5,503,583 -
Investment securities held to maturity (market value of $3,089,875) 3,086,821 -
Loans, net 1,531,200 -
Premises and equipment, net 943,817 20,193
Accrued interest receivable and other assets 233,829 134,528
----------- --------
$17,626,041 439,406
=========== ========
Liabilities and Shareholders' Equity
------------------------------------
Deposits:
Demand $ 1,557,191 -
Money market and NOW accounts 4,486,376 -
Savings 203,049 -
Time 1,709,237 -
Time over $100,000 709,699 -
----------- --------
Total deposits 8,665,552 -
Subscribers' deposits - 260,750
Note payable - 200,000
Accrued interest payable and other liabilities 134,097 85,134
----------- --------
Total liabilities 8,799,649 545,884
----------- --------
Commitments
Shareholders' equity:
Preferred stock, no par value, 2,000,000 shares
authorized, no shares issued and outstanding - -
Common stock, par value $5; 10,000,000 shares
authorized; 941,544 and 1 issued and outstanding, respectively 4,707,720 5
Additional paid-in capital 4,668,036 5
Accumulated deficit (545,866) (106,488)
Net unrealized loss on investment securities available for sale (3,498) -
----------- --------
Total shareholders' equity 8,826,392 (106,478)
----------- --------
$17,626,041 439,406
=========== ========
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD FROM AUGUST 2, 1996 (INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Interest income:
Interest and fees on loans $ 42,315 -
Interest on investment securities:
U.S. Treasuries 16,833 -
U.S. Government agencies 201,361 -
Interest on federal funds sold 138,020 -
------- -------
Total interest income 398,529 -
------- -------
Interest expense:
Interest on money market and NOW accounts 21,482 -
Interest on savings and time deposits 23,682 -
Other 21,886 3,042
------- -------
Total interest expense 67,050 3,042
------- -------
Net interest income (expense) 331,479 (3,042)
Provision for loan losses 32,000 -
------- -------
Net interest income (expense) after provision for 299,479 (3,042)
loan losses ------- -------
Other income:
Service charges on deposit accounts 5,517 -
Other income 5,493 -
------- -------
Total other income 11,010 -
------- -------
Other expenses:
Salaries and employee benefits 346,273 64,935
Occupancy and equipment 103,549 19,065
Other operating 300,045 19,446
------- -------
Total other expenses 749,867 103,446
------- -------
Net loss $ 439,378 106,488
======= =======
Net loss per share $ .47 .11
======= =======
Outstanding shares 941,544 941,544
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1997
AND THE PERIOD FROM AUGUST 2, 1996 (INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
Net
Unrealized
Loss on
Additional Securities
Common Paid-in Accumulated Available
Stock Capital Deficit for Sale Total
---------- ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C>
Proceeds from the sale of
organization shares $ 5 5 - - 10
Net loss - - (106,488) - (106,488)
--------- ---------- ----------- ---------- ---------
Balance, December 31, 1996 5 5 (106,488) - (106,478)
Proceeds from stock
offering, net of
offering
costs of $39,684 4,707,720 4,668,036 - - 9,375,756
Redemption of
organization shares (5) (5) - - (10)
Change in unrealized
loss on securities
available for sale - - - (3,498) (3,498)
Net loss - - (439,378) - (439,378)
--------- ---------- ----------- ---------- ---------
Balance, December 31, $4,707,720 4,668,036 (545,866) (3,498) 8,826,392
1997 ========= ========== =========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
(A DEVELOPMENT STAGE CORPORATION)
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997
FOR THE PERIOD FROM AUGUST 2, 1996 (INCEPTION) TO DECEMBER 31, 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (439,378) (106,488)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation, amortization and accretion 27,676 -
Provision for loan losses 32,000 -
Change in:
Accrued interest receivable (150,769) -
Other assets 51,468 (33,200)
Accrued interest payable 16,319 -
Other liabilities 32,664 85,134
---------- --------
Net cash used by operating activities (430,040) (54,554)
---------- --------
Cash flows from investing activities:
Proceeds from calls and maturities of investment securities
held to maturity 501,734 -
Proceeds from calls and maturities of investment securities
available for sale 2,040,605 -
Purchases of investment securities held to maturity (3,589,858) -
Purchases of investment securities available for sale (7,548,869) -
Net change in loans (1,563,200) -
Purchase of premises and equipment (948,814) (20,193)
Organization and offering costs - (101,328)
---------- --------
Net cash used by investing activities (11,108,402) (121,521)
---------- --------
Cash flows from financing activities:
Net change in deposits 8,665,552 -
Net change in line of credit (200,000) 200,000
Proceeds from the sale of common stock, net of offering costs of $39,684 9,375,756 -
Sale of (redemption of) organization shares (10) 10
---------- --------
Net cash provided by financing activities 17,841,298 200,010
---------- --------
Net increase in cash and cash equivalents 6,302,856 23,935
Cash and cash equivalents at beginning of year 23,935 -
---------- --------
Cash and cash equivalents at end of year $ 6,326,791 23,935
=========== ========
Supplemental schedule of noncash investing and financing activities:
Change in net unrealized loss on investment
securities available for sale, net of tax $ (3,498) -
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 50,731 1,810
</TABLE>
During the period ended December 31, 1996 restricted cash increased $260,750 as
a result of subscriptions for common stock and corresponding deposits to the
escrow account.
See accompanying notes to consolidated financial statements.
-5-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a summary of the significant policies and procedures.
Basis of Presentation
The consolidated financial statements include the accounts of Decatur First
Bank Group, Inc. (the "Company") and its wholly owned subsidiary, Decatur
First Bank (the "Bank"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
The Bank commenced business on September 2, 1997 upon receipt of its
banking charter from the Georgia Department of Banking and Finance (the
"DBF"). The Bank is primarily regulated by the DBF and the Federal Deposit
Insurance Corporation and undergoes periodic examinations by these
regulatory agencies. The Company is regulated by the Federal Reserve and
also is subject to periodic examinations. The Bank provides a full range of
commercial and consumer banking services throughout the Decatur and Dekalb
County area in Georgia.
Operations through December 31, 1996 related primarily to expenditures by
the organizers for incorporating and organizing the Company. The Company
was reported on as a development stage corporation for the period ended
December 31, 1996.
The accounting principles followed by the Company and the Bank, and the
methods of applying these principles, conform with generally accepted
accounting principles (GAAP) and with general practices in the banking
industry. In preparing the financial statements in conformity with GAAP,
management is required to make estimates and assumptions that affect the
reported amounts in the financial statements. Actual results could differ
significantly from these estimates. Material estimates common to the
banking industry that are particularly susceptible to significant change in
the near term include, but are not limited to, the determination of the
allowance for loan losses, the valuation of real estate acquired in
connection with or in lieu of foreclosure on loans, and valuation
allowances associated with the realization of deferred tax assets which are
based on future taxable income.
Investment Securities
The Company classifies its securities in one of three categories: trading,
available for sale, or held to maturity. Trading securities are bought and
held principally for the purpose of selling them in the near term. Held to
maturity securities are those securities for which the Company has the
ability and intent to hold until maturity. All securities not included in
trading or held to maturity are classified as available for sale. At
December 31, 1997, there were no trading securities.
Available for sale securities are recorded at fair value. Held to maturity
securities are recorded at cost, adjusted for the amortization or accretion
of premiums or discounts. Unrealized holding gains and losses, net of the
related tax effect, on securities available for sale are excluded from
earnings and are reported as a separate component of shareholders' equity
until realized. Transfers of securities between categories are recorded at
fair value at the date of transfer.
A decline in the market value of any available for sale or held to maturity
security below cost that is deemed other than temporary is charged to
earnings and establishes a new cost basis for the security.
Premiums and discounts are amortized or accreted over the life of the
related securities as adjustments to the yield. Realized gains and losses
for securities classified as available for sale and held to maturity are
included in earnings and are derived using the specific identification
method for determining the cost of securities sold.
-6-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Loans and Allowance for Loan Losses
Loans are stated at principal amount outstanding, net of unearned interest
and the allowance for loan losses. Unearned interest on discounted loans is
recognized as income over the term of the loans using a method which
approximates a level yield. Interest on other loans is calculated by using
the simple interest method on daily balances of the principal amount
outstanding.
A loan is considered impaired when, based on current information and
events, it is probable that all amounts due according to the contractual
terms of the loan agreement will not be collected. Impaired loans are
measured based on the present value of expected future cash flows
discounted at the loan's effective interest rate, or at the loan's
observable market price, or at the fair value of the collateral of the loan
if the loan is collateral dependent. Accrual of interest is discontinued on
a loan when management believes, after considering economic and business
conditions and collection efforts, that the borrower's financial condition
is such that collection of interest is doubtful.
The allowance for loan losses is established through a provision for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collectibility of the principal is
unlikely. The allowance represents an amount which, in management's
judgment, will be adequate to absorb probable losses on existing loans that
may become uncollectible.
Management's judgment in determining the adequacy of the allowance is based
on evaluations of the collectibility of loans. These evaluations take into
consideration such factors as changes in the nature and volume of the loan
portfolio, current economic conditions that may affect the borrower's
ability to pay, overall portfolio quality and review of specific problem
loans.
Management believes that the allowance for loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part
of their examination process, periodically review the Bank's allowance for
loan losses. Such agencies may require the Bank to recognize additions to
the allowance based on judgments different than those of management.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets. Leasehold improvements are amortized on the
straight-line method over the shorter of the estimated useful lives of the
improvements or the terms of the related leases. Costs incurred for
maintenance and repairs are expensed currently.
Depreciation expense is computed using the straight-line method over the
following estimated useful lives:
Leasehold improvements 10 - 25 years
Furniture and equipment 5 - 10 years
Organization Costs
Costs incurred for the organization of the Company and the Bank (consisting
principally of legal, consulting and incorporation fees) are capitalized in
other assets and are being amortized over five years. Amortization of the
organization costs began when banking operations commenced.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
-7-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Income Taxes, continued
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the assets and liabilities
results in deferred tax assets, an evaluation of the probability of being
able to realize the future benefits indicated by such asset is required. A
valuation allowance is provided for the portion of the deferred tax asset
when it is more likely than not that some portion or all of the deferred
tax asset will not be realized. In assessing the realizability of the
deferred tax assets, management considers the scheduled reversals of
deferred tax liabilities, projected future taxable income, and tax planning
strategies.
Line of Credit
Organization, offering and pre-opening costs, as well as costs for
modification of the buildings, incurred prior to opening for business were
funded under a $800,000 line of credit. The line of credit, which was
guaranteed by the organizers, was repaid upon consummation of the stock
offering.
Net Loss Per Share
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings Per
Share" became effective for the Company for the year ended December 31,
1997. This new standard specifies the computation, presentation and
disclosure requirements for earnings per share and is designed to simplify
previous earnings per share standards and to make domestic and
international practices more compatible. Earnings per share are based on
the weighted average number of common shares outstanding during the period
while the effects of potential common shares outstanding during the period
are included in diluted earnings per share. All earnings per share amounts
have been restated to conform to the provisions of SFAS No. 128.
SFAS No. 128 requires the presentation on the face of the statement of
operations of earnings per share with and without the dilutive effects of
potential common stock issuances from instruments such as options,
convertible securities and warrants. Additionally, the new statement
requires the reconciliation of the amounts used in the computation of both
"earnings per share" and "diluted earnings per share".
For 1997 and 1996, net loss per share is calculated by dividing net loss by
the number of common shares sold in the initial public offering, which are
considered outstanding for all periods presented. The Company currently has
no dilutive common stock instruments.
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income" and SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information". SFAS No. 130
establishes standards for the reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements.
SFAS No. 131 specifies the presentation and disclosure of operating segment
information reported in the annual report and interim reports issued to
stockholders. The provisions of both statements are effective for fiscal
years beginning after December 15, 1997. The Company believes that the
adoption of these statements will not have a material impact on the
Company's financial position, results of operations or liquidity.
Reclassifications
Certain 1996 amounts have been reclassified to conform to the presentation
used in 1997.
-8-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
(2) INVESTMENT SECURITIES
Investment securities at December 31, 1997 are as follows:
SECURITIES HELD TO MATURITY:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
U.S. Treasuries and
U.S. Government agencies $ 3,086,821 4,195 1,141 3,089,875
=========== =========== ========= =========
SECURITIES AVAILABLE FOR SALE:
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ----------- --------- ---------
<S> <C> <C> <C> <C>
U.S. Treasuries and
U.S. Government agencies $ 5,507,081 4,242 7,740 5,503,583
=========== =========== ========= =========
The amortized cost and estimated fair value of investment securities at December 31, 1997, by contractual maturity, are shown
below. Expected maturities will differ from contractual maturities because borrowers have the right to call or prepay
obligations with or without call or prepayment penalties.
Securities Securities
Held to Maturity Available for Sale
----------------------- --------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
----------- --------- --------- ---------
<S> <C> <C> <C> <C>
U.S. Treasuries and U.S.
Government agencies:
Within 1 year $ 1,075,318 1,075,022 500,382 500,298
1 to 5 years 2,011,503 2,014,853 5,006,699 5,003,285
----------- --------- --------- ---------
$ 3,086,821 3,089,875 5,507,081 5,503,583
=========== ========= ========= =========
There were no sales of securities available for sale during 1997.
(3) LOANS
Major classifications of loans at December 31, 1997 are summarized as follows:
1997
----
<S> <C> <C>
Commercial, financial and agricultural $ 927,966
Real estate - mortgage 167,334
Consumer 467,900
-----------
1,563,200
Less: Allowance for loan losses 32,000
-----------
$ 1,531,200
===========
The Bank grants loans and extensions of credit to individuals and a variety of businesses and corporations located in its
general trade area of the city of Decatur, Dekalb County, Georgia and adjoining counties. Although the Bank has a diversified
loan portfolio, a substantial portion of the loan portfolio is collateralized by improved and unimproved real estate and is
dependent upon the real estate market.
The Bank provided $32,000 for the year ended December 31, 1997 to the allowance for loan losses for potential problem loans.
</TABLE>
-9-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
<TABLE>
<CAPTION>
(4) PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows:
1997 1996
---- ----
<S> <C> <C> <C>
Land $ 8,488 -
Leasehold improvements 659,999 20,193
Furniture and equipment 300,520 -
------- ------
969,007 20,193
Less: Accumulated depreciation 25,190 -
------- ------
$ 943,817 20,193
======= ======
Depreciation expense amounted to $25,190 in 1997.
(5) DEPOSITS
Maturities of time deposits at December 31, 1997 are as follows:
Maturing in:
1998 $ 2,378,433
1999 39,776
2001 727
-----------
$ 2,418,936
===========
(6) INCOME TAXES
At December 31, 1997, the Company had federal and state net operating loss carryforwards for tax purposes of approximately
$182,000 and $368,000, respectively, which will expire beginning in 2011 if not previously utilized. No income tax expense or
benefit was recorded for the periods ended December 31, 1997 or 1996 due to this loss carryforward.
The following summarizes the components of deferred taxes at December 31, 1997 and 1996.
1997 1996
---- ----
Deferred income tax assets:
<S> <C> <C> <C>
Allowance for loan losses $ 10,729 -
Pre-opening expenses 124,009 39,171
Premises and equipment 1,015 -
Operating loss carryforwards 76,427 1,252
Contributions 807 -
--------- -------
Total gross deferred income tax assets 212,987 40,423
Less valuation allowance (212,987) (40,423)
Net deferred tax assets $ - -
========= =======
The future tax consequences of the differences between the financial reporting and tax basis of the Company's assets and
liabilities resulted in a net deferred tax asset. A valuation allowance was established for the net deferred tax asset, as the
realization of these deferred tax assets is dependent on future taxable income.
</TABLE>
-10-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(7) COMMITMENTS
On September 9, 1996, the Company entered into an operating lease agreement
for space to serve as the main office of the Company and the Bank. The
lease term also includes an option to purchase the property at a price of
$500,000. Future minimum lease payments required for all operating leases
having a remaining term in excess of one year at December 31, 1997 are as
follows:
1998 $ 54,000
1999 54,000
2000 54,000
2001 54,000
2002 27,000
---------
$ 243,000
=========
The total rental expense was $55,805 and $19,065 in 1997 and 1996,
respectively.
The Company entered into an employment agreement with its President and
Chief Executive Officer, providing for an initial term of five years
commencing June 1, 1996, and an automatic annual extension subsequent to
that five year period. The agreement provides for a base salary, an
incentive bonus based on five percent of the Company's pre-tax earnings,
and stock options which vest equally over five years at $10 per share equal
to five percent of the number of shares sold in the initial public
offering, or 47,000 shares (which are anticipated to be granted in 1998).
Additionally, the Company is to maintain a $1,000,000 key man life
insurance policy, with $500,000 payable to the Company and $500,000 payable
to the President's family. The agreement further provides for other
perquisites, and subjects the President to certain non-compete
restrictions.
The Bank is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and
standby letters of credit. Those instruments involve, to varying degrees,
elements of credit risk in excess of the amount recognized in the
consolidated balance sheet. The contractual amounts of those instruments
reflect the extent of involvement the Bank has in particular classes of
financial instruments.
The Bank's exposure to credit loss in the event of non-performance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual amount of
those instruments. The Bank uses the same credit policies in making
commitments and conditional obligations as it does for on-balance-sheet
instruments. In most cases, the Bank requires collateral to support
financial instruments with credit risk. At December 31, 1997, the Bank has
commitments to extend credit of $131,000, but no standby letters of credit.
(8) STOCKHOLDERS' EQUITY
The Company intends to adopt a Stock Incentive Plan covering up to 143,000
shares of the Company's common stock. This Plan will be administered by a
committee of the Board of Directors and will provide for the granting of
options to purchase shares of the common stock to officers, directors and
key employees of the Company and Bank. The exercise price of each option
granted under the Plan will not be less than the fair market value of the
shares of common stock subject to the option on the date of grant as
determined by the Board of Directors. Options will be exercisable in whole
or in part upon such terms as may be determined by the committee. Options
will not be exercisable later than ten years after the date of grant.
Shares of preferred stock may be issued from time to time in one or more
series as established by resolution of the Board of Directors of the
Company, up to a maximum of 2,000,000 shares. Each resolution shall include
the number of shares issued, preferences, special rights and limitations as
determined by the Board.
(9) RELATED PARTY TRANSACTIONS
The Bank conducts transactions with directors and officers, including
companies in which they have a beneficial interest, in the normal course of
business. It is the Bank's policy to comply with federal regulations that
require that loan and deposit transactions with directors and executive
officers be made on substantially the same terms as those prevailing at the
time made for comparable loans and deposits to other persons. As of
December 31, 1997, there were no related party loans and $1,119,000 of
related party deposits.
-11-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) REGULATORY MATTERS
The Company and the Bank are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the financial statements. Under certain
adequacy guidelines and the regulatory framework for prompt corrective
action, specific capital guidelines that involve quantitative measures of
the assets, liabilities, and certain off-balance sheet items as calculated
under regulatory accounting practices must be met. The capital amounts and
classification are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios
(set forth in the table below) of Total and Tier 1 Capital (as defined in
the regulations) to risk-weighted assets (as defined), and of Tier 1
Capital (as defined) to average assets (as defined). Management believes,
as of December 31, 1997, that the Company and the Bank meet all capital
adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notification from the Federal
Deposit Insurance Corporation categorized the Bank as well capitalized
under the regulatory framework for prompt corrective action. To be
categorized as well capitalized the Bank must maintain minimum total risk-
based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the
table. There are no conditions or events since that notification that
management believes have changed the Bank's category.
The actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
--------------------- ---------------- --------------------
Amount Ratio Amount Ratio Amount Ratio
--------- ---------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets)
Consolidated $ 8,770,673 158.14% 444,000 8.0% N/A N/A
Bank $ 7,659,969 143.86% 426,000 8.0% 532,000 10.0%
Tier 1 Capital
(to Risk Weighted Assets)
Consolidated $ 8,738,673 157.56% 222,000 4.0% N/A N/A
Bank $ 7,627,969 143.26% 213,000 4.0% 319,000 6.0%
Tier 1 Capital
(to Average Assets)
Consolidated $ 8,738,673 60.66% 576,000 4.0% N/A N/A
Bank $ 7,627,969 57.36% 532,000 4.0% 665,000 5.0%
</TABLE>
Dividends paid by the Bank are the primary source of funds available to the
Company. Banking regulations limit the amount of dividends that may be paid
without prior approval of the regulatory authorities. These restrictions
are based on the level of regulatory classified assets, the prior years'
net earnings, and the ratio of equity capital to total assets. The Bank is
currently not allowed to pay dividends to the Company until it becomes
cumulatively profitable.
-12-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) DECATUR FIRST BANK GROUP, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION
Balance Sheets
December 31, 1997 and 1996
Assets
------
1997 1996
---- ----
Cash and interest bearing deposits $ 615,552 23,935
Investment in Decatur First Bank 7,672,300 -
Investment securities available for sale 498,590 -
Other assets 39,950 415,471
----------- --------
$ 8,826,392 439,406
=========== ========
Liabilities and Shareholders' Equity
------------------------------------
Other liabilities $ - 545,884
Shareholders' equity 8,826,392 (106,478)
----------- --------
$ 8,826,392 439,406
=========== ========
Statements of Operations
For the Years Ended December 31, 1997 and 1996
1997 1996
---- ----
Income:
Interest income $ 116,883 -
--------- -------
Expenses:
Interest 21,887 3,042
Salaries and employee benefits 102,120 64,935
Occupancy and equipment 37,143 19,065
Other operating 70,849 19,446
--------- -------
Total expenses 231,999 106,488
--------- -------
Loss before equity in
undistributed loss of subsidiary 115,116 106,488
Equity in undistributed loss of subsidiary 324,262 -
--------- -------
Net loss $ 439,378 106,488
========= =======
-13-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) DECATUR FIRST BANK GROUP, INC. (PARENT COMPANY ONLY) FINANCIAL INFORMATION,
CONTINUED
Statements of Cash Flows
For the Years Ended December 31, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (439,378) (106,488)
Adjustments to reconcile net loss to net
cash used by operating activities:
Equity in undistributed loss of subsidiary 324,262 -
Amortization 3,062 -
Change in other 26,530 51,934
------------ -----------
Net cash used by operating activities (85,524) (54,554)
------------ -----------
Cash flows from investing activities:
Capital infusion into subsidiary (8,000,000) -
Purchase of securities available for sale (498,605) -
Purchase of premises and equipment - (20,193)
Organization and offering costs - (101,328)
------------ -----------
Net cash used by investing activities (8,498,605) (121,521)
------------ -----------
Cash flows from financing activities:
Change in line of credit (200,000) 200,000
Sale of (redemption of) organization shares (10) 10
Proceeds from sale of common stock,
net of offering costs of $39,684 9,375,756 -
------------ -----------
Net cash provided by financing activities 9,175,746 200,010
------------ -----------
Net increase in cash 591,617 23,935
Cash at beginning of year 23,935 -
------------ -----------
Cash at end of year $ 615,552 23,935
============ ===========
Supplemental schedule of noncash financing and investing activities:
Change in net unrealized loss on securities
available for sale of subsidiary $ (3,438) -
Change in unrealized loss on securities
available for sale $ (60) -
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 23,119 1,810
</TABLE>
-14-
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
15
<PAGE>
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table sets forth for each director and executive officer of
the Company (i) the person's name, (ii) his or her age at December 31, 1997,
(iii) the year he or she was first elected as a director of the Company, and
(iv) his or her positions with the Company other than as a director and his or
her other business experience for the past five years.
<TABLE>
<CAPTION>
POSITION WITH THE COMPANY AND
-----------------------------
NAME (AGE) DIRECTOR SINCE BUSINESS EXPERIENCE
---------- -------------- -------------------
<S> <C> <C>
John L. Adams, Jr. (43) 1996 Real Estate Broker; President and Managing
Broker, Clairmont Place Realty, Inc.
Merriell Autrey, Jr. (72) 1996 Retired Banker
Mary Bobbie Bailey (69) 1996 Business Owner; Our-Way, Inc.,
Bailey Design Company
James A. Baskett (50) 1996 Business Owner; Prolific
Impressions, Inc.
John Walter Drake (54) 1997 Attorney; McCurdy & Candler
William F. Floyd (51) 1996 Construction; Secretary-Treasurer;
Southern Champion Construction, Inc.
Robert E. Lanier (58) 1996 Real Estate Development;
President, REL Properties, Inc.
Carol G. Nickola (46) 1996 Health Care Consultant
Lynn Pasqualetti (42) 1996 Accountant; President and
Co-Owner, HLM Services, Inc.
Roger K. Quillen (44) 1996 Attorney; Fisher & Phillips
Kirby Thompson (43) 1997 Consultants; KAT Consulting
Judy B. Turner/1/(51) 1996 President and Chief
Executive Officer of the Company
</TABLE>
- ---------------------------
/1/ Prior to becoming President and Chief Executive Officer of the Company,
Ms. Turner served as Regional Sales Manager of Bank South.
Note: James T. Smith was elected to the Board of Directors in February 1998.
Mr. Smith is a building contractor and is Vice President of Rutland
Contracting Company.
16
<PAGE>
The Company is not subject to filings required by Section 16 of the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"). The
Company is filing this Annual Report on Form 10-KSB pursuant to Section 15(d)
of the Exchange Act.
ITEM 10. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table presents the total compensation of the Company paid
during fiscal years 1997 and 1996 (since the Company's inception in August 1996)
to its chief executive officer. No executive officer of the Company earned over
$100,000 in salary and bonus during fiscal years 1997 and 1996.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term Compensation
------------------- ----------------------------------
Awards Payouts
----------------------------------
Other Restricted All
Annual Stock Options/ LTIP Other
Salary Bonus Compensation Awards SARs Payouts Compensation
Name and Position Year ($) ($) ($) ($) (#) ($) ($)
- ----------------- ---- ------ ----- ------------ ---------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Judy B. Turner 1997 87,645 0 0 0 0 0 0
President and Chief
Executive Officer 1996* 45,500 0 0 0 0 0 0
- -------------------------------------------------------------------------------------------------------------
</TABLE>
*From the Company's inception in August 1996.
COMPENSATION OF DIRECTORS AND OFFICERS
The Company entered into an employment agreement with Ms. Turner (the
"Employment Agreement"). Under the terms of the Employment Agreement, Ms.
Turner received a starting salary of $6,500 per month until the Company
satisfied the conditions for releasing offering funds from the Escrow Account.
After the Company broke escrow, Ms. Turner began receiving a salary of $8,000
per month. The Employment Agreement provides that at the end of each year of
operation, Ms. Turner will be entitled to receive a cash bonus in the amount of
5% of the Company's audited consolidated pretax net income, provided that
certain performance criteria are satisfied. Additionally, the Employment
Agreement provides that after the Company receives the funds from the Escrow
Account, the Company will grant Ms. Turner a non-qualified ten-year option to
purchase a number of shares of Common Stock equal to 5% of the number of shares
of Common Stock sold in this offering. The option will become vested and
exercisable in 20% increments on the anniversaries of the grant date at a
purchase price of $10.00 per share. Pursuant to the Employment Agreement, the
Company will also lease an automobile to be used by Ms. Turner. In the event
Ms. Turner is terminated by the
17
<PAGE>
Company without cause, the Company will be required to meet its obligations
under the Employment Agreement with respect to Ms. Turner's compensation for a
period of twelve months from the date of termination. In the event of
termination of Ms. Turner's employment, other than by the Company without cause
or by Ms. Turner for cause, as defined in the employment agreement, Ms. Turner
will be prohibited from competing with the Bank or soliciting its customers or
employees for a period of twelve months from the date of termination.
Directors of the Bank will not be compensated for their services as
directors until the Bank earns a cumulative profit.
Officers and directors of the Company will not be separately compensated
for their services to the Company until the Company earns a cumulative profit.
OPTION GRANTS IN FISCAL YEAR 1997
The Company did not grant any options in fiscal year 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the number of shares of the Company's Common
Stock beneficially owned as of March 20, 1998 by (a) each director of the
Company and (b) all executive officers and directors as a group. As of March
20, 1998, only one person, who is also a director of the Company, beneficially
owned more than 5% of the shares of the Company's outstanding Common Stock. The
information shown below is based upon information furnished to the Company by
the named persons. Unless otherwise indicated, each person is the record owner
and has sole voting and investment power with respect to his or her shares.
Information relating to beneficial ownership of the Company is based upon
"beneficial ownership" concepts set forth in rules promulgated under the
Securities Exchange Act of 1934, as amended. Under such rules a person is
deemed to be a "beneficial owner" of a security if that person has or shares
"voting power," which includes the power to vote or to direct the voting of such
security, or "investment power," which includes the power to dispose or to
direct the disposition of such security. Under the rules, more than one person
may be deemed to be a beneficial owner of the same securities. A person is also
deemed to be a beneficial owner of any security as to which that person has the
right to acquire beneficial ownership within sixty (60) days from the record
date.
PERCENT
NAME AND ADDRESS NUMBER OF SHARES OF CLASS
---------------- ---------------- --------
(A) DIRECTORS
John L Adams, Jr. 10,000/(1)/ 1.06
130 Glenn Circle
Decatur, Georgia 30030
Merriell Autrey, Jr. 12,500/(2)/ 1.33
1887 Bedfordshire Court
Decatur, Georgia 30033
18
<PAGE>
PERCENT
NAME AND ADDRESS NUMBER OF SHARES OF CLASS
---------------- ---------------- --------
Mary Bobbie Bailey 75,790/(3)/ 8.05
239 15th Street
Atlanta, Georgia 30309
James A. Baskett 15,000/(4)/ 1.59
160 South Candler Street
Decatur, Georgia 30030
John Walter Drake 8,000/(5)/ .85
2820 Hawthorne Drive
Atlanta, Georgia 30345
William F. Floyd 15,000/(6)/ 1.59
712 W. Ponce de Leon Avenue
Decatur, Georgia 30030
Robert E. Lanier 20,000/(7)/ 2.12
5459 Lichenheath Court
Stone Mountain, Georgia 30087
Carol G. Nickola 20,000/(8)/ 2.12
7540 Chaparral Drive
Dunwoody, Georgia 30350
Lynn Pasqualetti 8,490/(9)/ .90
1806 Durand Mill Drive
Atlanta, Georgia 30307
Roger K. Quillen 10,000/(10)/ 1.06
124 Glenn Circle
Decatur, Georgia 30030
James T. Smith III 39,690/(11)/ 4.22
711 Pinetree Dr.
Decatur, Georgia 30030
Kirby A. Thompson 10,000/(12)/ 1.06
1825 Castleway Lane
Atlanta, Georgia 30345
Judy B. Turner 20,000/(13)/ 2.12
235 Drexel Avenue
Decatur, Georgia 30030
(B) ALL DIRECTORS AND 264,470 28.09
EXECUTIVE OFFICERS, AS A GROUP
- -------------------------
* Ms. Turner is the only executive officer of the Company.
19
<PAGE>
(1) Consists of 10,000 shares owned by Charles Schwab & Co. for the benefit of
Mr. Adams.
(2) Consists of (i) 10,000 shares owned by Dean Whitter Reynolds for the
benefit of Individual Retirement Account of Mr. Autrey as to which Mr.
Autrey shares voting and investment powers with his spouse, and (ii) 2,500
shares owned by J&M Autrey Family Living Trust of which Mr. Autrey is
trustee and as to which Mr. Autrey shares voting and investment powers with
his spouse.
(3) Consists of (i) 49,790 shares owned directly by Ms. Bailey, (ii) 5,000
shares owned by Bailey Design Company, Inc., (iii) 20,000 shares owned by
Entertainment Resource Services, Inc., and (iv) 1000 shares owned by First
American Wholesale, Inc.
(4) Consists of 15,000 shares owned by Prolific Impressions, Inc. Profit
Sharing Plan of which Mr. Baskett is trustee.
(5) Consists of (i) 6,800 shares owned directly by Mr. Drake, (ii) 1,000 shares
owned by the Estate of Edith S. Drake of which Mr. Drake is trustee, and
(iii) 200 shares owned by Louise C. McCurdy Testamentary Trust of which Mr.
Drake is trustee.
(6) Consists of (i) 10,800 shares owned by Smith Barney, Inc. for the benefit
of 401k Account of Mr. Floyd, and (ii) 4,200 shares owned by Edward D.
Jones & Co. as custodian for the benefit of Individual Retirement Account
of Sydney Floyd as to which Mr. Floyd shares voting and investment power.
(7) Consists of (i) 10,000 shares owned directly by Mr. Lanier, (ii) 3,000
shares owned by Edward D. Jones & Co. as custodian for the benefit of Mr.
Lanier, and (iii) 7,000 shares owned by REL Properties, Inc. Profit Sharing
and Retirement Plan of which Mr. Lanier is trustee.
(8) Consists of 20,000 shares owned by Dekalb Anesthesia Associates Profit
Sharing Plan for the benefit of Ms. Nikola' spouse as to which voting and
investment power is shared.
(9) Consists of (i) 2,160 shares owned by Edward D. Jones & Co. as custodian
for benefit of Individual Retirement Account of Ms. Pasqualetti, (ii) 100
shares owned by Ms. Pasqualetti as custodian for Tascha Pasqualetti as to
which voting and investment powers is shared, (iii) 200 shares owned by Ms.
Pasqualetti as custodian for Daniel Bevins as to which voting and
investment powers is shared, and (iv) 6,030 shares owned jointly with Laura
Bevins as to which voting and investment power is shared.
(10) Consists of 10,000 shares owned by A.G. Edwards & Sons, Inc. as custodian
for the benefit of Roger K. Quillen Profit Sharing Plan.
(11) Consists of 39,690 shares owned by Three S. Company.
(12) Consists of 10,000 shares owned by Prudential Securities as custodian for
Individual Retirement Account of Mr. Thompson.
(13) Consists of 20,000 shares owned by Edward D. Jones & Co. as custodian for
Individual Retirement Account of Ms. Turner.
20
<PAGE>
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN TRANSACTIONS
The Company and the Bank have banking and other business transactions in
the ordinary course of business with directors and officers of the Company and
the Bank, including members of their families or corporations, partnerships or
other organizations in which such directors and officers have a controlling
interest. Such transactions are on substantially the same terms (including
price, or interest rate and collateral) as those prevailing at the time for
comparable transactions with unrelated parties, and any banking transactions do
not involve more than the normal risk of collectibility or present other
unfavorable features to the Company and the Bank, and are on terms no less
favorable than could be obtained from an unaffiliated third party and are
approved by a majority of the directors, including a majority of the
disinterested directors.
ITEM 13. EXHIBITS, LISTS AND REPORTS ON FORM 10-KSB
(a) Exhibits
Exhibit
Number Exhibit
3.1 Articles of Incorporation./1/
3.2 Bylaws/1/
4.1 Instruments Defining the Rights of Security Holders. See Articles of
Incorporation at Exhibit 3.1 hereto and Bylaws at Exhibit 3.2 hereto.
10.1 Agreement to Lease, dated August 20, 1996 between Daniel B. Pattillo
and Decatur First Bank Group, Inc./1/
10.2 Agreement to Sublease, dated September 9, 1996, between Atlanta Gas
Light Company and Decatur First Bank Group, Inc./1/
10.3* Employment Agreement, dated as of June 1, 1996 among Decatur First
Bank (In Organization), Decatur First Bank Group, Inc and Judy B.
Turner./2/
10.4* 1998 Stock Incentive Plan
21.1 Subsidiaries of Decatur First Bank Group, Inc.
24.1 Power of Attorney (appears on the signature pages to this Annual
Report on 10-KSB).
27. Financial Data Schedule
99.1 Proxy Statement of Decatur First Bank Group, Inc.
(b) Reports on Form 8-K filed in the fourth quarter of 1997: None.
* Compensatory plan or arrangement.
/1/ Incorporated herein by reference to exhibit of same number to the Company's
Registration Statement on Form SB-2, Registration No. 333-14355, filed
October 18, 1996.
21
<PAGE>
/2/ Incorporated herein by reference to exhibit 10.4 to the Company's
Registration Statement on Form SB-2, Registration No. 333-14355, filed
October 18, 1996.
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS.
The Company completed its initial offering of its Common Stock on June 30,
1997 pursuant to its Registration Statement on Form SB-2 Registration No. 333-
14355. The Company intends to hold its annual meeting of shareholders on May
11, 1998. The Company will file its Proxy Statement and Annual Report to
Shareholders with the Securities and Exchange Commission on or before the date
such items are mailed to shareholders.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DECATUR FIRST BANK GROUP, INC.
By: /s/ Judy B. Turner
-----------------------------
Judy B. Turner
President and Chief
Executive Officer
Date: 3/18/98
23
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears on the
signature page to this Report constitutes and appoints Judy B. Turner and
Merriell Autrey, Jr., his or her true and lawful attorney-in-fact and agent,
with full power of substitution and resubstitution, for him or her and in his or
her name, place, and stead, in any and all capacities, to sign any and all
amendments to this Report, and to file the same, with all exhibits hereto, and
other documents in connection herewith with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as
they might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or their substitute or substitutes, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/John L. Adams, Jr. Director 3/18/98
- -------------------------
John L. Adams, Jr.
/s/Merriell Autrey, Jr. Director 3/18/98
- -------------------------
Merriell Autrey, Jr.
/s/Mary Bobbie Bailey Director 3/18/98
- -------------------------
Mary Bobbie Bailey
- ------------------------- Director _________
James A. Baskett
/s/John Walter Drake Director 3/18/98
- -------------------------
John Walter Drake
/s/William F. Floyd Director 3/18/98
- -------------------------
William F. Floyd
/s/Robert E. Lanier Director 3/18/98
- -------------------------
Robert E. Lanier
/s/Carol G. Nickola Director 3/18/98
- -------------------------
Carol G. Nickola
/s/Lynn Pasqualetti Director 3/18/98
- -------------------------
Lynn Pasqualetti
/s/ Roger K. Quillen Director 3/18/98
- -------------------------
Roger K. Quillen
/s/James T. Smith Director 3/18/98
- -------------------------
James T. Smith
24
<PAGE>
Signature Title Date
--------- ----- ----
/s/Kirby A. Thompson Director 3/18/98
- -------------------------
Kirby A. Thompson
25
<PAGE>
EXHIBIT INDEX
Page Number in
Exhibit Sequentially
Number Exhibit Numbered Copy
- ------ ------- -------------
3.1 Articles of Incorporation./1/ N/A
3.2 Bylaws./1/ N/A
4.1 Instruments Defining the Rights of Security N/A
Holders. See Articles of Incorporation at
Exhibit 3.1 hereto and Bylaws at Exhibit 3.2
hereto.
10.1 Agreement to Lease, dated August 20, 1996 N/A
between Daniel B. Pattillo and Decatur First
Bank Group, Inc./1/
10.2 Agreement to Sublease, dated September 9, N/A
1996, between Atlanta Gas Light Company
and Decatur First Bank Group, Inc./1/
10.3* Employment Agreement, dated as of June 1, N/A
1996 among Decatur First Bank (In
Organization), Decatur First Bank Group, Inc
and Judy B. Turner./2/
10.4* 1998 Stock Incentive Plan
21.1 Subsidiaries of Decatur First Bank Group, Inc.
24.1 Power of Attorney (appears on the signature
pages to this Annual Report on 10-KSB).
27. Financial Data Schedule
99.1 Proxy Statement of Decatur First Bank Group, Inc.
* Compensatory plan or arrangement.
/1/ Incorporated herein by reference to exhibit of same number to the Company's
Registration Statement on Form SB-2, Registration No. 333-14355, filed
October 18, 1996.
/2/ Incorporated herein by reference to exhibit 10.4 to the Company's
Registration Statement on Form SB-2, Registration No. 333-14355, filed
October 18, 1996.
<PAGE>
EXHIBIT 10.4
1998 STOCK INCENTIVE PLAN
<PAGE>
DECATUR FIRST BANK GROUP, INC.
1998 STOCK INCENTIVE PLAN
<PAGE>
TABLE OF CONTENTS
Page
SECTION 1 DEFINITIONS 1
1.1 Definitions............................................ 1
SECTION 2 THE STOCK INCENTIVE PLAN 3
2.1 Purpose of the Plan.................................... 3
2.2 Stock Subject to the Plan.............................. 4
2.3 Administration of the Plan............................. 4
2.4 Eligibility and Limits............................... 4
SECTION 3 TERMS OF STOCK INCENTIVES 5
3.1 General Terms and Conditions......................... 5
3.2 Terms and Conditions of Options...................... 6
(a) Option Price......................................... 6
(b) Option Term.......................................... 6
(c) Payment.............................................. 6
(d) Conditions to the Exercise of an Option.............. 6
(e) Termination of Incentive Stock Option................ 6
(f) Special Provisions for Certain Substitute Options.... 7
3.3 Terms and Conditions of Stock Appreciation Rights.... 7
(a) Settlement........................................... 7
(b) Conditions to Exercise............................... 7
3.4 Terms and Conditions of Stock Awards................. 7
3.5 Terms and Conditions of Dividend Equivalent Rights... 7
(a) Payment.............................................. 8
(b) Conditions to Payment................................ 8
3.6 Terms and Conditions of Performance Unit Awards...... 8
(a) Payment.............................................. 8
(b) Conditions to Payment................................ 8
3.7 Terms and Conditions of Phantom Shares............... 8
(a) Payment.............................................. 8
(b) Conditions to Payment................................ 8
3.8 Treatment of Awards Upon Termination of Service...... 8
SECTION 4 RESTRICTIONS ON STOCK 9
4.1 Escrow of Shares..................................... 9
4.2 Restrictions on Transfer............................. 9
SECTION 5 GENERAL PROVISIONS 9
5.1 Withholding.......................................... 9
5.2 Changes in Capitalization; Merger; Liquidation....... 9
5.3 Cash Awards..........................................10
5.4 Compliance with Code.................................10
5.5 Right to Terminate Service...........................10
5.6 Restrictions on Delivery and Sale of Shares; Legends.10
5.7 Non-alienation of Benefits...........................11
5.8 Termination and Amendment of the Plan................11
5.9 Stockholder Approval.................................11
5.10 Choice of Law........................................11
5.11 Effective Date of Plan...............................11
-i-
<PAGE>
DECATUR FIRST BANK GROUP, INC.
1998 STOCK INCENTIVE PLAN
SECTION 1 DEFINITIONS
1.1 Definitions. Whenever used herein, the masculine pronoun shall be
deemed to include the feminine, and the singular to include the plural, unless
the context clearly indicates otherwise, and the following capitalized words and
phrases are used herein with the meaning thereafter ascribed:
(a) "Board of Directors" means the board of directors of the Company.
(b) "Cause" has the same meaning as provided in the employment
agreement between the Participant and the Company or, if applicable, any
affiliate of the Company on the date of Termination of Service, or if no such
definition or employment agreement exists, "Cause" means conduct amounting to
(1) fraud or dishonesty against the Company or its affiliates, (2) Participant's
willful misconduct, repeated refusal to follow the reasonable directions of the
board of directors of the Company or its affiliates, or knowing violation of law
in the course of performance of the duties of Participant's service with the
Company or its affiliates, (3) repeated absences from work without a reasonable
excuse, (4) repeated intoxication with alcohol or drugs while on the Company or
affiliates' premises during regular business hours, (5) a conviction or plea of
guilty or nolo contendere to a felony or a crime involving dishonesty, or (6) a
breach or violation of the terms of any agreement to which Participant and the
Company or its affiliates are party.
(c) "Change in Control" means any one of the following events which
may occur without the approval of the Board of Directors of the Company:
(1) the acquisition by any individual, entity or "group", within
the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange
Act of 1934, as amended, (a "Person") of beneficial ownership (within the
meaning of Rule 13d-3 promulgated under the Securities Exchange Act of 1934) of
voting securities of the Company where such acquisition causes any such Person
to own twenty-five percent (25%) or more of the combined voting power of the
then outstanding voting securities then entitled to vote generally in the
election of directors (the "Outstanding Voting Securities"); provided, however,
that for purposes of this Section 1(c)(1), the following shall not be deemed to
result in a Change in Control, (i) any acquisition directly from the Company,
unless such a Person subsequently acquires additional shares of Outstanding
Voting Securities other than from the Company, in which case any such subsequent
acquisition shall be deemed to be a Change in Control; or (ii) any acquisition
by any employee benefit plan (or related trust) sponsored or maintained by the
Company or any corporation controlled by the Company;
(2) a merger, consolidation, share exchange, combination,
reorganization or like transaction involving the Company in which the
stockholders of the Company immediately prior to such transaction do not own at
least fifty percent (50%) of the value or voting power of the issued and
outstanding capital stock of the Company or its successor immediately after such
transaction;
(3) the sale or transfer (other than as security for the Company's
obligations) of more than fifty percent (50%) of the assets of the Company in
any one transaction or a series of related transactions occurring within a one
(1) year period in which the Company, any corporation controlled by the Company
or the stockholders of the Company immediately prior to the transaction do not
own at least fifty percent (50%) of the value or voting power of the issued and
outstanding equity securities of the acquiror immediately after the transaction;
(4) the sale or transfer of more than fifty percent (50%) of the
value or voting power of the issued and outstanding capital stock of the Company
by the holders thereof in any one transaction or a series of related
transactions occurring within a one (1) year period in which the Company, any
corporation controlled by the Company or the stockholders of the Company
immediately prior to the transaction do not own at least fifty percent (50%) of
the value or voting power of the issued and outstanding equity securities of the
acquiror immediately after the transaction; or
<PAGE>
(5) the dissolution or liquidation of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended.
(e) "Committee" means the committee appointed by the Board of
Directors to administer the Plan pursuant to Plan Section 2.3.
(f) "Company" means Decatur First Bank Group, Inc., a bank holding
company organized under the laws of the State of Georgia.
(g) "Disability" has the same meaning as provided in the long-term
disability plan or policy maintained or, if applicable, most recently
maintained, by the Company or, if applicable, any affiliate of the Company for
the Participant. If no long-term disability plan or policy was ever maintained
on behalf of the Participant or, if the determination of Disability relates to
an Incentive Stock Option, Disability shall mean that condition described in
Code Section 22(e)(3), as amended from time to time. In the event of a dispute,
the determination of Disability shall be made by the Board of Directors and
shall be supported by advice of a physician competent in the area to which such
Disability relates.
(h) "Disposition" means any conveyance, sale, transfer, assignment,
pledge or hypothecation, whether outright or as security, inter vivos or
testamentary, with or without consideration, voluntary or involuntary.
(i) "Dividend Equivalent Rights" means certain rights to receive cash
payments as described in Plan Section 3.5.
(j) "Fair Market Value" refers to the determination of value of a
share of Stock. If the Stock is actively traded on any national securities
exchange or any Nasdaq quotation or market system, Fair Market Value shall mean
the closing price at which sales of Stock shall have been sold on the most
recent trading date immediately prior to the date of determination, as reported
by any such exchange or system selected by the Committee on which the shares of
Stock are then traded. If the shares of Stock are not actively traded on any
such exchange or system, Fair Market Value shall mean the arithmetic mean of the
bid and asked prices for the shares of Stock on the most recent trading date
within a reasonable period prior to the determination date as reported by such
exchange or system. If there are no bid and asked prices within a reasonable
period or if the shares of Stock are not traded on any exchange or system as of
the determination date, Fair Market Value shall mean the fair market value of a
share of Stock as determined by the Committee taking into account such facts and
circumstances deemed to be material by the Committee to the value of the Stock
in the hands of the Participant; provided that, for purposes of granting awards
other than Incentive Stock Options, Fair Market Value of a share of Stock may be
determined by the Committee by reference to the average market value determined
over a period certain or as of specified dates, to a tender offer price for the
shares of Stock (if settlement of an award is triggered by such an event) or to
any other reasonable measure of fair market value and provided further that, for
purposes of granting Incentive Stock Options, Fair Market Value of a share of
Stock shall be determined in accordance with the valuation principles described
in the regulations promulgated under Code Section 422.
(k) "Incentive Stock Option" means an incentive stock option, as
defined in Code Section 422, described in Plan Section 3.2.
(l) "Non-Qualified Stock Option" means a stock option, other than an
option qualifying as an Incentive Stock Option, described in Plan Section 3.2.
(m) "Option" means a Non-Qualified Stock Option or an Incentive Stock
Option.
-2-
<PAGE>
(n) "Over 10% Owner" means an individual who at the time an Incentive
Stock Option is granted owns Stock possessing more than 10% of the total
combined voting power of the Company or one of its Parents or Subsidiaries,
determined by applying the attribution rules of Code Section 424(d).
(o) "Parent" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, with respect to
Incentive Stock Options, at the time of granting of the Incentive Stock Option,
each of the corporations other than the Company owns stock possessing 50% or
more of the total combined voting power of all classes of stock in one of the
other corporations in the chain.
(p) "Participant" means an individual who receives a Stock Incentive
hereunder.
(q) "Performance Unit Award" refers to a performance unit award
described in Plan Section 3.6.
(r) "Phantom Shares" refers to the rights described in Plan Section
3.7.
(s) "Plan" means the Decatur First Company Group, Inc. 1998 Stock
Incentive Plan.
(t) "Stock" means the Company's common stock, $5.00 par value per
share.
(u) "Stock Appreciation Right" means a stock appreciation right
described in Plan Section 3.3.
(v) "Stock Award" means a stock award described in Plan Section 3.4.
(w) "Stock Incentive Agreement" means an agreement between the Company
and a Participant or other documentation evidencing an award of a Stock
Incentive.
(x) "Stock Incentive Program" means a written program established by
the Committee pursuant to which Stock Incentives, other than Options or Stock
Appreciation Rights, are awarded under the Plan under uniform terms, conditions
and restrictions set forth in such written program and distributed among
eligible officers, employees and directors.
(y) "Stock Incentives" means, collectively, Dividend Equivalent
Rights, Incentive Stock Options, Non-Qualified Stock Options, Performance Unit
Awards, Phantom Shares, Stock Appreciation Rights and Stock Awards.
(z) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if, with respect to
Incentive Stock Options, at the time of the granting of the Incentive Stock
Option, each of the corporations other than the last corporation in the unbroken
chain owns stock possessing 50% or more of the total combined voting power of
all classes of stock in one of the other corporations in the chain.
(aa) "Termination of Service" means the termination of the service
relationship, whether employment or otherwise, between a Participant and the
Company and its affiliates, regardless of the fact that severance or similar
payments are made to the Participant for any reason, including, but not by way
of limitation, a termination by resignation, discharge, death, Disability or
retirement. The Committee shall, in its absolute discretion, determine the
effect of all matters and questions relating to Termination of Service,
including, but not by way of limitation, the question of whether a leave of
absence constitutes a Termination of Service, or whether a Termination of
Service is for Cause.
SECTION 2 THE STOCK INCENTIVE PLAN
2.1 Purpose of the Plan. The Plan is intended to (a) provide incentive to
officers, employees, directors and consultants of the Company and any affiliates
to stimulate their efforts toward the continued success of the
-3-
<PAGE>
Company and to operate and manage the business in a manner that will provide
for the long-term growth and profitability of the Company; (b) encourage stock
ownership by officers, employees, directors and consultants by providing them
with a means to acquire a proprietary interest in the Company by acquiring
shares of Stock or to receive compensation which is based upon appreciation in
the value of Stock; and (c) provide a means of obtaining and rewarding key
personnel.
2.2 Stock Subject to the Plan. Subject to adjustment in accordance with
Section 5.2, 143,000 shares of Stock (the "Maximum Plan Shares") are hereby
reserved exclusively for issuance pursuant to Stock Incentives. At no time
shall the Company have outstanding Stock Incentives and shares of Stock issued
in respect of Stock Incentives in excess of the Maximum Plan Shares. The shares
of Stock attributable to the nonvested, unpaid, unexercised, unconverted or
otherwise unsettled portion of any Stock Incentive that is forfeited or
cancelled or expires or terminates for any reason without becoming vested, paid,
exercised, converted or otherwise settled in full shall again be available for
purposes of the Plan.
2.3 Administration of the Plan. The Plan shall be administered by the
Committee. The Committee shall have full authority in its discretion to
determine the officers, employees, directors and consultants of the Company or
any affiliates to whom Stock Incentives shall be granted and the terms and
provisions of Stock Incentives, subject to the Plan. Subject to the provisions
of the Plan, the Committee shall have full and conclusive authority to interpret
the Plan; to prescribe, amend and rescind rules and regulations relating to the
Plan; to determine the terms and provisions of the respective Stock Incentive
Agreements or Stock Incentive Programs and to make all other determinations
necessary or advisable for the proper administration of the Plan. The
Committee's determinations under the Plan need not be uniform and may be made by
it selectively among persons who receive, or are eligible to receive, awards
under the Plan (whether or not such persons are similarly situated). The
Committee's decisions shall be final and binding on all Participants.
The Committee shall consist of at least two members of the Board of
Directors and, during those periods that the Company is subject to the
provisions of Section 16 of the Securities Exchange Act of 1934, the Board of
Directors shall consider the advisability of whether each such appointee shall
qualify as a "non-employee director", as that term is defined in Rule 16b-3 as
then in effect under the Securities Exchange Act of 1934, and, during those
periods that the Company has issued equity securities required to be registered
under Section 12 of the Securities Exchange Act of 1934, the Board of Directors
shall consider the advisability of whether each such appointee shall separately
qualify as an "outside director", within the meaning of Code Section 162(m) and
the regulations promulgated thereunder. Each member of the Committee shall
serve at the discretion of the Board of Directors and the Board of Directors may
from time to time remove members from or add members to the Committee.
Vacancies on the Committee shall be filled by the Board of Directors.
The Committee shall select one of its members as Chairman and shall hold
meetings at the times and in the places as it may deem advisable. Acts approved
by a majority of the Committee in a meeting at which a quorum is present, or
acts reduced to or approved in writing by a majority of the members of the
Committee, shall be the valid acts of the Committee.
2.4 Eligibility and Limits. Stock Incentives may be granted only to
officers, employees, directors and consultants of the Company or any affiliate;
provided, however, that an Incentive Stock Option may only be granted to an
employee of the Company or any Parent or Subsidiary. In the case of Incentive
Stock Options, the aggregate Fair Market Value (determined as at the date an
Incentive Stock Option is granted) of stock with respect to which stock options
intended to meet the requirements of Code Section 422 become exercisable for the
first time by an individual during any calendar year under all plans of the
Company and its Parents and Subsidiaries shall not exceed $100,000; provided
further, that if the limitation is exceeded, the Incentive Stock Option(s) which
cause the limitation to be exceeded shall be treated as Non-Qualified Stock
Option(s); except as the terms of the Stock Incentive Agreement may expressly
provide otherwise. To the extent required under Code Section 162(m) and
regulations thereunder for compensation to be treated as qualified performance-
based compensation, subject to adjustment in accordance with Section 5.2, the
maximum number of shares Stock with respect to which Options or Stock
Appreciation Rights may be granted during any single fiscal year of the Company
to any employee shall not exceed 48,000.
-4-
<PAGE>
SECTION 3 TERMS OF STOCK INCENTIVES
3.1 General Terms and Conditions.
(a) The number of shares of Stock as to which a Stock Incentive shall
be granted shall be determined by the Committee in its sole discretion, subject
to the provisions of Section 2.2 as to the total number of shares available for
grants under the Plan. If a Stock Incentive Agreement so provides, a
Participant may be granted a new Option to purchase a number of shares of Stock
equal to the number of previously owned shares of Stock tendered in payment of
the Exercise Price (as defined below) for each share of Stock purchased pursuant
to the terms of the Stock Incentive Agreement.
(b) Each Stock Incentive shall be evidenced by a Stock Incentive
Agreement in such form and containing such terms, conditions and restrictions as
the Committee may determine is appropriate or be made subject to the terms of a
Stock Incentive Program, containing such terms, conditions and restrictions as
the Committee may determine is appropriate. Each Stock Incentive Agreement or
Stock Incentive Program shall be subject to the terms of the Plan and any
provision in a Stock Incentive Agreement or the Stock Incentive Program that is
inconsistent with the Plan shall be null and void.
(c) The date a Stock Incentive is granted shall be the date on which
the Committee has approved the terms and conditions of the Stock Incentive
Agreement or the Stock Incentive Program and has determined the recipient of the
Stock Incentive and the number of shares covered by the Stock Incentive and has
taken all such other action necessary to complete the grant of the Stock
Incentive.
(d) The Committee may provide in any Stock Incentive Agreement or
pursuant to any Stock Incentive Program (or subsequent to the award of a Stock
Incentive but prior to its expiration or cancellation, as the case may be) that,
in the event of a Change in Control, the Stock Incentive shall or may be cashed
out on the basis of any price not greater than the highest price paid for a
share of Stock in any transaction reported by any market or system selected by
the Committee on which the shares of Stock are then actively traded during a
specified period immediately preceding or including the date of the Change in
Control or offered for a share of Stock in any tender offer occurring during a
specified period immediately preceding or including the date the tender offer
commences; provided that, in no case shall any such specified period exceed one
(1) year (the "Change in Control Price"). For purposes of this Subsection, the
cashout of a Stock Incentive shall be determined as follows:
(1) Options shall be cashed out on the basis of the excess, if
any, of the Change in Control Price (but not more than the Fair Market Value of
the Stock on the date of the cash-out in the case of Incentive Stock Options)
over the Exercise Price with or without regard to whether the Option may
otherwise be exercisable only in part;
(2) Stock Awards and Phantom Shares shall be cashed out in an
amount equal to the Change in Control Price with or without regard to any
conditions or restrictions otherwise applicable to any such Stock Incentive; and
(3) Stock Appreciation Rights, Dividend Equivalent Rights and
Performance Unit Awards shall be cashed out with or without regard to any
conditions or restrictions otherwise applicable to any such Stock Incentive and
the amount of the cash out shall be determined by reference to the number of
shares of Stock that would be required to pay the Participant in kind for the
value of the Stock Incentive as of the date of the Change in Control multiplied
by the Change in Control Price.
(e) Any Stock Incentive may be granted in connection with all or any
portion of a previously or contemporaneously granted Stock Incentive. Exercise
or vesting of a Stock Incentive granted in connection with another Stock
Incentive may result in a pro rata surrender or cancellation of any related
Stock Incentive, as specified in the applicable Stock Incentive Agreement or
Stock Incentive Program.
-5-
<PAGE>
(f) Stock Incentives shall not be transferable or assignable except by
will or by the laws of descent and distribution and shall be exercisable, during
the Participant's lifetime, only by the Participant; in the event of the
Disability of the Participant, by the legal representative of the Participant;
or in the event of the death of the participant, by the personal representative
of the Participant's estate or if no personal representative has been appointed,
by the successor in interest determined under the Participant's will.
3.2 Terms and Conditions of Options. Each Option granted under the Plan
shall be evidenced by a Stock Incentive Agreement. At the time any Option is
granted, the Committee shall determine whether the Option is to be an Incentive
Stock Option or a Non-Qualified Stock Option, and the Option shall be clearly
identified as to its status as an Incentive Stock Option or a Non-Qualified
Stock Option. At the time any Incentive Stock Option is exercised, the Company
shall be entitled to place a legend on the certificates representing the shares
of Stock purchased pursuant to the Option to clearly identify them as shares of
Stock purchased upon exercise of an Incentive Stock Option. An Incentive Stock
Option may only be granted within ten (10) years from the earlier of the date
the Plan is adopted by the Board of Directors or approved by the Company's
stockholders.
(a) Option Price. Subject to adjustment in accordance with Section
5.2 and the other provisions of this Section 3.2, the exercise price (the
"Exercise Price") per share of Stock purchasable under any Option shall be as
set forth in the applicable Stock Incentive Agreement. With respect to each
grant of an Incentive Stock Option to a Participant who is not an Over 10% Owner
or to each grant of any Option to a Participant who is then a "covered
employee," within the meaning of Code Section 162(m), the Exercise Price per
share shall not be less than the Fair Market Value on the date the Option is
granted. With respect to each grant of an Incentive Stock Option to a
Participant who is an Over 10% Owner, the Exercise Price shall not be less than
110% of the Fair Market Value on the date the Option is granted.
(b) Option Term. The term of an Option shall be as specified in the
applicable Stock Incentive Agreement; provided, however that any Incentive Stock
Option granted to a Participant who is not an Over 10% Owner shall not be
exercisable after the expiration of ten (10) years after the date the Option is
granted and any Incentive Stock Option granted to an Over 10% Owner shall not be
exercisable after the expiration of five (5) years after the date the Option is
granted.
(c) Payment. Payment for all shares of Stock purchased pursuant to
exercise of an Option shall be made in any form or manner authorized by the
Committee in the Stock Incentive Agreement or by amendment thereto, including,
but not limited to, cash or, if the Stock Incentive Agreement provides, (1) by
delivery to the Company of a number of shares of Stock which have been owned by
the holder for at least six (6) months prior to the date of exercise having an
aggregate Fair Market Value of not less than the product of the Exercise Price
multiplied by the number of shares the Participant intends to purchase upon
exercise of the Option on the date of delivery; (2) in a cashless exercise
through a broker; or (3) by having a number of shares of Stock withheld, the
Fair Market Value of which as of the date of exercise is sufficient to satisfy
the Exercise Price. In its discretion, the Committee also may authorize (at
the time an Option is granted or thereafter) Company financing to assist the
Participant as to payment of the Exercise Price on such terms as may be offered
by the Committee in its discretion. Payment shall be made at the time that the
Option or any part thereof is exercised, and no shares shall be issued or
delivered upon exercise of an option until full payment has been made by the
Participant. The holder of an Option, as such, shall have none of the rights of
a stockholder.
(d) Conditions to the Exercise of an Option. Each Option granted
under the Plan shall be exercisable by whom, at such time or times, or upon the
occurrence of such event or events, and in such amounts, as the Committee shall
specify in the Stock Incentive Agreement; provided, however, that subsequent to
the grant of an Option, the Committee, at any time before complete termination
of such Option, may accelerate the time or times at which such Option may be
exercised in whole or in part, including, without limitation, upon a Change in
Control and may permit the Participant or any other designated person to
exercise the Option, or any portion thereof, for all or part of the remaining
Option term notwithstanding any provision of the Stock Incentive Agreement to
the contrary.
(e) Termination of Incentive Stock Option. With respect to an
Incentive Stock Option, in the event of the Termination of Service of a
Participant, the Option or portion thereof held by the Participant which is
-6-
<PAGE>
unexercised shall expire, terminate, and become unexercisable no later than the
expiration of three (3) months after the date of Termination of Service;
provided, however, that in the case of a holder whose Termination of Service is
due to death or Disability, one (1) year shall be substituted for such three (3)
month period. For purposes of this Subsection (e), Termination of Service of
the Participant shall not be deemed to have occurred if the Participant is
employed by another corporation (or a parent or subsidiary corporation of such
other corporation) which has assumed the Incentive Stock Option of the
Participant in a transaction to which Code Section 424(a) is applicable.
(f) Special Provisions for Certain Substitute Options.
Notwithstanding anything to the contrary in this Section 3.2, any Option issued
in substitution for an option previously issued by another entity, which
substitution occurs in connection with a transaction to which Code Section
424(a) is applicable, may provide for an exercise price computed in accordance
with such Code Section and the regulations thereunder and may contain such other
terms and conditions as the Committee may prescribe to cause such substitute
Option to contain as nearly as possible the same terms and conditions (including
the applicable vesting and termination provisions) as those contained in the
previously issued option being replaced thereby.
3.3 Terms and Conditions of Stock Appreciation Rights. Each Stock
Appreciation Right granted under the Plan shall be evidenced by a Stock
Incentive Agreement. A Stock Appreciation Right may be granted in connection
with all or any portion of a previously or contemporaneously granted Stock
Incentive or not in connection with a Stock Incentive. A Stock Appreciation
Right shall entitle the Participant to receive the excess of (a) the Fair Market
Value of a specified or determinable number of shares of the Stock at the time
of payment or exercise over (b) a specified price (1) which, in the case of a
Stock Appreciation Right granted in connection with an Option, shall be not less
than the Exercise Price for that number of shares and (2) which, in the case of
a Stock Appreciation Right that is granted to a Participant who is then a
"covered employee," within the meaning of Code Section 162(m), shall not be less
than the Fair Market Value of the Stock at the time of the award. A Stock
Appreciation Right granted in connection with a Stock Incentive may only be
exercised to the extent that the related Stock Incentive has not been exercised,
paid or otherwise settled. The exercise of a Stock Appreciation Right granted
in connection with a Stock Incentive shall result in a pro rata surrender or
cancellation of any related Stock Incentive to the extent the Stock Appreciation
Right has been exercised.
(a) Settlement. Upon settlement of a Stock Appreciation Right, the
Company shall pay to the Participant the appreciation in cash or shares of Stock
(valued at the aggregate Fair Market Value on the date of payment or exercise)
as provided in the Stock Incentive Agreement or, in the absence of such
provision, as the Committee may determine.
(b) Conditions to Exercise. Each Stock Appreciation Right granted
under the Plan shall be exercisable or payable at such time or times, or upon
the occurrence of such event or events, and in such amounts, as the Committee
shall specify in the Stock Incentive Agreement; provided, however, that
subsequent to the grant of a Stock Appreciation Right, the Committee, at any
time before complete termination of such Stock Appreciation Right, may
accelerate the time or times at which such Stock Appreciation Right may be
exercised or paid in whole or in part.
3.4 Terms and Conditions of Stock Awards. The number of shares of Stock
subject to a Stock Award and restrictions or conditions on such shares, if any,
shall be as the Committee determines, and the certificate for such shares shall
bear evidence of any restrictions or conditions. Subsequent to the date of the
grant of the Stock Award, the Committee shall have the power to permit, in its
discretion, an acceleration of the expiration of an applicable restriction
period with respect to any part or all of the shares awarded to a Participant.
The Committee may require a cash payment from the Participant in an amount no
greater than the aggregate Fair Market Value of the shares of Stock awarded
determined at the date of grant in exchange for the grant of a Stock Award or
may grant a Stock Award without the requirement of a cash payment.
3.5 Terms and Conditions of Dividend Equivalent Rights. A Dividend
Equivalent Right shall entitle the Participant to receive payments from the
Company in an amount determined by reference to any cash dividends paid on a
specified number of shares of Stock to Company stockholders of record during the
period such rights are effective. The Committee may impose such restrictions
and conditions on any Dividend Equivalent Right as the Committee in its
-7-
<PAGE>
discretion shall determine, including the date any such right shall terminate
and may reserve the right to terminate, amend or suspend any such right at any
time.
(a) Payment. Payment in respect of a Dividend Equivalent Right may be
made by the Company in cash or shares of Stock (valued at Fair Market Value on
the date of payment) as provided in the Stock Incentive Agreement or, in the
absence of such provision, as the Committee may determine.
(b) Conditions to Payment. Each Dividend Equivalent Right granted
under the Plan shall be payable at such time or times, or upon the occurrence of
such event or events, and in such amounts, as the Committee shall specify in the
Stock Incentive Agreement or Stock Incentive Program; provided, however, that
subsequent to the grant of a Dividend Equivalent Right, the Committee, at any
time before complete termination of such Dividend Equivalent Right, may
accelerate the time or times at which such Dividend Equivalent Right may be paid
in whole or in part.
3.6 Terms and Conditions of Performance Unit Awards. A Performance Unit
Award shall entitle the Participant to receive, at a future date, payment of an
amount equal to all or a portion of the value of a number of units (stated in
terms of a designated dollar amount per unit) granted by the Committee, all as
the Committee shall specify in the Stock Incentive Agreement or Stock Incentive
Program. At the time of the grant, the Committee must determine the base value
of each unit, the number of units subject to a Performance Unit Award, the
performance factors applicable to the determination of the ultimate payment
value of the Performance Unit Award and the period over which Company
performance shall be measured. The Committee may provide for an alternate base
value for each unit under certain specified conditions.
(a) Payment. Payment in respect of Performance Unit Awards may be
made by the Company in cash or shares of Stock (valued at Fair Market Value on
the date of payment) as provided in the Stock Incentive Agreement or Stock
Incentive Program or, in the absence of such provision, as the Committee may
determine.
(b) Conditions to Payment. Each Performance Unit Award granted under
the Plan shall be payable at such time or times, or upon the occurrence of such
event or events, and in such amounts, as the Committee shall specify in the
Stock Incentive Agreement or Stock Incentive Program; provided, however, that
subsequent to the grant of a Performance Unit Award, the Committee, at any time
before complete termination of such Performance Unit Award, may accelerate the
time or times at which such Performance Unit Award may be paid in whole or in
part.
3.7 Terms and Conditions of Phantom Shares. Phantom Shares shall entitle
the Participant to receive, at a future date, payment of an amount equal to all
or a portion of the Fair Market Value of a number of shares of Stock at the end
of a certain period, all as the Committee shall specify in the Stock Incentive
Agreement or Stock Incentive Program. At the time of the grant, the Committee
shall determine the factors which will govern the portion of the rights so
payable, including, at the discretion of the Committee, any performance criteria
that must be satisfied as a condition to payment.
(a) Payment. Payment in respect of Phantom Shares may be made by the
Company in cash or shares of Stock (valued at Fair Market Value on the date of
payment) as provided in the Stock Incentive Agreement or Stock Incentive Program
or, in the absence of such provision, as the Committee may determine.
(b) Conditions to Payment. Each Phantom Share granted under the Plan
shall be payable at such time or times, or upon the occurrence of such event or
events, and in such amounts, as the Committee shall specify in the Stock
Incentive Agreement or Stock Incentive Program; provided, however, that
subsequent to the grant of a Phantom Share, the Committee, at any time before
complete termination of such Phantom Share, may accelerate the time or times at
which such Phantom Share may be paid in whole or in part.
3.8 Treatment of Awards Upon Termination of Service. Except as otherwise
provided by Plan Section 3.2(e), any award under this Plan to a Participant who
suffers a Termination of Service may be cancelled, accelerated, paid or
continued, as provided in the Stock Incentive Agreement or Stock Incentive
Program or, in the absence of such provision, as the Committee may determine.
The portion of any award exercisable in the event of continuation or the
-8-
<PAGE>
amount of any payment due under a continued award may be adjusted by the
Committee to reflect the Participant's period of service from the date of grant
through the date of the Participant's Termination of Service or such other
factors as the Committee determines are relevant to its decision to continue the
award.
SECTION 4 RESTRICTIONS ON STOCK
4.1 Escrow of Shares. Any certificates representing the shares of Stock
issued under the Plan shall be issued in the Participant's name, but, if the
Stock Incentive Agreement or Stock Incentive Program so provides, the shares of
Stock shall be held by a custodian designated by the Committee (the
"Custodian"). Each applicable Stock Incentive Agreement or Stock Incentive
Program providing for transfer of shares of Stock to the Custodian shall appoint
the Custodian as the attorney-in-fact for the Participant for the term specified
in the applicable Stock Incentive Agreement or Stock Incentive Program, with
full power and authority in the Participant's name, place and stead to transfer,
assign and convey to the Company any shares of Stock held by the Custodian for
such Participant, if the Participant forfeits the shares under the terms of the
applicable Stock Incentive Agreement or Stock Incentive Program. During the
period that the Custodian holds the shares subject to this Section, the
Participant shall be entitled to all rights, except as provided in the
applicable Stock Incentive Agreement or Stock Incentive Program, applicable to
shares of Stock not so held. Any dividends declared on shares of Stock held by
the Custodian shall, as the Committee may provide in the applicable Stock
Incentive Agreement or Stock Incentive Program, be paid directly to the
Participant or, in the alternative, be retained by the Custodian until the
expiration of the term specified in the applicable Stock Incentive Agreement or
Stock Incentive Program and shall then be delivered, together with any proceeds,
with the shares of Stock to the Participant or to the Company, as applicable.
4.2 Restrictions on Transfer. The Participant shall not have the right to
make or permit to exist any Disposition of the shares of Stock issued pursuant
to the Plan except as provided in the Plan or the applicable Stock Incentive
Agreement or Stock Incentive Program. Any Disposition of the shares of Stock
issued under the Plan by the Participant not made in accordance with the Plan or
the applicable Stock Incentive Agreement or Stock Incentive Program shall be
void. The Company shall not recognize, or have the duty to recognize, any
Disposition not made in accordance with the Plan and the applicable Stock
Incentive Agreement or Stock Incentive Program, and the shares so transferred
shall continue to be bound by the Plan and the applicable Stock Incentive
Agreement or Stock Incentive Program.
SECTION 5 GENERAL PROVISIONS
5.1 Withholding. The Company shall deduct from all cash distributions
under the Plan any taxes required to be withheld by federal, state or local
government. Whenever the Company proposes or is required to issue or transfer
shares of Stock under the Plan or upon the vesting of any Stock Award, the
Company shall have the right to require the recipient to remit to the Company an
amount sufficient to satisfy any federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares or the vesting of such Stock Award. A Participant may pay the
withholding tax in cash, or, if the applicable Stock Incentive Agreement or
Stock Incentive Program provides, a Participant may elect to have the number of
shares of Stock he is to receive reduced by, or with respect to a Stock Award,
tender back to the Company, the smallest number of whole shares of Stock which,
when multiplied by the Fair Market Value of the shares of Stock determined as of
the Tax Date (defined below), is sufficient to satisfy federal, state and local,
if any, withholding taxes arising from exercise or payment of a Stock Incentive
(a "Withholding Election"). A Participant may make a Withholding Election only
if both of the following conditions are met:
(a) The Withholding Election must be made on or prior to the date on
which the amount of tax required to be withheld is determined (the "Tax Date")
by executing and delivering to the Company a properly completed notice of
Withholding Election as prescribed by the Committee; and
(b) Any Withholding Election made will be irrevocable; however, the
Committee may in its sole discretion disapprove and give no effect to the
Withholding Election.
5.2 Changes in Capitalization; Merger; Liquidation.
-9-
<PAGE>
(a) The number of shares of Stock reserved for the grant of Options,
Dividend Equivalent Rights, Performance Unit Awards, Phantom Shares, Stock
Appreciation Rights and Stock Awards; the number of shares of Stock reserved for
issuance upon the exercise or payment, as applicable, of each outstanding
Option, Dividend Equivalent Right, Performance Unit Award, Phantom Share and
Stock Appreciation Right and upon vesting or grant, as applicable, of each Stock
Award; the Exercise Price of each outstanding Option and the specified number of
shares of Stock to which each outstanding Dividend Equivalent Right, Phantom
Share and Stock Appreciation Right pertains shall be proportionately adjusted
for any increase or decrease in the number of issued shares of Stock resulting
from a subdivision or combination of shares or the payment of an ordinary stock
dividend in shares of Stock to holders of outstanding shares of Stock or any
other increase or decrease in the number of shares of Stock outstanding effected
without receipt of consideration by the Company.
(b) In the event of any merger, consolidation, extraordinary dividend
(including a spin-off), reorganization or other change in the corporate
structure of the Company or its Stock or tender offer for shares of Stock, the
Committee, in its sole discretion, may make such adjustments with respect to
awards and take such other action as it deems necessary or appropriate to
reflect or in anticipation of such merger, consolidation, extraordinary
dividend, reorganization, other change in corporate structure or tender offer,
including, without limitation, the substitution of new awards, the termination
or adjustment of outstanding awards, the acceleration of awards or the removal
of restrictions on outstanding awards, all as may be provided in the applicable
Stock Incentive Agreement or Stock Incentive Program or, if not expressly
addressed therein, as the Committee subsequently may determine in the event of
any such merger, consolidation, extraordinary dividend (including a spin-off),
reorganization or other change in the corporate structure of the Company or its
Stock or tender offer for shares of Stock. Any adjustment pursuant to this
Section 5.2 may provide, in the Committee's discretion, for the elimination
without payment therefor of any fractional shares that might otherwise become
subject to any Stock Incentive.
(c) The existence of the Plan and the Stock Incentives granted
pursuant to the Plan shall not affect in any way the right or power of the
Company to make or authorize any adjustment, reclassification, reorganization or
other change in its capital or business structure, any merger or consolidation
of the Company, any issue of debt or equity securities having preferences or
priorities as to the Stock or the rights thereof, the dissolution or liquidation
of the Company, any sale or transfer of all or any part of its business or
assets, or any other corporate act or proceeding.
5.3 Cash Awards. The Committee may, at any time and in its discretion,
grant to any holder of a Stock Incentive the right to receive, at such times and
in such amounts as determined by the Committee in its discretion, a cash amount
which is intended to reimburse such person for all or a portion of the federal,
state and local income taxes imposed upon such person as a consequence of the
receipt of the Stock Incentive or the exercise of rights thereunder.
5.4 Compliance with Code. All Incentive Stock Options to be granted
hereunder are intended to comply with Code Section 422, and all provisions of
the Plan and all Incentive Stock Options granted hereunder shall be construed in
such manner as to effectuate that intent.
5.5 Right to Terminate Service. Nothing in the Plan or in any Stock
Incentive Agreement or Stock Incentive Program shall confer upon any Participant
the right to continue as an employee, officer, director or consultant of the
Company or any of its affiliates or affect the right of the Company or any of
its affiliates to terminate the Participant's service at any time.
5.6 Restrictions on Delivery and Sale of Shares; Legends. Each Stock
Incentive is subject to the condition that if at any time the Committee, in its
discretion, shall determine that the listing, registration or qualification of
the shares covered by such Stock Incentive upon any securities exchange or under
any state or federal law is necessary or desirable as a condition of
-10-
<PAGE>
or in connection with the granting of such Stock Incentive or the purchase or
delivery of shares thereunder, the delivery of any or all shares pursuant to
such Stock Incentive may be withheld unless and until such listing, registration
or qualification shall have been effected. If a registration statement is not in
effect under the Securities Act of 1933 or any applicable state securities laws
with respect to the shares of Stock purchasable or otherwise deliverable under
Stock Incentives then outstanding, the Committee may require, as a condition of
exercise of any Option or as a condition to any other delivery of Stock pursuant
to a Stock Incentive, that the Participant or other recipient of a Stock
Incentive represent, in writing, that the shares received pursuant to the Stock
Incentive are being acquired for investment and not with a view to distribution
and agree that the shares will not be disposed of except pursuant to an
effective registration statement, unless the Company shall have received an
opinion of counsel that such disposition is exempt from such requirement under
the Securities Act of 1933 and any applicable state securities laws. The Company
may include on certificates representing shares delivered pursuant to a Stock
Incentive such legends referring to the foregoing representations or
restrictions or any other applicable restrictions on resale as the Company, in
its discretion, shall deem appropriate.
5.7 Non-alienation of Benefits. Other than as specifically provided with
regard to the death of a Participant, no benefit under the Plan shall be subject
in any manner to anticipation, alienation, sale, transfer, assignment, pledge,
encumbrance or charge; and any attempt to do so shall be void. No such benefit
shall, prior to receipt by the Participant, be in any manner liable for or
subject to the debts, contracts, liabilities, engagements or torts of the
Participant.
5.8 Termination and Amendment of the Plan. The Board of Directors at any
time may amend or terminate the Plan without stockholder approval; provided,
however, that the Board of Directors may condition any amendment on the approval
of stockholders of the Company if such approval is necessary or advisable with
respect to tax, securities or other applicable laws. No such termination or
amendment without the consent of the holder of a Stock Incentive shall adversely
affect the rights of the Participant under such Stock Incentive.
5.9 Stockholder Approval. The Plan shall be submitted to the stockholders
of the Company for their approval within twelve (12) months before or after its
adoption by the Board of Directors. If such approval is not obtained, any Stock
Incentive granted under the Plan shall be void.
5.10 Choice of Law. The laws of the State of Georgia shall govern the
Plan, to the extent not preempted by federal law.
5.11 Effective Date of Plan. The Plan shall become effective upon the date
the Plan is approved by the Board of Directors.
[Remainder of Page Intentionally Left Blank]
-11-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Plan to be executed as of
this 20th day of January, 1998.
DECATUR FIRST BANK GROUP, INC.
By: /s/ Judy B. Turner
-----------------------------------------
Title: President and Chief Executive Officer
--------------------------------------
Attest:
/s/ Robert E. Lanier
- ----------------------------
Secretary
[CORPORATE SEAL]
-12-
<PAGE>
EXHIBIT 21.1
SUBSIDIARY OF DECATUR FIRST BANK GROUP, INC.
DECATUR FIRST BANK,
ORGANIZED UNDER THE LAWS OF THE STATE OF GEORGIA
<PAGE>
Exhibit 99.1
DECATUR FIRST BANK GROUP, INC.
1120 Commerce Drive
Decatur, Georgia 30030
(404) 373-1000
April 6, 1998
To the Shareholders of Decatur First Bank Group, Inc.:
You are cordially invited to attend the annual meeting of shareholders of
Decatur First Bank Group, Inc. (the "Company") to be held in the Conference
Center at the Holiday Inn, 130 Clairemont Avenue, Decatur, Georgia 30030, on
Monday, May 11, 1998 at 8:30 a.m. The official Notice of the Meeting and the
Proxy Statement of management of the Company accompany this letter.
The principal business of the meeting will be (i) to elect thirteen (13)
persons to serve as directors for staggered terms of one, two and three years,
(ii) to approve the Company's 1998 Stock Incentive Plan, and (iii) to review the
operations of the Company and its wholly-owned subsidiary, Decatur First Bank.
No action can be taken at the meeting unless the holders of a majority of
the outstanding shares of Common Stock of the Company are represented, either in
person or by proxy. Therefore, whether or not you plan to attend the meeting,
please mark, date, and sign the enclosed form of proxy, and return it to the
Company in the envelope provided as soon as possible.
Sincerely,
Judy B. Turner
President and Chief Executive Officer
<PAGE>
DECATUR FIRST BANK GROUP, INC.
1120 Commerce Drive
Decatur, Georgia 30030
(404) 373-1000
NOTICE OF THE ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 11, 1998
To the Shareholders of Decatur First Bank Group, Inc.:
Notice is hereby given that the Annual Meeting of Shareholders of Decatur
First Bank Group, Inc. (the "Company") will be held on Monday, May 11, 1998, at
8:30 a.m. in the Conference Center of the Holiday Inn, 130 Clairemont Avenue,
Decatur, Georgia 30030 for the following purposes:
(1) To elect thirteen (13) persons to serve as directors for staggered
terms of one, two and three years;
(2) To approve the Decatur First Bank Group, Inc. 1998 Stock Incentive
Plan; and
(3) To transact such other business as may properly come before the
meeting or any adjournments thereof.
The Board of Directors has fixed the close of business on April 3, 1998, as
the record date for the determination of shareholders entitled to notice of and
to vote at the meeting.
All shareholders are requested to mark, date, sign, and return the enclosed
form of proxy as soon as possible. If you attend the meeting and wish to revoke
a proxy that you had previously returned, you may do so at any time before the
proxy is exercised.
By Order of the Board of Directors,
Judy B. Turner
President and Chief Executive Officer
April 6, 1998
<PAGE>
DECATUR FIRST BANK GROUP, INC.
1120 Commerce Drive
Decatur, Georgia 30030
(404) 373-1000
----------------------------------------------------------
PROXY STATEMENT FOR 1998 ANNUAL MEETING
----------------------------------------------------------
INTRODUCTION
------------
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Decatur First Bank Group, Inc. (the
"Company") for use at the Annual Meeting of Shareholders to be held on Monday,
May 11, 1998, and at any adjournments thereof. In addition to this solicitation
by mail, the officers and employees of the Company and its wholly-owned
subsidiary, Decatur First Bank (the "Bank"), without additional compensation,
may solicit proxies in favor of the Proposals (discussed below), if deemed
necessary, by personal contact, letter, telephone or other means of
communication. Brokers, nominees and other custodians and fiduciaries will be
requested to forward proxy solicitation material to the beneficial owners of the
shares of the Company's common stock, where appropriate, and the Company will
reimburse them for their reasonable expenses incurred in connection with such
transmittals. The Company will bear the cost of solicitation of proxies for the
Annual Meeting.
This Proxy Statement and the form of proxy are first being mailed to
shareholders on or about April 6, 1998. If the enclosed form of proxy is
properly executed, returned, and not revoked, it will be voted in accordance
with the specifications made by the shareholder. If the form of proxy is signed
and returned but specifications are not made, the proxy will be voted FOR the
election of the nominees to the Board of Directors and FOR the approval of the
Company's 1998 Stock Incentive Plan.
Shareholders who sign proxies have the right to revoke them at any time
before they are voted by delivering to Judy B. Turner, President and Chief
Executive Officer of the Company, at the main office of the Company, either an
instrument revoking the proxy or a duly executed proxy bearing a later date or
by attending the meeting and voting in person.
PROPOSALS TO BE CONSIDERED AT THE ANNUAL MEETING
Shareholders will be asked to consider two (2) proposals at the Annual
Meeting.
Proposal 1. To elect thirteen (13) persons to serve as directors for
staggered terms of one, two and three years (see page 2 for
a discussion of this proposal).
Proposal 2. To approve the Decatur First Bank Group, Inc. 1998 Stock
Incentive Plan (see page 4 for a discussion of this
proposal).
THE BOARD OF DIRECTORS RECOMMENDS A VOTE
FOR APPROVAL OF EACH OF THE PROPOSALS.
<PAGE>
VOTING AT THE ANNUAL MEETING
The close of business on April 3, 1998 has been fixed as the record date
for the determination of shareholders entitled to notice of and to vote at the
meeting. As of the close of business on the record date, the authorized common
stock, $5.00 par value (the "Common Stock"), of the Company consisted of
10,000,000 shares, with 941,544 shares issued and outstanding. Each issued and
outstanding share is entitled to one vote.
Directors are elected by a plurality of the shares present in person or by
proxy and entitled to vote. Only those votes actually cast will be counted for
the purpose of determining whether a particular nominee received sufficient
votes to be elected. Accordingly, any abstentions and broker non-votes, which
occur when a broker submits a proxy card without exercising discretionary voting
authority on a non-routine matter, will not be included in vote totals and will
not be considered in determining the outcome of the vote.
Approval of the Decatur First Bank Group, Inc. 1998 Stock Incentive Plan and
all other matters that may properly come before the Annual Meeting require the
affirmative vote of a majority of shares of Common Stock present in person or by
proxy and entitled to vote on such matter. Abstentions will be counted in
determining the minimum number of votes required for approval and will,
therefore, have the effect of negative votes. Broker non-votes will not be
counted as votes for or against approval of any other matter properly brought
before the Annual Meeting.
PROPOSAL 1 - ELECTION OF DIRECTORS
NOMINEES
--------
The Company's Articles of Incorporation provide that the Board of Directors
of the Company will be divided into three (3) classes and the directors in each
class will serve for staggered terms of three (3) years each. Since the Annual
Meeting to be held on May 11, 1998 is the first meeting of the shareholders of
the Company, the shareholders will be asked to elect the director nominees to
the classes set forth below for terms of one, two and three years, respectively.
Thereafter, each class will serve a term of three (3) years.
The Board recommends that the shareholders elect the nominees identified
below as directors for the terms indicated until their successors are duly
elected and qualified. The following table sets forth for each nominee: (a) his
or her name, (b) his or her age at December 31, 1997, (c) how long he or she has
been a director of the Company, (d) his or her position(s) with the Company, and
(e) his or her principal occupation and recent business experience.
2
<PAGE>
DIRECTOR NOMINEES
CLASS I
(To Serve A One-Year Term Expiring 1999)
POSITION WITH THE COMPANY
NAME (AGE) DIRECTOR SINCE AND BUSINESS EXPERIENCE
---------- -------------- -------------------------
John L. Adams, Jr. (43) 1996 Real Estate Broker; President and
Managing Broker, Clairmont Place
Realty, Inc.
Mary Bobbie Bailey (69) 1996 Business Owner; Our-Way, Inc.,
Bailey Design Company
Lynn Pasqualetti (42) 1996 Accountant; President and
Co-Owner; HLM Services, Inc.
Kirby A. Thompson (43) 1997 Business Owner;
KAT Consulting
CLASS II
(To Serve A Two-Year Term Expiring 2000)
POSITION WITH THE COMPANY
NAME (AGE) DIRECTOR SINCE AND BUSINESS EXPERIENCE
---------- -------------- -------------------------
Merriell Autrey, Jr. (72) 1996 Retired Banker
John Walter Drake (54) 1997 Attorney; McCurdy & Candler LLC
William F. Floyd (51) 1996 Construction; Secretary-Treasurer;
Southern Champion Construction. Inc.
Robert E. Lanier (58) 1996 Real Estate Development; President,
REL Properties, Inc.
Roger K. Quillen (44) 1996 Attorney; Fisher & Phillips
3
<PAGE>
CLASS III
(To Serve A Three-Year Term Expiring 2001)
POSITION WITH THE COMPANY
NAME (AGE) DIRECTOR SINCE AND BUSINESS EXPERIENCE
---------- -------------- -------------------------
James A. Baskett (50) 1996 Business Owner; Profile
Impressions, Inc.
Carol G. Nickola (46) 1996 Self Employed;
Health Care Consultant
James T. Smith (57) 1998 Building Contractor;
Rutland Contracting Company
Judy B. Turner/1/ (51) 1996 President and Chief
Executive Officer of the Company
__________________
(1) Prior to becoming President and Chief Executive Officer of the Company,
Ms. Turner served as Regional Sales Manager of Bank South.
The Board of Directors Recommends a Vote For Approval of Proposal 1.
---
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
The Company and the Bank have banking and other business transactions in
the ordinary course of business with directors and officers of the Company and
the Bank and their affiliates, including members of their families,
corporations, partnerships or other organizations in which such directors and
officers have a controlling interest, on substantially the same terms (including
price, interest rate and collateral) as those prevailing at the same time for
comparable transactions with unrelated parties. In the opinion of management,
such transactions do not involve more than the normal risk of collectibility or
present other unfavorable features to the Company or the Bank.
PROPOSAL 2 -- APPROVAL OF DECATUR FIRST BANK GROUP, INC.
1998 STOCK INCENTIVE PLAN
Introduction
On January 20, 1998, the Board of Directors approved the Decatur First Bank
Group, Inc. 1998 Stock Incentive Plan (the "Stock Plan"), the full text of which
is set forth in Appendix A to this Proxy Statement.
----------
The Stock Plan provides the Company with increased flexibility to grant
equity-based compensation to key employees, officers, directors and consultants
of the Company and its affiliates for the purpose of giving them a proprietary
interest in the Company and providing the Company with a mechanism to attract
and retain key personnel. The Board of Directors has reserved 143,000 shares
4
<PAGE>
of Common Stock, for issuance pursuant to awards that may be made under the
Stock Plan, subject to adjustment as provided in the Stock Plan.
Applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code") restrict the Company's ability in the absence of stockholder approval to
grant incentive stock options under Code Section 421 and to claim deductions
which may otherwise be associated with the grant of nonqualified options and
stock appreciation rights under Code Section 162(m).
The following description of the Stock Plan is qualified in its entirety by
reference to the applicable provisions of the plan document.
Terms of the Stock Plan
Administration
Awards under the Stock Plan will be determined by the Stock Option Awards
Committee of the Board of Directors (the "Committee"), the members of which are
selected by the Board of Directors. The Board of Directors will consider the
advisability of complying with the disinterested standards contained in both
Section 162(m) of the Code and Rule 16(b)(3) (promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) when appointing members
to the Committee. The Committee will have at least two members. At the present
time, the members of the Stock Option Awards Committee are Bobbie Bailey, Roger
Quillen and John Walter Drake.
Awards
The Stock Plan permits the Committee to make awards of shares of Common
Stock, awards of derivative securities related to the value of the Common Stock
and certain cash awards to eligible persons. These discretionary awards may be
made on an individual basis or pursuant to a program approved by the Committee
for the benefit of a group of eligible persons. The Stock Plan permits the
Committee to make awards of a variety of equity-based incentives, including (but
not limited to) stock awards, options to purchase shares of Common Stock and to
sell shares of Common Stock back to the Company, stock appreciation rights, so-
called "cashout" or "limited stock appreciation rights" (which the Committee may
make exercisable in the event of a certain changes in control of the Company or
other events), phantom shares, performance incentive rights, dividend equivalent
rights and similar rights (collectively, "Stock Incentives").
The number of shares of Common Stock as to which a Stock Incentive is granted
and to whom any Stock Incentive is granted will be determined by the Committee,
subject to the provisions of the Stock Plan. Stock Incentives issuable may be
made exercisable or settled at such prices and may be made forfeitable or
terminable under such terms as are established by the Committee, to the extent
not otherwise inconsistent with the terms of the Stock Plan. No participant who
is a "covered employee", within the meaning of Section 162(m) of the Code,
however, may be granted during any single fiscal year of the Company rights to
shares of Common Stock under options and stock appreciation rights which, in the
aggregate, exceed 48,000 shares of Common Stock.
Stock Incentives generally are not transferable or assignable during a
holder's lifetime.
Options
The Stock Plan provides for incentive stock options and non-qualified stock
options. The Committee will determine whether an option is an incentive stock
option or a non-qualified stock
5
<PAGE>
option at the time the option is granted, and the option will be evidenced by a
Stock Incentive Agreement. Options may be made exercisable pursuant to such
terms as are established by the Committee, to the extent not otherwise
inconsistent with the terms of the Stock Plan.
The exercise price of an option shall be set forth in the applicable Stock
Incentive Agreement. The exercise price of an incentive stock option may not be
less than the fair market value of the Common Stock on the date of the grant (or
less than 110% of the fair market value if the participant owns more than 10% of
the Company's outstanding Common Stock). At the time the incentive stock option
is exercised, the Company will be entitled to place a legend on the certificates
representing the shares of Common Stock purchased pursuant to the option to
identify them as shares of Common Stock purchased upon the exercise of an
incentive stock option. Non-qualified stock options may be made exercisable at
a price equal to, less than or more than the fair market value of the Common
Stock on the date that the option is awarded, based upon an average fair market
value of the Common Stock at the time the option is awarded, or based upon any
other reasonable measure of fair market value. The Committee may permit an
option exercise price to be paid in cash or by the delivery of previously-owned
shares of Common Stock, or to be satisfied through a cashless exercise executed
through a broker or by having a number of shares of Common Stock otherwise
issuable at the time of exercise withheld.
The term of an option shall be specified in the applicable Stock Incentive
Agreement. The term of an incentive stock option may not exceed ten years from
the date of grant; however, any incentive stock option granted to a participant
who owns more than 10% of the Common Stock will not be exercisable after the
expiration of five (5) years after the date the option is granted. Subject to
any further limitations in a Stock Incentive Agreement, in the event of a
participant's termination of employment, the term of an incentive stock option
shall expire, terminate and become unexercisable no later than three months
after the date of such termination of employment; provided, however, that if
such termination of employment is due to death or disability, one year will be
substituted for the three-month period.
Stock Appreciation Rights
Stock appreciation rights may be granted separately or in connection with
another Stock Incentive, and the Committee may provide that they are exercisable
at the discretion of the holder or that they will be paid at a time or times
certain or upon the occurrence or non-occurrence of certain events. Stock
appreciation rights may be settled in shares of Common Stock or in cash,
according to terms established by the Committee with respect to any particular
award.
Stock Awards
The Committee may grant shares of Common Stock to a participant, subject to
such restrictions and conditions, if any, as the Committee shall determine.
Other Stock Incentives
Dividend equivalent rights, performance units and phantom shares may be
granted in such numbers or units and may be subject to such conditions or
restrictions as the Committee will determine and will be payable in cash or
shares of Common Stock, as the Committee may determine.
6
<PAGE>
Certain Cash Awards
The Committee may make cash awards designed to cover tax obligations of
employees that result from the receipt or exercise of a Stock Incentive.
The terms of particular Stock Incentives may provide that they terminate,
among other reasons, upon the holder's termination of employment or other status
with respect to the Company or any affiliate of the Company, upon a specified
date, upon the holder's death or disability, or upon the occurrence of a change
in control of the Company. Stock Incentives may include exercise, conversion or
settlement rights to a holder's estate or personal representative in the event
of the holder's death or disability. At the Committee's discretion, Stock
Incentives that are subject to termination may be cancelled, accelerated, paid
or continued, subject to the terms of the applicable Stock Incentive Agreement
and to the provisions of the Stock Plan.
Certain Reorganizations
The number of shares of Common Stock reserved for issuance in connection with
the grant or settlement of Stock Incentives or to which a Stock Incentive is
subject, as the case may be, and the exercise price of each option are subject
to adjustment in the event of any recapitalization of the Company effected
without the receipt of consideration.
In the event of certain corporate reorganizations, Stock Incentives may be
substituted, cancelled, accelerated, cashed-out or otherwise adjusted by the
Committee, provided such adjustment is not inconsistent with the terms of the
Stock Plan or any agreement reflecting the terms of a Stock Incentive.
Amendments or Termination
Although the Stock Plan may be amended by the Board of Directors without
stockholder approval, the Board of Directors also may condition any such
amendment upon stockholder approval if stockholder approval is deemed necessary
or appropriate in consideration of tax, securities or other laws. No such
action by the Board of Directors may adversely affect the rights of a holder of
a Stock Incentive without the holder's consent.
Federal Income Tax Consequences
The following discussion outlines generally the federal income tax
consequences of participation in the Stock Plan. Individual circumstances may
vary and each participant should rely on his or her own tax counsel for advice
regarding federal income tax treatment under the Stock Plan.
Incentive Stock Options
A participant who exercises an incentive stock option will not be taxed at
the time he or she exercises his or her option or a portion thereof. Instead,
the participant will be taxed at the time he or she sells the shares of Common
Stock purchased pursuant to the incentive stock option. The participant will be
taxed on the difference between the price he or she paid for the Common Stock
and the amount for which he or she sells the Common Stock. If the participant
does not sell the shares of Common Stock prior to two years from the date of
grant of the incentive stock option and one year from the date the Common Stock
is transferred to him or her, the gain will be capital gain and the Company will
not get a corresponding deduction. If the participant sells the shares of
Common Stock at a gain prior to that time, the difference between the amount the
participant paid for the Common
7
<PAGE>
Stock and the lesser o fair market value on the date of exercise or the amount
for which the stock is sold will be taxed as a capital gain. If the participant
sells the shares of Common Stock for less than the amount he or she paid for the
stock prior to the one- or two-year period indicated, no amount will be taxed as
ordinary income and the loss will be taxed as a capital loss. Exercise of an
incentive stock option may subject a participant to, or increase a participant's
liability for, the alternative minimum tax.
Non-qualified Options
A participant will not recognize income upon the grant of a non-qualified
option or at any time prior to the exercise of the option or a portion thereof.
At the time the participant exercises a non-qualified option or portion thereof,
he or she will recognize compensation taxable as ordinary income in an amount
equal to the excess of the fair market value of the Common Stock on the date the
option is exercised over the price paid for the Common Stock, and the Company
will then be entitled to a corresponding deduction.
Depending upon the period shares of Common Stock are held after exercise, the
sale or other taxable disposition of shares acquired through the exercise of a
non-qualified option generally will result in a short- or long-term capital gain
or loss equal to the difference between the amount realized on such disposition
and the fair market value of such shares when the non-qualified option was
exercised.
Special rules apply to a participant who exercises a non-qualified option by
paying the exercise price, in whole or in part, by the transfer of shares of
Common Stock to the Company.
Other Stock Incentives
A participant will not recognize income upon the grant of a stock
appreciation right, dividend equivalent right, performance unit award or phantom
share (the "Equity Incentives"). Generally, at the time a participant receives
payment under any Equity Incentive, he or she will recognize compensation
taxable as ordinary income in an amount equal to the cash or the fair market
value of the Common Stock received, and the Company will then be entitled to a
corresponding deduction.
A participant will not be taxed upon the grant of a stock award if such award
is not transferable by the participant or is subject to a "substantial risk of
forfeiture," as defined in the Code. However, when the shares of Common Stock
that are subject to the stock award are transferable by the participant and are
no longer subject to a substantial risk of forfeiture, the participant will
recognize compensation taxable as ordinary income in an amount equal to the fair
market value of the stock subject to the stock award, less any amount paid for
such stock, and the Company will then be entitled to a corresponding deduction.
However, if a participant so elects at the time of receipt of a stock award, he
or she may include the fair market value of the stock subject to the stock
award, less any amount paid for such stock, in income at that time and the
Company also will be entitled to a corresponding deduction at that time.
Stockholder Approval
The Board of Directors seeks stockholder approval because such approval is
required under the Code as a condition to incentive stock option treatment and
will maximize the potential for deductions associated with any non-qualified
options and stock appreciation rights granted under the Stock Plan.
8
<PAGE>
Approval of the Stock Plan requires the affirmative vote of the holders of at
least a majority of the outstanding shares of Common Stock of the Company
present, or represented and entitled to vote, at the Annual Meeting.
The Board of Directors Recommends A Vote FOR Approval of Proposal 2.
INDEPENDENT PUBLIC ACCOUNTANTS
------------------------------
The Company has selected the accounting firm of Porter Keadle Moore LLP to
serve as auditors for the Company for the current year. The firm of Porter
Keadle Moore LLP has served as the Company's auditors since 1996. A
representative of the firm is expected to be present at the meeting and will be
given the opportunity to make a statement if he or she desires to do so and will
be available to respond to appropriate questions from shareholders.
OTHER MATTERS
-------------
The Board of Directors of the Company knows of no other matters that may be
brought before the meeting. If, however, any matter other than the election of
directors, or matters incidental thereto, should properly come before the
meeting, votes will be cast pursuant to the proxies in accordance with the best
judgment of the proxyholders.
If you cannot be present in person, you are requested to complete, sign,
date, and return the enclosed proxy promptly. An envelope has been provided for
that purpose. No postage is required if mailed in the United States.
April 6, 1998
9
<PAGE>
APPENDIX A
DECATUR FIRST BANK GROUP, INC.
1998 STOCK INCENTIVE PLAN
See Exhibit 10.4 of this Annual Report on Form 10-KSB.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,966,791
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 4,360,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 5,503,583
<INVESTMENTS-CARRYING> 3,086,821
<INVESTMENTS-MARKET> 3,089,875
<LOANS> 1,563,200
<ALLOWANCE> 32,000
<TOTAL-ASSETS> 17,626,041
<DEPOSITS> 8,665,552
<SHORT-TERM> 0
<LIABILITIES-OTHER> 134,097
<LONG-TERM> 0
4,707,720
0
<COMMON> 0
<OTHER-SE> 4,118,672
<TOTAL-LIABILITIES-AND-EQUITY> 17,626,041
<INTEREST-LOAN> 42,315
<INTEREST-INVEST> 218,194
<INTEREST-OTHER> 138,020
<INTEREST-TOTAL> 398,529
<INTEREST-DEPOSIT> 45,164
<INTEREST-EXPENSE> 67,050
<INTEREST-INCOME-NET> 331,479
<LOAN-LOSSES> 32,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 749,867
<INCOME-PRETAX> (439,378)
<INCOME-PRE-EXTRAORDINARY> (439,378)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (439,378)
<EPS-PRIMARY> (.47)
<EPS-DILUTED> (.47)
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 32,000
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
