<PAGE>
As filed with the Securities and Exchange Commission on March __, 1997
Registration No. 333-_____
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
COMMUNITY FIRST BANKING COMPANY
-----------------------------------------
(Exact Name of Registrant as Specified in Its Charter)
GEORGIA 6711 Application Pending
- ---------------------------- ------------------ ------------------------
(State or other jurisdiction (Primary Standard (I.R.S. Employer
of incorporation or Industrial Identification No.)
organization) Classification Code
Number)
110 Dixie Street
Carrollton, Georgia 30117
(770) 834-1071
----------------------------
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
GARY D. DORMINEY
110 Dixie Street
Carrollton, Georgia 30117
(770) 834-1071
__________________
(Name, address, including zip code, and
telephone number, including area code, of
agent for service)
Copies to:
WALTER G. MOELING, IV, ESQ. RANDALL A. UNDERWOOD
POWELL, GOLDSTEIN, FRAZER & MURPHY BROOKS, PIERCE, McLENDON,
191 Peachtree Street, N.E. HUMPHREY & LEONARD, LLP
Atlanta, Georgia 30303 2000 Renaissance Plaza
(404) 572-6600 230 North Elm Street
Greensboro, North Carolina 27401
(910) 373-8850
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [x]
If this Form is filed to register additional securities for an offering
pursuant to rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
CALCULATION OF REGISTRATION FEE:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
Title of Each Class of Amount to be Proposed Maximum Proposed Maximum Amount of Registration
Securities to be Registered /(1)/ Offering Price per Aggregate Offering Fee
Registered Share/(2)/ Price/(2)/
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 2,413,562 Shares $20.00 $48,271,240 $14,628
par value
======================================================================================================================
</TABLE>
/(1)/ Includes 314,812 shares that may be issued in the event of an over-
subscription. See "The Conversion and Reorganization-Stock Pricing and
Number of Shares to be Issued."
/(2)/ Estimated solely for the purpose of determining the registration fee.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
COMMUNITY FIRST BANKING COMPANY
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
Registration Statement Item Number
and Heading Caption in Prospectus
----------- ---------------------
<S> <C>
1. Forepart of the Registration
Statement and Outside Front
Cover Page of Prospectus..... Cover Page; Cross-Reference Sheet;
Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back
Cover Pages of Prospectus.... Inside Front Cover Page of
Prospectus; Outside Back Cover Page
of Prospectus
3. Summary Information, Risk
Factors and Ratio of Earnings
to Fixed Charges............. Summary; Risk Factors
4. Use of Proceeds................ Use of Proceeds
5. Determination of Offering
Price........................ The Conversion and Reorganization
6. Dilution....................... Not Applicable
7. Selling Security Holders....... Not Applicable
8. Plan of Distribution........... Outside Front Cover Page of
Prospectus; The Conversion and
Reorganization
9. Description of the Securities.. Description of Capital Stock
10. Interests of Named Experts and
Counsel...................... Legal Matters; Experts
11. Information with Respect to the
Registrant................... Prospectus Summary; Risk Factors;
Dividend Policy; Capitalization;
Selected Financial and Other Data;
Community First Banking Company;
Carrollton Federal Bank; CF Mutual
Holdings; Market for Common Stock;
Regulatory Capital; Pro Forma Data;
Management's Discussion and Analysis
of Financial Condition and Results of
Operations; Business of Carrollton
Federal Bank; Regulation; Management
of the Company; Management of the
Savings Bank; Certain Restrictions on
Acquisition of the Company;
Consolidated Financial Statements
12. Disclosure of Commission Position
on Indemnification for
Securities Act Liabilities.... Part II of the Registration Statement
</TABLE>
<PAGE>
PROSPECTUS COMMUNITY FIRST BANKING COMPANY
(Proposed Holding Company for Carrollton Federal Bank, FSB)
Anticipated Maximum 2,098,750 Shares of Common Stock
$20.00 Per Share
Community First Banking Company (the "Company"), a Georgia corporation, is
offering up to 2,098,750 shares (which may be increased to 2,413,562 shares
under certain circumstances described below) of its common stock, par value $.01
per share (the "Common Stock"), in connection with (i) the Conversion described
herein to be effected in connection with the reorganization of Carrollton
Federal Bank, FSB ("Carrollton" or the "Savings Bank") as a subsidiary of the
Company and (ii) the Offerings described herein (collectively, the Conversion
and the Offerings are referred to herein as the "Conversion and
Reorganization"). The purchase price for the Common Stock is $20.00 per share
(the "Purchase Price").
Nontransferable subscription rights to subscribe for shares of Common Stock
have been granted to certain depositors and borrowers of the Savings Bank as of
specified record dates and an employee stock ownership plan to be established by
the Company (the "ESOP"), subject to the limitations described herein (the
"Subscription Offering"). Commencing at any time during or immediately
following the Subscription Offering, if necessary, and subject to the prior
rights of holders of subscription rights, the right of the Company, CF Mutual
Holdings (the "Mutual Holding Company") and the Savings Bank (the "Primary
Parties") to reject such orders in whole or in part and the other limitations
described herein, the Company may offer the shares of Common Stock not
subscribed for in the Subscription Offering, if any, for sale in a community
offering (the "Community Offering") to certain members of the general public to
whom a copy of this Prospectus is delivered by or on behalf of the Company,
giving preference to natural persons who are residents of Carroll, Coweta,
Douglas, Fayette, Haralson, Heard, Henry and Paulding counties within the State
of Georgia (the "Local Community").
It is anticipated that shares of Common Stock not subscribed for in the
Subscription and Community Offerings, if any, will be offered by the Company to
members of the general public to whom a copy of this Prospectus is delivered by
or on behalf of the Company in a syndicated community offering (the "Syndicated
Community Offering") (the Subscription Offering, Community Offering and any
Syndicated Community Offering are referred to collectively as the "Offerings").
The Primary Parties have engaged Trident Securities, Inc. ("Trident") to consult
with and advise them in the Conversion and Reorganization, and Trident has
agreed to use its best efforts to solicit subscriptions and purchase orders for
shares of Common Stock in the Offerings. Trident is not obligated to take or
purchase any shares of Common Stock in the Offerings. See "The Conversion and
Reorganization -- Marketing Arrangements."
The Subscription Offering will terminate at 12:00 noon, Eastern Time on
[June 17, 1997] (the "Expiration Date"), unless extended for a period of up to
45 days or, with approval of the Office of Thrift Supervision ("OTS"), for
additional periods. Such extensions may not be beyond [July 16], 1999. The
Community Offering and/or any Syndicated Community Offering must be completed
within 45 days after the close of the Subscription Offering, or [August 29],
1997, unless extended by the Primary Parties with the approval of the OTS, if
necessary. Orders submitted are irrevocable until the completion of the
Conversion and Reorganization; provided that, if the Conversion and
Reorganization is not completed within the 45-day period referred to above,
unless such period has been extended with the consent of the OTS, if necessary,
all subscribers will have their funds returned promptly with interest and all
withdrawal authorizations will be cancelled. The Offerings may not be extended
beyond [July 16], 1999. See "The Conversion and Reorganization -- The
Offerings --Subscription Offering."
Purchase Limitations. On February 11, 1997, the Boards of Directors of the
Savings Bank and the Mutual Holding Company adopted the Plan of Conversion and
Agreement and Plan of Reorganization (the "Plan" or "Plan of Conversion"), which
sets forth various purchase limitations which are applicable in the Offerings.
Except for the ESOP, which anticipates subscribing for 8% of the Offerings, no
person or entity, including (as hereinafter defined) Eligible Account Holders,
Supplemental Eligible Account Holders, Other Members or persons subscribing
through the Community Offering, together with associates of or persons acting in
concert with such person or entity, may subscribe for or purchase in the
aggregate more than $375,000 of Common Stock. In addition, where more than one
person or entity is an owner of a particular deposit account or an obligor of a
particular loan account, the orders of such persons pursuant to subscription
rights related to such joint accounts collectively may not exceed the maximum
purchase limitation. The minimum purchase is 25 shares. See "The Conversion and
Reorganization -- The Offerings -- Subscription Offering." "-- Community
Offering" and "-- Limitations on Common Stock Purchases."
The Company has applied to have its Common Stock quoted on the Nasdaq
National Market under the symbol "CFBC." All of the issued and outstanding
common stock of the Savings Bank is currently owned by the Mutual Holding
Company and is therefore not traded. See "Market for Common Stock."
For additional information on how to subscribe for Common Stock, please
call the stock information center at (770) 838-7355.
For a discussion of certain factors that should be considered by each
prospective investor, see "Risk Factors" beginning on page ___.
________________________________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, THE OFFICE OF THRIFT SUPERVISION, OR ANY OTHER FEDERAL
AGENCY OR STATE SECURITIES COMMISSION, NOR HAS SUCH COMMISSION, OFFICE OR OTHER
AGENCY PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSITS
AND ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY
<TABLE>
<CAPTION>
================================================================================
Subscription Estimated Estimated Net
Price(1) Underwriting Proceeds(3)
Fees,
Commissions
and Conversion
and
Reorganization
Expenses(2)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum Per Share $20.00 $0.72 $19.28
- --------------------------------------------------------------------------------
Midpoint Per Share $20.00 $0.66 $19.34
- --------------------------------------------------------------------------------
Maximum Per Share $20.00 $0.61 $19.39
- --------------------------------------------------------------------------------
Maximum Per Share, as
adjusted $20.00 $0.57 $19.43
- --------------------------------------------------------------------------------
Total Minimum(1) $31,025,000 $1,116,890 $29,908,110
- --------------------------------------------------------------------------------
Total Midpoint(1) $36,500,000 $1,200,000 $35,300,000
- --------------------------------------------------------------------------------
Total Maximum(1) $41,975,000 $1,283,111 $40,691,889
- --------------------------------------------------------------------------------
Total Maximum, as
adjusted(1)(4) $48,271,250 $1,378,688 $46,892,562
================================================================================
</TABLE>
(Footnotes on following page)
TRIDENT SECURITIES, INC.
<PAGE>
The date of this Prospectus is ______________, 1997
____________
(1) Determined in accordance with an independent appraisal prepared by
Ferguson & Company ("Ferguson"), dated as of February 27, 1997 (the
"Appraisal") which states that the estimated pro forma market value of
the Company and Savings Bank ranged from $31,025,000 to $41,975,000 (the
"Valuation Price Range") or between 1,551,250 and 2,098,750 shares of
Common Stock at the $20.00 price per share. See "The Conversion and
Reorganization -- Stock Pricing and Number of Shares to be Issued."
Based upon the minimum, midpoint, maximum and 15% above the maximum of
the Valuation Price Range, respectively.
(2) Consists of the estimated costs to the Primary Parties to be incurred in
connection with the Conversion and Reorganization including estimated
fixed expenses of $698,730 and marketing fees to be paid to Trident in
connection with the Offerings, which fees are estimated to be between
$458,160 and $624,381 at the minimum and the maximum of the Valuation
Price Range, respectively. See "The Conversion and Reorganization --
Marketing Arrangements." The actual fees and expenses may vary from the
estimates. Such fees paid to Trident may be deemed to be underwriting
fees. See "Pro Forma Data."
(3) Actual net proceeds may vary substantially from estimated amounts
depending on the number of shares sold in the Offerings and other
factors. Does not give effect to purchases of shares of Common Stock by
the ESOP, which initially will be deducted from the Company's
stockholders' equity. For the effects of such purchases, see
"Capitalization" and "Pro Forma Data."
(4) Reflects a 15% increase in the Valuation Price Range, which may occur
without a resolicitation of subscribers or any right of cancellation, to
reflect changes in market and financial conditions prior to the
completion of the Conversion and Reorganization or to fill the order of
the ESOP.
-ii-
<PAGE>
SUMMARY
This summary is qualified in its entirety by the more detailed information
regarding the Company, the Savings Bank and the Mutual Holding Company and the
Financial Statements appearing elsewhere in this Prospectus.
Community First Banking Company
Community First Banking Company is a Georgia corporation organized in March
1997 by the Savings Bank for the purpose of holding all of the common stock, par
value $0.01 per share, of the Savings Bank ("Savings Bank Common Stock") and in
order to facilitate the Conversion and Reorganization. Upon completion of the
Conversion and Reorganization, the only significant assets of the Company will
be all of the outstanding Savings Bank Common Stock, the note evidencing the
Company's loan to the ESOP and the portion of the net proceeds from the
Offerings retained by the Company. The business of the Company will initially
consist of the business of the Savings Bank. See "Business of the Savings Bank"
and "Regulation - The Company."
The directors and executive officers of the Company and the Savings Bank
believe that it is in the best interests of the Savings Bank, the Company and
the Company's stockholders for the Company and the Savings Bank to remain
independent, with the objective of long-term enhancement of shareholder value.
Accordingly, an investment in the Common Stock of the Company may not be
suitable for investors who are seeking short-term returns through a sale of the
institution.
Carrollton Federal Bank
Carrollton Federal Bank, FSB, a federally chartered stock savings bank that
was organized on August 1, 1994 as a subsidiary of the Mutual Holding Company,
operates in Carrollton, Georgia and neighboring communities in western Georgia.
Prior to that date, the predecessor of the Savings Bank, Carrollton Federal
Bank, FSB, in its mutual form (the "Mutual Bank"), had operated since 1929. The
Savings Bank conducts business through 12 branch offices in Carroll, Douglas,
Coweta, Fayette, Haralson, Heard, Henry and Paulding counties in Georgia. In
some of these locations, the Savings Bank does business under the trade name
"Community First Bank." The Douglas county branch operates under the trade name
"CFB Financial Services." At December 31, 1996, the Savings Bank had $351
million of total assets, $325 million of total liabilities, including $308
million of deposits, and $26 million of equity or 7.4% of assets.
In connection with the organization of the Mutual Holding Company (the "MHC
Reorganization"), the Mutual Bank transferred substantially all of its assets
and liabilities to the Savings Bank in exchange for 100 shares of Savings Bank
Common Stock and converted its charter to a federal mutual holding company known
as CF Mutual Holdings. The Savings Bank sold no shares to the general public in
connection with the MHC Reorganization.
The Mutual Holding Company and the Savings Bank have recently formed three
operating units to engage in new businesses: CFB Securities, Inc., a wholly
owned subsidiary of the Mutual Holding Company ("CFB Securities"), CFB Financial
Services, an operating department of the Savings Bank ("CFB Financial") and CFB
Insurance, Inc., a wholly owned subsidiary of the Mutual Holding Company ("CFB
Insurance"). CFB Securities offers traditional brokerage services and products
such as mutual funds, stocks and bonds through an NASD member firm. Its offices
are adjacent to the Savings Bank's main office lobby. CFB Financial services the
loan needs of consumers traditionally associated with small loan companies from
an office in Douglasville, Georgia. CFB Insurance has not commenced
<PAGE>
operations, but intends to offer various insurance products, including property
and casualty insurance, to existing customers of the Savings Bank and to the
general public.
CF Mutual Holdings
CF Mutual Holdings is a federally chartered mutual holding company formed
on August 1, 1994 in connection with the MHC Reorganization. The Mutual Holding
Company's primary asset is 100 shares of Savings Bank Common Stock, which
represents 100% of the shares of Savings Bank Common Stock outstanding as of the
date of this Prospectus. The Mutual Holding Company's other assets consist of a
deposit account with the Savings Bank in the amount of $2,044 and a
correspondent bank account and federal funds sold totalling $1,325,290. The
Mutual Holding Company also holds 3,500 shares of West Georgia National Bank
(WGNB) stock with a cost basis of $112,000 or $32 per share. This investment
represents less than 1% of the outstanding common stock of WGNB and is carried
at cost. As part of the Conversion and Reorganization, the Mutual Holding
Company will convert to an interim federal stock savings bank and simultaneously
merge into the Savings Bank, with the Savings Bank being the surviving entity
and all of the Savings Bank Common Stock held by the Mutual Holding Company will
be cancelled.
Purposes of the Conversion and Reorganization
In their decision to pursue the Conversion and Reorganization, the Mutual
Holding Company and the Savings Bank considered various regulatory uncertainties
associated with the mutual holding company structure including the future of
dividend waivers, as well as the general uncertainty regarding the elimination
of the federal savings bank charter. In addition, the Mutual Holding Company and
the Savings Bank considered the various advantages of a stock holding company
form of organization over the existing mutual holding company form, including:
(1) a stock holding company's ability to diversify the Company's and the Savings
Bank's business activities, (2) the larger capital base of a stock holding
company; (3) the enhancement of the Company's future access to capital markets;
(4) a public trading market for the Company's common stock; and (5) the greater
ability to acquire other financial institutions and attract and retain qualified
management. Based on the above considerations, the Mutual Holding Company and
the Savings Bank decided to offer to the public an interest in all of the
Company's Common Stock as compared to only a minority interest in the Savings
Bank Common Stock.
Description of the Conversion and Reorganization
On February 11, 1997, the Boards of Directors of the Savings Bank and the
Mutual Holding Company adopted the Plan of Conversion and on March 11, 1997 the
Company was incorporated. Pursuant to the Plan, (i) the Mutual Holding Company
will convert to an interim federal stock savings bank ("Interim Mutual") and
simultaneously will merge with and into the Savings Bank, the Mutual Holding
Company will cease to exist and the 100 shares or 100% of the outstanding
Savings Bank Common Stock held by the Mutual Holding Company will be cancelled,
and (ii) a second interim savings bank ("Interim CFB") formed by the Company
solely for such purpose will then merge with and into the Savings Bank. As a
result of the merger of Interim CFB with and into the Savings Bank, the Savings
Bank will become a wholly owned subsidiary of the Company operating under the
name "Carrollton Federal Bank."
-2-
<PAGE>
Conditions to Closing of the Offerings
Pursuant to OTS regulations, consummation of the Conversion and
Reorganization is conditioned upon the approval of the Plan by the OTS, as well
as (1) the approval of the Plan by holders of at least a majority of the total
number of votes eligible to be cast by the members of the Mutual Holding Company
("Members") as of the close of business on __________, 19______ (the "Voting
Record Date") at a special meeting of Members called for the purpose of
submitting the Plan for approval (the "Members' Meeting"), (2) the approval of
the Plan by the Mutual Holding Company as the sole shareholder of the Savings
Bank, and (3) the sale of Common Stock for not less than the minimum of the
Valuation Price Range. The Mutual Holding Company intends to vote its shares of
Savings Bank Common Stock in favor of the Plan at the Stockholders' Meeting.
Various other regulatory approvals are also required from the OTS prior to the
consummation of the Conversion and Reorganization.
The Offerings
Pursuant to the Plan and in connection with the Conversion and
Reorganization, the Company is offering between 1,551,250 and 2,098,750 shares
of Common Stock in the Offerings. The number of shares offered may be increased
to up to 2,413,562 shares after the commencement of the Offerings to reflect
changes in market and financial conditions or to fill the order of the ESOP.
Such increase may occur without any resolicitation of subscribers and without
any right to cancel or change their orders. Common Stock is first being offered
in the Subscription Offering with nontransferable subscription rights being
granted, in the following order of priority, to (i) depositors of the Savings
Bank with account balances of $50.00 or more as of the close of business on
December 31, 1995 ("Eligible Account Holders"); (ii) the ESOP; (iii) depositors
of the Savings Bank with account balances of $50.00 or more as of the close of
business on _______________ ("Supplemental Eligible Account Holders"); and (iv)
depositors of the Savings Bank as of the close of business on _____________,
19___ and borrowers from the Savings Bank as of July 19, 1990 whose borrowings
were still in existence as of the close of business on _____________, 1997
(other than Eligible Account Holders and Supplemental Eligible Account Holders)
("Other Members"). Subscription rights will expire if not exercised by 12:00
noon, Eastern Time, on [June 17], 1997, unless extended. See "The Conversion and
Reorganization - The Offerings - Subscription Offering."
Subject to the prior rights of holders of subscription rights, Common Stock
not subscribed for in the Subscription Offering, if any, will be offered in the
Community Offering to certain members of the general public, with preference
given to natural persons residing in the Local Community. It is anticipated that
shares not subscribed for in the Subscription and Community Offerings, if any,
will be offered to certain members of the general public in a Syndicated
Community Offering. The Primary Parties reserve the absolute right to reject or
accept any orders in the Community Offering or the Syndicated Community
Offering, in whole or in part, either at the time of receipt of an order or as
soon as practicable following the expiration of the subject offering. The
Community Offering, if any, and the Syndicated Community Offering, if any, may
commence at any time during or after commencement of the Subscription Offering
and may terminate at any time thereafter, but not later than [August 29], 1997,
unless extended with OTS approval. The beneficial owners of individual
retirement accounts, Keogh savings accounts and similar retirement accounts
shall receive the subscription rights with respect to those deposit accounts.
The Primary Parties have retained Trident as consultant and advisor in
connection with the Offerings and to assist in soliciting subscriptions in the
Offerings. See "The Conversion and
-3-
<PAGE>
Reorganization - The Offerings- Subscription Offering," "- Community
Offering," "- Syndicated Community Offering" and "- Marketing
Arrangements."
Purchase Limitations
With the exception of the ESOP, which is expected to subscribe for 8.0%
of the number of eligible shares of Common Stock issued in the Offerings,
no person or entity, including Eligible Account Holders, Supplemental
Eligible Account Holders, Other Members or persons subscribing through the
Community Offering, together with associates of or persons acting in
concert with such person or entity, may subscribe for or purchase in the
aggregate more than $375,000 of Common Stock. This maximum purchase
limitation may be increased or decreased consistent with OTS regulations in
the sole discretion of the Company and the Savings Bank subject to any
required regulatory approvals. Where more than one person or entity is an
owner of a particular deposit account or obligor of a particular loan
account, the order of such persons pursuant to subscription rights related
to such accounts collectively may not exceed the maximum purchase
limitation.
In accordance with OTS regulations, the term "acting in concert" is
defined in the Plan to mean: (i) knowing participation in a joint activity
or interdependent conscious parallel action towards a common goal whether
or not pursuant to an express agreement; or (ii) a combination or pooling
of voting or other interests in the securities of an issuer for a common
purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise. The Company and the
Savings Bank may presume that certain persons are acting in concert based
upon, among other things, joint account relationships and the fact that
such persons have filed joint Schedules 13D with the SEC with respect to
other companies. The term "associate" of a person is defined in the Plan
to mean: (i) any corporation or organization (other than the Savings Bank
or a majority-owned subsidiary of the Savings Bank) of which such person is
an officer or partner or is, directly or indirectly, the beneficial owner
of 10% or more of any class of equity securities; (ii) any trust or other
estate in which such person has a substantial beneficial interest or as to
which such person serves as trustee or in a similar fiduciary capacity
(excluding tax-qualified employee plans); and (iii) any relative or spouse
of such person, or any relative of such spouse, who either has the same
home as such person or who is a director or officer of the Savings Bank or
any of its parents or subsidiaries.
The minimum purchase is 25 shares. In addition, stock orders received
either through the Community Offering or the Syndicated Community Offering,
if one is held, may be accepted or rejected, in whole or in part, at the
discretion of the Company and the Savings Bank. See "The Conversion and
Reorganization - Limitations on Purchase of Shares." If an order is
rejected in part, the purchaser does not have the right to cancel the
remainder of the order. In the event of an oversubscription, shares will
be allocated in accordance with the Plan of Conversion. See "The
Conversion and Reorganization," "The Offerings - Subscription Offering" and
"- Community Offering."
Stock Pricing and Number of Shares to be Issued in the Conversion and
Reorganization
Federal regulations require the aggregate purchase price of the Common
Stock to be consistent with Ferguson's pro forma appraisal of the Savings
Bank and the Company, which was $36.5 million as of February 27, 1997. In
accordance with OTS regulations, the minimum and maximum of the Valuation
Price Range were set at 15% below and above such midpoint, respectively,
resulting in a range of $31,025,000 to $41,975,000. The full text of the
appraisal report of Ferguson describes the procedures followed, the
assumptions made, limitations on the review undertaken and matters
considered by Ferguson. The appraisal report has been filed as an exhibit
to the Registration Statement and Application for Conversion of which this
Prospectus is a part, and is available in the
-4-
<PAGE>
manner set forth under "Additional Information." The appraisal of the
Common Stock is not intended and should not be construed as a
recommendation of any kind as to the advisability of purchasing such stock.
All shares of Common Stock will be sold at $20.00 per share, which price
was established by the Boards of Directors of the Primary Parties. The
actual number of shares to be issued in the Offerings will be determined by
the Primary Parties based upon the final updated valuation of the estimated
pro forma market value of the Common Stock at the completion of the
Offerings. The number of shares of Common Stock to be issued is expected
to range from a minimum of 1,551,250 shares to a maximum of 2,098,750
shares. Subject to approval of the OTS, the Valuation Price Range may be
increased or decreased to reflect changes in market and economic conditions
prior to the completion of the Conversion and Reorganization and under such
circumstances the Primary Parties may increase or decrease the number of
shares of Common Stock. No resolicitation of subscribers will be made and
subscribers will not be permitted to modify or cancel their subscriptions
unless (i) the gross proceeds from the sale of the Common Stock are less
than the minimum or more than 15% above the maximum of the current
Valuation Price Range (exclusive of a number of shares equal to up to an
additional 8.0% of the Common Stock which may be issued to the ESOP out of
authorized but unissued shares of Common Stock to the extent such shares
are not purchased in the Offerings due to an oversubscription by Eligible
Account Holders) or (ii) the Offerings are extended beyond 45 days after
the close of the Subscription Offering. See "Risk Factors -Possible
Dilutive Effect of Issuance of Additional Shares," "Pro Forma Data," and
"The Conversion and Reorganization - Stock Pricing and Number of Shares to
be Issued."
Payment for Subscriptions for Common Stock
Payment for subscriptions may be made (i) in cash if delivered in person
at any of the Savings Bank's offices, (ii) by check or money order or (iii)
by authorization of withdrawal from deposit accounts maintained with the
Savings Bank. The Primary Parties will not accept payment for shares of
Common Stock by wired funds. Funds from payments made by cash, check or
money order will be deposited in a segregated account at the Savings Bank
and will earn interest at the Savings Bank's passbook rate of interest from
the date payment is received until completion or termination of the
Conversion and Reorganization. If payment is made by authorization of
withdrawal from a deposit account, the funds authorized to be withdrawn
from the deposit account will continue to accrue interest at the
contractual rate until completion or termination of the Conversion and
Reorganization, but a hold will be placed on such funds, thereby making
them unavailable to the depositor until completion or termination of the
Conversion and Reorganization.
If a subscriber authorizes the Savings Bank to withdraw the aggregate
amount of the purchase price from a deposit account, the Savings Bank will
do so as of the effective date of the Conversion and Reorganization. The
Savings Bank will waive any applicable penalties for early withdrawal from
certificate accounts. If the remaining balance in a certificate account is
reduced below the applicable minimum balance requirement at the time that
the funds actually are transferred under the authorization, the certificate
may be cancelled at the time of the withdrawal, without penalty, and the
remaining balance may earn interest at the passbook rate. See "The
Conversion and Reorganization - Procedure for Purchasing Shares in the
Offerings."
-5-
<PAGE>
Restrictions on Transfer of Subscription Rights
Prior to the completion of the Conversion and Reorganization, no person
may transfer or enter into any agreement or understanding to transfer the
legal or beneficial ownership of the subscription rights issued under the
Plan or the shares of Common Stock to be issued upon their exercise. Each
person exercising subscription rights will be required to certify that the
purchase of Common Stock is solely for the purchaser's own account and that
there is no agreement or understanding regarding the sale or transfer of
such shares. A false certification on the subscription form may be deemed
to constitute a federal criminal offense. See "The Conversion and
Reorganization - Restrictions on Transfer of Subscription Rights and
Shares." Subscription rights are nontransferable and persons found to be
attempting to transfer subscription rights will be subject to the
forfeiture of such rights and possible further sanctions and penalties
imposed by the OTS. The Company and the Savings Bank will refer to the OTS
any situations that they believe may involve a transfer of subscription
rights and will not honor orders suspected by them to involve the transfer
of such rights. In addition, referrals will be made to the office of the
United States Attorney.
Benefits of Conversion and Reorganization to Directors and Officers
General. In addition to the ESOP, which is described below, the Company
intends to adopt certain stock benefit plans for the benefit of directors,
officers and employees of the Company and the Savings Bank and to submit
such plans to stockholders for approval at a special or annual meeting of
stockholders of the Company not earlier than six months after the
completion of the Conversion and Reorganization. The proposed benefit
plans include: (i) a 1997 Stock Option Plan (the "Option Plan"), pursuant
to which a number of shares of Common Stock equal to 10% of the Common
Stock to be sold in the Offerings (209,875 shares at the maximum of the
Valuation Price Range) will be reserved for issuance pursuant to stock
options to be granted to directors, officers and employees; and (ii) a
Management Recognition Plan (the "MRP" or "Recognition Plan"), pursuant to
which a number of shares of Common Stock equal to 4.0% of the Common Stock
to be sold in the Offerings (83,950 shares at the maximum of the Valuation
Price Range) for distribution to directors and officers. OTS regulations
permit a qualified stock benefit plan of a converting association to
purchase, without shareholder approval, up to 10% of the common stock sold
in an offering. The ESOP intends to purchase 8.0% of the Common Stock to
be sold in the Offerings (167,900 shares or $3.4 million of Common Stock at
the maximum of the Valuation Price Range). For presentations of the pro
forma effects of the Recognition Plan and the ESOP on the operations of the
Company and its equity, see "Capitalization" and "Pro Forma Data."
The Employee Stock Ownership Plan. The ESOP will be established for the
benefit of the employees of the Company and its affiliates and will be
subject to the requirements of the Internal Revenue Code of 1986, as
amended (the "Code"), applicable to tax-qualified retirement plans and the
Employee Retirement Income Security Act of 1974. The shares of Common
Stock purchased by the ESOP will be allocated over a period of
approximately five years as the Company's loan to the ESOP is repaid, with
the allocations to be made to executive officers and other eligible
employees in proportion to their compensation. In the event that there are
insufficient shares available to fill the ESOP's order due to an
oversubscription by Eligible Account Holders, the Company may issue
authorized but unissued shares of Common Stock to the ESOP in an amount
sufficient to fill the ESOP's order, subject to approval of the OTS, and/or
the ESOP may purchase such shares in the open market, if permitted. In the
event that additional shares of Common Stock are issued to the ESOP to fill
its order, stockholders would experience dilution of their ownership
interests (by up to 7.4% at the maximum of the Valuation Price Range,
assuming the ESOP purchased no shares in the Offerings) and per share
equity and per share net income would decrease
-6-
<PAGE>
as a result of an increase in the number of outstanding shares of Common
Stock. See "Management of the Company - Benefits - Employee Stock
Ownership Plan" and "Risk Factors - Possible Dilutive Effect of Issuance of
Additional Shares."
The Option Plan. The Company intends to establish the Option Plan after
the completion of the Conversion and Reorganization. Management
anticipates that a number of shares equal to 10% of the Common Stock sold
in the Offerings will be reserved for issuance under the Option Plan and
thereafter awarded to directors, officers and employees under the Option
Plan. Under current OTS regulations, no stock options may be awarded
during the first year after the completion of the Conversion and
Reorganization, unless the Option Plan is approved by the shareholders of
the Company at a meeting of shareholders following the completion of the
Conversion and Reorganization, held not sooner than six months after the
completion of the Conversion and Reorganization. If the Option Plan is
approved by the Company's shareholders at such meeting and implemented
during the first year after the completion of the Conversion and
Reorganization, the following restrictions would apply under current OTS
guidelines unless the Regional Director of the OTS permits otherwise: (i)
the number of shares which may be subject to options awarded under the
Option Plan to directors who are not full-time employees of the Company may
not exceed 5% per person and 30% in the aggregate of the available awards,
(ii) the number of shares that may be subject to options awarded under the
Option Plan to any individual who is a full-time employee of the Company or
its subsidiaries may not exceed 25% of the Shares that may be subject to
options awarded under the Option Plan, (iii) stock options must be awarded
with an exercise price at least equal to the fair market value of the
Common Stock of the Company at the time of the grant, and (iv) stock
options will become exercisable at the rate of 20% per year commencing no
earlier than one year from the date the Option Plan is approved by the
shareholders, subject to acceleration of vesting only in the event of the
death or disability of a participant. If the Option Plan is submitted to
and approved by the Company's shareholders more than one year after
consummation of the Conversion and Reorganization, the regulatory
requirements set forth above would not apply. No decision has been made as
to anticipated awards to individuals under the Option Plan. See
"Management of the Company - Benefits" and "Risk Factors - Possible
Dilutive Effect of Issuance of Additional Shares."
Management Recognition Plan. The Company intends to establish the MRP
after the completion of the Conversion and Reorganization. Management
anticipates that a number of shares equal to 4% of the Common Stock to be
sold in the Offerings will be reserved for issuance under the MRP. Shares
held in the MRP will be available for awards to directors, officers and
employees of the Company and its affiliates. Under current OTS
regulations, no award of MRP shares may be made during the first year after
the completion of the Conversion and Reorganization, until after the
approval of the MRP by the shareholders of the Company at a meeting of
shareholders following the completion of the Conversion and Reorganization,
held not sooner than six months after the completion of the Conversion and
Reorganization. If the MRP is approved by the Company shareholders at such
meeting and implemented during the first year after the completion of the
Conversion and Reorganization, MRP awards will be made in accordance with
current OTS regulations. Such regulations provide that, unless the
Regional Director of the OTS permits otherwise, (i) no individual may
receive more than 25% of the shares awarded pursuant to the MRP, (ii)
directors who are not employees of the Company or the Savings Bank may not
receive more than 5% of such shares individually or 30% in the aggregate,
and (iii) shares awarded pursuant to the MRP will vest at the rate of 20%
per year commencing on the date which is one year from the date the MRP was
approved by the Company's shareholders, subject to acceleration of vesting
only in the event of the death or disability of a participant. If the MRP
is submitted to and approved by the Company's shareholders more than one
year after consummation of the Conversion and
-7-
<PAGE>
Reorganization, the regulatory requirements set forth above would not
apply. No decision has been made as to anticipated awards to individuals
under the MRP. See "Management of the Company - Benefits" and "Risk
Factors - Possible Dilutive Effect of Issuance of Additional Shares."
Employment and Consulting Agreements. As of September 1, 1996, the
Savings Bank entered into an employment agreement with Gary D. Dorminey
with regard to Mr. Dorminey's continued service as President and Chief
Executive Officer of the Savings Bank. During the term of this agreement,
the Savings Bank has agreed to provide Mr. Dorminey with (a) an annual
salary of $117,504, which may be increased by the Board of Directors in its
discretion and is currently set at $139,000; (b) an incentive bonus
determined each year by the Compensation Committee of the Board of
Directors; (c) participation in employment benefit programs maintained for
employees of the Savings Bank; (d) reimbursement of the dues and costs of
club membership; and (e) use of an automobile. The employment agreement is
for a three-year term ending August 31, 1999; provided, however, that the
term is automatically extended by additional one-year period(s) if neither
party gives a Nonrenewal Notice to the other within 90 days immediately
preceding each contract anniversary date (September 1). The Board of
Directors may terminate Mr. Dorminey at any time, but any termination by
the Board other than termination for cause shall not affect Mr. Dorminey's
rights to compensation or other benefits under the employment agreement.
The employment agreement further provides that in the event of termination
following a change in control of the Savings Bank, Mr. Dorminey shall be
entitled to a payment equal to 2.99 times his average annual compensation
over the five years preceding such termination. The employment agreement
also complies with OTS regulations governing employment contracts entered
into by insured institutions.
Use of Proceeds
Net proceeds from the sale of the Common Stock are estimated to be
between $29.9 million and $40.7 million at the minimum and maximum of the
Valuation Price Range, depending on the number of shares sold and the
expenses of the Conversion and Reorganization. See "Pro Forma Data." The
Company plans to contribute to the Savings Bank up to 50% of the net
proceeds from the Offerings and retain the remaining net proceeds. The
Company intends to use a portion of the net proceeds retained by it to make
a loan directly to the ESOP to enable the ESOP to purchase 8.0% of the
Common Stock. The amount of the loan is expected to be between $2.5
million and $3.4 million at the minimum and maximum of the Valuation Price
Range, respectively. It is anticipated the loan to the ESOP will have a
term of five years and a fixed interest rate at the Prime Rate as of the
date of the loan. See "Management of the Company - Benefits - Employee
Stock Ownership Plan." Funds retained by the Company may be used to
support the future expansion of operations or diversification into other
banking-related business and for other business or investment purposes,
although there are no current plans, arrangements, understandings or
agreements regarding such expansion or diversification. Subject to
applicable limitations, the Company may use available funds to repurchase
shares of Common Stock and for the payment of special dividends. Funds
contributed to the Savings Bank will be invested initially in short- to
intermediate-term United States government and agency securities. The
proceeds also will be used to support the Savings Bank's lending and
investment activities and thereby enhance the Savings Bank's capabilities
to serve the borrowing and other financial needs of the communities it
serves. See "Use of Proceeds."
-8-
<PAGE>
Dividend Policy
Following the Conversion and Reorganization, the Board of Directors of
the Company intends to declare quarterly cash dividends on the Common Stock
at an initial annual rate of not less than 3.0% of the $20.00 per share
purchase price of the Common Stock ($0.60 per share). However, the
declaration and payment of dividends will be subject to the discretion of
the Board of Directors and to the earnings and financial condition of the
Company. Further, at the discretion of the Company's Board of Directors
and based on the earnings and financial condition of the Company, the
Company may, from time to time, declare a non-recurring special dividend.
If the Company's Board of Directors determines in its discretion that the
net income, capital and financial condition of the Company and the general
economy do not support the declaration and payment of dividends by the
Company, dividends may not be paid on the Common Stock. Other than
earnings on the investment of the proceeds retained by the Company and
interest earned on the loan to the ESOP, the primary source of income of
the Company will be dividends periodically declared and paid by the Board
of Directors of the Savings Bank on the common stock of the Savings Bank
held by the Company. The declaration and payment of dividends by the
Savings Bank is subject to the earnings and financial condition of the
Savings Bank, to general economic conditions and to federal restrictions on
the payment of dividends by thrift institutions. Accordingly, no assurance
can be given that dividends will be paid or, if paid, will be continued.
See "Dividend Policy" and "Regulation."
Market for Common Stock
The Company has applied to have the Common Stock listed on the Nasdaq
National Market System ("Nasdaq") under the symbol "CFBC." Trident has
agreed to act as a market maker for the Company's Common Stock following
the consummation of the Conversion and Reorganization. There can be no
assurance that the Common Stock will be approved for listing on Nasdaq or
that an active and liquid trading market will develop or if developed, will
be maintained. A public market having the desirable characteristics of
depth, liquidity and orderliness depends upon the presence in the
marketplace of both willing buyers and sellers of Common Stock at any given
time, which is not within the control of the Company. No assurance can be
given that an investor will be able to resell the Common Stock at or above
the Purchase Price after the Conversion. See "Market for Common Stock."
Risk Factors
See "Risk Factors" for a discussion of certain factors that should be
considered by prospective investors, including risks relating to voting
control by officers and directors; the effects of certain provisions of the
Company's Articles of Incorporation and Bylaws and certain provisions of
Georgia law that may be deemed to have an anti-takeover effect; the
anticipated low return on equity following the Conversion and
Reorganization; potential effects of changes in interest rates and the
current interest rate environment; risks relating to asset quality and a
high loan to deposit ratio; risks relating to consumer, indirect automobile
and commercial lending; the absence of a prior market for the Common Stock;
the risk of dilution; possible changes in applicable regulations and laws;
competition; and the possible adverse tax consequences of the distribution
of subscription rights.
-9-
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables set forth certain selected consolidated financial
and other data regarding the Mutual Holding Company and the Savings Bank.
The data at December 31, 1996, 1995 and 1994, and for the years then ended,
have been derived from audited consolidated financial statements of CF
Mutual Holdings and subsidiaries, including the audited Consolidated
Financial Statements and related Notes included elsewhere herein. The data
at December 31, 1993 and 1992 and for the years then ended have been
derived from audited financial statements of the Carrollton Federal Bank,
FSB and subsidiary.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
Balance Sheet Data (Year End) (Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Loans, gross 272,435 273,171 283,476 262,154 256,224
Earning assets 326,443 314,706 330,801 292,047 284,759
Assets 352,532 334,477 353,351 312,109 302,100
Deposits 307,756 289,288 289,328 269,624 270,050
Retained Earnings 25,278 25,030 22,083 19,700 17,261
Statement of Earnings Data
Net interest income 13,409 13,217 13,224 13,418 11,694
Provision for loan losses 1,143 250 99 822 1,061
Noninterest income 3,244 3,118 2,137 2,003 1,864
Noninterest expense(3) 15,276 11,764 12,324 11,168 9,733
Deposit insurance premiums(3) 2,340 636 682 717 605
Net earnings 248 2,947 2,384 2,438 1,803
Asset Quality Ratios
Non-performing assets to total assets(1) 1.82% 0.76% 1.16% 1.43% 1.44%
Net charge-offs to average loans 0.31% 0.13% 0.14% 0.06% 0.19%
Allowance for loan losses to total loans 0.95% 0.84% 0.84% 1.02% 0.79%
[Allowance for loan losses to non- 40.50% 89.74% 58.50% 59.29% 46.77%
performing assets(1)]
Key Performance Ratios
Return on average assets 0.07% 0.86% 0.72% 0.78% 0.59%
Return on average capital 0.99% 12.51% 11.41% 13.19% 11.02%
Net interest margin to earning assets 4.21% 4.07% 4.15% 3.97% 3.74%
Average capital to average assets 7.32% 6.85% 6.28% 6.02% 5.38%
Noninterest expense to average assets(3) 4.45% 3.42% 3.70% 3.64% 3.20%
Noninterest expense to average assets(4) 3.95% 3.42% 3.70% 3.64% 3.20%
Efficiency ratio(2)(3) 91.73% 72.01% 80.23% 72.42% 71.78%
Efficiency ratio(2)(4) 81.39% 72.01% 80.23% 72.42% 71.78%
Other Data
Number of full service offices 12 7 8 8 8
</TABLE>
_________________________
(1) Non-performing assets include nonaccrual loans and other real estate owned.
(2) The efficiency ratio is calculated by dividing noninterest expense by the
sum of net interest income plus noninterest income.
(3) Includes one-time SAIF assessment of $1,722,575 in 1996.
(4) Excludes one-time SAIF assessment of $1,722,575 in 1996.
-10-
<PAGE>
RISK FACTORS
The following factors, in addition to those discussed elsewhere in
this Prospectus, should be carefully considered by investors in deciding
whether to purchase the Common Stock offered hereby.
Voting Control of Executive Officers and Directors
Directors and executive officers of the Company expect to purchase
approximately 10.3% of the shares of Common Stock issued in the Offerings
based upon the midpoint of the Valuation Price Range. See "Proposed
Management Purchases." Directors, executive officers and employees are
also expected to eventually control the voting of 4% of the shares of
Common Stock issued through the MRP. In addition, 8% of the shares issued
in the Offerings are expected to be acquired by the ESOP. Employees will
vote the shares allocated to them under the ESOP. The ESOP trustees will
vote unallocated shares and allocated shares for which no voting
designation has been made. Accordingly, directors and executive officers
as a group, together with the ESOP and the MRP, may have effective control
over as much as 22.3%, at the midpoint of the Valuation Price Range, of the
Common Stock issued and outstanding at the completion of the Conversion and
Reorganization.
In addition, following the Conversion and Reorganization, executive
officers and directors are expected to be granted options under the Option
Plan to purchase an amount of Common Stock equal to 10% of the shares of
Common Stock issued in the Offerings. If all of the options were issued to
directors and executive officers and exercised, and if the Company did not
issue any additional shares of Common Stock, the shares held by directors
and executive officers and their associates as a group, including (i)
shares purchased outright in the Offerings, (ii) all shares issued by the
MRP and ESOP and (iii) shares purchased pursuant to the exercise of stock
options, would give such persons effective control over as much as 32.3%,
at the midpoint of the Valuation Price Range, of the Common Stock issued
and outstanding. Because the Company's Articles of Incorporation will
require the affirmative vote of 80% of the outstanding shares entitled to
vote in order to approve certain mergers, consolidations or other business
combinations without the prior approval of two-thirds of the Company's
directors, the officers and directors and their associates, as a group,
could effectively block such transactions. See "Certain Restrictions on
Acquisition of the Company-Mergers, Consolidations and Sales of Assets."
The directors and executive officers of the Company and the Savings
Bank believe that it is in the best interests of the Savings Bank, the
Company and the Company's shareholders for the Company and the Savings Bank
to remain independent, with the objective of long-term enhancement of
shareholder value. Accordingly, an investment in the Common Stock of the
Company may not be suitable for investors who are seeking short-term
returns through a sale of the institution.
Anti-Takeover Provisions
The Articles of Incorporation and Bylaws of the Company and the
Savings Bank contain certain restrictions that are intended to discourage
non-negotiated attempts to acquire control of the Company or Savings Bank.
The Company's Board of Directors believes that these provisions encourage
potential acquirors to negotiate directly with the Board of Directors.
However, these provisions may discourage an attempt to acquire control of
the Company that a majority of the shareholders might deem to be in their
best interests or in which they might receive a premium over the then
market price of their shares. These provisions may also render difficult
the removal of a
-11-
<PAGE>
director and may deter or delay changes in control that have not received
the requisite approval of the Company's Board of Directors. Other facts,
such as voting control of directors and officers and agreements with
employees, may also have an anti-takeover effect. See "- Voting Control of
Officers and Directors" and "Certain Restrictions on Acquisition of the
Company."
Anticipated Low Return on Equity Following Conversion and Reorganization
At December 31, 1996, the Savings Bank's ratio of capital to assets
was 7.42%. On a pro forma basis at December 31, 1996, assuming the sale of
1,551,250, 1,825,000 and 2,098,750 shares of Common Stock in the Offerings
at the minimum, midpoint and maximum of the Valuation Price Range,
respectively, and the distribution of 50% of the net proceeds to the
Savings Bank, the Savings Bank's ratio of capital to assets would have been
10.93%, 11.58%, and 12.22%, respectively. With its higher capital position
as a result of the Conversion and Reorganization, it is doubtful that the
Company will be able to quickly deploy the capital raised in the Offerings
in loans and other assets in a manner consistent with its business plan and
operating philosophies and in a manner which will generate earnings to
support its high capital position. As a result, it is expected that the
Company's return on equity initially will be below industry norms.
Consequently, investors expecting a return on equity which will meet or
exceed industry norms for the foreseeable future should carefully evaluate
and consider the risk that such returns will not be achieved.
Following the Conversion and Reorganization, management may consider
plans to reduce capital if the opportunities to deploy it are not found.
Such plans may include payment of cash dividends and repurchasing shares.
Any such steps would be taken based on conditions as they exist following
the Conversion and Reorganization, and in compliance with applicable
regulations that limit the Company's ability to pay dividends and
repurchase its stock. See "Use of Proceeds," "Dividend Policy" and
"Regulation."
Potential Effects of Changes in Interest Rates and the Current Interest
Rate Environment
Effect on Net Interest Income. The operations of the Savings Bank are
substantially dependent on its net interest income, which is the difference
between the interest income earned on its interest-earning assets and the
interest expense paid on its interest-bearing liabilities. Like most
savings institutions, the Savings Bank's earnings are affected by changes
in market interest rates and other economic factors beyond its control. If
an institution's interest-earning assets have longer effective maturities
than its interest-bearing liabilities, the yield on the institution's
interest-earning assets generally will adjust more slowly than the cost of
its interest-bearing liabilities and, as a result, the institution's net
interest income generally would be adversely affected by material and
prolonged increases in interest rates and positively affected by comparable
declines in interest rates. In recent years, the assets of many savings
institutions, including the Savings Bank, have been negatively "gapped" --
which means that the dollar amount of interest-bearing liabilities which
reprice within specific time periods, either through maturity or rate
adjustment, exceeds the dollar amount of interest-earning assets which
reprice within such time periods. As a result, the net interest income of
these savings institutions, including the Savings Bank, would be expected
to be negatively impacted by increases in interest rates.
At December 31, 1996, the Mutual Holding Company's cumulative one year
gap as a percentage of total interest-earning assets was negative 13.06%.
The Mutual Holding Company computes its gap position using certain
prepayment, deposit decay and other assumptions used by the OTS in making
gap computations. The results of the gap computations could
be substantially different if other assumptions were used.
-12-
<PAGE>
The Savings Bank has actively sought to reduce the vulnerability of
its operations to changes in interest rates through an analysis of its
interest rate risk undertaken by measuring changes in the market value of
its portfolio equity ("NPV") and annual net interest income ("NII") for
instantaneous and sustained parallel shifts in market interest rates.
Pursuant to such analysis, the Savings Bank determined that a theoretical
200 basis point increase in market interest rates as of December 31, 1996
would have resulted in a $2.8 million, or 8%, decrease in the Savings
Bank's NPV and a decrease in NII of $672,000, or 9.3%, while a theoretical
200 basis point decrease in market interest rates would have resulted as of
December 31, 1996 in a $301,000, or 1%, decrease in the Savings Bank's NPV
and an increase in NII of $147,000, or 2%. Computations of an interest rate
gap and computations of the prospective effects of hypothetical interest
rate changes on NPV and NII are based on numerous assumptions, including
relative levels of market interest rates, loan prepayments and deposit
decay and should not be relied upon as indicative of actual results.
Furthermore, the computations do not incorporate any actions management may
undertake in response to changes in interest rates.
Effect on Securities. In addition to affecting interest income and
expenses, changes in interest rates also can affect the value of the
Savings Bank's securities portfolio, which is comprised of fixed and
adjustable-rate instruments. Generally, the value of fixed-rate
instruments fluctuates inversely with changes in interest rates. The
Savings Bank has sought to reduce the vulnerability to changes in interest
rates by managing the nature and composition of its securities portfolio.
As a consequence of the fluctuation in interest rates, the carrying value
of the Savings Bank's held-to-maturity securities can differ from the
market value of such securities. See "Business of Carrollton Federal Bank
- Investment Securities."
Prepayment Risk. Changes in interest rates also can affect the
average life of loans and mortgage-backed securities. Historically low
interest rates in recent periods have resulted in increased prepayments of
loans and mortgage-backed securities, as borrowers refinanced to reduce
borrowing costs. Under these circumstances, the Savings Bank is subject to
reinvestment risk to the extent that it is not able to reinvest such
prepayments at rates which are comparable to the rates on the maturing
loans or securities. In periods of declining interest rates, reinvestment
of these prepayment proceeds can result in a decrease in the weighted
average yield of the loan portfolio. In periods of rising interest rates,
the prepayment speed of loans will decrease (fewer refinances and payoffs),
resulting in a lower volume of dollars to be reinvested by the bank into
higher yielding loans and investments. This situation can also lead to a
lower weighted average yield on the portfolio than can be realized in a
more stable rate environment. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Jumbo Certificates. The inflows and outflows of deposits, which are
the Savings Bank's primary source of funds for lending and other investment
purposes, are significantly influenced by general interest rates and money
market conditions. In order to maintain the Savings Bank's desired level
of deposits, it must offer rates of interest and other terms that its
customers judge to be competitive with those offered by other financial
institutions and viable investment alternatives. While all deposits are
more susceptible to outflow during periods of low market interest rates or
when viable investment alternatives offer higher rates of return,
depositors with larger account balances generally review more thoroughly
the available options and are more likely to withdraw their funds as the
gap between expected returns widens and the perceived risks remain
relatively equal.
As of December 31, 1996, the Savings Bank's total deposit liabilities
included 204 certificates of deposit with principal amounts of $100,000 or
more. These accounts amounted to $47.2 million
-13-
<PAGE>
or 15.3% of the Savings Bank's total deposit liabilities as of that date.
While the holders of these accounts are generally from the Savings Bank's
market area and have had relatively large deposits with the Savings Bank
for several years, a decision by a relatively small number of depositors to
move their deposits to investment alternatives would result in a relatively
large outflow of the Savings Bank's total deposits. Under such
circumstances, in order to maintain the requisite level of funds for
lending and other investment purposes, the Savings Bank would either
increase its deposits by seeking funds outside its primary market area or
by offering higher interest rates and more attractive account terms than
its local competitors. The Savings Bank could also borrow funds from the
Federal Home Loan Bank of Atlanta (the "FHLB") or other sources on a short-
or long-term basis. The use of these alternative sources of funds may
result in an increase in the Savings Bank's total cost of funds which would
decrease its net income.
Asset Quality
At December 31, 1996, the Savings Bank's non-performing assets, which
consist of non-accrual loans, accruing loans greater than 90 days
delinquent and real estate acquired through foreclosure or by deed in lieu
thereof, amounted to $6.4 million or 1.82% of the Savings Bank's total
assets. This represents an increase of $3.9 million, or 152%, from
non-performing assets at December 31, 1995. This increase resulted from one
large commercial relationship. See "Business of Carrollton Federal Bank -
Lending Activities - Non-Performing Assets".
Loan to Deposit Ratio
The Savings Bank's loan to deposit ratio was 88% at December 31, 1996,
as compared to 94% at December 31, 1995. The Savings Bank has
significantly increased its consumer and commercial lending in recent years
and intends to continue to increase the amounts of such loans in the near
future as it continues its transition from a traditional thrift institution
to a community retail bank. Such an increase entails additional loan loss
and other risks relating to the higher proportion of loans issued by the
Savings Bank. See "Business of Carrollton Federal Bank - Lending
Activities."
Risks Relating to Consumer Lending and Indirect Automobile Lending
At December 31, 1996, approximately $6.7 million, or 2.5%, of the
Savings Bank's loan portfolio consisted of indirect automobile loans
originated by the Savings Bank through a network of automobile dealers in
the Local Community. The Savings Bank initiated its indirect automobile
lending program in 1996 and intends to increase such lending in the future.
Originating indirect automobile loans is a relatively new business activity
for the Savings Bank, and its ability to maintain or expand its indirect
automobile lending business will depend upon the volume of sales of new and
used automobiles and demand by consumers for financing in connection
therewith. These factors are beyond the Savings Bank's control. While the
Savings Bank attempts to employ prudent credit standards in originating
indirect automobile loans, there is an inherent risk that a portion of
these loans will default. In such instances, the repossessed automobile
securing the loan may not be sufficient for repayment of the loan and the
Savings Bank may not be able to collect the remaining deficiency. The
Savings Bank does not have recourse to the automobile dealer in the event
of a default of an indirect automobile loan. Loans secured by assets that
depreciate rapidly, such as automobiles, are generally considered to entail
greater risk than residential mortgage loans. In light of these risks, the
Savings Bank currently maintains allowances for loan losses with respect to
its indirect automobile loans. There can be no assurance, however, that
the allowance for loan losses will prove sufficient to cover actual losses
on indirect automobile loans or other loans in the future.
-14-
<PAGE>
Risks Relating to Commercial Lending
As of December 31, 1996, the Savings Bank had $57.8 million in
outstanding commercial loans, representing 21% of its net loan portfolio.
Commercial loans, whether or not secured by real estate, generally entail
significant additional risks as compared to one-to-four family residential
mortgage lending and carry larger loan balances. The increased credit risk
is a result of several factors, including the concentration of principal in
a smaller number of loans and borrowers, the effects of general economic
conditions on income-producing properties and the increased difficulty of
evaluating and monitoring these types of loans. Furthermore, the repayment
of loans secured by commercial real estate is typically dependent upon the
successful operation of the related property. If the cash flow from the
property is reduced, the borrower's ability to repay the loan may be
impaired. Loans secured by commercial real estate may also involve a
greater degree of environmental risk.
Absence of Prior Market for Common Stock
The Company and the Savings Bank have never issued capital stock,
other than one share of Common Stock issued in connection with the
incorporation of the Company, and the 100 shares of Savings Bank stock
issued to the Mutual Holding Company in connection with the MHC
Reorganization, which shares will be cancelled upon completion of the
Conversion and Reorganization. Consequently, there is no existing market
for the Common Stock. The Company has applied to have its Common Stock
quoted on Nasdaq under the symbol "CFBC" upon completion of the Conversion
and Reorganization and will seek to encourage and assist at least two
market makers to make a market in its Common Stock. Trident has indicated
that it intends to serve as one of the market makers.
Making a market in securities involves maintaining bid and ask
quotations and being able, as principal, to effect transactions in
reasonable quantities at those quoted prices, subject to various laws and
other regulatory requirements. The development of a public trading market
depends upon the existence of willing buyers and sellers, the presence of
which is not within the control of the Company, the Savings Bank, or any
market maker. Accordingly, there can be no assurance that an active and
liquid trading market for the Common Stock will develop or that purchasers
in the Offering will be able to sell their shares at or above the Purchase
Price. The absence of a liquid and active trading market, or the
discontinuance thereof, may have an adverse effect on both the price and
the liquidity of the Common Stock. See "Market for Common Stock."
Possible Dilutive Effect of Issuance of Additional Shares
Various possible and planned issuances of Common Stock could dilute
the interests of prospective stockholders of the Company or existing
stockholders of the Company following consummation of the Conversion and
Reorganization, as noted below.
The number of shares to be sold in the Conversion and Reorganization
may be increased as a result of an increase in the Valuation Price Range of
up to 15% to reflect changes in market and financial conditions prior to
the completion of the Conversion and Reorganization or to allow the ESOP to
purchase up to 8% of the shares offered in the Offerings. In the event that
the Valuation Price Range is so increased, it is expected that the Company
will issue up to 2,413,562 shares of Common Stock at the Purchase Price for
an aggregate price of up to $48,271,250. An increase in the number of
shares will decrease net income per share and equity per share on a pro
forma basis and will increase the Company's consolidated equity and net
income. See "Capitalization" and "Pro Forma Data."
-15-
<PAGE>
The ESOP intends to purchase 8.0% of the Common Stock to be issued in
the Offerings. In the event that there are insufficient shares available
to fill the ESOP's order due to an oversubscription by Eligible Account
Holders, the Company may issue authorized but unissued shares of Common
Stock to the ESOP in an amount sufficient to fill the ESOP's order and/or
the ESOP may purchase such shares in the open market. In the event that
additional shares of Common Stock are issued to the ESOP to fill its order,
stockholders would experience dilution of their ownership interests (by up
to 7.4% at the maximum of the Valuation Price Range, assuming the ESOP
purchased no shares in the Offerings) and pro forma per share equity and
pro forma per share net income would decrease as a result of an increase in
the number of outstanding shares of Common Stock. See "Management of the
Company - Benefits - Employee Stock Ownership Plan" and "The Conversion and
Reorganization - The Offerings - Subscription Offering" and "- Priority 2:
ESOP."
If the Recognition Plan is approved by stockholders at a special or
annual meeting of the Company's stockholders not earlier than six months
after the completion of the Conversion and Reorganization, an amount of
Common Stock equal to 4.0% of the shares of Common Stock issued in the
Offerings will be reserved under the Recognition Plan. Such shares of
Common Stock may be acquired in the open market or from authorized but
unissued shares of Common Stock. In the event that additional shares of
Common Stock are issued to the Recognition Plan, shareholders would
experience dilution of their ownership interests (by 3.8% at the maximum of
the Valuation Price Range) and pro forma per share equity and pro forma per
share net income would decrease as a result of an increase in the number of
outstanding shares of Common Stock. See "Pro Forma Data" and "Management
of the Company - Benefits - Management Recognition Plan and Trust."
If the Company's Option Plan is approved by stockholders at a special
or annual meeting of the Company's stockholders not earlier than six months
after the completion of the Conversion and Reorganization, the Company will
reserve for future issuance pursuant to such plan a number of authorized
shares of Common Stock equal to an aggregate of 10% of the Common Stock
issued in the Offerings (209,875 shares, based on the maximum of the
Valuation Price Range). Alternatively, the Company could purchase shares
in the open market to be distributed when options are exercised. If
additional shares of Common Stock are issued, shareholders would experience
dilution in their ownership interests (by 9.1% at the maximum of the
Valuation Price Range) and, if all options were exercised at a Purchase
Price of $20.00 per share, pro forma per share equity and pro forma per
share net income would decrease as a result of the increase in the number
of shares outstanding. See "Pro Forma Data" and "Management of the Company
- Benefits - 1997 Stock Option Plan."
Regulation and Legislation
The Savings Bank is subject to regulation by the OTS, as its
chartering authority and by the Federal Deposit Insurance Corporation
("FDIC"), which regulates the Savings Bank and insures its deposits to the
fullest extent provided by law. The Company is regulated by the OTS as a
registered savings and loan holding company. The Savings Bank also is
subject to certain regulation by the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") and is a member of the FHLB of
Atlanta, one of the 12 regional banks which comprise the FHLB System. Such
supervision and regulation establish a comprehensive framework of
activities in which an institution may engage, and are intended primarily
for the protection of the SAIF and depositors. This regulatory structure
also provides the OTS and the FDIC with significant discretion in
connection with their supervisory and enforcement activities. Any change
in such regulation, whether by the OTS or the FDIC or as a result of
legislation subsequently enacted by the Congress of the United States,
could have a substantial impact on the Savings Bank and its operations.
See "Regulation."
-16-
<PAGE>
Competition
The Savings Bank faces significant competition both in making loans
and in attracting deposits principally from national, regional and local
commercial banks, savings banks, savings and loan associations, credit
unions, broker-dealers, mortgage banking companies (including FNMA) and
insurance companies. Its most direct competition for deposits has
historically come from commercial banks, savings banks, savings and loan
associations and credit unions. The Savings Bank faces additional
competition for deposits from short-term money market funds, other
corporate and government securities funds and from other financial
institutions such as brokerage firms and insurance companies. In addition,
the Savings Bank may face additional competition from commercial banks
headquartered outside of the State of Georgia as a result of the enactment
of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,
which becomes fully effective on June 1, 1997. The "Georgia Interstate
Banking Act," which became effective July 1, 1995, provides that (i)
interstate acquisitions by institutions located in Georgia are permitted in
states which also allow national interstate acquisitions, and (ii)
interstate acquisitions of institutions located in Georgia are permitted by
institutions located in states which also allow national interstate
acquisitions; provided, however, that if the board of directors of a
Georgia savings and loan institution adopts a resolution to except such
thrift or holding company from being acquired pursuant to the provisions of
the Georgia Interstate Banking Act and properly files a certified copy of
such resolution with the Georgia Department, such savings and loan
institution or holding company may not be acquired by an institution
located outside of the State of Georgia.
Possible Adverse Income Tax Consequences of the Distribution of
Subscription Rights
The Primary Parties have received an opinion of Ferguson that
subscription rights granted to Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members have no ascertainable value.
However, this opinion is not binding on the Internal Revenue Service
("IRS"). If the subscription rights granted to Eligible Account Holders,
Supplemental Eligible Account Holders and Other Members are deemed to have
an ascertainable value, receipt of such rights likely would be taxable only
to those Eligible Account Holders, Supplemental Eligible Account Holders
and Other Members who exercise the subscription rights (either as capital
gain or ordinary income) in an amount equal to such value. Whether
subscription rights are considered to have ascertainable value is an
inherently factual determination. See "The Conversion and Reorganization -
Effects of the Conversion and Reorganization" and "- Tax Aspects."
COMMUNITY FIRST BANKING COMPANY
The Company was organized in March 1997 at the direction of the Board
of Directors of the Savings Bank for the purpose of holding all of the
capital stock of the Savings Bank and in order to facilitate the Conversion
and Reorganization. The Company has applied for the approval of the OTS to
become a savings institution holding company and as such will be subject to
regulation by the OTS. After completion of the Conversion and
Reorganization, the Company will conduct business initially as a unitary
savings institution holding company. See "Regulation - The Company." Upon
consummation of the Conversion and Reorganization, the Company will have no
significant assets other than all of the outstanding shares of Savings Bank
Common Stock, the note evidencing the Company's loan to the ESOP and the
portion of the net proceeds from the Offerings retained by the Company, and
the Company will have no significant liabilities. See "Use of Proceeds."
Initially, the management of the Company and the Savings Bank will be
substantially similar and the Company will neither own nor lease any
property, but will instead use the premises, equipment and furniture
-17-
<PAGE>
of the Savings Bank. At the present time, the Company does not intend to
employ any persons other than officers who are also officers of the Savings
Bank, and the Company will utilize the support staff of the Savings Bank
from time to time. Additional employees will be hired as appropriate to
the extent the Company expands or changes its business in the future.
Management believes that the stock holding company structure will
provide the Company with additional flexibility to diversify and expand,
should it decide to do so, its business activities through existing or
newly formed subsidiaries, or through acquisitions of or mergers with other
financial institutions and financial services related companies. Although
there are no current arrangements understandings or agreements regarding
any such opportunities or transactions, the Company will be in a position
after the Conversion and Reorganization, subject to regulatory limitations
and the Company's financial position, to take advantage of any such
acquisition and expansion opportunities that may arise. The initial
activities of the Company are anticipated to be funded by the proceeds to
be retained by the Company and earnings thereon, as well as dividends from
the Savings Bank. See "Dividend Policy."
The directors and executive officers of the Company believe that it is
in the best interests of the Company and its shareholders for the Company
to remain an independent company, and the Articles of Incorporation of the
Company contain a number of provisions that may have an anti-takeover
effect. See "Certain Restrictions on Acquisition of the Company."
The Company's principal executive office is located at the home office
of the Savings Bank at 110 Dixie Street, Carrollton, Georgia 30117, and its
telephone number is (770) 834-1071.
CARROLLTON FEDERAL BANK
Carrollton Federal Bank, a federally chartered stock savings bank that
was organized on August 1, 1994 as a subsidiary of the Mutual Holding
Company, operates in Carrollton, Georgia and neighboring communities in
western Georgia. Prior to that date, the Savings Bank's predecessor, the
Mutual Bank, had operated since 1929. The Savings Bank operates 12 branch
offices in Carroll, Douglas, Coweta, Fayette, Haralson, Heard, Henry and
Paulding counties in Georgia (the "Primary Market Area").
The Savings Bank is primarily engaged in attracting deposits from the
general public and using that and other available sources of funds to
originate mortgage loans primarily located in the counties in which it has
offices and to originate commercial and consumer and other secured and
unsecured loans. At December 31, 1996, mortgage loans amounted to $147
million or 54% of the Savings Bank's total net loan portfolio; commercial
loans amounted to $58 million or 21% of the Savings Bank's total net loan
portfolio; and consumer and other installment loans had a total balance of
$68 million or 25% of the Savings Bank's total net loan portfolio. The
Savings Bank also has an investment portfolio consisting of U.S. Government
and agency obligations, obligations of the State of Georgia and its
political subdivisions and FHLB stock. As of December 31, 1996, the
carrying value of securities that management has the intent and ability to
hold until maturity was $7.8 million, the carrying value of securities that
were available for sale was $33.9 million, and the carrying value of other
investments, including FHLB stock, was $2.5 million. In addition, as of
that same date, the Savings Bank's aggregate cash and interest-bearing
deposits in other banks totaled $14.4 million and federal funds sold
balances were $7.4 million.
The Savings Bank is a community-oriented retail banking institution
that emphasizes customer service and convenience. To enhance its earnings,
the Savings Bank has adopted a business strategy
-18-
<PAGE>
that emphasizes retail lending and deposit products and an increased emphasis on
commercial and consumer lending. The Savings Bank is subject to regulation by
the OTS and by the FDIC, which insures the Savings Bank's deposits up to
applicable limits.
The Mutual Holding Company and the Savings Bank have recently formed
three operating units to engage in new businesses: CFB Securities, CFB
Financial and CFB Insurance. CFB Securities offers traditional brokerage
services and products such as mutual funds, stocks and bonds through an
NASD member firm. CFB Financial services the loan needs of consumers
traditionally associated with small loan companies. CFB Insurance has not
commenced operations, but intends to offer various insurance products,
including property and casualty insurance, to existing customers of the
Savings Bank and to the general public.
CF MUTUAL HOLDINGS
CF Mutual Holdings is a federally chartered mutual holding company
chartered on August 1, 1994 in connection with the MHC Reorganization. The
Mutual Holding Company's primary asset is 100 shares of Savings Bank Common
Stock, which represents 100% of the shares of Savings Bank Common Stock
outstanding as of the date of this Prospectus. The Mutual Holding
Company's other assets consist of a deposit account with the Savings Bank
in the amount of $2,044 and a correspondent bank account and federal funds
sold totalling $1,325,290. The Mutual Holding Company also holds 3,500
shares of West Georgia National Bank (WGNB) stock with a cost basis of
$112,000 or $32 per share. This investment represents less than 1% of the
outstanding common stock of WGNB and is carried at cost. As part of the
MHC Reorganization, the Mutual Holding Company will convert to Interim
Mutual and simultaneously merge into the Savings Bank, with the Savings
Bank being the surviving entity.
PROPOSED MANAGEMENT PURCHASES
The following table sets forth, for each of the Company's directors and
executive officers and for all of the directors and executive officers as a
group, their proposed purchases of Common Stock, assuming sufficient shares are
available to satisfy their subscriptions and in each case assuming that
1,825,000 shares of Common Stock are sold, which is the midpoint of the
Valuation Price Range.
<TABLE>
<CAPTION>
Percentage of
Number of Common Stock
Name Amount Shares to be Held
---- ------ ------ ----------
<S> <C> <C> <C>
T. Aubrey Silvey $ 375,000 18,750 1.03%
Gary M. Bullock 200,000 10,000 .55
Dean B. Talley 375,000 18,750 1.03
Anna L. Berry 150,000 7,500 .41
Michael P. Steed 375,000 18,750 1.03
Thomas S. Upchurch 375,000 18,750 1.03
Jerry L. Clayton 375,000 18,750 1.03
Gary D. Dorminey 375,000 18,750 1.03
T. E. Reeve, Jr. 375,000 18,750 1.03
D. Lane Poston 375,000 18,750 1.03
</TABLE>
-19-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Anyce C. Fox 200,000 10,000 .55
C. Lynn Gable 100,000 5,000 .27
---------- ------- -----
Total $3,650,000 187,500 10.30%
========== ======= =====
</TABLE>
In addition, the ESOP intends to purchase 8.0% of the Common Stock
issued in the Conversion for the benefit of officers and employees. Stock
option and stock grants may also be granted in the future to directors,
officers and employees upon the receipt of stockholder approval of the
Company's proposed stock benefit plans. See "Management of the Company -
Benefits" for a description of these plans.
USE OF PROCEEDS
Although the actual net proceeds from the sale of the Common Stock
cannot be determined until the Offerings are completed, it is presently
anticipated that the net proceeds from the sale of the Common Stock will be
between $29.9 million and $40.7 million ($46.9 million assuming an increase
in the Valuation Price Range by 15%). See "Pro Forma Data" as to the
assumptions used to arrive at such amounts.
While the amount of net proceeds received by the Savings Bank will
further strengthen the Savings Bank's capital position, which already exceeds
all regulatory requirements, it should be noted that the Savings Bank is not
converting primarily to raise capital. After the Conversion and Reorganization,
the Savings Bank's tangible capital ratio (at the midpoint of the Valuation
Price Range) on a pro forma basis at December 31, 1996 is expected to be 11.02%
(after receipt by the Savings Bank of 50% of the net Conversion proceeds).
See "Regulatory Capital." As a result, the Savings Bank will continue to be a
highly capitalized institution. The Savings Bank intends to continue after the
Conversion and Reorganization with its strategy of emphasizing capital strength
and continued growth in assets and earnings.
It is expected that the Company's return on equity will initially be
lower than historical levels as the Company and the Savings Bank deploy the
proceeds from the Offerings. While the Board of Directors and management
recognize this challenge will exist for the foreseeable future, the Company
intends to manage capital through controlled growth, the payment of regular cash
dividends and the possible payment of periodic special dividends. Management
does not expect to pay any dividends that would be characterized as a tax-free
return of capital. The Company may repurchase the Common Stock as market and
regulatory limits permit. However, there can be no assurance that any dividends
will be paid on the Common Stock or that the Company will repurchase any shares.
See "Dividend Policy" and "Regulation."
The Company will purchase all of the capital stock of the Savings Bank
to be issued in the Conversion in exchange for up to 50% of the net Conversion
proceeds, and the Company will retain the remaining 50% of the net proceeds or
more, if permitted. The Company intends to use a portion of the net proceeds
that it retains to make a loan directly to the ESOP to enable the ESOP to
purchase up to 8.0% of the Common Stock. Based upon the issuance of 1,551,250
shares or 2,098,750 shares at the minimum and maximum of the Valuation Price
Range, respectively, the loan to the ESOP would be $2.5 million and $3.4
million, respectively. See "Management of the Company -Benefits- Employee Stock
Ownership Plan." The remaining net proceeds retained by the Company will be
initially used to invest primarily in short-term investment securities and
deposits in or loans to the Savings Bank. The portion of the net proceeds
retained by the Company may ultimately be used to support the Savings Bank's
lending activities, to support the future expansion
-20-
<PAGE>
of operations through establishment of additional branch offices or other
customer facilities, acquisitions of other financial institutions, expansion
into other lending markets or diversification into other banking related
businesses (although no such transactions are specifically being considered at
this time), and for other business and investment purposes, including the
payment of regular cash dividends and possible repurchases of the Common Stock
and special dividends. Management of the Company may consider expanding or
diversifying, should such opportunities become available. Funds contributed to
the Savings Bank will be invested initially in short- to intermediate-term
United States government and agency securities. The proceeds also will be used
to support the Savings Bank's lending and investment activities and thereby
enhance the Savings Bank's capabilities to serve the borrowing and other
financial needs of the communities it serves. Neither the Savings Bank nor the
Company has any specific plans, arrangements, or understandings regarding any
acquisitions or diversification of activities at this time, nor have criteria
been established to identify potential candidates for acquisition.
Following the one-year anniversary of the completion of the Conversion
(or sooner if permitted by the OTS), and based upon then existing facts and
circumstances, the Company's Board of Directors may determine to repurchase
shares of Common Stock, subject to any applicable statutory and regulatory
requirements. Such facts and circumstances may include but are not limited to
(i) market and economic factors such as the price at which the stock is trading
in the market, the volume of trading, the attractiveness of other investment
alternatives in terms of the rate of return and risk involved in the investment,
the ability to increase the book value and/or earnings per share of the
remaining outstanding shares, and an improvement in the Company's return on
equity; (ii) the avoidance of dilution to stockholders by not having to issue
additional shares to cover the exercise of stock options or to fund employee
stock benefit plans; and (iii) any other circumstances in which repurchases
would be in the best interests of the Company and its stockholders. Any stock
repurchases will be subject to the determination of the Company's Board of
Directors that both the Company and the Savings Bank will be capitalized in
excess of all applicable regulatory requirements after any such repurchases and
to receipt of necessary regulatory approvals or non-objections from the OTS. The
payment of dividends or repurchase of stock, however, would be prohibited if
equity would be reduced below the amount required for the liquidation account.
See "Dividend Policy," "Regulation - Bank Regulation - Prompt Corrective
Action -Capital Distributions," and "The Conversion and Reorganization - Certain
Restrictions on Purchase or Transfer of Shares after the Conversion and
Reorganization."
The Company will be a unitary savings and loan holding company which,
under existing laws, would generally not be restricted as to the types of
business activities in which it may engage, provided that the Savings Bank
continues to be a qualified thrift lender ("QTL"). See "Regulation - The
Company" for a description of certain regulations applicable to the Company. Any
portion of the net proceeds in excess of the amount retained by the Company will
be added to the Savings Bank's general funds to be used for general corporate
purposes, including increased lending activities and purchases of investment and
mortgage-backed securities.
The net proceeds may vary because total expenses of the Conversion and
Reorganization may be more or less than those estimated. The net proceeds will
also vary if the number of shares to be issued in the Offerings is adjusted to
reflect a change in the estimated pro forma market value of the Savings Bank.
Payments for shares made through withdrawals from existing deposit accounts at
the Savings Bank will not result in the receipt of new funds for investment by
the Savings Bank but will result in a reduction of the Savings Bank's interest
expense and liabilities as funds are transferred from interest-bearing
certificates or other deposit accounts.
-21-
<PAGE>
DIVIDEND POLICY
Upon completion of the Conversion and Reorganization, the Board of
Directors of the Company will have the authority to declare dividends on the
Common Stock, subject to statutory and regulatory requirements. The Board of
Directors of the Company intends to adopt a policy of paying quarterly cash
dividends on the Common Stock following consummation of the Conversion and
Reorganization at an initial annual rate of not less than 3.0% of the $20.00 per
share purchase price of the Common Stock ($0.60 per share) commencing with the
first full quarter following consummation of the Conversion and Reorganization.
Declarations of dividends by the Board of Directors will depend upon a number of
factors including the amount of net proceeds from the Offerings retained by the
Company, investment opportunities available to the Company or the Savings Bank,
capital requirements, regulatory limitations, the Company's and the Savings
Bank's financial condition and results of operations, tax considerations and
general economic conditions. Consequently, there can be no assurance that
dividends will in fact be paid on the Common Stock or that, if paid, such
dividends will not be reduced or eliminated in future periods.
Dividends from the Company will depend, in part, upon receipt of
dividends from the Savings Bank, because the Company initially will have no
source of income other than dividends from the Savings Bank, earnings from the
investment of the portion of the net proceeds from the sale of Common Stock
retained by the Company, and interest payments with respect to the Company's
loan to the ESOP. A regulation of the OTS imposes limitations on "capital
distributions" by savings institutions, including cash dividends, payments by a
savings institution to repurchase or otherwise acquire its stock, payments to
stockholders of another savings institution in a cash-out merger and other
distributions charged against capital. The regulation establishes a three-tiered
system, with the greatest flexibility being afforded to well-capitalized or Tier
1 savings institutions and the least flexibility being afforded to under-
capitalized or Tier 3 savings institutions. As of December 31, 1996, the Savings
Bank was a Tier I savings institution and is expected to continue to so qualify
immediately following the consummation of the Conversion and Reorganization. See
"Regulation -Bank Regulation - Prompt Corrective Action - Capital
Distributions."
Unlike the Savings Bank, the Company is not subject to the
aforementioned regulatory restrictions on the payment of dividends to its
stockholders, although the source of such dividends will be, in part, dependent
upon dividends from the Savings Bank in addition to the net proceeds retained by
the Company and earnings thereon. The Company is subject, however, to the
requirements of Georgia law which state that a corporation may not pay dividends
if, as a result of the dividend, the corporation would be unable to pay its
debts as they come due in the ordinary course of business or its total assets
would be less than the sum of its total liabilities plus liquidation
preferences.
MARKET FOR COMMON STOCK
The Company has never issued capital stock and consequently there is no
established market for its Common Stock. Therefore, there can be no assurance
that an active and liquid trading market for the Common Stock will develop or if
developed, will be maintained. The Company has applied to have the Common Stock
quoted on Nasdaq under the symbol "CFBC." The Common Stock can be quoted on
Nasdaq if, among other qualifications, the Company has at least 400 stockholders
of record and two market makers. Trident has agreed to act as a market maker for
the Common Stock following the Conversion and Reorganization. The Company
believes that it will meet all of these qualifications.
-22-
<PAGE>
The development of a public market having the desirable characteristics
of depth, liquidity and orderliness depends on the existence of willing buyers
and sellers, the presence of which is not within the control of the Company, the
Savings Bank or any market maker. Since there can be no assurance that an active
and liquid trading market for the Common Stock will develop or that, if
developed, it will continue, investors in the Common Stock could have difficulty
disposing of their shares and should not view the Common Stock as a short-term
investment. The absence of an active and liquid trading market for the Common
Stock could affect the price and liquidity of the Common Stock.
-23-
<PAGE>
CAPITALIZATION
The following table presents the consolidated historical capitalization of
the Mutual Holding Company at December 31, 1996, and the pro forma consolidated
capitalization of the Company after giving effect to the Conversion and
Reorganization based upon the sale of the number of shares shown below and the
other assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
The Company - Pro Forma Consolidated Capitalization
Based Upon Sale at $20.00 Per Share
-----------------------------------------------------------
The Mutual
Holding Company 1,551,250 1,825,000 2,098,750 2,413,562
- Historical Shares Shares Shares Shares(1)
Consolidated (Minimum of (Midpoint of (Maximum of (15% above
Capitalization Range) Range) Range) Maximum of Range)
-----------------------------------------------------------------------------
(In Thousands)
<S> <C> <C> <C> <C> <C>
Deposits(2) $ 307,756 $ 307,756 $ 307,756 $ 307,756 $ 307,756
Borrowings 18,295 18,295 18,295 18,295 18,295
---------- ---------- ---------- ---------- ----------
Total deposits and borrowings $ 326,051 $ 326,051 $ 326,051 $ 326,051 $ 326,051
========== ========== ========== ========== ==========
Capital stock:
Preferred stock, no par
value per share: authorized
10,000,000 shares; assumed
outstanding - none $ - $ - $ - $ - $ -
Common Stock, $.01 par value
per share, authorized -
10,000,000 shares; shares to
be outstanding - as shown(3) - 16 18 21 24
Paid-in capital(3) - 29,892 35,282 40,671 46,869
Less:
Common stock acquired
by ESOP(4) - (2,482) (2,920) (3,358) (3,862)
Common Stock attributable
to MRP(5) - (1,241) (1,460) (1,679) (1,931)
Retained earnings - substantially
restricted(6) 25,278 25,278 25,278 25,278 25,278
Net unrealized loss on
available for sale securities (20) (20) (20) (20) (20)
---------- ---------- ---------- ---------- ----------
Total capital(6) $ 25,258 $ 51,443 $ 56,178 $ 60,913 $ 66,358
========== ========== ========== ========== ==========
</TABLE>
- ------------------
(1) As adjusted to give effect to an increase in the number of shares that
could occur due to an increase in the Valuation Price Range of up to 15% to
reflect changes in market and financial conditions prior to the completion
of the Conversion and Reorganization or to fill the order of the ESOP.
(2) Withdrawals from deposit accounts for the purchase of Common Stock have
not been reflected. Any such withdrawals will reduce pro forma deposits by
the amount thereof.
(3) The sum of the par value and paid-in capital accounts equals the net
proceeds from the Offerings. No effect has been given to the issuance of
additional shares of Common Stock pursuant to the Company's proposed Option
Plan. The Company intends to adopt the Option Plan and to submit it to
stockholders at a special or annual meeting no earlier than six months
after the completion of the Conversion and Reorganization. If the Option
Plan is approved by stockholders, an amount equal to 10% of the shares of
Common Stock will be reserved for issuance under the
-24-
<PAGE>
plan. See "Pro Forma Data" and "Management of the Company -Benefits - 1997
Stock Option Plan."
(4) Assumes that 8.0% of the Common Stock sold in the Offerings will be
purchased by the ESOP. The Common Stock acquired by the ESOP is reflected
as a reduction of equity. Assumes the funds used to acquire the ESOP
shares will be borrowed from the Company. See Note 1 to the table set
forth under "Pro Forma Data" and "Management of the Company- Employee Stock
Ownership Plan."
(5) Gives effect to the Recognition Plan, which is expected to be adopted
by the Company following the Conversion and Reorganization and presented to
stockholders for approval at a special or annual meeting of stockholders no
earlier than six months following the Conversion and Reorganization. If
the Recognition Plan is approved by stockholders, it is expected to issue a
number of shares of Common Stock equal to 4.0% of the shares of Common
Stock issued in the Offerings or 62,050, 73,000, 83,950 and 96,542 shares
at the minimum, midpoint, maximum and 15% above the maximum of the
Valuation Price Range. The table assumes that stockholder approval has
been obtained and that shares purchased in the open market will be used to
fund the awards. The Common Stock thus issued by the Recognition Plan is
reflected as a reduction in equity. If the shares are purchased at prices
higher or lower than the Purchase Price, such purchases would have a
greater or lesser impact, respectively, on equity. If the Recognition Plan
utilizes authorized but unissued shares from the Company, such issuance
would dilute the voting interests of existing shareholders by approximately
3.8% if 2,098,750 shares are sold in the Offerings. See "Pro Forma Data"
and "Management of the Company-Benefits - 1997 Management Recognition Plan
and Trust."
(6) The retained earnings of the Savings Bank will be substantially
restricted after the Conversion and Reorganization. See "Dividend Policy"
and "The Conversion and Reorganization - Liquidation Rights."
-25-
<PAGE>
REGULATORY CAPITAL
The following table presents the historical regulatory capital of the
Savings Bank, assuming the merger of the Mutual Holding Company into the Savings
Bank after its conversion to Interim Mutual at December 31, 1996, and the pro
forma regulatory capital of the Savings Bank after giving effect to the
Conversion and Reorganization, based upon the sale of the number of shares shown
below and the other assumptions set forth under "Pro Forma Data."
<TABLE>
<CAPTION>
Historical 1,551,250 Shares 1,825,000 Shares 2,098,750 Shares 2,413,562 Shares
Regulatory Capital Sold at $20.00 Sold at $20.00 Sold at $20.00 Sold at $20.00
at December 31, Per Share Per Share Per Share Per Share
1996(1)(2) (min)(1)(2) (mid)(1)(2) (max)(1)(2) (max)(1)(2)
------------------------------------------------------------------------------------------------------
% of % of % of % of % of
Amount Assets Amount Assets Amount Assets Amount Assets Amount Assets
--------- -------- --------- --------- --------- -------- -------- -------- -------- --------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital under GAAP $25,258 7.16% $40,212 10.93% $42,908 11.58% $45,604 12.22% $48,704 12.94%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Tangible capital $22,946 6.54% $37,900 10.36% $40,596 11.02% $43,292 11.67% $46,392 12.40%
Tangible capital
requirement 5,261 1.50% 5,485 1.50% 5,526 1.50% 5,566 1.50% 5,613 1.50%
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess $17,685 5.04% $32,415 8.86% $35,070 9.52% $37,726 10.17% $40,779 10.90%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Core capital $22,946 6.54% $37,900 10.36% $40,596 11.02% $43,292 11.67% $46,392 12.40%
Core capital requirement(3) 10,522 3.00% 10,971 3.00% 11,052 3.00% 11,133 3.00% 11,226 3.00%
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess $12,424 3.54% $26,929 7.36% $29,544 8.02% $32,159 8.67% $35,166 9.40%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
Total risk-based
capital(4)(5) $24,976 10.56% $39,930 16.67% $42,626 17.76% $45,322 18.84% $48,422 20.08%
Total risk-based capital
requirement 18,920 8.00% 19,159 8.00% 19,202 8.00% 19,245 8.00% 19,295 8.00%
------- ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess $ 6,056 2.56% $20,771 8.67% $23,424 9.76% $26,077 10.84% $29,127 12.08%
======= ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
- -------------------
(1) Under OTS policy, net unrealized gains or losses on debt securities
classified as available for sale are excluded for purposes of computing
regulatory capital.
(2) Tangible and core capital are computed as a percentage of adjusted total
assets of $351 million prior to the consummation of the Offerings and $366
million, $368 million, $371 million and $374 million following the issuance of
1,551,250, 1,825,000, 2,098,750 and 2,413,562 shares in the Conversion and
Reorganization, respectively. Risk-based capital is computed as a percentage of
adjusted risk-weighted assets of $236 million prior to the consummation of the
Offerings and $239 million, $240 million, $241 million and $241 million
following the issuance of 1,551,250, 1,825,000, 2,098,750 and 2,413,562 shares
in the Conversion and Reorganization, respectively.
(3) Does not reflect, in the case of the core capital requirement, the 4.0%
requirement to be met in order for an institution to be "adequately capitalized"
under applicable laws and regulations. See "Regulation - The Savings Bank -
Prompt Corrective Action."
(4) The pro forma risked-based capital ratios (i) reflect the receipt by the
Savings Bank of the assets held by the Mutual Holding Company and of 50% of the
estimated net proceeds from the Offerings, (ii) assume the investment of the net
remaining proceeds received by the Savings Bank in assets which have a risk-
weight of 20% under applicable regulations, as if such net proceeds had been
received and so applied at December 31, 1996.
(5) Includes the $2.0 million general allowance for loan losses that was
included in risk-based capital as of December 31, 1996.
-26-
<PAGE>
PRO FORMA DATA
The actual net proceeds from the sale of the Common Stock cannot be
determined until the Conversion and Reorganization are completed. However, net
proceeds are currently estimated to be between $29.9 million and $40.7 million
(or $46.9 million in the event the Valuation Price Range is increased by 15%)
based upon the following assumptions: (i) all shares of Common Stock will be
sold in the Subscription Offering and Community Offering; (ii) 19.8%, 18.3%,
17.1% and 16.1% of the Common Stock sold in the Subscription Offering at the
minimum, midpoint, maximum and 15% above the maximum of the Valuation Price
Range will be sold to the ESOP, directors and executive officers and their
associates; (iii) fees will be payable to Trident as set forth in "The
Conversion and Reorganization -Marketing Arrangements;" and (iv) expenses,
excluding the marketing fees paid to Trident, will approximate $699,000. Actual
expenses may vary from those estimated, and the fees paid to Trident will vary
from the amounts estimated if the amount of Common Stock sold in the different
categories varies from the amounts assumed above.
Pro forma net income and equity have been calculated for the year ended
December 31, 1996 as if the Common Stock to be issued in the Offerings had been
sold at the beginning of the period and the net proceeds had been invested at
5.5%, which represents the yield on one-year U.S. Government securities at
December 31, 1996 (which, in light of changes in interest rates in recent
periods, are deemed to more accurately reflect pro forma reinvestment rates than
the arithmetic average method). The effect of withdrawals from deposit accounts
for the purchase of Common Stock has not been reflected. An effective combined
federal and state income tax rate of 38% has been assumed for the period,
resulting in after-tax yield of 62% for the year ended December 31, 1996.
Historical and pro forma per share amounts have been calculated by dividing
historical and pro forma amounts by the indicated number of shares of Common
Stock, as adjusted to give effect to the shares purchased by the ESOP. See Note
4 to the tables below. No effect has been given in the pro forma equity
calculations for the assumed earnings on the net proceeds. As discussed under
"Use of Proceeds," the Company intends to contribute up to 50% of the net
proceeds from the Offerings to the Savings Bank.
The following pro forma information may not be representative of the
financial effects of the foregoing transactions at the dates on which such
transactions actually occur and should not be taken as indicative of future
results of operations. Pro forma equity represents the difference between the
stated amount of assets and liabilities of the Company computed in accordance
with generally accepted accounting principles ("GAAP"). The pro forma
stockholders' equity is not intended to represent the fair market value of the
Common Stock and may be different than amounts that would be available for
distribution to stockholders in the event of liquidation. No effect has been
given in the tables to (i) the Company's results of operations after the
Conversion and Reorganization or (ii) the market price of the Common Stock after
the Conversion and Reorganization.
The following tables summarize historical data of the Mutual Holding
Company and consolidated pro forma data of the Company at or for the dates and
periods indicated based on assumptions set forth above and in the tables and
should not be used as a basis for projections of the market value of the Common
Stock following the Conversion and Reorganization.
-27-
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended December 31, 1996
-------------------------------------------------------
2,413,562
1,551,250 1,825,000 2,098,750 Shares Sold
Shares Sold Shares Sold Shares Sold at $20.00 Per
at $20.00 at $20.00 at $20.00 Share (15%
Per Share Per Share Per Share above
(Minimum of (Midpoint (Maximum of Maximum of
Range) of Range) Range) Range)(7)
----------- ----------- ----------- -------------
(Dollars in Thousands, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Gross proceeds $ 31,025 $ 36,500 $ 41,975 $ 48,271
Less offering expenses and commissions (1,117) (1,200) (1,283) (1,379)
---------- ---------- ---------- ----------
Estimated net Conversion proceeds 29,908 35,300 40,692 46,892
Less Common Stock acquired by ESOP(1) (2,482) (2,920) (3,358) (3,862)
Less Common Stock attributable to
MRP(2) (1,241) (1,460) (1,679) (1,931)
---------- ---------- ---------- ----------
Estimated proceeds available for
investment(3) $ 26,185 $ 30,920 $ 35,655 $ 41,099
========== ========== ========== ==========
Net Earnings
Historical $ 248 $ 248 $ 248 $ 248
Pro Forma adjustments:
Net earnings from proceeds 893 1,054 1,216 1,401
ESOP(1) (220A) (259A) (297A) (342A)
MRP(2) (154A) (181A) (208A) (239A)
---------- ---------- ---------- ----------
Pro forma net earnings $ 767 $ 862 $ 959 $ 1,068
========== ========== ========== ==========
Per share(4)
Historical $ 0.17 $ 0.15 $ 0.13 $ 0.11
Pro Forma Adjustments:
Net income from proceeds 0.62 0.62 0.62 0.62
ESOP(1) (0.15A) (0.15A) (0.15A) (0.15A)
MRP(2) (0.11A) (0.11A) (0.11A) (0.11A)
---------- ---------- ---------- ----------
Pro Forma $ 0.53 $ 0.51 $ 0.49 $ 0.47
========== ========== ========== ==========
Number of shares used in calculating
earnings per share 1,444,879 1,699,857 1,954,836 2,248,061
========== ========== ========== ==========
Stockholders' equity (book value)
Historical(5)(6) $ 25,258 $ 25,258 $ 25,258 $ 25,258
Estimated net Conversion proceeds 29,908 35,300 40,692 46,892
Less common stock acquired
by/attributable to:
ESOP(1) (2,482A) (2,920A) (3,358A) (3,862A)
MRP(2) (1,241A) (1,460A) (1,679A) (1,931A)
---------- ---------- ---------- ----------
Pro Forma(6)(8) $ 51,443 $ 56,178 $ 60,913 $ 66,357
========== ========== ========== ==========
Per Share(4)
Historical $ 16.28 $ 13.84 $ 12.03 $ 10.47
Estimated net Conversion proceeds 19.28 19.34 19.39 19.43
Less common stock acquired
by/attributable to:
ESOP(1) (1.60) (1.60) (1.60) (1.60)
MRP(2) (0.80) (0.80) (0.80) (0.80)
---------- ---------- ---------- ----------
Pro Forma(6)(8) $ 33.16 $ 30.78 $ 29.02 $ 27.50
========== ========== ========== ==========
Pro forma price to book
value(3)(5)(6)(8) 60.3% 65.0% 68.9% 72.7%
========== ========== ========== ==========
Pro forma price to earnings (P/E
ratio) 37.7 39.2 40.8 42.6
========== ========== ========== ==========
Number of shares used in calculating
book value per share(4) 1,551,250 1,825,000 2,098,750 2,413,562
========== ========== ========== ==========
</TABLE>
- ------------------------
(1) It is assumed that 8.0% of the shares of Common Stock issued in the
Conversion and Reorganization will be purchased by the ESOP. For purposes of
this table, the funds used to acquire such shares are assumed to have been
borrowed by the ESOP from the Company. The Company intends to make annual
contributions to the ESOP over a five-period in an amount at least equal
to the principal and interest requirement (which interest rate shall be at the
prime rate) of the debt. The pro forma net earnings assumes (i) that the ESOP
expense for each respective period is equivalent to the principal payment for
the respective period and was made at the end of each respective period; (ii)
that 17,729, 20,857, 23,986 and 27,584 shares were committed to be released at
the minimum, midpoint, maximum and 15% above the maximum of the Valuation Price
Range,
-28-
<PAGE>
respectively; and (iii) only ESOP shares committed to be released during
the respective period were considered outstanding for purposes of the net
earnings per share calculations.
(2) The adjustment is based upon the assumed share repurchases to fund
awards under the Recognition Plan of 62,050, 73,000, 83,950 and 96,542
shares at the minimum, midpoint maximum and 15% above the maximum of the
Valuation Price Range, assuming that: (i) stockholder approval of the
Recognition Plan has been received; (ii) the shares were repurchased at the
beginning of the period shown through open market purchases at the Purchase
Price: (iii) the amortized expense for the year ended December 31, 1996 was
20% of the amount contributed; and (iv) the effective tax rate applicable
to such employee compensation expense was 38%. If the Recognition Plan
issues authorized but unissued shares instead of repurchasing shares, the
voting interests of existing stockholders would be diluted by approximately
3.8% and pro forma net earnings per share for the year ended December 31,
1996 would be $0.53, $0.51, $0.50 and $0.48, and pro forma stockholders'
equity per share at December 31, 1996 would be $32.66, $30.37, $28.68 and
$27.21, in each case at the minimum, midpoint, maximum and 15% above the
maximum of the Valuation Price Range, respectively. See "Management of the
Company - Benefits - Management Recognition Plan and Trust."
(3) Estimated proceeds available for investment consist of the estimated
net proceeds from the Offerings less (i) the proceeds attributable to the
purchase by the ESOP and (ii) the value of the shares to be issued by the
Recognition Plan, subject to shareholder approval, after the Conversion and
Reorganization at an assumed purchase price of $20.00 per share.
(4) Net earnings per share computations are determined by taking the number
of shares assumed to be sold in the Conversion and Reorganization and
subtracting the ESOP shares which have not been committed for release
during the respective period. See Note 1 above.
(5) Assumes the merger of the Mutual Holding Company after its conversion
to Interim Mutual into the Savings Bank.
(6) The retained earnings of the Savings Bank will be substantially
restricted after the Conversion by virtue of the liquidation account to be
established in connection with the Conversion and Reorganization. See
"Dividend Policy" and "The Conversion and Reorganization - Liquidation
Rights."
(7) As adjusted to give effect to an increase in the number of shares which
could occur due to an increase in the Valuation Price Range of up to 15% to
reflect changes in market and financial conditions prior to the completion
of the Conversion and Reorganization or to satisfy the subscription of the
ESOP.
(8) No effect has been given to the issuance of additional shares of Common
Stock pursuant to the Option Plan. If the Option Plan is approved by
stockholders, an amount equal to 10% of the Common Stock issued in the
Conversion and Reorganization, or 155,125, 182,500, 209,875 and 241,356
shares at the minimum, midpoint, maximum and 15% above the maximum of the
Valuation Price Range, respectively, will be reserved for future issuance
upon the exercise of options to be granted under the Option Plan.
-29-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
As is the case with most savings institutions, the profitability of
the Savings Bank depends primarily on its net interest income, which is the
difference between interest and dividend income on interest-earning assets,
principally loans and investment securities, and interest expense on
interest-bearing deposits. The Savings Bank's net earnings also are
dependent, to a lesser extent, on the level of provision for loan losses,
its non-interest income and non-interest expenses, such as salaries and
related benefits, occupancy and equipment, deposit insurance premiums, and
miscellaneous other expenses, as well as provisions for federal and state
income tax.
The Savings Bank has historically operated as a traditional savings
and loan, raising money by offering savings products of relatively short
duration and lending this money for the purpose of home financing. As
regulations affecting the savings and loan industry changed, the Savings
Bank began offering primarily adjustable rate mortgages (ARM's) in 1981.
Additional authority for checking accounts and consumer and commercial
loans also allowed the Savings Bank to offer additional services to its
traditional customer bases.
The change from primarily mortgage loans in the 1980s to the current
loan portfolio mix of approximately 54% mortgage and 46%
consumer/commercial has allowed the Savings Bank to better manage its asset
and liability maturities and increase its net interest margin. The
institution's emphasis on shorter term consumer lending and prime rate
based commercial lending, along with one-year ARMs tied to an index, has
dramatically reduced the institution's interest rate risk.
The change from a traditional thrift investing in mortgages to a
financial institution offering a wider array of financial services has also
been necessary to counteract increasing competition from government-
sponsored entities for mortgage loans. The change from mortgage lender to
a financial services provider has lessened the institution's exposure to
any single economic cycle, while at the same time more closely tying the
institution's products and services to the customer's financial needs. At
December 31, 1996, approximately 31.6% of the Savings Bank's deposits were
in the form of transaction accounts and 46% of its net loans are classified
consumer or commercial, thus allowing a balanced source of funds and a
balanced investment opportunity.
Tradition and Market Share
The Savings Bank has operated in its local community since 1929.
Management believes the Savings Bank has the largest deposit market share
of any local institution in Carroll County, Georgia.
Interest Rate Risk
The change from primarily providing traditional long-term fixed rate
mortgages to primarily providing a variety of shorter term and interest-
sensitive loan products has resulted in a significant reduction in the risk
associated with vulnerability to changes in interest rates.
-30-
<PAGE>
High Levels of Regulatory Capital and Moderate Growth
The Savings Bank seeks to maintain capital levels that will permit it
to be characterized as "well-capitalized" by regulatory standards in order
to give it maximum flexibility in the changing regulatory environment and
to respond to changes in the market and economic conditions. The Savings
Bank has sought to strengthen its capital position through consistent
earnings. At December 31, 1996, the Savings Bank's tangible, core and
total risk-based capital ratios amounted to 6.9%, 6.9% and 10.9%,
respectively, which exceeded the requirements for a well capitalized
institution of 5%, 5% and 10%, respectively, by $6.1 million, $6.1 million
and $2.0 million, respectively. As a result of the Conversion and
Reorganization, assuming that 1,825,000 shares of Common Stock are sold in
the Offerings, the Savings Bank's pro forma tangible, core and risk-based
capital ratios at December 31, 1996 would be 11.02%, 11.02% and 17.76%,
respectively. See "Regulatory Capital."
Proactive Responses to Economic Changes
Deregulation of financial service providers throughout the United
States has necessitated the expansion of the Savings Bank's products and
services from traditional mortgages to a full array of financial products
and services. Management believes the Savings Bank has the largest deposit
market share of any local institution in the Carroll County, Georgia area.
Accordingly, it has been necessary for the Savings Bank to expand its
service territory in order to attain necessary growth.
These changes in product mix have created a need for more
sophisticated technology and a more labor-intensive service delivery
system. Additionally, the need for expansion to fuel growth has increased
the cost of the delivery system. Now that its infrastructure has been
expensed, management believes the Savings Bank is poised for asset growth
without the necessity of corresponding expenses. While the Savings Bank
has higher non-interest expense than traditional savings institutions, its
noninterest expense ratio compares favorably with that of full service
banking institutions.
Asset Quality
At December 31, 1996, the Savings Bank's non-performing assets, which
consist of non-accrual loans, accruing loans greater than 90 days
delinquent and real estate acquired through foreclosure or by deed in lieu
thereof, amounted to $6.4 million or 1.82% of the Savings Bank's total
assets. The ratio of non-performing assets to total assets at year end has
averaged 1.2% over the last five years. See "Business of Carrollton
Federal Bank - Lending Activities - Asset Quality" and "- Non-Performing
Assets" for an explanation of the increase in non-performing assets.
Asset/Liability Management
The ability to maximize net interest income is largely dependent upon
the achievement of a positive interest rate spread that can be sustained
during fluctuations in prevailing interest rates. Interest rate
sensitivity is a measure of the difference between amounts of interest-
earning assets and interest-bearing liabilities that either reprice or
mature within a given period of time. The difference, or the interest rate
repricing "gap", provides an indication of the extent to which an
institution's interest rate spread will be affected by changes in interest
rates. A gap is considered positive when the amount of interest rate
sensitive assets maturing or repricing within a given period exceeds the
amount of interest rate sensitive liabilities maturing or repricing within
such period, and is considered negative when the amount of interest rate
sensitive liabilities maturing or repricing within a given
-31-
<PAGE>
period exceeds the amount of interest rate sensitive assets maturing or
repricing within such period. Generally, during a period of rising interest
rates, a negative gap within shorter maturities would adversely affect net
interest income, while a positive gap within shorter maturities would result in
an increase in net interest income, and during a period of falling interest
rates, a negative gap within shorter maturities would result in an increase in
net interest income while a positive gap within shorter maturities would have
the opposite effect.
The lending activities of savings associations have historically
emphasized long-term, fixed-rate loans secured by one-to-four family residences,
and the primary source of funds of such institutions has been deposits. The
deposit accounts of savings associations generally bear interest rates that
reflect market rates and largely mature, or are subject to repricing, within a
short period of time. This factor, in combination with substantial investments
in long-term, fixed-rate loans, has historically caused the income earned by
savings associations on their loan portfolios to adjust more slowly to changes
in interest rates than their cost of funds.
The Savings Bank originates consumer, commercial and traditional
mortgage products in its primary service areas. Terms are limited primarily to
five years or less with the emphasis being prime based commercial lending,
consumer loans of five years or less and mortgage loans with terms not to exceed
30 years, repricing annually with the one-year treasury constant maturity.
At December 31, 1996, the Savings Bank had $146.6 million in real
estate mortgage loans, of which $88.1 million were one-year ARMs and $30.8
million were fixed rate loans. In addition, $68.0 million of consumer loans and
$57.8 million of commercial loans were outstanding at December 31, 1996. Both
consumer and commercial loans include some loans secured by real estate, such as
consumer home equity loans and commercial real estate loans.
As market demand for mortgage loans has declined and the Savings Bank
has been unable to replace all of the amortized mortgage portfolio with consumer
or commercial loans, excess funds have been placed in the investment portfolio
with the emphasis being in U.S. government agency obligations, collateralized
mortgage obligations, tax free municipal securities and preferred agency stocks.
Management anticipates continuing its efforts to shorten asset term by
offering a broad array of consumer loans primarily for area families and prime
based commercial loans primarily for small to medium sized community businesses,
as well as residential adjustable rate mortgages. In addition to shortening
asset maturities, the Savings Bank has placed a significant emphasis on changing
its mix of liabilities from almost entirely savings products to a larger number
of transaction based accounts.
The following table sets forth the amounts of interest-earning assets
and interest-bearing liabilities outstanding at December 31, 1996 that are
projected to reprice or mature in each of the future time periods shown. Except
as stated below, the amounts of assets and liabilities shown that reprice or
mature within a particular period were determined in accordance with the
contractual terms of the assets or liability. Loans with adjustable rates are
shown as being due at the end of the next upcoming adjustment period. Passbook
accounts, money market deposit accounts and negotiable order of withdrawal or
other transaction accounts are assumed to be subject to immediate repricing and
depositor availability and have been placed in the shortest period. In making
the gap computations, none of the assumptions sometimes made regarding
prepayment rates and deposit decay rates have been used for any other interest-
earning assets or interest-bearing liabilities. In addition, the table does not
reflect scheduled principal payments that will be received throughout the
32
<PAGE>
lives of the loans. The interest rate sensitivity of the Mutual Holding
Company's assets and liabilities illustrated in the following table would vary
substantially if different assumptions were used or if actual experience differs
from that indicated by such assumptions.
<TABLE>
<CAPTION>
Terms to Repricing at December 31, 1996
-----------------------------------------------------------------------
One Through Four Through
Three Twelve One Through Over
Months Months Five Years Five Years Total
------ ------ ----------- ---------- -----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Interest earning assets:
Interest bearing deposits and federal funds sold $ 12,036 $ - $ - $ - $ 12,036
Investment securities 9,178 5,303 15,677 11,533 41,691
Other investments 2,000 - - 600 2,600
Loans (including mortgage loans held for sale) 72,166 109,427 66,317 22,207 270,117
Total interest earning assets 95,380 114,730 81,994 34,340 326,444
Interest-bearing liabilities:
Interest-bearing demand and savings deposits 81,365 - - - 81,365
Time deposits 38,864 94,862 76,762 210,488
FHLB advances 10,000 - 3,007 3,288 16,295
Subordinated debentures - - 2,000 - 2,000
Total interest-bearing liabilities 130,229 94,862 81,769 3,288 310,148
Interest sensitivity gap per period (34,849) 19,868 225 31,062 16,296
Cumulative interest sensitivity gap (34,849) (14,981) (14,756) 16,296
Cumulative gap as a percentage of total
interest-earning assets -36.54% -13.06% -18.00% 47.45%
Cumulative interest-earning assets as a percentage
of cumulative interest-bearing liabilities 73.24% 93.34% 95.19% 105.25%
</TABLE>
Presented below, as of December 31, 1996, is an analysis of the
Savings Bank's interest rate risk as measured by changes in net portfolio value
("NPV") and net interest income ("NII") for instantaneous and sustained parallel
shifts in market interest rates. The NPV table also contains the change limits
that the Board of Directors deems advisable in the event of various changes in
interest rates. Such limits have been established with consideration of the
impact of various rate changes and the Savings Bank's current capital position.
33
<PAGE>
Net Portfolio Value
- --------------------------------------------------------------------------------
Estimated
Change in NPV as a
Interest Rates Estimated Percentage Amount Board
(basis points) NPV of Assets of Change Percent Limit
- -------------- --------- ---------- ---------- ------- -----
(Dollars in Thousands)
<TABLE>
<S> <C> <C> <C> <C> <C>
+400 $28,956 7.9% $(7,695) (21)% (75)%
300 31,592 8.6 (5,059) (14) (50)
200 33,896 9.3 (2,755) (8) (30)
100 35,639 9.7 (1,012) (3) (15)
0 36,651 10.0
- -100 36,757 10.0 106 0 (15)
200 36,350 9.9 (301) (1) (30)
300 36,628 10.0 (23) 0 (50)
400 37,824 10.3 1,173 3 (75)
</TABLE>
-34-
<PAGE>
Net Interest Income
<TABLE>
<CAPTION>
Interest 12/31/96 +200 bp 12/31/96 -200 bp
12/31/96 12/31/96 Income Weighted Anticipated Weighted Anticipated
Assets/Liabilities Weighted or Expense Average Interest Average Interest
Repricing with Average Anticipated Rate Income Rate Income
One Year Rate at 12/31/96 +200 bp or Expense -200 bp or Expense
-------- ---- ----------- ------- ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets (Dollars in thousands)
Cash $ 3,356 5.20% $ 174 7.20% 242 3.20% 107
Fed funds 7,360 5.20 383 7.20 530 3.20 236
Fixed rate investments/(1)/ 11,975 7.13 853 7.13 854 5.13 614
Lagging/(3)/ 66,200 7.50 4,965 9.50 6,289 5.50 3,641
Current/(3)/ 88,472 9.00 7,963 11.00 9,732 7.00 6,193
Colonial/(3)/ 815 8.00 65 10.00 81 6.00 49
Stock 4,506 7.50 338 9.50 428 5.50 248
Fixed Loans 25,571 9.90 2,532 11.90 3,043 7.90 2,020
--------- --------- ------- -------
$ 208,255 $ 17,273 21,199 13,107
Liabilities
Variable rate deposits/(2)/ $ 86,137 2.67% 2,300 4.67% 4,023 1.00% 861
Fixed rate deposits 133,727 5.40 7,221 7.40 9,896 3.40 4,547
Advances 10,000 5.52 552 7.52 752 3.52 352
--------- --------- ------- -------
$ 229,864 10,073 14,671 5,760
Net Interest Income 7,200 6,528 7,347
Change in net interest income from rate shock (672) 147
- -------------------------------
</TABLE>
/(1)/ Fixed rate investments include callable U.S. government agency obligations
that will be called in a falling interest rate environment but will not
increase in rate in a rising rate environment.
/(2)/ A floor of 1.0% is assumed on variable rate deposits.
/(3)/ Variable rate assets and liabilities will reprice up or down within
contractual limits.
-35-
<PAGE>
In May 1996, all regulatory agencies adopted risk-focused safety and
soundness examination procedures that include interest rate risk (now referred
to as "market risk") factors in the regulatory rating of the institution. Each
financial institution is responsible for monitoring changes in net portfolio
value of equity and net interest income from both parallel and non parallel
shifts in the yield curve. The Savings Bank will be subject to these modified
procedures in 1997.
Changes in Financial Condition
At December 31, 1996, the Mutual Holding Company's consolidated assets
totalled $353 million, as compared to $334 million at December 31, 1995. Total
deposits grew $19 million, or 6%, in 1996 as compared to 1995. This increase is
primarily due to the Savings Bank's increased branch expansion and marketing
efforts related thereto. The increase was funded primarily by increases in time
deposits during 1996. Other liabilities and capital grew marginally in 1996.
Total capital at December 31, 1996 was $25.3 million, as compared to $25.0
million at December 31, 1995.
The Savings Bank opened four branch facilities within Wal*Mart
discount stores during 1996. This expansion helped attract approximately $15
million in deposits during the year. Most of these deposits were invested in
medium term U.S. agency and mortgage backed securities designated as available
for sale to maintain liquidity.
36
<PAGE>
Average Balances, Interest Rates and Yields. The following table presents
for the periods indicated the total dollar amount of interest from average
interest-earning assets and the resultant yield, as well as the interest expense
on average interest-bearing liabilities, expressed both in dollars and rates,
and the net interest margin. Dividends received are included as interest income.
All average balances are based on month-end balances. Management believes that
the use of average month balances is representative of its operations.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
1996 1995
------------------------------------ ------------------------------------
Average Interest Average Interest
Balances Income/Expense Yield/Rate Balances Income/Expense Yield/Rate
-------- -------------- ---------- -------- -------------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets:
Interest-earning assets:
Interest earning
deposits and fed funds sold $ 15,158 822 5.42% $ 7,993 473 5.92%
Investment securities:
Taxable 30,387 2,411 7.93 36,076 2,652 7.35
Nontaxable 1,236 127 10.28 0 0 0
Total investment securities 31,623 2,538 8.03 36,076 2,652 7.35
Loans (including loan fees)(1) 272,786 24,874 9.12 280,613 24,588 8.76
Total interest-earning assets 319,567 28,234 8.84 324,682 27,713 8.54
Allowance for loan losses (2,446) (2,341)
Cash and due from banks 9,005 7,857
Premises and equipment 8,327 7,782
Other assets 9,322 5,649
-------- --------
Total assets $343,775 $343,629
======== ========
Liabilities and capital:
Interest bearing liabilities:
Deposits:
Demand $ 46,821 1,386 2.96% $ 47,566 1,366 2.87%
Savings 32,991 889 2.69 33,280 828 2.49
Time 202,641 11,338 5.60 195,200 10,444 5.35
Other borrowings 18,650 1,169 6.27 30,555 1,858 6.08
Total interest bearing liabilities 301,103 14,782 4.91 306,601 14,496 4.73
Non-interest bearing demand deposits 15,635 11,104
Other liabilities 1,893 2,367
Capital 25,144 23,557
-------- --------
Total liabilities and capital $343,775 $343,629
======== ========
<CAPTION>
Year Ended December 31,
------------------------------------
1994
------------------------------------
Average Interest
Balances Income/Expense Yield/Rate
-------- -------------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Assets:
Interest-earning assets:
Interest earning
deposits and fed funds sold $ 11,110 406 3.65%
Investment securities:
Taxable 33,470 2,414 7.21
Nontaxable 0 0 0
Total investment securities 33,470 2,414 7.21
Loans (including loan fees)(1) 274,135 23,000 8.39
Total interest-earning assets 318,715 25,820 8.10
Allowance for loan losses (2,539)
Cash and due from banks 9,121
Premises and equipment 7,625
Other assets 6,961
--------
Total assets $339,883
========
Liabilities and capital:
Interest bearing liabilities:
Deposits:
Demand $ 52,867 1,184 2.24%
Savings 37,892 1,094 2.89
Time 188,343 8,652 4.59
Other borrowings 28,007 1,666 5.95
Total interest bearing liabilities 307,109 12,596 4.10
Non-interest bearing demand deposits 7,137
Other liabilities 4,386
Capital 21,251
--------
Total liabilities and capital $339,883
========
</TABLE>
-37-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
1996 1995
------------------------------------ ------------------------------------
Average Interest Average Interest
Balances Income/Expense Yield/Rate Balances Income/Expense Yield/Rate
-------- -------------- ---------- -------- -------------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Excess of interest-bearing
assets over interest-bearing
liabilities $ 18,464 $ 18,081
Ratio of interest-bearing assets to
interest-bearing liabilities 106.13% 105.90%
Net interest income 13,452 13,217
Net interest rate spread 3.93% 3.81%
Net interest margin (2) 4.21% 4.07%
Tax equivalent adjustments
Investment securities (43) 0
Net interest income 13,409 13,217
<CAPTION>
Year Ended December 31,
------------------------------------
1994
------------------------------------
Average Interest
Balances Income/Expense Yield/Rate
-------- -------------- ----------
(Dollars in Thousands)
<S> <C> <C> <C>
Excess of interest-bearing
assets over interest-bearing
liabilities $ 11,606
Ratio of interest-bearing assets to
interest-bearing liabilities 103.78%
Net interest income 13,224
Net interest rate spread 4.00%
Net interest margin (2) 4.15%
Tax equivalent adjustments
Investment securities 0
Net interest income 13,224
</TABLE>
- -------------------------------
(1) Average balances include nonaccrual loans.
(2) Calculated before provision for loan losses.
-38-
<PAGE>
Rate/Volume Analysis
The banking industry often utilizes two key ratios to measure relative
profitability of net interest income. The net interest rate spread measures
the difference between the average yield on earning assets and the average
rate paid on interest bearing sources of funds. The interest rate spread
eliminates the impact of noninterest bearing deposits and gives a direct
perspective on the effect of market interest rate movements. The net
interest margin is defined as net interest income as a percent of average
total earning assets and takes into account the positive impact of
investing noninterest bearing deposits.
The net interest spread was 3.93% in 1996, 3.81% in 1995 and 4.00% in
1994, while the net interest margin was 4.21% in 1996, 4.07% in 1995 and
4.15% in 1994. The increase in the margin and spread during 1996 was
primarily due to reinvestment of maturing mortgage loans into higher
yielding commercial and consumer loans. The decreases in 1995 were a
result of changes in the overall asset and liability mix. The table below
shows the change in net interest income for the past two years due to
changes in volume and rate.
<TABLE>
<CAPTION>
1996 Compared to 1995 1995 Compared to 1994
--------------------- ---------------------
Increase (decrease) Increase (decrease)
due to changes in due to changes in
---------------------------- ------------------------------
Yield/ Net Yield/ Net
Volume Rate Change Volume Rate Change
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
(In thousands)
Interest income on:
Interest earning deposits
and federal funds sold $ 392 (43) 349 (136) 203 67
Investment securities:
Taxable (439) 198 (241) 190 48 238
Nontaxable 127 - 127 - - -
Loans (including loan fees) (697) 983 286 552 1,036 1,588
----- --- --- --- ----- -----
Total interest-earning assets (617) 1,138 521 606 1,287 1,893
Interest expense on:
Deposits:
Demand (22) 42 20 (128) 310 182
Savings (7) 68 61 (125) (141) (266)
Time 402 492 894 324 1,468 1,792
Other borrowings (745) 56 (689) 155 37 192
----- -- ----- --- -- ---
Total interest bearing
liabilities $ (372) 658 286 226 1,674 1,900
-------- --- --- --- ----- -----
Net interest income (245) 480 235 380 (387) (7)
===== === === === ===== ===
</TABLE>
-39-
<PAGE>
Results of Operations for the Years Ended December 31, 1996, 1995 and 1994
Net earnings totalled approximately $248,000 for 1996, a decrease of
92% from the $2.9 million earned in 1995. Return on average assets and
return on average equity for the year ended December 31, 1996 were .07% and
.99%, respectively, as compared to .86% and 12.5%, respectively, at
December 31, 1995. These decreases are attributable to the $1.7
million increase in deposit insurance premiums during 1996, which was
entirely due to the special one-time SAIF assessment of 65.7 cents per $100
of assessable SAIF deposits effective September 30, 1996. An $893,000
increase in the provision for loan losses during 1996 also contributed to
the reduction in earnings in 1996, as well as additional expenses due to
the opening of four new branch locations during 1996. See "Business of
Carrollton Federal Bank - Allowance for Loan Losses." Net earnings of $2.9
million in 1995 represented a 24% increase over 1994 primarily due to
increases in noninterest income.
Net Interest Income
Net interest income (the difference between interest earned on assets
and the interest paid on deposits and liabilities) is the single largest
component of the Savings Bank's operating income. The Savings Bank actively
manages this income source to provide the largest possible amount of income
while balancing interest rate, credit and liquidity risks.
Net interest income, on a taxable equivalent basis, was $13.4 million
in 1996, compared to $13.2 million in 1995 and 1994. The 2% increase in
1996 was the result of the reinvestment of maturing investments and
mortgage loans into higher yielding investments and commercial and consumer
loans, slightly offset by increases in the cost of funds that were
primarily due to promotions offered as part of the opening of the four new
branches in Wal*Mart stores during 1996. During 1995, increases in the
volumes and rates of interest of earning assets were entirely offset by
rate increases on interest bearing deposits and other liabilities. Total
interest income increased 1.7% and 7.3% in 1996 and 1995, respectively.
Provision for Loan Losses
The Savings Bank's provision for loan losses was $1.1 million during
1996 as compared to $250,000 and $99,400 during 1995 and 1994,
respectively. Provisions for loan losses are charged to earnings to bring
the total loan loss allowance to a level deemed appropriate by management
based on the volume and type of lending conducted by the Savings Bank and
as required by the Savings Bank's loan loss methodology.
The increase in the provision for loan losses over the last two years
is primarily attributable to the increase in non-performing loans to $6.2
million at December 31, 1996 from $2.3 million at December 31, 1995, as
well as the change in the mix of the loan portfolio from mortgage loans to
commercial and consumer loans. See "Business of Carrollton Federal Bank -
Allowance for Loan Losses."
The Savings Bank's methodology for evaluating the adequacy of its
allowance for loan losses conforms with generally accepted accounting
principles and the Interagency Policy Statement on Allowance for Loan and
Lease Losses. The Savings Bank considers collateral valuation, changes in
the loan portfolio mix, the past three years' net charge-offs and other
factors. The methodology also incorporates economic indicators such as
growth in personal income and unemployment rates as well as other economic
indicators affecting the Savings Bank's market area.
-40-
<PAGE>
Noninterest Income
Noninterest income consists primarily of revenues generated from
service charges and fees on deposit accounts, and profits earned through
sales of credit life insurance. In addition, gains or losses realized from
the sale of investment portfolio securities are included in noninterest
income. Total noninterest income for 1996 increased 4% or $126,000 above
that for 1995. Noninterest income for 1995 showed an increase of 46% from
1994. The primary contributor to noninterest income growth in both 1996
and 1995 was the continued growth in service charges on deposits resulting
from an increase in the number of transaction accounts. Approximately 37%
of the 1995 increase is attributable to the increase in sales of securities
available for sale, while the remaining increase was primarily due to
higher service charge revenue.
The growth in noninterest income was the result of management's
continuing efforts to build stable sources of fee income, which includes
service charges on deposits and loans and sales of credit life insurance.
This growth is being accomplished through expansion of the Savings Bank's
locations.
Fee income from service charges on deposit accounts increased over 17%
in 1996 following a 39% increase in 1995. Continued emphasis on low cost
checking account services, appropriate pricing for transaction deposit
accounts and fee collection practices for other deposit services
contributed to the increased levels of income for both years. Increases
during 1996 and 1995 were further influenced by the increase in transaction
deposit accounts.
Net gains on sales of investment securities were $178,000 and
$367,000, respectively, during 1996 and 1995 as management liquidated
certain investment securities to meet loan demand.
Noninterest Expense
Noninterest expense for 1996 increased 30% following a decrease of 5%
in 1995. Salaries and employee benefits increased 21% during 1996 due
primarily to employee additions resulting from the four new branches in
Wal*Mart stores together with increases required to maintain continued
growth. The decrease from 1994 to 1995 was the result of the
reorganization of the loan administration and customer service function
which resulted in staff reductions at the Savings Bank. Net occupancy
expense increased $114,000 or 7.6% in 1996 following a 13.7% increase in
1995. The increases were due primarily to increased depreciation related
to new banking facilities and costs to operate new branches.
Deposit insurance premiums increased $1.7 million as a result of the
September 30, 1996 SAIF assessment. As described earlier, a special one-
time assessment of 65.7 cents per $100 of assessable deposits amounted to
an additional deposit insurance premium of $1,723,000. Other operating
expenses, including advertising, office supplies, and data processing
increased 13.7 % compared to a 5.3% increase in 1995. Management continues
to emphasize the importance of expense management and productivity
throughout the Savings Bank in order to further decrease the cost of
providing expanded banking services to a growing market base.
Income Taxes
An income tax benefit of $13,000 was recognized for the year ended
December 31, 1996. The effective tax rate differed from the expected 34%
federal rate applied to earnings before income taxes primarily due to tax
exempt interest income. Income tax expense in 1995 and 1994 totalled
$1,375,000 and $553,000, respectively, and represented an effective tax
rate of 32%
-41-
<PAGE>
and 18%, respectively. During 1996 and 1995, the effective tax rate
differed from the expected 34% Federal rate primarily due to tax-exempt
interest income. The effective rate in 1994 was further reduced by an
adjustment to the valuation allowance for deferred tax amounts totalling
$272,443. See Note (8) of the Notes to Consolidated Financial Statements.
Liquidity and Capital Resources
The Savings Bank is required under applicable federal regulations to
maintain specified levels of "liquid" investments in qualifying types of
United States Government, federal agency and other investments having
maturities of five years or less. Current OTS regulations require that a
savings association maintain liquid assets of not less than 5% of its
average daily balance of net withdrawable deposit accounts and borrowings
payable in one year or less, of which short-term liquid assets must consist
of not less than 1%. Monetary penalties may be imposed for failure to meet
applicable liquidity requirements. At December 31, 1996, the Savings
Bank's liquidity, as measured for regulatory purposes, was 13.1% or $24.0
million in excess of the minimum OTS requirement.
Cash was generated by the Savings Bank's operating activities during
the years ended December 31, 1996, 1995 and 1994, primarily as a result of
net income. The adjustments to reconcile net income to cash provided by
operating activities during the periods presented consisted primarily of
amortization of premiums and discounts, proceeds from the sale of loans,
and increases or decreases in interest and dividends receivable, prepaid
income taxes, accrued interest payable, and accrued expenses and other
liabilities. The primary investing activity of the Savings Bank is
lending, which is funded with cash provided by operations, as well as
principal collections and maturities on securities, securities available
for sale and mortgage-backed and related securities, and maturities of
interest-bearing deposits in banks. For additional information about cash
flows from the Savings Bank's operating, financing and investing
activities, see the Consolidated Statements of Cash Flows included in the
Consolidated Financial Statements.
At December 31, 1996, the Savings Bank had outstanding $130,000 in
commitments to originate loans, $16.0 million in undisbursed open end
consumer equity lines and credit cards, $4.1 million in commercial lines of
credit and $108,000 in commercial letters of credit. At the same date, the
total amount of certificates of deposit which are scheduled to mature by
December 31, 1997 was $134 million. The Savings Bank believes that it has
adequate resources to fund commitments as they arise and that it can adjust
the rate on savings certificates to retain deposits in changing interest
rate environments. If the Savings Bank requires funds beyond its internal
funding capabilities, advances from the FHLB of Atlanta are available as an
additional source of funds.
The Savings Bank is required to maintain specified amounts of capital
pursuant to the Financial Institutions Reform, Recovery, and Enforcement
Act of 1989 ("FIRREA") and regulations promulgated thereunder by the OTS.
The capital standards generally require the maintenance of regulatory
capital sufficient to meet a tangible capital requirement, a core capital
requirement and a risk-based capital requirement. At December 31, 1996,
the Savings Bank's tangible and core capital totalled $23.6 million, or
6.9% of adjusted total assets, which exceeded the respective minimum
requirements at that date by approximately $18.3 million and $9.6 million,
respectively, or 5.4% and 2.9% of total assets, respectively. The Savings
Bank's risk-based capital totalled $25.6 million at December 31, 1996, or
10.9% of risk-weighted assets, which exceeded the current requirement of
8.0% by approximately $6.7 million, or 2.9% of risk-weighted assets. See
"Regulation - The Savings Bank - Regulatory Capital Requirements."
-42-
<PAGE>
Impact of New Accounting Standards
During 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation." This new standard will
become effective for the Company during 1997 and will require the Company
to disclose the fair value of employee stock options granted in 1997 and
subsequent years. Management does not expect this new standard to have
a material impact on future consolidated financial statements.
During 1996, the Financial Accounting Standards Board issued SFAS No.
125 "Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities." This new standard will become effective
for the Company January 1, 1997 and will require the Company to make
certain disclosures regarding its servicing assets and liabilities. The
standard may also affect the classification of certain servicing assets and
liabilities. Management does not expect this standard to have a material
impact on future consolidated financial statements.
Impact of Inflation and Changing Prices
The financial statements and related financial data presented herein
have been prepared in accordance with GAAP, which requires the measurement
of financial position and operating results in terms of historical dollars,
without considering changes in relative purchasing power over time due to
inflation.
Unlike most industrial companies, virtually all of the Savings Bank's
assets and liabilities are monetary in nature. As a result, interest rates
generally have a more significant impact on a financial institutions
performance than does the effect of inflation.
-43-
<PAGE>
BUSINESS OF CARROLLTON FEDERAL BANK
General
The Savings Bank is a federally chartered savings bank that was
organized on August 1, 1994 as a subsidiary of the Mutual Holding Company.
Prior to that date, the Savings Bank's predecessors had operated since
1929. At December 31, 1996, the Savings Bank had $351 million of total
assets, $325 million of total liabilities, including $308 million of
deposits, and $26 million of equity or 7.4% of assets.
The Mutual Holding Company and the Savings Bank have recently formed
three new operating units in an effort to broaden the services they offer
to the community. The first such enterprise is CFB Securities, which
offers traditional brokerage services and products such as mutual funds,
stocks and bonds through an NASD member firm. The firm is a wholly owned
subsidiary of the Mutual Holding Company formed in 1996 and is located in
space immediately adjacent to the Savings Bank's main office lobby. CFB
Securities has two full-time employees.
The second unit is CFB Financial, an operating department of the
Savings Bank. This department services the loan needs of consumers
traditionally associated with small loan companies. The group operates
from a branch located in Douglasville, Georgia, has a staff of three full-
time employees and offers a wide range of small loans including loans made
in conformity with the Georgia Industrial Loan Act. Management plans to
open a second location in Villa Rica, Georgia in the future.
The third unit, CFB Insurance, is a wholly owned subsidiary of the
Mutual Hold Company. Formed on December 28, 1995, CFB Insurance has not
begun operations, but management intends to use it as a means of offering
various insurance products, including property and casualty insurance, to
existing Savings Bank customers, as well as the general public.
Market Area
The Savings Bank maintains 12 branch offices in Carroll, Coweta,
Douglas, Fayette, Haralson, Heard, Henry and Paulding counties within the
State of Georgia. In 1996, the Savings Bank opened four branch offices in
Wal*Mart discount stores in Coweta, Henry, Fayette and Paulding counties.
During 1991, the Savings Bank opened a branch office in a Kroger grocery
store in Carroll County and a branch office in a Bruno's grocery store in
Carroll County.
The Savings Bank's main office is located in Carrollton, Georgia, the
county seat of Carroll County, Georgia. Carrollton is located in western
Georgia, approximately 50 miles west of Atlanta, Georgia. Carroll County's
population was 78,000 in 1996, an increase of 1.5% from 1995. Major area
employers that have affected growth are Southwire, Sony, State University
of West Georgia, Tanner Medical Center, Bremen-Bowdon Investment and Gold-
Kist, which collectively employ an aggregate of approximately 6,500
persons. Other factors affecting growth in Carroll County include: (i) an
expected population increase to 83,000 by 2000 and to 105,000 by 2010 due
to migration and birth; (ii) the county's proximity to Atlanta, Georgia;
(iii) commercial and industrial expansion that continue to fuel economic
growth; and (iv) new student enrollment at the State University of West
Georgia, which was recently granted university status.
-44-
<PAGE>
Lending Activities
As a federally chartered savings association, the Savings Bank has
general authority to originate and purchase loans secured by real estate,
secured or unsecured loans for commercial, corporate, business, or
agricultural purposes, loans for personal, family, or household purposes,
and may issue credit cards and extend credit in connection therewith.
Notwithstanding its general lending authority, the Savings Bank may not
make non-real estate commercial purpose loans that exceed 20% of its assets
or non-real estate consumer purpose loans that exceed 35% of its assets.
While not restricted by law, the Savings Bank limits its lending activities
mainly to the counties in which it has offices.
Since the enactment of FIRREA in 1989, a savings association generally
may not make loans to one borrower and related entities in an amount which
exceeds 15% of its unimpaired capital and surplus, although loans in an
amount equal to an additional 10% of unimpaired capital and surplus may be
made to a borrower if the loans are fully secured by readily marketable
securities. See "Regulation - The Savings Bank." At December 31, 1996,
the Savings Bank's loans-to-one borrower limit was $4.0 million and its
five largest loans or groups of loans-to-one borrower, including related
entities, were $3.46 million, $3.08 million, $2.74 million, $1.97 million
and $1.96 million. One of these loans ($1.96 million) is secured by notes
secured by residential real estate and by assignments of the related
security instruments. The other loans are secured by commercial real
estate. One relationship ($4.0 million) was not performing in accordance
with its terms on December 31, 1996. See "- Non-Performing Assets."
Loan Portfolio Composition. The following table sets forth the
composition of the Savings Bank's loan portfolio by type of loan at the
dates indicated.
<TABLE>
<CAPTION>
December 31,
------------
1996 1995 1994 1993 1992
Amount % Amount % Amount % Amount % Amount %
-------- ---- -------- ---- -------- ---- -------- ---- -------- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate mortgage loans $ 146,577 54% $ 175,039 64% $ 196,761 69% $ 195,682 75% $ 199,443 78%
Real estate construction
loans 34 * 2,348 1 1,451 1 866 * 1,632 *
Commercial loans 57,786 21 43,944 16 38,755 14 27,759 11 24,684 10
Consumer(1) and other
installment loans 68,038 25 51,840 18 46,509 16 37,846 14 30,465 12
--------- --- --------- --- --------- --- --------- --- --------- ---
Total loans 272,435 100% 273,171 100% 283,476 100% 262,153 100% 256,224 100%
==== ==== ==== ==== ====
Less: Allowance for loan
losses 2,601 2,291 2,392 2,686 2,027
--------- --------- --------- --------- ---------
Loans, net $ 269,834 $ 270,880 $ 281,084 $ 259,467 $ 254,197
========= ========= ========= ========= =========
</TABLE>
- --------------
* Indicates less than one percent.
(1) Includes home equity loans secured by residential real estate, as well as
other consumer loans.
Contractual Principal Repayments and Interest Rates. The following
table sets forth certain information at December 31, 1996 regarding the
dollar amount of loans maturing or repricing in the Savings Bank's
portfolio based on the contractual terms to maturity, before giving effect
to net items. Demand loans, loans having no stated schedule of repayments
and no stated maturity or repricing and overdrafts are reported as due in
one year.
-45-
<PAGE>
<TABLE>
<CAPTION>
1 year
Less than through Over
Loan Type 1 year 5 years 5 years Total
-----------------------------------------------------
<S> <C> <C> <C> <C>
Mortgage(1):
Adjustable $ 83,593 $ 7,345 $ 0 $ 90,938
Fixed 2,341 8,726 44,572 55,639
Construction 34 0 0 34
Consumer 35,088 30,132 2,818 68,038
Commercial 38,512 14,657 4,617 57,786
-------- ------- ------- --------
Total $159,568 $60,860 $52,007 $272,435
======== ======= ======= ========
</TABLE>
------------------
(1) Includes second mortgage loans on one-to-four family residential
properties of $13,884.
The following table sets forth, as of December 31, 1996, the dollar
amount of all loans, before net items, maturing or repricing after one year
from December 31, 1996 which have fixed interest rates or which have
adjustable interest rates.
<TABLE>
<CAPTION>
Adjustable
Fixed Rates Rates Total
----------- ---------- -------
(In Thousands)
<S> <C> <C> <C>
Mortgage $ 53,298 $7,345 $ 60,643
Construction -- -- --
Consumer 32,950 -- 32,950
Commercial 17,824 1,450 19,274
-------- ------ --------
Total $104,072 $8,795 $112,867
======== ====== ========
</TABLE>
Scheduled contractual amortization of loans does not reflect the
actual term of the Savings Banks loan portfolio. The average life of loans
is substantially less than their contractual terms because of prepayments
and due-on-sale clauses, which give the Savings Bank the right to declare a
conventional loan immediately due and payable in the event, among other
things, that the borrower sells the real property subject to the mortgage.
-46-
<PAGE>
Originations, Purchases, Servicing and Sales of Loans. The lending
activities of the Savings Bank are subject to written, non-discriminatory
underwriting standards and loan origination procedures established by the
Savings Bank's Board of Directors and management. Loan originations are
obtained by a variety of sources including referrals from real estate
brokers, developers, builders, existing customers, newspaper, radio,
periodical advertising and walk-in customers. Loan applications are taken
by lending personnel, and the loan processing department supervises the
acquisition of credit reports, appraisals and other documentation involved
with a loan. Real property valuations are generally prepared for the
Savings Bank by a qualified independent appraiser selected from a list
approved by the Savings Bank's Board of Directors. The Savings Bank
generally relies on an attorney's opinion of title that each loan
collateralized by real property has been properly secured and may obtain
title insurance on such property. Hazard insurance is also required on all
secured property and flood insurance is required if the property is within
a designated flood plain.
The Savings Bank's loan approval process is intended to assess the
borrower's ability to repay the loan, the viability of the loan and the
adequacy of the value of the property that will secure the loan. A loan
application file is first reviewed by a loan officer of the Savings Bank
and is submitted for approval to the Loan Committee if the loan does not
meet certain criteria.
The following table shows total loans originated, loan reductions and
the net increase in Carrollton's loan portfolio during the periods
indicated.
-47-
<PAGE>
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------
1996 1995 1994
-------- -------- --------
(In Thousands)
Loan Originations:
<S> <C> <C> <C>
Mortgage $ 25,629 $ 30,102 $ 41,124
Construction 9,031 6,097 5,741
Commercial 15,532 15,290 15,645
Consumer 43,356 29,575 33,166
-------- ------- --------
Total loans
originated 93,548 81,064 95,676
Purchases:
Loans purchased 0 652 18,470
-------- ------- --------
Total loans
originated
and purchased 93,548 81,716 114,146
Sales and loan
principal
repayments:
Loans sold proceeds 10,882 6,605 13,239
Loan repayments 82,587 85,293 80,252
Total loans sold
proceeds
and loan principal
repayments 93,469 91,898 93,491
======== ======= ========
Loan originations
(repayments), net (79) (10,182) 20,655
======== ======= ========
Increase (decrease)
due to other items,
net 1.125 (22) 962
======== ======= ========
Net increase (decrease)
in net loan portfolio (1,046) (10,204) 21,617
======== ======= ========
</TABLE>
Real Estate Mortgage Loans. The Savings Bank originates real estate
mortgage loans, primarily loans secured by first mortgage liens on one-to-
four family residences. At December 31, 1996, $146.6 million or 54.7% of
the Savings Bank's total net loan portfolio consisted of first mortgage
real estate loans. As of such date the average balance of the Savings
Bank's individual one-to-four family mortgage loans was $43,776.
The loan-to-value ratio, maturity and other provisions of the loans
made by the Savings Bank generally have reflected the policy of making less
than the maximum loan permissible under applicable regulations, in
accordance with sound lending practices, market conditions and underwriting
standards established by the Savings Bank. While it has been the Savings
Bank's practice in most cases to allow a loan-to-value ratio of no more
than 85%, the Savings Bank's lending policy on one-to-four family
residential mortgage loans generally limits the maximum loan-to-value ratio
to 95% of the lesser of the appraised value or purchase price of the
property. In cases where loan-to-value ratios exceed 85%, the Savings Bank
generally requires private mortgage insurance. The loan-to-value ratio for
loans originated for the Savings Bank's portfolio is based on appraised
value.
-48-
<PAGE>
The Savings Bank originates fixed rate mortgages with terms of up to
30 years. These loans are generally made in conformity with Federal
National Mortgage Association ("FNMA") standards and are generally sold to
FNMA with the Savings Bank retaining the servicing rights on these
mortgages. From time to time, certain 15-year fixed rate mortgages will be
retained in the Savings Bank's portfolio. At December 31, 1996, the
Savings Bank was servicing $52.4 million in loans for FNMA. At December
31, 1996, the Savings Bank had $41.2 million in portfolio fixed rate
mortgages.
Since 1981, the Savings Bank has been offering adjustable-rate loans
in order to decrease the vulnerability of its operations to changes in
interest rates. The demand for adjustable-rate loans in the Savings Bank's
primary market area has been a function of several factors, including the
level of interest rates, the expectations of changes in the level of
interest rates and the difference between the interest rates offered for
fixed-rate loans and adjustable-rate loans. The relative amount of fixed-
rate and adjustable-rate residential loans that can be originated at any
time is largely determined by the demand for each in a competitive
environment. As interest rates have fluctuated, the demand for fixed-rate
and adjustable-rate loans has changed as the Savings Bank's customers have
preferred adjustable rates in a high interest-rate environment and fixed-
rate loans as interest rates decreased. In order to continue to increase
and then to maintain a high percentage of adjustable-rate one-to-four
family residential loans, the Savings Bank has offered various forms of
adjustable-rate loans and in some cases has purchased adjustable-rate
mortgage loans. As a result, at December 31, 1996, $107.4 million, or
73.5% of the one-to-four family residential loans in the Savings Bank's
loan portfolio (before net items) consisted of adjustable-rate loans.
The Savings Bank's one-to-four family residential adjustable-rate
loans are fully amortizing loans with contractual maturities of up to 30
years. These loans adjust periodically in accordance with a designated
index. The Savings Bank currently offers an adjustable-rate mortgage with
a 2% limit on the rate adjustment per period and a 6% limit on the rate
adjustment over the life of the loan. The Savings Bank's adjustable-rate
loans are not convertible by their terms into fixed-rate loans, are
assumable with the Savings Bank's approval, do not contain prepayment
penalties and do not produce negative amortization. Due to the generally
lower rates of interest prevailing in recent periods, the Savings Bank's
ability to originate adjustable-rate loans has decreased as consumer
preference for fixed-rate loans has increased.
Adjustable-rate loans decrease the risks associated with changes in
interest rates but involve other risks, primarily because as interest rates
rise, the payment by the borrower rises to the extent permitted by the
terms of the loan, thereby increasing the potential for default. At the
same time, the marketability of the underlying property may be adversely
affected by higher interest rates. The Savings Bank believes that these
risks, which have not had a material adverse effect on the Savings Bank to
date, generally are less than the risks associated with holding fixed-rate
loans in an increasing interest rate environment.
Commercial Loans. At December 31, 1996, $57.8 million, or 21% of the
Savings Bank's total net loan portfolio, consisted of commercial loans.
The vast majority of these loans were secured by existing commercial and
multi-family residential real estate. The Savings Bank's commercial and
multi-family real estate loans include primarily loans secured by small
office buildings, family-owned business establishments and apartment
buildings. The average amount of the Savings Bank's commercial and multi-
family real estate loans was $107,000 at December 31, 1996 and the largest
was $4.0 million. It is anticipated that commercial loans will continue to
be a major component of the Savings Bank's loan portfolio. Originations of
commercial loans amounted to 11.8%, 18.7% and 20.2% of the Savings Bank's
total loan originations in fiscal 1996, 1995 and
-49-
<PAGE>
1994, respectively. The Savings Bank's commercial loans are rarely made
with amortization periods greater than 20 years or interest rate adjustment
periods in excess of five years.
The Savings Bank requires certified appraisals on most real properties
securing commercial loans. In some cases, an evaluation is deemed
adequate. Appraisals are performed by an independent appraiser designated
by the Savings Bank and are reviewed by management. In originating multi-
family residential and commercial real estate loans, the Savings Bank
considers the quality and location of the real estate, the credit of the
borrower, cash flow of the project and the quality of management involved
with the property. Corporate loans generally require the personal guaranty
of the entity's controlling shareholders. Hazard insurance is required as
well as flood insurance if the property is located in a designated flood
zone.
Subject to the restrictions contained in federal laws and regulations,
the Savings Bank is also authorized to make secured and unsecured
commercial business loans for general corporate and agricultural purposes,
including issuing letters of credit. At December 31, 1996, $10.3 million,
or 3.7%, of the Savings Bank's total net loan portfolio, consisted of
commercial business loans, of which $9.7 million were secured by other than
real estate. Commercial business loans accounted for 16.6% of the total
loan originations during the year ended December 31, 1996.
Commercial lending is generally considered to involve a higher degree
of risk than one-to-four family residential lending. Such lending
typically involves large loan balances concentrated in a single borrower or
groups of related borrowers. The payment experience on loans secured by
income-producing properties is typically dependent on the successful
operation of the related real estate project or business and thus may be
subject to a greater extent to adverse conditions in the real estate market
or in the economy generally. In addition, commercial lending generally
requires more complex underwriting and substantially greater oversight
efforts compared to one-to-four family residential real estate lending.
The Savings Bank generally attempts to mitigate the risks associated with
commercial lending by, among other things, lending only in its Primary
Market Area and metropolitan Atlanta and lending only to individuals who
have an established relationship with the Savings Bank and/or who have
substantial ties to the community.
In general, collateral for commercial loans includes real estate and
certain business assets including, but not limited to, equipment,
inventory, furniture, fixtures and accounts receivable. Terms generally
range from three to five years. If real estate is a substantial portion of
the collateral, terms may be extended to 15 years. Commercial loans are
made at both fixed and variable rates. The variable rates primarily adjust
with changes in the prime rate as reported by the Wall Street Journal.
Construction Loans. The Savings Bank makes construction loans to
individuals for the construction of their residences and to developers for
the construction of one-to-four family and multi-family residences.
Construction lending is generally limited to the Savings Bank's Primary
Market Area. At December 31, 1996, construction loans amounted to $34,000
or less than 1% of the Savings Bank's total net loan portfolio.
Construction financing is generally considered to involve a higher degree
of risk of loss than long-term financing on improved, owner-occupied real
estate because of the uncertainties of construction, including possible
delays in completing the structure, the possibility of costs exceeding the
initial estimates and the need to obtain a tenant or purchaser if the
property will not be owner occupied. In the event of a delay in the
completion of the construction, the Savings Bank may grant an extension,
but such extensions are generally conditioned upon the payment of interest
in full for the initial term.
Construction loans to individuals are separate from the permanent
financing on the structure. However, a borrower only qualifies for a
construction loan if he or she has obtained a commitment for a permanent
loan at the end of the construction phase. The term of a construction loan
to an individual generally does not exceed the greater of 180 days or the
term of the permanent loan commitment. Interest rates on construction
loans to individuals are based on current local economic conditions. The
loan-to-value ratio on such loans must be 80% or less of the appraised
value of the completed structure.
-50-
<PAGE>
The majority of construction loans to developers are to selected local
developers with whom the Savings Bank is familiar and are for the
construction of single-family dwellings on a pre-sold or on a speculative
basis. The Savings Bank limits the number of unsold houses which a
developer may have under construction in a project. Construction loans to
developers are generally made for a six-month term depending on the size
and scope of the project. Payment of interest generally is required on at
least a monthly basis, and the amount of a loan is generally based on the
owner's equity in the property but may not exceed 80% of appraised value or
contract price. Loan proceeds are disbursed in stages after inspection of
the project indicates that such disbursements are for expenses which have
already been incurred and which have added to the value of the project.
Consumer Loans. Subject to the restrictions contained in federal laws
and regulations, the Savings Bank also is authorized to make loans for a
wide variety of personal or consumer purposes. The Savings Bank's consumer
loans secured by automobiles totalled $26.4 million at December 31, 1996,
while home equity loans totalled $13.9 million as of that date.
Substantially all of the Savings Bank's consumer loan borrowers reside in
its Primary Market Area. As of December 31, 1996, $68.0 million, or 25%,
of the Savings Bank's total net loan portfolio consisted of consumer loans.
In addition to traditional consumer loans, the Savings Bank initiated
in 1996 a relationship with four new car dealerships within its Primary
Market Area to provide "indirect" financing for customers of the
dealerships. Management intends to increase such lending in the future.
At December 31, 1996, $6.8 million of these loans had been originated. Of
this amount, $97,000 in loans had defaulted and $190,000 in loans were 30
days or more delinquent. The Company does not deal in indirect sub-prime
automobile paper.
Home equity and second mortgage loans are also classified as consumer
loans. These loans, which amounted to $13.9 million, or 5.2%, of the
Savings Bank's total net loan portfolio at December 31, 1996, have variable
rates of interest and maximum terms of 10 years with five-year advance
periods. While these loans are secured by a second mortgage on the subject
property, the borrower is not required to use the proceeds of the loan for
property-related purposes. The Savings Bank only takes a second mortgage
in those equity line loans in which it holds the outstanding first mortgage
loan on the property or where it determines that the value of the
underlying collateral is sufficient to provide adequate security for both
the first and second mortgages. The Savings Bank generally applies a loan-
to-value ratio of 85% or less, less the balance of the first mortgage loan.
As of December 31, 1996, the Savings Bank's consumer loans also
consisted of loans secured by accounts at the Savings Bank which amounted
to $4.2 million or 1.6% of its total net loan portfolio. Such a loan is
structured to have a term that ends on the same date as the maturity date
of the certificate securing it or if secured by a passbook account has a
six-month term with a hold on withdrawals that would result in the balance
being lower than the loan balance. Typically these loans require semi-
annual payments of interest only.
Consumer loans generally involve more credit risk than mortgage loans
because of the type and nature of the collateral. In addition, consumer
lending collections are dependent on the borrower's continuing financial
stability, and thus are more likely to be adversely affected by job loss,
divorce, illness and personal bankruptcy. In many cases, because of its
mobile nature, collateral may not be readily available in the event of a
default. In other cases, repossessed collateral for a defaulted consumer
loan will not provide an adequate source of repayment of the outstanding
loan balance because of improper repair and maintenance or depreciation of
the underlying security. The remaining deficiency often does not warrant
further substantial collection efforts against the borrower.
-51-
<PAGE>
Loan Origination and Other Fees. In addition to interest earned on
loans, the Savings Bank receives loan origination fees or "points" for
originating loans. Loan points are a percentage of the principal amount of
the mortgage loan and are charged to the borrower in connection with the
origination of the loan.
In accordance with SFAS No. 91, which deals with the accounting for
non-refundable fees and costs associated with originating or acquiring
loans, the Savings Bank's loan origination fees and certain related direct
loan origination costs are offset, and the resulting net amount is deferred
and amortized as interest income over the contractual life of the related
loans as an adjustment to the yield of such loans. At December 31, 1996,
the Savings Bank had $433,000 of net loan fees which had been deferred and
are being recognized as income over the estimated maturities of the related
loans. See Note (1) of the Notes to the Consolidated Financial Statements.
-52-
<PAGE>
Asset Quality
Delinquent Loans. The following table sets forth information concerning
delinquent loans at December 31, 1996 in dollar amount and as a percentage of
the Savings Bank's total loan portfolio (before net items). The amounts
presented represent the total outstanding principal balances of the related
loans, rather than the actual payment amounts which are past due.
<TABLE>
<CAPTION>
Mortgage Commercial Consumer Total
------------------- ------------------- ------------------- -------------------
Amount Percentage Amount Percentage Amount Percentage Amount Percentage
------ ----------- ------ ----------- ------ ----------- ------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(Dollars in Thousands)
Loans delinquent 90 days and over $943 0.37% $3,900 1.54% $1,296 0.51% $6,139 2.42%
</TABLE>
Loans delinquent more than 90 days totalled $2.3 million at December 31, 1995
and $3.2 million at December 31, 1994. The increase in 1996 was due to one large
commercial relationship.
-53-
<PAGE>
Non-Performing Assets. The Savings Bank has adopted a policy under which
all loans are reviewed on a regular basis and are placed on a non-accrual status
when, in the opinion of management, the collection of additional interest is
deemed insufficient to warrant further accrual. Generally, the Savings Bank
places all loans more than 90 days past due on non-accrual status. When a loan
is placed on non-accruing status, total interest accrued to date and not
collected is charged to earnings. Subsequent payments are either applied to the
outstanding principal balance or recorded as interest income, depending on the
assessment of the ultimate collectibility of the loan. A loan is returned to
accrual status when, in management's judgment, the borrower's ability to make
periodic interest and principal payments is in accordance with the terms of the
loan agreement.
Real estate acquired by the Savings Bank by foreclosure is classified as
real estate owned until such time as it is sold. When such property is acquired
it is recorded at the lower of the recorded investment in the loan or fair
value, less estimated costs of disposition. The recorded investment is the sum
of the outstanding principal loan balance plus any accrued interest which has
not been received and acquisition costs associated with the property. Any excess
of the recorded investment in the loan over the fair value of the underlying
property, less estimated costs of disposition, is charged to the allowance for
loan losses at the time of the loan foreclosure. Costs relating to improvement
of property incurred subsequent to the acquisition are capitalized, whereas
costs relating to holding the property are expensed. Valuations are periodically
performed by management and a provision for estimated losses on real estate
owned is charged to earnings when losses are anticipated.
As of December 31, 1996, the Savings Bank's total non-performing loans
amounted to $6.2 million, or 2.31%, of total net loans, compared to $2.3
million, or 0.85% of total net loans, at December 31, 1995. The 1996 increase
was due to one large commercial relationship totalling approximately $4.0
million or 1.4% of net loans.
The following table sets forth the amounts and categories of the Savings
Bank's non-performing assets at the dates indicated. The Savings Bank had no
troubled debt restructuring during the periods shown on the table below.
<TABLE>
<CAPTION>
December 31,
------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Non-accruing loans:
Mortgage $ 943 $1,203 $1,411 $2,239 $1,354
Construction 0 0 0 0 0
Commercial 3,900 582 245 39 261
Consumer 1,400 515 1,465 1,451 1,391
Accruing loans greater
than 90 days delinquent:
Mortgage 0 0 0 0 0
Construction 0 0 0 0 0
Commercial 0 0 0 0 0
Consumer 0 0 0 0 0
------ ------ ------ ------ ------
Total non-performing loans 6,243 2,300 3,121 3,729 3,006
</TABLE>
-54-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Real estate owned(1) 180 253 968 801 1,328
------ ------ ------ ------ ------
Total non-performing
assets 6,423 2,597 4,089 4,530 4,346
Total non-performing loans
as a percentage of total
net loans 2.31% 0.85% 1.11% 1.72% 1.44%
Total non-performing
assets as a percentage of
total assets 1.82% 0.76% 1.16% 1.45% 1.43%
- ----------------------------
</TABLE>
(1) Consists of real estate acquired by foreclosure.
Interest income foregone on non-accrual loans in 1996, 1995 and 1994 was
$554,867, $122,336 and $114,829, respectively.
Classified Assets. Federal regulations require that each insured savings
association classify its assets on a regular basis. In addition, in connection
with examinations of insured institutions, federal examiners have authority to
identify problem assets and, if appropriate, classify them. There are three
classifications for problem assets: "substandard," "doubtful" and "loss."
Substandard assets have one or more defined weaknesses and are characterized by
the distinct possibility that the insured institution will sustain some loss if
the deficiencies are not corrected. Doubtful assets have the weaknesses of
substandard assets with the additional characteristic that the weaknesses make
collection or liquidation in full on the basis of currently existing facts,
conditions and values questionable, and there is a high possibility of loss. A
loss classified asset is considered uncollectible and of such little value that
continuance as an asset of the institution is not warranted. Another category
designated "special mention" also must be established and maintained for assets
which do not currently expose an insured institution to a sufficient degree of
risk to warrant classification as substandard, doubtful or loss. Assets
classified as substandard or doubtful require the institution to establish
general allowances for loan losses. If an asset or portion thereof is classified
loss, the insured institution must either establish specific allowances for loan
losses in the amount of 100% of the portion of the asset classified loss, or
charge-off such amount. General loss allowances established to cover possible
losses related to assets classified substandard or doubtful may be included in
determining an institution's regulatory capital, while specific valuation
allowances for loan losses do not qualify as regulatory capital.
The Savings Bank's problem assets at December 31, 1996 consisted of $8.5
million of loans classified as substandard and $1.4 million of loans classified
as doubtful or loss. As of December 31, 1996, total classified assets amounted
to 2.8% of total assets. In addition, at December 31, 1996, the Savings Bank had
$4.2 million of loans classified as special mention.
-55-
<PAGE>
The following table sets forth the Savings Bank's problem assets at
the dates indicated.
<TABLE>
<CAPTION>
December 31,
------------
1996 1995 1994 1993 1992
----- ----- ----- ------ ------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Classification:
Substandard 8,529 6,128 5,308 9,038 10,467
Doubtful 1,431 1,126 1,421 1,308 1,986
Loss 0 55 5 669 5
Total classified assets 9,960 7,309 6,734 11,015 12,458
</TABLE>
Allowance for Loan Losses. It is management's policy to maintain an
allowance for estimated loan losses at a level which management considers
adequate to absorb losses inherent in the loan portfolio at each reporting
date. Management's estimation of this amount includes a review of all
loans for which full collectibility is not reasonably assured and
considers, among other factors, prior years' loss experience, distribution
of portfolio loans by risk class and the estimated value of underlying
collateral. Although management believes the current allowance for loan
losses to be adequate, ultimate losses may vary from their estimates;
however, estimates are reviewed periodically and, as adjustments become
necessary, they are reported in earnings in periods in which they become
known. At December 31, 1996, the allowance for loan loss was increased due
to one large commercial relationship and a change in the portfolio mix
toward higher risk consumer and commercial loans. See "- Asset Quality -
Non-Performing Assets."
At December 31, 1996, the Savings Bank's allowance for loan losses was
$2.6 million compared to $2.3 million at December 31, 1995. As of December
31, 1996, the Savings Bank's general valuation allowance totalled $2.0
million and specific reserves totalled $577,000.
The following table sets forth the activity in the Savings Bank's
allowance for loan losses during the periods indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period $ 2,291 $ 2,392 $ 2,687 $ 2,027 $ 1,464
Provisions 1,143 250 99 822 1,061
Charge-offs
Mortgage Loans 32 82 277 166 260
Commercial loans 117 59 0 0 117
Consumer loans 776 308 181 88 339
Total charge-offs 925 449 458 254 716
Recoveries
Mortgage loans 25 8 40 66 71
Commercial loans 0 0 0 0 13
Consumer loans 67 90 24 25 134
Total Recoveries 92 98 64 91 218
Net charge-offs 833 351 394 163 498
</TABLE>
-56-
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C>
Allowance at end of period 2,601 2,291 2,392 2,686 2,027
Allowance for loan losses to
total non-performing loans
at end of period 41.66% 99.61% 76.64% 72.03% 67.43%
Allowance for loan losses to
average loans at end of period 0.95% 0.82% 0.88% 1.04% 0.78%
Net charge-offs to average
loans outstanding during
the period 0.31% 0.13% 0.14% 0.06% 0.19%
Average gross loans(1) $272,803 $278,323 $272,815 $259,189 $258,872
</TABLE>
- -----------------------
(1) Beginning and ending annual period balances were used to calculate
average gross loans.
-57-
<PAGE>
The following table sets forth the composition of the allowance for
loan losses by type of loan at the date indicated. The allowance is
allocated to specific categories of loans for statistical purposes only and
may be applied to loan losses in any loan category.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
--------------------- ---------------------- ---------------------- -------------------- ---------------------
% of Loans % of Loans % of Loans % of Loans % of Loans
in Each in Each in Each in Each in Each
Category to Category to Category to Category to Category to
Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans Amount Total Loans
--------- ----------- ---------- ----------- ---------- ----------- -------- ----------- --------- -----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage loans $ 441 54% $ 423 65% $ 222 70% $ 373 79% $ 224 82%
Commercial 1,170 21 1,158 16 1,150 14 1,364 12 1,094 11
Consumer loans 996 25 710 19 1,020 11 949 9 709 7
------ --- ------ --- ------ ------ ------ ------ ------ ------
Total allowance for
loan losses 2,607 100% 2,291 100% 2,392 100% 2,686 100% 2,027 100%
====== ==== ====== ==== ====== ==== ====== ==== ====== ====
</TABLE>
-58-
<PAGE>
Investment Securities
The Company classifies its securities in one of three categories:
trading, available for sale or held to maturity. There were no trading
securities at December 31, 1996 and 1995. Securities held to maturity are
those securities for which the Savings Bank has the ability and intent to
hold to maturity. All other securities are classified as available for
sale.
Available for sale securities consist of investment securities not
classified as trading securities or held to maturity securities and 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 stockholders' equity until realized. Transfers
of securities between categories are recorded at fair value at the date of
transfer. Unrealized holding gains or losses associated with transfers of
securities from held to maturity to available for sale are recorded as a
separate component of stockholders' equity. See Note (1) of the Notes to
Consolidated Financial Statements.
Federally chartered savings institutions such as the Savings Bank also
have authority to invest in various types of liquid assets, including
United States Treasury obligations, securities of various Federal agencies
and of state and municipal governments, certificates of deposit at
federally insured banks and savings and loan associations, certain bankers'
acceptances and Federal funds. Subject to various restrictions, federally
chartered savings institutions may also invest a portion of their assets in
commercial paper, corporate debt securities and mutual funds, the assets of
which conform to the investments that federally chartered savings
institutions are otherwise authorized to make directly. As of December 31,
1996, the Savings Bank had utilized this investment authority to invest in
U.S. government and agency obligations, obligations of the State of Georgia
and political subdivisions, domestic corporate obligations and mutual
funds, equity securities including FHLB stock and FNMA stock.
At December 31, 1996, approximately 11% of the Savings Bank's
securities portfolio was comprised of mortgage-backed securities that are
insured or guaranteed by the Federal Home Loan Mortgage Corporation (FHLMC)
or FNMA. Collateralized Mortgage Obligations (CMOs) not insured or
guaranteed by FHLMC, FNMA or GNMA comprised 20% of the investment
portfolio. U.S. government agency obligations comprised 51%, preferred
stock of FNMA comprised 4%, FHLB stock comprised 5% and municipal
securities comprised 5% of such portfolio at December 31, 1996. Other
investments, primarily treasury securities, are also included.
The Savings Bank's securities portfolio is managed in accordance with
the Savings Bank's Investment Policy adopted by the Board of Directors and
administered by the Asset/Liability Committee, which consists of an outside
director, the President and Chief Executive Officer, Chief Financial
Officer, Chief Operating Officer, Senior Vice President, Vice President-
Commercial Lending and Assistant Controller of the Savings Bank. The policy
lists specific areas of permissible investments consistent with the Savings
Bank's investment strategy. Under the Savings Bank's policy, at the time of
purchase of an investment or mortgage-backed security or CMO, management
designates the security as either held for maturity or available for sale
based on the Savings Bank's investment objectives, operational needs and
intent. The Savings Bank maintains no trading account portfolio. Investment
activities are monitored to ensure that they are consistent with
established guidelines and objectives.
The following table sets forth certain information regarding the
classifications of Savings Bank's investment securities at December 31,
1996, 1995 and 1994. Securities classified as available
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<PAGE>
for sale are carried at their estimated fair value at December 31, 1996.
There were no securities available for sale at December 31, 1995 or 1994.
Securities held to maturity are carried at amortized cost at all respective
dates. There were no trading securities at December 31, 1996, 1995 or
1994.
Securities available for sale:
<TABLE>
<CAPTION>
1996
----
<S> <C> <C> <C>
U.S. Treasuries $ --
U.S. Government agencies 18,830
State, county and municipals 2,231
Mortgage-backed securities 12,866
-------
$33,927
-------
Securities held to maturity:
1996 1995 1994
---- ---- ----
U.S. Treasuries $ 500 1,251 1,257
U.S. Government agencies 6,216 7,142 31,805
State, county and municipals 115 115 0
Mortgage-backed securities 933 1,870 12,204
------- ------- -------
$ 7,764 $10,378 $45,266
------- ------- -------
Total investment securities $41,691 $10,378 $45,266
======= ======= =======
</TABLE>
-60-
<PAGE>
The following table presents the expected maturity of the total investment
securities portfolio by maturity date and average yields based upon amortized
cost, (for all obligations on a fully taxable basis assuming a 34% tax rate) at
December 31, 1996. It should be noted that the composition and
maturity/repricing distribution of the investment portfolio is subject to change
depending upon rate sensitivity, capital needs and liquidity needs.
Expected Maturity of Investment Securities
<TABLE>
<CAPTION>
After one After five
Within one year but within five years but within ten years After ten years
Amount Yield Amount Yield Amount Yield Amount Yield Totals
------ ----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held to maturity:
U.S. Treasury Securities 500 5.60% - - - - - - 500
U.S. Government Agencies 582 7.22% 2,634 6.57% 3,000 7.39% - - 6,216
State, county and municipals - - 115 4.55% - - - - 115
Mortgage-backed securities 533 5.45% 239 6.05% 11 7.25% 150 7.21% 933
----- ---- ----- ---- ------ ---- ------ ---- ------
1,615 6.13% 2,988 6.46% 3,011 7.39% 150 7.21% 7,764
===== ==== ===== ==== ====== ==== ====== ==== ======
Securities available for sale:
U.S. Treasury Securities - - - - - - - - -
U.S. Government Agencies - - 3,000 6.88% 11,849 8.93% 4,018 7.12% 18,867
State, county and municipals - - - - - - 2,199 7.27% 2,199
Mortgage-backed securities - - 2,038 6.75% 1,946 6.86% 8,908 7.18% 12,892
----- ---- ----- ---- ------ ---- ------ ---- ------
5,038 6.83% 13,795 8.64% 15,125 7.18% 33,958
===== ==== ===== ==== ====== ==== ====== ==== ======
</TABLE>
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<PAGE>
Cash and Interest-Bearing Deposits in Other Banks
The Savings Bank had cash on hand and cash due from and on deposit
with other banks amounting to $14.4 million and $16.4 million at December
31, 1996 and December 31, 1995, respectively.
Sources of Funds
General. Deposits are the primary source of the Savings Bank's funds
for lending and other investment purposes. In addition to deposits, the
Savings Bank derives funds from loan principal repayments, principal,
interest and dividend payments on investments and other sources. Loan
repayments are a relatively stable source of funds, while deposit inflows
and outflows are significantly influenced by general interest rates and
money market conditions. Borrowings may be used on a short-term basis to
compensate for reductions in the availability of funds from other sources.
They may also be used on a longer term basis for general business purposes.
Deposits. The Savings Bank's deposits are attracted principally from
within the Savings Bank's primary market area through the offering of a
wide selection of deposit instruments, including NOW accounts, money market
accounts, regular savings accounts, and term certificate accounts.
Included among these deposit products are individual retirement account
certificates of approximately $47 million at December 31, 1996. Deposit
account terms vary, with the principal differences being the minimum
balance required, the time periods the funds must remain on deposit and the
interest rate. As of December 31, 1996, the 204 certificates of deposit
with principal amounts of $100,000 or more totalled $47.2 million.
Interest rates paid, maturity terms, service fees and withdrawal
penalties are established by the Savings Bank on a periodic basis.
Determination of rates and terms are predicated on funds acquisition and
liquidity requirements, rates paid by competitors, growth goals and federal
regulations.
The Savings Bank does not advertise for deposits outside its local
market area or utilize the services of deposit brokers. A listing on the
Internet has been established primarily for people relocating to the
Savings Bank's Primary Market Area.
-62-
<PAGE>
The following table sets forth the dollar amount of deposits in the
various types of deposit programs offered by the Savings Bank at the dates
indicated.
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
------------------------ ------------------------ ------------------------
Weighted Weighted Weighted
Average Average Average
Amount Interest Rate Amount Interest Rate Amount Interest Rate
-------- -------------- -------- -------------- -------- --------------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C>
Time deposits $210,488 5.6% $198,870 5.6% $188,735 4.7%
Savings accounts 34,077 3.0 31,737 2.6 36,593 2.5
Transaction accounts
NOW and money
market accounts 47,288 2.6 46,626 2.5% 53,624 2.6
Non-interest
bearing accounts 15,903 -- 12,055 -- 10,376 --
-------- -------- --------
Total transaction
accounts 63,191 58,681 64,000
-------- -------- --------
Total deposits $307,756 $289,288 $289,328
======== ======== ========
</TABLE>
The following table sets forth the maturities of the Savings Bank's
certificates of deposit having principal amounts of $100,000 or more at
December 31, 1996.
<TABLE>
<CAPTION>
Certificates of deposit
maturing in: (In Thousands)
-----------------------
<S> <C>
Less than three months $ 8,011
Three to six months 6,866
Six to 12 months 11,680
Over 12 months 20,673
-------
Total certificates of deposit with
balances of $100,000 or more 47,230
=======
</TABLE>
The following table sets forth the amount and maturities of the
Savings Bank's certificates of deposit at December 31, 1996.
<TABLE>
<CAPTION>
2001 and
1997 1998 1999 2000 thereafter
---- ---- ---- ---- ----------
Over One Year Over Two Over Three
One Year Through Years Through Years Through Over Four
Or less Two Years Three Years Four Years Years Totals
--------- ------------- ------------- ------------- --------- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
2.00% to 2.99% -- -- -- -- -- --
3.00% to 3.99% 672 -- -- -- -- 672
4.00% to 5.99% 113,286 41,654 4,685 1,613 783 162,021
6.00% to 7.99% 19,741 12,747 7,000 3,573 4,193 47,254
8.00% to 9.99% 165 243 -- 133 -- 541
-------- ------- ------- ------ ------ --------
$133,864 $54,644 $11,685 $5,319 $4,976 $210,488
======== ======= ======= ====== ====== ========
</TABLE>
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<PAGE>
Borrowings. The Savings Bank may obtain advances from the FHLB of
Atlanta upon the security of its FHLB of Atlanta stock and certain of the
Savings Bank's residential mortgage loans, provided certain standards
related to creditworthiness have been met. Such advances are made pursuant
to several credit programs, each of which has its own interest rate and
range of maturities. Such advances are generally available to meet seasonal
and other withdrawals of deposit accounts and to permit increased lending.
See "Regulation - The Savings Bank - Federal Home Loan Bank System."
The Savings Bank had $16.3 million FHLB advances outstanding at
December 31, 1996. Of the advances, $10 million were at an adjustable rate
with a weighted average rate of 5.49%. The remaining $6.3 million fixed
rate advances had a weighted average rate of 5.68%.
The following table sets forth the maximum month-end balance and
average balance of Carrollton's FHLB advances during the periods indicated.
See also Note (6) to the Consolidated Financial Statements.
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
Maximum balance $20,236 $40,277 $37,770
Average balance 16,514 28,257 28,163
Weighted average interest
rate during year 5.56% 6.81% 6.50%
Balance outstanding at
year-end $16,295 $15,595 $37,770
Weighted average interest
rate at year-end 5.90% 6.05% 5.86%
</TABLE>
The following table sets forth certain information as to Carrollton's
long-term (terms to maturity in excess of 90 days) and short-term (terms to
maturity of 90 days or less) FHLB advances at the dates indicated.
<TABLE>
<CAPTION>
December 31,
------------
1996 1995 1994
---- ---- ----
(Dollars in Thousands)
<S> <C> <C> <C>
FHLB long-term advances $ 6,295 $7,095 $11,270
Weighted average interest
rate 5.68% 5.64% 6.13%
FHLB short-term advances $10,000 $8,500 $26,500
Weighted average interest
rate 5.49% 7.78% 6.65%
</TABLE>
Employees. The Savings Bank had 162 full-time employees and 30 part-
time employees at December 31, 1996. CFB Securities had two full-time and
no part-time employees at December 31, 1996, while CFB Insurance had no
employees as of that date. None of these employees is
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<PAGE>
represented by a collective bargaining agreement, and management believes
that it enjoys good relations with its personnel.
Properties. The following table sets forth certain information with
respect to the Company's properties at December 31, 1996.
<TABLE>
<CAPTION>
Leased/ Net Book Value
Description/Address Owned of Property Deposits
------------------- ------- -------------- --------
<S> <C> <C> <C>
(In Thousands)
Main Office 110 Dixie St. Carrollton, GA Owned 2,743 159,346
640 W. Bankhead Hwy, Villa Rica, GA Owned 943 32,197
207 W. College St., Bowdon, GA Owned 303 32,453
501 Alabama Ave., Bremen, GA Leased 50,295
505 Bankhead Hwy., Carrollton, GA
(Grocery Store Branch) Leased 4,787
1355 South Park St., Carrollton, Ga
(Grocery Store Branch) Leased 4,427
9060 Hwy. 27, Franklin, GA Owned 276 10,120
2212 Atlanta Hwy, Hiram, GA (Wal*Mart
Branch) Leased 5,019
5600 N. Henry Blvd. Suite A,
Stockbridge, GA (Wal*Mart Branch) Leased 3,825
1025-A Bullsboro Dr., Newnan, GA
(Wal*Mart Branch) Leased 2,243
125 Pavilion Parkway, Fayetteville, GA
(Wal*Mart Branch) Leased 2,998
3218 Highway 5, Douglasville, GA Leased
</TABLE>
Legal Proceedings
The Savings Bank is involved in routine legal proceedings occurring in
the ordinary course of business which, in the aggregate, are believed by
management to be immaterial to the financial condition of the Savings Bank.
Competition
The Savings Bank faces significant competition both in making loans
and in attracting deposits principally from national, regional and local
commercial banks, savings banks, savings and loan associations, credit
unions, broker-dealers, mortgage banking companies (including FNMA) and
insurance companies. Its most direct competition for deposits has
historically come from commercial banks, savings banks, savings and loan
associations and credit unions. The Savings Bank faces additional
competition for deposits from short-term money market funds, other
corporate and government securities funds and from other financial
institutions such as brokerage firms and insurance companies. In addition,
the Savings Bank may face additional competition from commercial banks
headquartered outside of the State of Georgia as a result of the enactment
of the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994,
which becomes fully effective on June 1, 1997. The "Georgia Interstate
Banking Act," which became effective July 1, 1995, provides that (i)
interstate acquisitions by institutions located in Georgia are permitted in
states which also allow national interstate acquisitions, and (ii)
interstate acquisitions of institutions located in Georgia are permitted by
institutions located in states which also allow national interstate
acquisitions; provided, however, that if the board of directors of a
Georgia savings and loan institution adopts a resolution to except such
thrift or holding company from being acquired pursuant to the provisions of
the Georgia Interstate Banking Act and properly files a certified copy of
such resolution with the Georgia Department, such savings and loan
institution or holding company may not be acquired by an institution
located outside of the State of Georgia.
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<PAGE>
The Savings Bank experiences strong competition for real estate loans
principally from other savings associations, commercial banks, and mortgage
banking companies. The Savings Bank competes for loans principally through
the interest rates and loan fees it charges and the efficiency and quality
of services it provides borrowers. Competition may increase as a result of
the continuing reduction of restrictions on the interstate operations of
financial institutions.
REGULATION
Savings and loan holding companies and federal savings banks are
extensively regulated under both Federal and state law. The following is a
brief summary of certain statutes and rules and regulations that affect or
will affect the Company and the Bank. This summary is qualified in its
entirety by reference to the particular statute and regulatory provision
referred to below and is not intended to be an exhaustive description of
the statutes or regulations applicable to the business of the Company and
the Bank. Supervision, regulation and examination of the Company and the
Bank by the regulatory agencies are intended primarily for the protection
of depositors rather than shareholders of the Company. The terms savings
association, federal savings bank and thrift are used interchangeably in
this section.
Savings and Loan Holding Company Regulation
The Company will be a registered holding company under both the
Savings and Loan Holding Company Act (the "SLHCA") set forth in Section 10
of the Home Owners Loan Act ("HOLA") and the Financial Institutions Code of
Georgia ("FICG"). The Company will be regulated under such acts by the
Office of Thrift Supervision (the "OTS") and by the Department of Banking
and Finance (the "Georgia Department"), respectively. As a savings and
loan holding company, the Company will be required to file with the OTS an
annual report and such additional information as the OTS may require
pursuant to the SLHCA. The OTS will also conduct examinations of the
Company and each of its subsidiaries.
Savings and loan holding companies and their subsidiaries are
prohibited from engaging in any activity or rendering any services for or
on behalf of their savings institution subsidiaries for the purpose or with
the effect of evading any law or regulation applicable to the institution.
This restriction is designed to prevent the use of holding company
affiliates to evade requirements of the SLHCA that are designed to protect
the holding company's savings institution subsidiaries. A unitary holding
company, that is, a holding company that owns only one insured institution
whose subsidiary institution satisfies the qualified thrift lender test
(discussed below), is not restricted to any statutorily prescribed list of
permissible activities, and the SLHCA and the FICG imposes no limits on
direct or indirect non-savings institution subsidiary operations.
The SLHCA and the FICG makes it unlawful for any savings and loan
holding company, directly or indirectly, or through one or more
subsidiaries or one or more transactions, to acquire control of another
savings association or another savings and loan holding company without
prior approval from the OTS and the Georgia Department, respectively. An
acquisition by merger, consolidation or purchase of assets of such an
institution or holding company or of substantially all of the assets of
such an institution or holding company is also prohibited without prior OTS
or Georgia Department approval. When considering an application for such
an acquisition, the OTS and the Georgia Department take into consideration
the financial and managerial resources and future prospects of the
prospective acquiring company and the institution involved. This includes
consideration of the competence, experience and integrity of the officers,
directors and principal
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<PAGE>
shareholders of the acquiring company and savings institution. In
addition, the OTS and the Georgia Department consider the effect of the
acquisition on the institution, the insurance risk to the Savings
Association Insurance Fund ("SAIF") and the convenience and needs of the
community to be served.
The OTS may not approve an acquisition that would result in the
formation of certain types of interstate holding company networks. The OTS
is precluded from approving an acquisition that would result in the
formation of a multiple holding company controlling institutions in more
than one state unless the acquiring company or one of its savings
institution subsidiaries is authorized to acquire control of an institution
or to operate an office in the additional state pursuant to a supervisory
acquisition authorized under Section 13(k) of the Federal Deposit Insurance
Act or unless the statutes of the state in which the institution to be
acquired is located permits such an acquisition.
Savings and loan holding companies are allowed to acquire or to retain
as much as 5% of the voting shares of a savings institution or savings and
loan holding company without regulatory approval.
Bank Regulation
General. The Savings Bank is a federal savings bank organized under
the laws of the United States subject to examination by the OTS. The OTS
regulates all areas of the Savings Bank's banking operations including
reserves, loans, mergers, payment of dividends, interest rates,
establishment of branches, and other aspects of operations. OTS
regulations generally provide that federal savings banks must be examined
no less frequently than every 12 months, unless the federal savings bank
(i) has assets of less than $250 million; (ii) is well capitalized; (iii)
was found to be well managed and its composite condition was found to be
outstanding (or good, if the bank had total assets of not more than
$100,000) during its last examination; (iv) is not subject to a formal
enforcement proceeding or an order from the Federal Deposit Insurance
Corporation ("FDIC") or another banking agency; and (v) has not undergone a
change of control during the previous 12-month period. Federal savings
banks must be examined no less frequently than every 18 months. The
Savings Bank also is subject to assessments by the OTS to cover the costs
of such examinations.
The Savings Bank is also insured and regulated by the FDIC. The major
functions of the FDIC with respect to insured federal savings banks include
paying depositors to the extent provided by law in the event an insured
bank is closed without adequately providing for payment of the claims of
depositors and preventing the continuance or development of unsound and
unsafe banking practices.
Subsidiary institutions of a savings and loan holding company, such as
the Savings Bank, are subject to certain restrictions imposed by the
Federal Reserve Act on any extension of credit to the holding company or
any of its subsidiaries, on investment in the stock or other securities
thereof, and on the taking of such stock or securities as collateral for
loans to any borrower. In addition, a holding company and its subsidiaries
are prohibited from engaging in certain tying arrangements in connection
with any extension of credit or provision of any property or services.
Capital Requirements. OTS regulations require that federal savings
banks maintain (i) "tangible capital" in an amount of not less than 1.5% of
total assets, (ii) "core capital" in an amount not less than 3.0% of total
assets, and (iii) a level of risk-based capital equal to 8% of risk-
weighted assets. Under OTS regulations, the term "core capital" generally
includes common stockholders' equity, noncumulative perpetual preferred
stock and related surplus, and minority interests in the equity accounts of
consolidated subsidiaries less unidentifiable intangible assets (other
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<PAGE>
than certain amounts of supervisory goodwill) and certain investments in
certain subsidiaries plus 90% of the fair market value of readily
marketable purchased mortgage servicing rights ("PMSRs") and purchased
credit card relationships (subject to certain conditions). "Tangible
capital" generally is defined as core capital minus intangible assets and
investments in certain subsidiaries, except PMSRs.
In determining total risk-weighted assets for purposes of the risk-
based requirement, (i) each off-balance sheet asset must be converted to
its on-balance sheet credit equivalent amount by multiplying the face
amount of each such item by a credit conversion factor ranging from 0% to
100% (depending upon the nature of the asset), (ii) the credit equivalent
amount of each off-balance sheet asset and each on-balance sheet asset must
be multiplied by a risk factor ranging from 0% to 200% (again depending
upon the nature of the asset) and (iii) the resulting amounts are added
together and constitute total risk-weighted assets. "Total capital," for
purposes of the risk-based capital requirement equals the sum of core
capital plus supplementary capital (which, as defined, includes the sum of,
among other items, perpetual preferred stock not counted as core capital,
limited life preferred stock, subordinated debt, and general loan and lease
loss allowances up to 1.25% of risk-weighted assets) less certain
deductions. The amount of supplementary capital that may be counted
towards satisfaction of the total capital requirement may not exceed 100%
of core capital, and OTS regulations require the maintenance of a minimum
ratio of core capital to total risk-weighted assets of 4%.
OTS regulations have been amended to include an interest-rate risk
component to the risk-based capital requirement. Under this regulation, an
institution is considered to have excess interest rate-risk if, based upon
a 200-basis point change in market interest rates, the market value of an
institution's capital changes by more than 2%. This new requirement is not
expected to have any material effect on the ability of the Savings Bank to
meet the risk-based capital requirement. The OTS also revised its risk-
based capital standards to ensure that its standards provide adequately for
concentration of credit risk, risk from nontraditional activities and
actual performance and expected risk of loss on multi-family mortgages.
Capital requirements higher than the generally applicable minimum
requirement may be established for a particular savings association if the
OTS determines that the institution's capital was or may become inadequate
in view of its particular circumstances.
Additionally, the Georgia Department requires that savings and loan
holding companies, such as the Company, must maintain a 5% Tier 1 leverage
ratio on a consolidated basis.
Prompt Corrective Action. The Federal Deposit Insurance Corporation
Improvement Act of 1991 (the "FDIC Act") imposes a regulatory matrix which
requires the federal banking agencies, which include the OTS, the FDIC, the
Office of the Comptroller of Currency (the "OCC"), and the Federal Reserve
Board, to take prompt corrective action to deal with depository
institutions that fail to meet their minimum capital requirements or are
otherwise in a troubled condition. The prompt corrective action provisions
require undercapitalized institutions to become subject to an increasingly
stringent array of restrictions, requirements and prohibitions, as their
capital levels deteriorate and supervisory problems mount. Should these
corrective measures prove unsuccessful in recapitalizing the institution
and correcting its problems, the FDIC Act mandates that the institution be
placed in receivership.
Pursuant to regulations promulgated under the FDIC Act, the corrective
actions that the banking agencies either must or may take are tied
primarily to an institution's capital levels. In
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<PAGE>
accordance with the framework adopted by the FDIC Act, the banking agencies
have developed a classification system, pursuant to which all banks and
thrifts will be placed into one of five categories: well-capitalized
institutions, adequately capitalized institutions, undercapitalized
institutions, significantly undercapitalized institutions and critically
undercapitalized institutions. The capital thresholds established for each
of the categories are as follows:
<TABLE>
<CAPTION>
================================================================================
Tier 1
Tier 1 Risk-Based Risk-Based
Capital Category Capital Capital Capital Other
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Well-Capitalized 5% or more 10% or more 6% or more Not
subject
to a
capital
directive
- --------------------------------------------------------------------------------
Adequately Capitalized 4% or more 8% or more 4% or more ---
- --------------------------------------------------------------------------------
Undercapitalized less than less than 8% less than 4% ---
4%
- --------------------------------------------------------------------------------
Significantly less than less than 6% less than 3% ---
Undercapitalized 3%
- --------------------------------------------------------------------------------
Critically Undercapitalized 2% or --- --- ---
less
tangible
equity
================================================================================
</TABLE>
The undercapitalized, significantly undercapitalized and critically
undercapitalized categories overlap; therefore, a critically
undercapitalized institution would also be an undercapitalized institution
and a significantly undercapitalized institution. This overlap ensures
that the remedies and restrictions prescribed for undercapitalized
institutions will also apply to institutions in the lowest two categories.
The down-grading of an institution's category is automatic in two
situations: (i) whenever an otherwise well-capitalized institution is
subject to any written capital order or directive, and (ii) where an
undercapitalized institution fails to submit or implement a capital
restoration plan or has its plan disapproved. The federal banking agencies
may treat institutions in the well-capitalized, adequately capitalized and
undercapitalized categories as if they were in the next lower capital level
based on safety and soundness considerations relating to factors other than
capital levels.
The FDIC Act prohibits all insured institutions regardless of their
level of capitalization from paying any dividend or making any other kind
of capital distribution or paying any management fee to any controlling
person if following the payment or distribution the institution would be
undercapitalized. While the prompt corrective action provisions of the
FDIC Act contain no requirements or restrictions aimed specifically at
adequately capitalized institutions, other provisions of the FDIC Act and
the agencies' regulations relating to deposit insurance assessments,
brokered deposits and interbank liabilities treat adequately capitalized
institutions less favorably than those that are well-capitalized.
A depository institution that is not well capitalized is prohibited
from accepting deposits through a deposit broker. However, an adequately
capitalized institution can apply for a waiver to accept brokered deposits.
Institutions that receive a waiver are subject to limits on the rates of
interest they may pay on brokered deposits.
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<PAGE>
Capital Distributions. An OTS rule imposes limitations on all capital
---------------------
distributions by savings associations (including dividends, stock
repurchases and cash-out mergers). Under the current rule, a savings
association is classified based on its level of regulatory capital both
before and after giving effect to a proposed capital distribution. Under a
proposed rule, the OTS would conform its three classifications to the five
capital classifications set forth under the prompt corrective action
regulations. Under the proposal, institutions that are at least adequately
capitalized would still be required to provide prior notice. Well
capitalized institutions could make capital distributions without prior
regulatory approval in specified amounts in any calendar year.
An institution that both before and after a proposed capital
distribution has net capital equal to or in excess of its capital
requirements may, subject to any otherwise applicable statutory or
regulatory requirements or agreements entered into with the regulators,
make capital distributions in any calendar year up to 100% of its net
income to date during the calendar year plus the amount that would reduce
by one-half its "surplus capital ratio" (i.e., the percentage by which the
association's capital-to-assets ratio exceeds the ratio of its fully
phased-in capital requirement to its assets) at the beginning of the
calendar year. No regulatory approval of the capital distribution is
required, but prior notice must be given to the OTS.
An institution that either before or after a proposed capital
distribution fails to meet its then applicable minimum capital requirement
or that has been notified that it needs more than normal supervision may
not make any capital distributions without the prior written approval of
the OTS. In addition, the OTS may prohibit a proposed capital
distribution, which would otherwise be permitted by the regulation, if the
OTS determines that such distribution would constitute an unsafe or unsound
practice.
Liquidity. Under applicable federal regulations, savings associations
---------
are required to maintain an average daily balance of liquid assets
(including cash, certain time deposits, certain bankers' acceptances,
certain corporate debt securities and highly rated commercial paper,
securities of certain mutual funds and specified United States government,
state or federal agency obligations) equal to a monthly average of not less
than a specified percentage of the average daily balance of the savings
association's net withdrawable deposits plus short-term borrowings. Under
HOLA, this liquidity requirement may be changed from time to time by the
OTS to any amount within the range of 4% to 10% depending upon economic
conditions and the deposit flows of member institutions, and currently is
5%. Savings institutions also are required to maintain an average daily
balance of short-term liquid assets at a specified percentage (currently
1%) of the total of the average daily balance of its net withdrawable
deposits and short-term borrowings.
Equity Investments. The OTS has revised its risk-based capital
regulation to modify the treatment of certain equity investments and to
clarify the treatment of other equity investments. Equity investments that
are permissible for both savings banks and national banks will no longer be
deducted from savings associations' calculations of total capital over a
five-year period. Instead, permissible equity investments will be placed
in the 100% risk-weight category, mirroring the capital treatment
prescribed for those investments when made by national banks under the
regulations of the OCC. Equity investments held by savings associations
that are not permissible for national banks must still be deducted from
assets and total capital.
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<PAGE>
Qualified Thrift Lender Requirement. A federal savings bank is deemed
to be a "qualified thrift lender" ("QTL") as long as its "qualified thrift
investments" equal or exceed 65% of its "portfolio assets" on a monthly
average basis in nine out of every 12 months. Qualified thrift investments
generally consist of (i) various housing related loans and investments
(such as residential construction and mortgage loans, home improvement
loans, mobile home loans, home equity loans and mortgage-backed
securities), (ii) certain obligations of the FDIC and (iii) shares of stock
issued by any FHLB, the FHLMC or the FNMA. In addition, the following
assets may be categorized as qualified thrift investments in an amount not
to exceed 20% in the aggregate of portfolio assets: (i) 50% of the dollar
amount of residential mortgage loans originated and sold within 90 days of
origination; (ii) investments in securities of a service corporation that
derives at least 80% of its income from residential housing finance; (iii)
200% of loans and investments made to acquire, develop or construct starter
homes or homes in credit needy areas (subject to certain conditions); (iv)
loans for the purchase or construction of churches, schools, nursing homes
and hospitals; and (v) consumer loans (in an amount up to 20% of portfolio
assets). For purposes of the QTL test, the term "portfolio assets" means
the savings institution's total assets minus goodwill and other intangible
assets, the value of property used by the savings institution to conduct
its business, and liquid assets held by the savings institution in an
amount up to 20% of its total assets.
OTS regulations provide that any savings association that fails to
meet the definition of a QTL must either convert to a national bank charter
or limit its future investments and activities (including branching and
payments of dividends) to those permitted for both savings associations and
national banks. Further, within one year of the loss of QTL status, a
holding company of a savings association that does not convert to a bank
charter must register as a bank holding company and will be subject to all
statutes applicable to bank holding companies. In order to exercise the
powers granted to federally chartered savings associations and maintain
full access to FHLB advances, the Savings Bank must meet the definition of
a QTL.
Loans to One Borrower Limitations. HOLA generally requires savings
associations to comply with the loans to one borrower limitations
applicable to national banks. National banks generally may make loans to a
single borrower in amounts up to 15% of their unimpaired capital and
surplus, plus an additional 10% of capital and surplus for loans secured by
readily marketable collateral. HOLA provides exceptions under which a
savings association may make loans to one borrower in excess of the
generally applicable national bank limits. A savings association may make
loans to one borrower in excess of such limits under one of the following
circumstances: (i) for any purpose, in any amount not to exceed $500,000;
or (ii) to develop domestic residential housing units, in an amount not to
exceed the lesser of $30 million or 30% of the savings association's
unimpaired capital and unimpaired surplus, provided other conditions are
satisfied. The Federal Institutions Reform, Recovery, and Enforcement Act
of 1989 provided that a savings association could make loans to one
borrower to finance the sale of real property acquired in satisfaction of
debts previously contracted in good faith in amounts up to 50% of the
savings association's unimpaired capital and unimpaired surplus. The OTS,
however, has modified this standard by limiting loans to one borrower to
finance the sale of real property acquired in satisfaction of debts to 15%
of unimpaired capital and surplus. That rule provides, however, that
purchase money mortgages received by a savings association to finance the
sale of such real property do not constitute "loans" (provided no new funds
are advanced and the savings association is not placed in a more
detrimental position holding the note than holding the real estate) and,
therefore, are not subject to the loans to one borrower limitations.
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Commercial Real Property Loans. HOLA limits the aggregate amount of
commercial real estate loans that a federal savings association may make to
an amount not in excess of 400% of the savings association's capital.
Community Reinvestment. Under the Community Reinvestment Act (the
"CRA") and the implementing OTS regulations, federal savings banks have a
continuing and affirmative obligation to help meet the credit needs of its
local community, including low and moderate-income neighborhoods,
consistent with the safe and sound operation of the institution. The CRA
requires the board of directors of financial institutions, such as the
Savings Bank, to adopt a CRA statement for each assessment area that, among
other things, describes its efforts to help meet community credit needs and
the specific types of credit that the institution is willing to extend.
The regulations promulgated pursuant to CRA contain three evaluation tests:
(i) a lending test which will compare the institution's market share of
loans in low- and moderate-income areas to its market share of loans in its
entire service area and the percentage of a bank's outstanding loans to
low- and moderate-income areas or individuals, (ii) a services test which
will evaluate the provision of services that promote the availability of
credit to low- and moderate-income areas, and (iii) an investment test,
which will evaluate an institution's record of investments in organizations
designed to foster community development, small- and minority-owned
businesses and affordable housing lending, including state and local
government housing or revenue bonds.
Fair Lending. Congress and various federal agencies (including, in
addition to the bank regulatory agencies, the Department of Housing and
Urban Development, the Federal Trade Commission and the Department of
Justice) (collectively the "Federal Agencies") responsible for implementing
the nation's fair lending laws have been increasingly concerned that
prospective home buyers and other borrowers are experiencing discrimination
in their efforts to obtain loans. In recent years, the Department of
Justice has filed suit against financial institutions that it determined
had discriminated, seeking fines and restitution for borrowers who
allegedly suffered from discriminatory practices. Most, if not all, of
these suits have been settled (some for substantial sums) without a full
adjudication on the merits.
On March 8, 1994, the Federal Agencies, in an effort to clarify what
constitutes lending discrimination and to specify the factors the agencies
will consider in determining if lending discrimination exists, announced a
joint policy statement detailing specific discriminatory practices
prohibited under the Equal Credit Opportunity Act and the Fair Housing Act.
In the policy statement, three methods of proving lending discrimination
were identified: (i) overt evidence of discrimination, when a lender
blatantly discriminates on a prohibited basis, (ii) evidence of disparate
treatment, when a lender treats applicants differently based on a
prohibited factor even where there is no showing that the treatment was
motivated by prejudice or a conscious intention to discriminate against a
person, and (iii) evidence of disparate impact, when a lender applies a
practice uniformly to all applicants, but the practice has a discriminatory
effect, even where such practices are neutral on their face and are applied
equally, unless the practice can be justified on the basis of business
necessity.
FDIC Insurance Assessments. Federal deposit insurance is required for
all federally chartered savings associations. Deposits at the Savings Bank
are insured to a maximum of $100,000 for each depositor by Savings
Association Insurance Fund (the "SAIF"). As a SAIF-insured institution,
the Bank is subject to regulation and supervision by the FDIC, to the
extent deemed necessary by the FDIC to ensure the safety and soundness of
the SAIF. The FDIC is entitled to have access to reports of examination of
the Bank made by the OTS and all reports of condition filed by the Bank
with the OTS. The FDIC also may require the Bank to file such additional
reports as
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it determines to be advisable for insurance purposes. Additionally, the
FDIC may determine by regulation or order that any specific activity poses
a serious threat to the SAIF and that no SAIF member may engage in the
activity directly.
Insurance premiums are paid in semiannual assessments. Under a risk-
based assessment system, the FDIC is required to calculate a savings
association's semiannual assessment based on (i) the probability that the
insurance fund will incur a loss with respect to the institution (taking
into account the institution's asset and liability concentration), (ii) the
potential magnitude of any such loss, and (iii) the revenue and reserve
needs of the insurance fund. The semiannual assessment imposed on the
Savings Bank may be higher depending on the SAIF revenue and expense
levels, and the risk classification applied to the Savings Bank.
The deposit insurance assessment rate charged to each institution
depends on the assessment risk classification assigned to each institution.
Under the risk-classification system, each SAIF member is assigned to one
of three capital groups: "well capitalized," "adequately capitalized," or
"less than adequately capitalized," as such terms are defined under the
OTS's prompt corrective action regulation (discussed above), except that
"less than adequately capitalized" includes any institution that is not
well capitalized or adequately capitalized. Within each capital group,
institutions are assigned to one of three supervisory subgroups--"healthy"
(institutions that are financially sound with only a few minor weaknesses),
"supervisory concern" (institutions with weaknesses which, if not corrected
could result in significant deterioration of the institution and increased
risk to the SAIF) or "substantial supervisory concern" (institutions that
pose a substantial probability of loss to the SAIF unless corrective action
is taken). The FDIC will place each institution into one of nine
assessment risk classifications based on the institution's capital group
and supervisory subgroup classification.
Until recently, SAIF premiums had been equivalent to deposit insurance
premiums paid by banks on deposits to the Bank Insurance Fund ("BIF").
Deposit insurance premiums were set to facilitate each fund achieving its
designated reserve ratios. As each fund achieves its designated reserve
ratio, however, the FDIC has the authority to lower the premium assessments
for that fund to a rate that would be sufficient to maintain the designated
reserve ratio. In August 1995, the FDIC determined that the BIF had
achieved its designated reserve ratio and approved lower BIF premium rates
for deposit insurance by the BIF for all but the riskiest institutions. On
November 14, 1995, the FDIC determined that BIF deposit insurance premiums
for well capitalized banks would be further reduced to the then-statutory
minimum of $2,000 per institution per year, effective January 1, 1996.
Because the SAIF remained significantly below its designated reserve ratio,
insurance premiums for assessable SAIF deposits were not reduced in either
FDIC action.
The current financial condition of the SAIF resulted in the adoption
of the Deposit Insurance Funds Act of 1996 ("DIFA"), which was enacted on
September 30, 1996 as part of the Omnibus Consolidated Appropriations Act.
Under DIFA, a special one-time assessment of 65.7 cents per $100 of
assessable SAIF deposits was collected on November 27, 1996 and applied
retroactively to SAIF deposits as of March 31, 1995. DIFA provides that
special assessments will be deductible under Section 162 of the Internal
Revenue Code in the year in which the assessment is paid. After collection
of the special assessment, it is expected that the SAIF would achieve its
designated reserve ratio and SAIF premium rates would then become the same
as BIF rates. DIFA further provides that BIF and SAIF are to be merged,
creating the "Deposit Insurance Fund," on January 1, 1999, provided that
bank and savings association charters are combined by that date. The
Treasury Department is preparing a report to be submitted to Congress by
March 31, 1997 on the development
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of a common charter for all insured depository institutions. See
"Supervision and Regulation -Elimination of Federal Savings Charter."
DIFA further assesses premiums for Financing Corporation Bond debt
service ("FICO"). Beginning January 1, 1997, FICO premiums for BIF and
SAIF will be 1.3 and 6.4 basis points, respectively. Full pro rata sharing
of FICO will begin no later than January 1, 2000.
Effective January 1, 1997, SAIF members will have the same risk-based
assessment schedule as BIF members, which is 0 to 27 cents per $100 of
deposits. FICO assessments of 1.3 cents for BIF deposits and 6.4 cents per
$100 of deposits for SAIF deposits will be added to the BIF-assessable base
and SAIF assessable base, respectively, until December 31, 1999.
Thereafter, approximately 2.4 cents per $100 of deposits would be added to
each regular assessment for all insured depositors, thereby achieving full
pro rata FICO sharing.
The SAIF-assessable base previously was assessed at a rate of 23 to 31
basis points for the fourth quarter as part of the regular annual deposit
insurance assessment. Following the enaction of DIFA, the special
assessment was booked as an asset by the FDIC effective October 1, 1996,
fully capitalizing SAIF as of that date. Consequently, the proposed
regular assessment rate for SAIF-member savings associations has been
lowered retroactively to 18 to 27 basis points effective October 1, 1996,
which represents the amount necessary to cover FICO obligations.
Until January 1, 1997, under the FDIC's interpretation of existing
law, FICO payments can be met only from assessments on SAIF-member savings
associations. Overpayment of fourth quarter assessments from such
institutions, estimated at approximately 1.25 cents per $100 of deposits,
will be refunded or credited, with interest, using regular quarterly
payment procedures.
The federal banking agencies are required to take action to prevent
insured institutions from facilitating or encouraging the shifting of SAIF
deposits to BIF deposits for purposes of evading the assessments imposed on
SAIF-assessable deposits.
Insurance of deposits may be terminated by the FDIC after notice and
hearing, upon a finding by the FDIC that the savings association has
engaged in unsafe or unsound practices, is in an unsafe or unsound
condition to continue operations, or has violated any applicable law, rule,
regulation, order or condition imposed by, or written agreement with, the
FDIC. Additionally, if insurance termination proceedings are initiated
against a savings association, the FDIC may temporarily suspend insurance
on new deposits received by an institution under certain circumstances.
Federal Home Loan Bank System. The FHLB System consists of 12
regional FHLBs, each subject to supervision and regulation by the Federal
Housing Finance Board (the "FHFB"). The FHLBs provide a central credit
facility for member savings associations. The maximum amount that the FHLB
of Atlanta will advance fluctuates from time to time in accordance with
changes in policies of the FHFB and the FHLB of Atlanta, and the maximum
amount generally is reduced by borrowings from any other source. In
addition, the amount of FHLB advances that a savings association may obtain
will be restricted in the event the institution fails to constitute a QTL.
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Federal Reserve System. The Federal Reserve Board has adopted
regulations that require savings associations to maintain nonearning
reserves against their transaction accounts (primarily NOW and regular
checking accounts). These reserves may be used to satisfy liquidity
requirements imposed by the OTS. Because required reserves must be
maintained in the form of cash or a non-interest-bearing account at a
Federal Reserve Bank, the effect of this reserve requirement is to reduce
the amount of the Savings Bank's interest-earning assets.
Savings institutions also have the authority to borrow from the
Federal Reserve "discount window." Federal Reserve Board regulations,
however, require savings associations to exhaust all FHLB sources before
borrowing from a Federal Reserve bank.
Transactions with Affiliates Restrictions. Transactions engaged in by
a savings association or one of its subsidiaries with affiliates of the
savings association generally are subject to the affiliate transaction
restrictions contained in Sections 23A and 23B of the Federal Reserve Act
in the same manner and to the same extent as such restrictions apply to
transactions engaged in by a member bank or one of its subsidiaries with
affiliates of the member bank. Section 23A of the Federal Reserve Act
imposes both quantitative and qualitative restrictions on transactions
engaged in by a member bank or one of its subsidiaries with an affiliate,
while Section 23B of the Federal Reserve Act requires, among other things
that all transactions with affiliates be on terms substantially the same,
and at least as favorable to the member bank or its subsidiary, as the
terms that would apply to, or would be offered in, a comparable transaction
with an unaffiliated party. Exemptions from, and waivers of, the
provisions of Sections 23A and 23B of the Federal Reserve Act may be
granted only by the Federal Reserve Board. The HOLA and OTS regulations
promulgated thereunder contain other restrictions on loans and extension of
credit to affiliates, and the OTS is authorized to impose additional
restrictions on transactions with affiliates if it determines such
restrictions are necessary to ensure the safety and soundness of any
savings association. Current OTS regulations are similar to Sections 23A
and 23B of the Federal Reserve Act.
Future Requirements. Statutes and regulations are regularly
introduced which contain wide-ranging proposals for altering the
structures, regulations and competitive relationships of financial
institutions. It cannot be predicted whether or what form any proposed
statute or regulation will be adopted or the extent to which the business
of the Company and the Savings Bank may be affected by such statute or
regulation.
Elimination of Federal Savings Association Charter
Legislation that would eliminate the federal savings association
charter is under discussion. If such legislation is enacted, the Bank
would be required to convert its federal savings bank charter to either a
national bank charter or to a state depository institution charter.
Pending legislation also may provide relief as to recapture of the bad debt
deduction for federal tax purposes that otherwise would be applicable if
the Savings Bank converted its charter, provided that the Savings Bank
meets a proposed residential loan origination requirement. Various
legislative proposals also may result in the restructuring of federal
regulatory oversight, including, for example, consolidation of the OTS into
another agency, or creation of a new Federal banking agency to replace the
various such agencies which presently exist. The Savings Bank is unable to
predict whether such legislation will be enacted or, if enacted, whether it
will contain relief as to bad debt deductions previously taken.
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TAXATION
Federal Taxation
General. The Company and the Savings Bank are subject to the
generally applicable corporate tax provisions of the Code, and the Savings
Bank is subject to certain additional provisions of the Code which apply to
thrift and other types of financial institutions. The following discussion
of federal taxation is intended only to summarize certain pertinent federal
income tax matters and is not a comprehensive discussion of the tax rules
applicable to the Company and the Savings Bank.
Tax Returns. The Savings Bank files a federal income tax return on
the basis of a fiscal year ending on December 31. Consolidated returns
have the effect of eliminating intercompany distributions, including
dividends, from the computation of consolidated taxable income for the
taxable year in which such distributions occur. However, based upon the
best interests of the Company, the Savings Bank and its stockholders, and
on other conditions, the Company may elect not to file consolidated
returns.
Bad Debt Reserves. Savings institutions such as the Savings Bank are
subject to the taxing provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), for corporations, as modified by certain provisions
specifically applicable to financial or thrift institutions. Income is
reported using the accrual method of accounting. The maximum corporate
federal income tax rate is 35%.
For fiscal years beginning prior to December 31, 1995, thrift
institutions that qualified under certain definitional tests and other
conditions of the Code were permitted certain favorable provisions
regarding their deductions from taxable income for annual additions to
their bad debt reserve. A reserve could be established for bad debts on
qualifying real property loans (generally loans secured by interests in
real property improved or to be improved) under (i) a method based on a
percentage of the institution's taxable income, as adjusted (the
"percentage of taxable income method") or (ii) a method based on actual
loss experience (the "experience method").
In 1996, the Code was amended to repeal the foregoing methods of
establishing a bad debt reserve. Effective January 1, 1996, the Savings
Bank now computes its bad debt reserves for tax purposes under the rules
promulgated pursuant to Code Section 585, which applies to commercial
banks. In the years prior to 1996, the Savings Bank obtained bad debt
deductions approximating $5.8 million in excess of its financial statement
allowance for loan losses for which no provision for federal income tax was
made. These amounts were then subject to federal income tax in future
years pursuant to the provisions of prior Code Section 593 if they were
used for purposes other than to absorb bad debt losses. As of January 1,
1996, approximately $1.0 million of the excess reserve was no longer
subject to recapture under any circumstances and approximately $4.8 million
of the excess reserve was subject to recapture only if the Savings Bank
ceased to operate as a bank pursuant to the provisions of Code Section 585.
Minimum Tax. The Code imposes an alternative minimum tax at a rate of
20%. The alternative minimum tax generally applies to a base of regular
taxable income plus certain tax preferences ("alternative minimum taxable
income" or "AMTI") and is payable to the extent such AMTI is in excess of
an exemption amount. The Code provides that an item of tax preference is
the excess of the bad debt deduction allowable for a taxable year pursuant
to the percentage of taxable income method over the amount allowable under
the experience method. Other items of tax preference that constitute AMTI
include (a) tax-exempt interest on newly issued (generally, issued
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on or after August 8, 1986) private activity bonds other than certain
qualified bonds and (b) 75% of the excess (if any) of (i) adjusted current
earnings as defined in the Code, over (ii) AMTI (determined without regard
to this preference and prior to reduction by net operating losses).
Net Operating Loss Carryovers. A financial institution may carry back
net operating losses ("NOLs") to the preceding three taxable years and
forward to the succeeding 15 taxable years. This provision applies to
losses incurred in taxable years beginning after 1986. The Savings Bank
has no NOL carryforwards for federal income tax purposes.
Capital Gains and Corporate Dividends-Received Deduction. Corporate
net capital gains are taxed at a maximum rate of 35%. The corporate
dividends-received deduction is 80% in the case of dividends received from
corporations with which a corporate recipient does not file a consolidated
tax return, and corporations which own less than 20% of the stock of a
corporation distributing a dividend may deduct only 70% of dividends
received or accrued on their behalf. However, a corporation may deduct
100% of dividends from a member of the same affiliated group of
corporations.
Other Matters. Federal legislation is introduced from time to time
that would limit the ability of individuals to deduct interest paid on
mortgage loans. Individuals are currently not permitted to deduct interest
on consumer loans. Significant increases in tax rates or further
restrictions on the deductibility of mortgage interest could adversely
affect the Savings Bank.
The Savings Bank's federal income tax returns for the tax years ended
December 31, 1996, 1995 and 1994 are open under the statute of limitations
and are subject to review by the IRS.
Georgia Taxation. The Company and the Savings Bank are both subject
to Georgia corporate income tax and franchise tax to the extent they are
engaged in business in the State of Georgia or have income that is
generated in the State of Georgia. For Georgia income tax purposes,
savings institutions are presently taxed at a rate equal to 6.0% of income,
which is calculated based on federal taxable income, subject to certain
adjustments. The State of Georgia also imposes franchise and privilege
taxes on savings institutions, which in the case of the Savings Bank do not
constitute significant tax items.
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MANAGEMENT OF THE COMPANY
Directors and Executive Officers
The Board of Directors is divided into three classes, each of which
contains approximately one-third of the Board. The Bylaws of the Company
currently authorize nine directors. The directors shall be elected by the
stockholders of the Company for staggered three-year terms, or until their
successors are elected and qualified. One class of directors, consisting
of Gary M. Bullock, Jerry L. Clayton and Dean B. Talley will have a term
expiring at the Company's first annual meeting of stockholders; a second
class of directors, consisting of Thomas E. Reeve, Jr., Michael P. Steed
and Thomas S. Upchurch will have a term of office expiring at the second
annual meeting; and a third class of directors, consisting of T. Aubrey
Silvey, Gary D. Dorminey and Anna L. Berry, will have a term of office
expiring at the third annual meeting. Their names and biographical
information are set forth under "Management of the Savings Bank -
Directors."
The following individuals are executive officers of the Company and
hold the offices set forth below opposite their names. Their biographical
information is set forth under "Management of the Savings Bank - Directors"
and "- Executive Officers Who Are Not Directors."
Name Position(s) with the Company
---- ----------------------------
Gary D. Dorminey President and Chief Executive Officer
D. Lane Poston Executive Vice President and Chief Operating Officer
C. Lynn Gable Chief Financial Officer
Anyce C. Fox Senior Vice President
The executive officers of the Company are elected annually and hold
office until their respective successors have been elected and qualified or
until death, retirement, resignation or removal by the Board of Directors.
Since the formation of the Company, none of the executive officers,
directors or other personnel of the Company has received remuneration from
the Company. In the event that any employee of the Savings Bank provides
services to the Company, the Company has agreed to reimburse the Savings
Bank for any costs related to such services. Information concerning the
principal occupations and employment of the directors and officers of the
Company during the past five years is set forth under "Management of the
Savings Bank - Directors" and "- Executive Officers Who Are Not Directors."
Directors and executive officers of the Company initially will not be
compensated by the Company but will serve and be compensated by the Savings
Bank. The Company does not currently nor does it plan to obtain "key
person" insurance on any of its employees. See "Management of the Savings
Bank - Executive Compensation."
Board Meetings and Committees of the Board of Directors
Regular meetings of the Board of Directors of the Company will be held
on a quarterly basis, with special meetings being held from time to time as
needed. Upon consummation of the Offerings, the Company will have an
Executive Committee, Compensation Committee and Audit Committee. The
Executive Committee will have the power and authority to act on behalf of
the Board of Directors on important matters between scheduled director
meetings unless specific Board action is required or unless otherwise
restricted by the Company's Articles of Incorporation or Bylaws or by
action of its Board of Directors. The Compensation Committee will
establish and review executive
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compensation and administer executive compensation programs. The Audit
Committee will recommend to the Board of Directors the independent public
accountants to be selected to audit the Company's annual financial
statements and to approve any special assignments given to such
accountants. The Audit Committee will also review the planned scope of the
annual audit, any changes in accounting principles and the effectiveness
and efficiency of the Company's internal accounting staff. The
Compensation Committee and the Audit Committee will be composed solely of
non-employee directors.
Benefits
1997 Stock Option Plan. The Board of Directors of the Company intends
to adopt the Option Plan and to submit the Option Plan to stockholders at a
special or annual meeting of stockholders no earlier than six months after
the completion of the Conversion and Reorganization. No options will be
awarded under the Option Plan unless stockholder approval is obtained. The
Company intends to reserve for future issuance pursuant to the Option Plan
a number of authorized shares of Common Stock equal to 10% of the Common
Stock issued in the Offerings (or 209,875 shares at the maximum of the
Valuation Price Range). Shares issued pursuant to the Option Plan may be
authorized but unissued shares or treasury shares repurchased by the
Company, or both.
The Option Plan will be designed to attract and retain qualified
personnel in key positions, provide directors, officers and key employees
with a proprietary interest in the Company as an incentive to contribute to
the success of the Company and reward such persons for performance and the
attainment of targeted goals. The Option Plan will provide for the grant
of incentive stock options intended to comply with the requirements of
Section 422 of the Code ("incentive stock options") and non-incentive or
compensatory stock options (collectively "Awards"). Awards will be granted
to directors and key employees of the Savings Bank and/or the Company and
any subsidiaries, except that non-employee directors will not be eligible
to receive incentive stock options. If shareholder approval is obtained,
it is expected that options to acquire shares of Common Stock will be
awarded to key employees of the Company or its subsidiaries and directors
of the Company or the Savings Bank with an exercise price equal to the fair
market value of the Common Stock on the date of the grant. If the Option
Plan is submitted for shareholder approval within one year after the
consummation of the Conversion and Reorganization, under current OTS
regulations, unless the Regional Director of the OTS permits otherwise, no
individual member of management may receive more than 25% of the options
that may be issued and directors who are not employees may not receive more
than 5% of such options individually and more than 30% of such options in
the aggregate. No decision has yet been made as to anticipated grants to
individuals under the Option Plan.
The Option Plan will be administered and interpreted by a committee
(the "Committee") of disinterested directors satisfying standards under
both Rule 16b-3 under the Exchange Act and Section 162(m) of the Code. The
Option Plan will have an indefinite term except that incentive stock
options may not be granted more than ten years from its adoption by the
Board of Directors. Under the Option Plan, the Committee will determine
which directors, officers and key employees will be granted options,
whether such options will be incentive or compensatory options, the number
of shares subject to each option, the exercise price of each compensatory
option, the forms of payment of the exercise price and when such options
become exercisable. The per share exercise price of an incentive stock
option shall at least equal the fair market value of a share of Common
Stock on the date the option is granted. In the event of a merger,
consolidation, extraordinary cash or stock dividend, reorganization or
other change in corporate structure or tender offer, the number of shares
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of Common Stock under the Option Plan, the number of shares to which any Award
relates and the exercise price per share under any option shall be adjusted to
reflect such event.
Stock options shall become vested and exercisable in the manner
specified by the Committee. However, current OTS regulations require that stock
options granted pursuant to a plan approved by shareholders within one year of
consummation of a mutual-to-stock conversion not vest at a rate in excess of 20%
per year. Stock options are non-transferable except by will or the laws of
descent and distribution.
Pursuant to the Option Plan, compensatory stock options for 30% of the
shares of Common Stock to be reserved for issuance pursuant to the Option Plan
will be available for grants to non-employee directors of the Company and the
Savings Bank upon approval of the Option Plan by shareholders. The exercise
price for such options will be the fair market value of the Common Stock at the
date of grant. Each stock option or portion thereof shall be exercisable at any
time on or after it vests and is exercisable until ten years after its date of
grant or three months after the date on which the optionee's employment
terminates. An option will fully vest in the event of the optionee's death or
disability. An option granted to directors will be exercisable until ten years
after its date of grant. However, if an optionee dies while serving as a non-
employee director or within three years following the termination of the
optionee's service as a non-employee director as a result of retirement or
resignation without having fully exercised his or her options, the optionee's
executors, administrators, legatees or distributees of his or her estate shall
have the right to exercise such options during the twelve-month period following
such death, provided no option will be exercisable within six months after the
date of grant or more than ten years from the date it was granted.
Pursuant to the Option Plan, stock options for 70% of the shares of
Common Stock to be reserved for issuance pursuant to the Option Plan will be
available for grant to personnel of the Company and its subsidiaries other than
outside directors of the Company and the Savings Bank. Upon receipt of
shareholder approval of the Option Plan, the Company plans to grant compensatory
stock options for shares of Common Stock to executive officers and other key
personnel of the Company and its subsidiaries. The exercise price for such
options will be the fair market value of the Common Stock at the date of grant.
Grants will be made by the Committee primarily based on performance, although
the Committee will be able to consider other factors determined to be relevant
in its sole discretion. Under the terms of the Option Plan, no employee of the
Company may be granted options for more than 100,000 shares of Common Stock in a
given fiscal year. Each stock option or portion thereof shall be exercisable at
any time on or after it vests and is exercisable until ten years after its date
of grant or three months after the date on which the optionee's employment
terminates. An option will fully vest in the event of the optionee's death or
disability.
Under current provisions of the Code, the federal income tax treatment
of incentive stock options and compensatory stock options is different. As to
incentive stock options, an optionee who meets certain holding period
requirements will not recognize income at the time the option is granted or at
the time the option is exercised (although a tax preference item subject to the
alternative minimum tax may result upon exercise), and a federal income tax
deduction generally will not be available to the Company at any time as a result
of such grant or exercise. With respect to compensatory stock options, the
difference between the fair market value on the date of exercise and the option
exercise price generally will be treated as ordinary income upon exercise, and
the Company will be entitled to a deduction in the amount of income so
recognized by the optionee.
Management Recognition Plan. The Board of Directors of the Company
intends to adopt the Recognition Plan for directors and selected officers and
employees and to submit such plan to
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<PAGE>
stockholders at a special or annual meeting of stockholders no earlier than six
months after the completion of the Conversion and Reorganization. The objective
of the Recognition Plan will be to enable the Company to provide directors,
officers and employees of the Company and the Savings Bank with a proprietary
interest in the Company as an incentive to contribute to its success.
The Recognition Plan will be administered by the same committee that
administers the Option Plan. A number of shares equal to 4.0% of the Common
Stock (73,000 shares, based on the sale of 1,825,000 shares will be reserved
under the Recognition Plan). Shares of Common Stock granted pursuant to the
Recognition Plan generally will be in the form of restricted stock that vests
over a period specified by the Committee. For accounting purposes, compensation
expense in the amount of the fair market value of the Common Stock at the date
of the grant to the recipient will be recognized pro rata over the number of
years during which the shares vest. The shares, while restricted, may not be
sold, pledged or otherwise disposed of. If a recipient terminates employment for
reasons other than death or disability, the recipient will forfeit all rights to
the shares under restriction. If the recipient's termination is caused by death
or disability, all restrictions will expire and all allocated shares will become
unrestricted. Common Stock required for distribution pursuant to the Recognition
Plan will be issued from authorized but unissued shares or from treasury shares
repurchased by the Company, or both. The Board of Directors of the Company may
terminate the Recognition Plan at any time.
Under current OTS regulations, if the Recognition Plan is submitted for
shareholder approval within one year after the consummation of the Conversion
and Reorganization, unless the Regional Director of the OTS permits otherwise,
no individual member of management may receive more than 25% of the shares which
may be issued pursuant to a stock plan and directors who are not employees may
not receive more than 5% of such shares individually and more than 30% of such
shares in the aggregate. If the Recognition Plan is submitted for shareholder
approval within one year after the consummation of the Conversion and
Reorganization, shares granted pursuant to the Recognition Plan will vest at the
rate of 20% per year over the five years following the date of grant. Recipients
of grants under the Recognition Plan will not be required to make any payment at
the time of grant or when the underlying shares of Common Stock become vested.
Upon receipt of stockholder approval of the Recognition Plan, the
Company anticipates granting stock awards for shares of Common Stock to
directors, executive officers and other key personnel. A total of 70% of the
Common Stock to be issued pursuant to the Recognition Plan will be available for
the award of shares of Common Stock to executive officers and key employees of
the Savings Bank. It is currently anticipated that stock awards will be made to
officers and key personnel by the committee primarily based on performance,
although the committee will be able to consider other factors determined to be
relevant in its sole discretion. In addition, pursuant to the Recognition Plan,
30% of the shares of Common Stock authorized to be awarded by the Recognition
Plan will be available to be awarded to outside directors of the Company. It is
currently anticipated that stock awards will be granted to each of the non-
employee directors. All of the stock awards will be granted at no cost to the
recipients. No decision has yet been made as to anticipated grants to
individuals under the Recognition Plan. See "Risk Factors - Possible Dilutive
Effect of Issuance of Additional Shares" and "Management of the Company -
Benefits."
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<PAGE>
Employee Stock Ownership Plan
The Company will establish an Employee Stock Ownership Plan for
employees age 21 or older who have at least one year of credited service with
the Savings Bank or any affiliate (including years of service with the mutual
predecessor of the Savings Bank). The ESOP will be funded by the Company, the
Savings Bank and any other adopting affiliate with contributions made in cash
(which primarily will be invested in Common Stock) or Common Stock. Benefits may
be paid either in shares of Common Stock or in cash.
It is anticipated that the ESOP will borrow funds which are sufficient
to purchase 8% of the Common Stock issued in the Offerings or 167,900 shares,
based on the issuance of the maximum 2,098,750 shares in the Offerings. The ESOP
plans to obtain a loan from the Company which will permit the ESOP to purchase
such shares. The initial interest rate on the loan is expected to equal the
prime rate, which is currently 8.25%. The Savings Bank will make scheduled
discretionary cash contributions to the ESOP sufficient to amortize the
principal and interest on the loan, which is anticipated to have a maturity of
five years. The Savings Bank may, in any plan year, make additional
discretionary contributions for the benefit of plan participants in either cash
or shares of Common Stock, which may be acquired through the purchase of
outstanding shares in the market or from individual stockholders, upon the
original issuance of additional shares by the Company or upon the sale of
Treasury shares by the Company. Such purchases, if made, would be funded through
additional borrowings by the ESOP or additional contributions. The timing,
amount and manner of future contributions to the ESOP will be affected by
various factors, including prevailing regulatory policies, the requirements of
applicable laws and regulations and market conditions.
Shares purchased by the ESOP with the proceeds of the loan will be held
in a loan suspense account and released on a pro rata basis as debt service
payments are made. Discretionary contributions to the ESOP and shares released
from the suspense account will be allocated among participants on the basis of
compensation. A participant becomes vested in his or her ESOP account upon
completing five years of service with the Savings Bank or any affiliate.
Forfeitures will be reallocated among remaining participating employees.
Benefits may be payable upon retirement or separation from service. The Savings
Bank's contributions to the ESOP are not fixed, so benefits payable under the
ESOP cannot be estimated.
The Savings Bank will administer the ESOP and Lisa Lawson, Thomas E.
Reeve, Jr. Steve McCord and Anna L. Berry will act as trustees of the related
trust. Under the ESOP, the trustees must vote all allocated shares held in the
ESOP in accordance with the instructions of the participating employees, and
allocated shares for which employees do not give instructions will be voted
generally by the ESOP trustees on any matter as to those shares for which
instructions are given. Unallocated shares held in the ESOP will be voted
generally by the ESOP trustees.
The ESOP will be subject to the requirements of the Employee Retirement
Income Security Act of 1974, as amended, the Code and the regulations of the IRS
and the Department of Labor promulgated thereunder.
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<PAGE>
MANAGEMENT OF THE SAVINGS BANK
Directors
The direction and control of the Savings Bank is vested in its Board of
Directors. Pursuant to the Bylaws of the Savings Bank, its Board of Directors
shall be divided into three classes which are as equal in size as is possible,
and one of such classes shall be elected annually by the stockholders of the
Savings Bank for three-year terms.
The following table sets forth certain information with respect to the persons
who currently serve as directors of the Savings Bank. There are no arrangements
or understandings between the Savings Bank and any such person pursuant to which
such person may be elected a director of the Savings Bank, and no such director
is related to any other director or executive officer by blood, marriage or
adoption.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Age as of
Name and Position(s) December Principal Employment Director Term
with the Savings Bank 31, 1996 for the Past Five Years Since Expires
- --------------------------------------------------------------------------------
T. Aubrey Silvey 59 Chairman and Chief 1982 1997
Chairman of the Board Executive Officer of
Aubrey Silvey
Enterprises, an
electrical
substation contractor
Gary D. Dorminey 50 Chief Executive 1990 1997
Chief Executive Officer, Officer, President
President and Director and Director of the
Savings Bank
Anna L. Berry 47 Treasurer of 1996 1997
Director Southwire Company, a
major manufacturer
of wire products
Gary M. Bullock 54 President and Chief 1988 1998
Vice Chairman of the Board Executive Officer of
Carroll Electric
Membership Corp.
Jerry L. Clayton 54 Owner of Clayton 1992 1998
Director Pharmacy
Thomas E. Reeve, Jr. 76 Retired Physician 1990 1999
Director
Michael P. Steed 52 President and Owner 1990 1999
Director of the Steed Company,
a manufacturer of
fabric labels
Dean B. Talley 54 Physician 1986 1998
Director
Thomas S. Upchurch 57 President of Georgia 1991 1999
Director Partnership for
Excellence in
Education
</TABLE>
83
<PAGE>
Executive Officers Who Are Not Directors
The following table sets forth certain information with respect to the
persons who currently serve as executive officers of the Savings Bank and who
initially will serve as executive officers of the Company and who are not, and
will not be, directors. There are no arrangements or understandings between the
Savings Bank and/or the Company and any such person pursuant to which such
person was or will be elected an executive officer of the Savings Bank or the
Company and no such officer is related to any director or other officer of the
Savings Bank or the Company by blood, marriage or adoption.
<TABLE>
<CAPTION>
Name and Position(s) with Age as of Principal Employment
the Savings Bank December 31, 1996 for the Past Five Years
- --------------------------------------------------------------------------------
<S> <C> <C>
D. Lane Poston 47 Executive Vice President and
Executive Vice President Chief Operating Officer of the
and Chief Operating Savings Bank
Officer
C. Lynn Gable 44 Chief Financial Officer of the
Chief Financial Officer Savings Bank since February
1997; prior thereto, President
of Gable Financial Group, Inc.
Anyce C. Fox 50 Senior Vice President of the
Senior Vice President Savings Bank since 1990.
</TABLE>
Board Meetings and Committees of the Board of Directors
Regular meetings of the Board of Directors of the Savings Bank are held
on at least a monthly basis and special meetings of the Board of Directors of
the Savings Bank are held from time to time as needed. There were 13 meetings of
the Board of Directors of the Savings Bank held during the fiscal year ended on
December 31, 1996. No director attended fewer than 75% of the total number of
meetings of the Board of Directors of the Savings Bank held during fiscal 1996
and the total number of meetings held by all committees of the Board on which
the director served during such year.
The Board of Directors of the Savings Bank has established various
committees, including an Executive Committee, a Compensation Committee and an
Audit Committee.
The Executive Committee generally has the power and authority to act on
behalf of the Board of Directors on important matters between scheduled director
meetings unless specific Board of Directors action is required or unless
otherwise restricted by the Savings Bank's charter or bylaws or its Board of
Directors. The Executive Committee currently is chaired by T. Aubrey Silvey,
with Gary M. Bullock, Gary D. Dorminey and Michael P. Steed as members. The
Executive Committee met 40 times during fiscal 1996.
The Compensation Committee establishes and reviews executive
compensation and administers executive compensation programs. Gary M. Bullock
serves as Chairman of the Compensation Committee and Michael P. Steed and Thomas
S. Upchurch serve as members. The Compensation Committee met four times during
fiscal 1996.
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<PAGE>
The Audit Committee recommends to the Board of Directors the independent
public accountants to be selected to audit the Savings Bank's annual financial
statements and to approve any special assignments given to such accountants. The
Audit Committee also reviews the planned scope of the annual audit, any changes
in accounting principles and the effectiveness and efficiency of the Savings
Bank's internal accounting staff. Thomas S. Upchurch serves as Chairman of the
Audit Committee and Dean B. Talley, Thomas E. Reeve and Anna L. Berry serve as
members. The Audit Committee met four times during fiscal 1996.
Other Committees
In addition to committees of the Board of Directors, the Savings Bank
has also established an Asset/Liability Committee, Asset Review Committee,
Marketing/Public Relations Committee, Loan Committee, C.R.A. Committee, 401(k)
Administrative and Investment Committee and Commercial Loan Committee. These
Committees are composed of directors, officers and key personnel of the Savings
Bank.
Executive Compensation
The following table sets forth the compensation paid by the Savings Bank
for services rendered in all capacities during the fiscal year ended December
31, 1996 to the Savings Bank's chief executive officer and all other executive
officers whose total salary and bonus during such year exceeded $100,000. None
of the named executive officers received or held any stock options in 1996.
Summary Compensation Table
<TABLE>
<CAPTION>
Other All
Name and Principal Annual Long-Term Other
Position Year Salary Bonus Compensation(1) Compensation Compensation
<S> <C> <C> <C> <C> <C> <C>
Gary D. Dorminey 1996 $139,000 $31,650 0 0 0
President and Chief 1995 129,250 42,342 0 0 0
Executive Officer 1994 117,500 24,675 0 0 0
D. Lane Poston 1996 105,000 24,182 0 0 0
Executive Vice 1995 99,500 24,875 0 0 0
President and Chief 1994 95,520 19,830 0 0 0
Operating Officer
</TABLE>
(1) Does not include amounts attributable to miscellaneous benefits received by
executive officers, including automobiles owned by the Savings Bank. The costs
to the Savings Bank of providing such benefits to any individual executive
officer during any of the years reported did not exceed the lesser of $50,000 or
10% of the total annual salary and bonus reported for the individual.
Board Fees
Following the Conversion and Reorganization, the directors of the
Company will not receive compensation solely for their services as directors of
the Company. Each member of the Board of Directors of the Savings Bank is paid a
fee of $575 per Board meeting attended, $750 per month for Executive Committee
members other than the Chairman ($1,000 per month in the case of the Chairman of
the committee) and $200 per meeting for all other committees.
85
<PAGE>
Directors' Retirement Plan
In December 1995, the Savings Bank initiated a defined contribution
post-retirement benefit plan to provide retirement benefits to its directors and
to provide death benefits for the designated beneficiary. In connection with the
plan's establishment, the Savings Bank purchased a whole life insurance contract
on the life of each director and entered into a split dollar arrangement with
each director. The increase in cash surrender value of the contract, less the
Bank's cost of funds, determines each director's annual benefit. In the event
the insurance contract fails to produce positive returns, the Savings Bank has
no separate obligation to contribute to the Plan. At December 31, 1996, the cash
surrender value of the insurance contract was approximately $969,000. See Note
(9) of Notes to Consolidated Financial Statements.
Consulting Arrangements and Employment Agreements
As of September 1, 1996, the Savings Bank entered into an employment
agreement with Gary D. Dorminey with regard to Mr. Dorminey's continued service
as President and Chief Executive Officer of the Savings Bank. During the term of
this agreement, the Savings Bank has agreed to provide Mr. Dorminey with (a) an
annual salary of $117,504; (b) an incentive bonus determined each year by the
Compensation Committee of the Board of Directors; (c) participation in
employment benefit programs maintained for employees of the Savings Bank; (d)
reimbursement of the dues and costs of club membership; and (e) use of an
automobile. The employment agreement is for a three-year term ending August 31,
1999; provided, however, that the term is automatically extended by additional
one-year period(s) if neither party gives a Nonrenewal Notice to the other
within 90 days immediately preceding each contract anniversary date (September
1). The Board of Directors may terminate Mr. Dorminey at any time, but any
termination by the Board other than termination for cause shall not affect Mr.
Dorminey's rights to compensation or other benefits under the employment
agreement. The employment agreement further provides that in the event of
termination following a change in control of the Savings Bank, Mr. Dorminey
shall be entitled to a payment equal to 2.99 times his average annual
compensation over the five years preceding such termination. The employment
agreement also complies with OTS regulations governing employment contracts
entered into by insured institutions.
Retirement Plan
The Savings Bank has a defined benefit pension plan ("Retirement Plan" )
for all employees who have attained the age of 21 years and have completed one
year of service with the Savings Bank In general, the Retirement Plan provides
for annual benefits payable monthly upon retirement at age 65 in an amount equal
to approximately one percent of the "Average Compensation" of the employee
(which is equal to the average of the compensation paid to him or her during the
five successive calendar years within the final ten calendar years of service
affording the highest average, excluding bonuses, overtime pay and other special
compensation) for each year of service, not in excess of 40 years. Under the
Retirement Plan, an employee's benefits are fully vested after five years of
qualifying service. A year of service is any year in which an employee works a
minimum of 1,000 hours. The Retirement Plan provides for an early retirement
option with reduced benefits for participants who are 55.
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<PAGE>
The following table illustrates annual pension benefits for retirement
at age 65 under various levels of compensation and years of service. The
figures in the table assume that the Retirement Plan continues in its
present form and that the participants elect a straight life annuity form
of benefit.
<TABLE>
<CAPTION>
Five Year
Average 10 Years of 15 Years of 20 Years of 25 Years of 30 Years of 35 Years of
Compensation Service Service Service Service Service Service
- ------------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
$ 40,000 $ 4,000 $ 6,000 $ 8,000 $10,000 $12,000 $14,000
50,000 5,000 7,500 10,000 12,500 15,000 17,500
60,000 6,000 9,000 12,000 15,000 18,000 21,000
70,000 7,000 10,500 14,000 17,500 21,000 24,500
80,000 8,000 12,000 16,000 20,000 24,000 28,000
90,000 9,000 13,500 18,000 22,500 27,000 31,500
100,000 10,000 15,000 20,000 25,000 30,000 35,000
110,000 11,000 16,500 22,000 27,500 33,000 38,500
120,000 12,000 18,000 24,000 30,000 36,000 42,000
</TABLE>
The Savings Bank did not contribute to the Retirement Plan for fiscal
1996. At December 31, 1996, Mr. Dorminey had 8.67 years of credited
service under the Retirement Plan and total accrued funds in the Retirement
Plan of $6,721, and Mr. Poston had 5.58 years of credited service under the
Retirement Plan and total accrued funds in the Retirement Plan of $5,289.
The Savings Bank will continue to maintain the Retirement Plan
following the Conversion and Reorganization.
401(k) Plan
The Savings Bank maintains a 401(k) retirement savings plan (the
"401(k) Plan") for employees who satisfy minimum age and service
requirements and makes matching contributions to this plan equal to 50% of
an eligible employee's salary deferrals (not in excess of 10% of his or her
compensation). Under the 401(k) Plan, each employee may elect to reduce
his or her current gross salary by up to 15% of his or her compensation,
not to exceed certain limits specified in the Code, and have the amount of
the reduction contributed to the 401(k) Plan. Upon termination of
employment, a participant may elect to receive a lump sum distribution.
Indebtedness of Management
As a result of FIRREA's application of Section 22(h) of the Federal
Reserve Act to savings institutions, any credit extended by a savings
association, such as the Savings Bank to its executive officers, directors
and, to the extent otherwise permitted, principal stockholder(s), or any
related interest of the foregoing, must be (i) on substantially the same
terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions by the savings association with non-
affiliated parties and (ii) not involve more than the normal risk of
repayment or present other unfavorable features. In the normal course of
business, the Savings Bank makes loans to directors,
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<PAGE>
officers and employees on substantially the same terms, including interest
rates and collateral, as those prevailing for comparable transactions with
others.
-88-
<PAGE>
THE CONVERSION AND REORGANIZATION
The Boards of Directors of the Mutual Holding Company, the Savings
Bank and the Company have approved the Plan of Conversion, as has the OTS,
subject to approval by the Members of the Mutual Holding Company entitled
to vote on the matter and the Mutual Holding Company, as the sole
shareholder of the Savings Bank, and the satisfaction of certain other
conditions. Such OTS approval, however, does not constitute a
recommendation or endorsement of the Plan by such agency.
General
The Boards of Directors of the Mutual Holding Company and the Savings
Bank unanimously adopted the Plan on February 11, 1997. The Plan has been
approved by the OTS, subject to, among other things, approval of the Plan
by the Members and by the Mutual Holding Company, as the sole stockholder
of the Savings Bank. The Members Meeting and the Stockholders Meeting have
been called for this purpose on _____________, 1997.
The following is a brief summary of pertinent aspects of the Plan and
the Conversion and Reorganization. The summary is qualified in its
entirety by reference to the provisions of the Plan, which is available for
inspection at the office of the Savings Bank and at the offices of the OTS.
The Plan also is filed as an exhibit to the Registration Statement of which
this Prospectus is a part, copies of which may be obtained from the SEC.
See "Additional Information."
Purposes of the Conversion and Reorganization
The Mutual Holding Company, as a federally chartered mutual holding
company, does not have stockholders and has no authority to issue capital
stock. As a result of the Conversion and Reorganization, the Company will
be structured in the form used by holding companies of commercial banks,
most business entities and a growing number of savings institutions. The
stock holding company form of organization will provide the Company with
the ability to diversify the Company's and the Savings Bank's business
activities through acquisition of or mergers with both stock savings
institutions and commercial banks, as well as other companies. Although
there are no current arrangements, understandings or agreements regarding
any such opportunities, the Company will be in a position after the
Conversion and Reorganization, subject to regulatory limitations and the
Company's financial position, to take advantage of any such opportunities
that may arise. Management believes it will be in the best interests of
the Company, the Savings Bank and the Company's stockholders for the
Company to remain an independent company.
In their decision to pursue the Conversion and Reorganization, the
Mutual Holding Company and the Savings Bank considered various regulatory
uncertainties associated with the mutual holding company structure,
including the ability to waive dividends in the future as well as the
general uncertainty regarding a possible elimination of the federal savings
bank charter.
The Conversion and Reorganization also will be important to the future
growth and performance of the holding company organization by providing a
larger capital base to support the operations of the Savings Bank and
Company and by enhancing their future access to capital markets, ability to
diversify into other financial services related activities, and ability to
provide additional services to the public. Although the Savings Bank
currently has the ability to raise additional capital through the sale of
additional shares of Savings Bank Common Stock, that ability is limited by
the
-89-
<PAGE>
mutual holding company structure which, among other things, requires that
the Mutual Holding Company hold a majority of the outstanding shares of
Savings Bank Common Stock. Therefore, only a minority could be sold to
depositors and other members of the public.
As a result, the Conversion and Reorganization also will likely result
in a larger number of stockholders following the Conversion and
Reorganization as compared to the number of outstanding stockholders of
Savings Bank Common Stock that would be outstanding if the Savings Bank had
determined to pursue a public offering of Savings Bank Common Stock within
the mutual holding company structure. The larger number of stockholders
will increase the likelihood of the development of an active and liquid
trading market for the Common Stock. See "Market for Common Stock."
In light of the foregoing, the Boards of Directors of the Savings Bank
and the Mutual Holding Company believe that the Conversion and
Reorganization is in the best interests of such companies and their
respective stockholders and Members.
Description of the Conversion and Reorganization
On February 11, 1997, the Boards of Directors of the Savings Bank and
the Mutual Holding Company adopted the Plan and in March 1997 the Savings
Bank incorporated the Company under Georgia law as a first-tier wholly
owned subsidiary of the Savings Bank. Pursuant to the Plan, (i) the Mutual
Holding Company will convert to Interim Mutual and simultaneously will
merge with and into the Savings Bank, pursuant to which the Mutual Holding
Company will cease to exist and the shares of Savings Bank Common Stock
held by the Mutual Holding Company will be cancelled, and (ii) Interim CFB
will then merge with and into the Savings Bank. As a result of the merger
of Interim CFB with and into the Savings Bank, the Savings Bank will become
a wholly owned subsidiary of the Company operating under the name
"Carrollton Federal Bank."
-90-
<PAGE>
The following diagram outlines the current organizational structure
and the parties ownership interests:
------------------------------------
CF Mutual
Holdings
------------------------------------
|
| 100%
|
------------------------------------
Carrollton Federal Bank
------------------------------------
|
| 100%
|
------------------------------------
Community First Banking
Company
------------------------------------
|
| 100%
|
------------------------------------
Interim CFB
Savings Bank
------------------------------------
-91-
<PAGE>
The following diagram reflects the Conversion and Reorganization,
including (i) the merger of the mutual Holding Company (following its
conversion to Interim Mutual) with and into the Savings Bank, (ii) the
merger of Interim CFB with and into the Savings Bank, and (iii) the
offering of Common Stock.
------------------------------------
Purchasers of Common Stock
------------------------------------
|
| 100%
|
------------------------------------
Community First
Banking Company
------------------------------------
|
| 100%
|
------------------------------------
Carrollton Federal Bank
------------------------------------
Pursuant to OTS regulations, consummation of the Conversion and
Reorganization (including the offering of Common Stock in the Offerings, as
described below) is conditioned upon the approval of the Plan by (1) the
OTS, (2) at least a majority of the total number of votes eligible to be
cast by members of the Mutual Holding Company at the Members' Meeting, and
(3) holders of at least two-thirds of the shares of the outstanding Savings
Bank Common Stock at the Stockholders' Meeting. The OTS has conditionally
approved the Plan. One hundred percent of the Savings Bank's Common Stock
is owned by the Mutual Holding Company and the Mutual Holding Company
intends to vote its shares of Savings Bank Common Stock in favor of the
Plan at the Stockholders' Meeting.
Effects of the Conversion and Reorganization
General. Prior to the Conversion and Reorganization, each depositor
in the Savings Bank has both a deposit account in the institution and a pro
rata ownership interest in the net worth of the Mutual Holding Company
based upon the balance in his account, which interest may only be realized
in the event of a liquidation of the Mutual Holding Company. However, this
ownership interest is tied to the depositor's account and has no tangible
market value separate from such deposit account. A depositor who reduces
or closes his or her account receives a portion or all of the balance in
the account but nothing for his or her ownership interest in the net worth
of the Mutual Holding Company, which is lost to the extent that the balance
in the account is reduced.
Consequently, the depositors of the Savings Bank normally have no way
to realize the value of their ownership interest in the Mutual Holding
Company, which has realizable value only in the unlikely event that the
Mutual Holding Company is liquidated. In such event, the depositors of
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<PAGE>
record at that time, as owners, would share pro rata in any residual
surplus and reserves of the Mutual Holding Company after other claims are
paid.
Upon consummation of the Conversion and Reorganization, permanent
nonwithdrawable capital stock will be created to represent the ownership of
the net worth of the Company. The Common Stock of the Company is separate
and apart from deposit accounts and cannot be and is not insured by the
FDIC or any other governmental agency. Certificates are issued to evidence
ownership of the permanent stock. The stock certificates are transferable,
and therefore the stock may be sold or traded if a purchaser is available
with no effect on any account the seller may hold in the Savings Bank.
Continuity. While the Conversion and Reorganization is being
accomplished, the normal business of the Savings Bank of accepting deposits
and making loans will continue without interruption. The Savings Bank will
continue to be subject to regulation by the OTS and the FDIC. After the
Conversion and Reorganization, the Savings Bank will continue to provide
services for depositors and borrowers under current policies by its present
management and staff.
The directors and officers of the Savings Bank at the time of the
Conversion and Reorganization will continue to serve as directors and
officers of the Savings Bank after the Conversion and Reorganization. The
directors and officers of the Company consist of individuals currently
serving as directors and officers of the Mutual Holding Company and the
Savings Bank, and they generally will retain their positions in the Company
after the Conversion and Reorganization.
Effect on Deposit Accounts. Under the Plan, each depositor in the
Savings Bank at the time of the Conversion and Reorganization will
automatically continue as a depositor after the Conversion and
Reorganization, and each such deposit account will remain the same with
respect to deposit balance, interest rate and other terms, except to the
extent that funds in the account are withdrawn to purchase Common Stock to
be issued in the Offerings. Each such account will be insured by the FDIC
to the same extent as before the Conversion and Reorganization. Depositors
will continue to hold their existing certificates, passbooks and other
evidences of their accounts.
Effect on Loans. No loan outstanding from the Savings Bank will be
affected by the Conversion and Reorganization, and the amount, interest
rate, maturity and security for each loan will remain as they were
contractually fixed prior to the Conversion and Reorganization.
Effect on Voting Rights of Members. At present, all depositors of the
Savings Bank and certain borrowers (those having borrowings as of July 19,
1990 that are still in existence) are members of, and have voting rights
in, the Mutual Holding Company as to all matters requiring membership
action. Upon completion of the Conversion and Reorganization, depositors
and such borrowers will cease to be members and will no longer be entitled
to vote at meetings of the Mutual Holding Company. Upon completion of the
Conversion and Reorganization, all voting rights in the Savings Bank will
be vested in the Company as the sole stockholder of the Savings Bank.
Exclusive voting rights with respect to the Company will be vested in the
holders of Common Stock. Depositors of the Savings Bank will not have
voting rights in the Company after the Conversion and Reorganization,
except to the extent that they become stockholders of the Company.
Tax Effects. Consummation of the Conversion and Reorganization is
conditioned on prior receipt by the Primary Parties of rulings or opinions
with regard to federal and Georgia income taxation which indicate that the
adoption and implementation of the Plan of Conversion set forth
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herein will not be taxable for federal or Georgia income tax purposes to
the Primary Parties or the Savings Bank's Eligible Account Holders,
Supplemental Eligible Account Holders or Other Members, except as discussed
below. See "- Tax Aspects" below.
Effect on Liquidation Rights. Were the Mutual Holding Company to
liquidate, all claims of the Mutual Holding Company's creditors would be
paid first. Thereafter, if there were any assets remaining, members of the
Mutual Holding Company would receive such remaining assets, pro rata, based
upon the deposit balances in their deposit accounts at the Savings Bank
immediately prior to liquidation. In the unlikely event that the Savings
Bank were to liquidate after the Conversion and Reorganization, all claims
of creditors (including those of depositors, to the extent of their deposit
balances) also would be paid first, followed by distribution of the
"liquidation account" to certain depositors (see "-Liquidation Rights"
below), with any assets remaining thereafter distributed to the Company as
the holder of the Savings Bank's capital stock. Pursuant to the rules and
regulations of the OTS, a merger, consolidation, sale of bulk assets or
similar combination or transaction with another insured savings institution
would not be considered a liquidation for this purpose and, in such a
transaction, the liquidation account would be required to be assumed by the
surviving institution.
The Offerings
Subscription Offering. In accordance with the Plan of Conversion,
rights to subscribe for the purchase of Common Stock have been granted
under the Plan of Conversion to the following persons in the following
order of descending priority: (1) Eligible Account Holders; (2) the ESOP;
(3) Supplemental Eligible Account Holders; and (4) Other Members. All
subscriptions received will be subject to the availability of Common Stock
after satisfaction of all subscriptions of all persons having prior rights
in the Subscription Offering and to the maximum and minimum purchase
limitations set forth in the Plan of Conversion and as described below
under "- Limitations on Common Stock Purchase." Pursuant to the Plan and
OTS policy and regulations, subscription rights will be allocated based on
a subscriber's account relationship with the Savings Bank. No person
holding subscription rights may exceed any otherwise applicable purchase
limitation by submitting multiple orders for Common Stock in the Offerings.
Multiple orders are subject to adjustment on a pro rata basis and deposit
balances will be divided equally among such orders in allocating shares in
the event of an oversubscription. The beneficial owners of individual
retirement accounts, Keogh savings accounts and similar retirement accounts
shall receive the subscription rights with respect to those deposit
accounts.
Priority 1: Eligible Account Holders. Each Eligible Account Holder
will receive, without payment therefor, first priority, nontransferable
subscription rights to subscribe for in the Subscription Offering up to the
greater of (i) $375,000 of Common Stock, (ii) one-tenth of one percent
(.10%) of the total offering of shares of Common Stock in the Subscription
Offering or (iii) 15 times the product (rounded down to the next whole
number) obtained by multiplying the total number of shares of Common Stock
offered in the Subscription Offering by a fraction, of which the numerator
is the amount of the Eligible Account Holder's qualifying deposit and the
denominator of which is the total amount of qualifying deposits of all
Eligible Account Holders, in each case as of the close of business on
December 31, 1995 (the "Eligibility Record Date"), subject to the overall
purchase limitations. See "- Limitations on Common Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions in this category, shares will first be allocated so as to
permit each subscribing Eligible Account Holder to purchase a number of
shares sufficient to make his or her total allocation equal to the lesser
of the number of shares subscribed for or 100 shares. Thereafter,
unallocated shares will be allocated to subscribing Eligible
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Account Holders whose subscriptions remain unfilled in the proportion that
the amounts of their respective eligible deposits bear to the total amount
of eligible deposits of all subscribing Eligible Account Holders whose
subscriptions remain unfilled, provided that no fractional shares shall be
issued. If the amount so allocated exceeds the amount subscribed for by
any one or more Eligible Account Holders, the excess shall be reallocated
(one or more times as necessary) among those Eligible Account Holders whose
subscriptions are not fully satisfied on the same principle described above
until all available shares have been allocated or subscriptions satisfied.
The subscription rights of Eligible Account Holders who are also directors
or executive officers of the Mutual Holding Company or the Savings Bank and
their associates will be subordinated to the subscription rights of other
Eligible Account Holders to the extent attributable to increased deposits
in the year preceding December 31, 1995.
Priority 2: ESOP. The ESOP will receive, without payment therefor,
second priority, nontransferable subscription rights to purchase, in the
aggregate, up to 10% of the Common Stock, including any increase in the
number of shares of Common Stock after the date hereof as a result of an
increase of up to 15% in the maximum of the Valuation Price Range. The
ESOP intends to purchase 8.0% of the shares of Common Stock, or 167,900
shares based on the maximum of the Valuation Price Range. Subscriptions by
the ESOP will not be aggregated with shares of Common Stock purchased
directly by or which are otherwise attributable to any other participants
in the Subscription and Community Offerings, including subscriptions of any
of the Savings Bank's directors, officers, employees or associates thereof.
See "Management of the Company - Benefits - Employee Stock Ownership Plan."
In the event that the number of shares of Common Stock issued in the
Conversion and Reorganization exceeds the number of shares that would be
issued at the maximum of the Valuation Price Range (the "Maximum Shares"),
the ESOP will have the first priority right to purchase any shares of
Common Stock issued in excess of the Maximum Shares (up to an aggregate of
10% of the Common Stock issued in the Conversion, including any shares of
Common Stock to be issued in the Conversion and Reorganization as a result
of an increase in the Valuation Price Range after commencement of the
Subscription Offering and prior to completion of the Conversion and
Reorganization). In the event that there is an oversubscription for shares
of Common Stock, and as a result, the ESOP is unable to purchase in the
Conversion and Reorganization the amounts subscribed for (up to the 10%
limitation described above), then, upon receipt of all necessary regulatory
approvals, the Boards of Directors of the Company and the Savings Bank
shall be authorized to (i) issue additional shares of Common Stock directly
to the ESOP at the Purchase Price or (ii) approve the purchase by the ESOP
in the open market after the Conversion and Reorganization, of such shares
as are necessary for the ESOP to purchase the amounts subscribed for. In
making such purchases, the ESOP would use funds contributed by the Company
or the Savings Bank and/or borrowed from the Company or an independent
financial institution. Purchases of additional shares of Common Stock from
the Company would dilute the interest of other stockholders. See "-
Limitations on Common Stock Purchases" and "Risk Factors - Possible
Dilutive Effect of Issuance of Additional Shares."
Priority 3: Supplemental Eligible Account Holders. Each Supplemental
Eligible Account Holder will receive, without payment therefor, third
priority, nontransferable subscription rights to subscribe for the
Subscription Offering up to the greater of (i) $375,000 of Common Stock,
(ii) one-tenth of one percent (.10%) of the total offering of shares of
Common Stock in the Subscription Offering and (iii) 15 times the product
(rounded down to the next whole number) obtained by multiplying the total
number of shares of Common stock offered in the Subscription Offering by a
fraction, of which the numerator is the amount of the Supplemental Eligible
Account
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Holder's qualifying deposit and the denominator of which is the total
amount of qualifying deposits of all Supplemental Eligible Account Holders,
in each case as of the close of business on [March 31], 1997 (the
"Supplemental Eligibility Record Date"), subject to the overall purchase
limitations. See "- Limitations on Common Stock Purchases."
If there are not sufficient shares available to satisfy all
subscriptions in this category, shares first will be allocated so as to
permit each subscribing Supplemental Eligible Account Holder to purchase a
number of shares sufficient to make his or her total allocation equal to
the lesser of the number of shares subscribed for or 100 shares.
Thereafter, unallocated shares will be allocated to subscribing
Supplemental Eligible Account Holders whose subscriptions remain unfilled
in the proportion that the amounts of their respective eligible deposits
bear to the total amount of eligible deposits of all such subscribing
Supplemental Eligible Account Holders whose subscriptions remain unfilled,
provided that no fractional shares shall be issued. If the amount so
allocated exceeds the amount subscribed for by any one or more Supplemental
Eligible Account Holders, the excess shall be reallocated (one or more
times as necessary) among those Supplemental Eligible Account Holders whose
subscriptions are not fully satisfied until all available shares have been
allocated or subscriptions satisfied.
Priority 4: Other Members. To the extent that there are sufficient
shares remaining after satisfaction of subscriptions by Eligible Account
Holders, the ESOP and Supplemental Eligible Account Holders, each Other
Member will receive, without payment therefor, fourth priority,
nontransferable subscription rights to subscribe for Common Stock in the
Subscription Offering up to the greater of (i) $375,000 of Common Stock, or
(ii) one-tenth of one percent (.10%) of the total offering of shares of
Common Stock in the Subscription Offering, subject to the overall purchase
limitations. See "- Limitations on Common Stock Purchases."
In the event the Other Members subscribe for a number of shares which,
when added to the shares subscribed for by Eligible Account Holders, the
ESOP and Supplemental Eligible Account Holders, is in excess of the total
number of shares of Common Stock offered in the Subscription Offering,
shares first will be allocated so as to permit each subscribing Other
Member to purchase a number of shares sufficient to make his or her total
allocation equal to the lesser of the number of shares subscribed for or
100 shares. Thereafter, any remaining shares will be allocated among
subscribing Other Members on a pro rata basis in the same proportion as
each Other Member's subscription bears to the total subscriptions of all
subscribing Other Members, provided that no fractional shares shall be
issued.
Expiration Date for the Subscription Offering. The Subscription
Offering will expire at 12:00 noon, Eastern Time, on [June 17], 1997,
unless extended by the Primary Parties for up to 45 days or, with the
approval of the OTS, for additional periods by the Primary Parties. Such
extension may not be beyond [June 16,] 1999. Subscription rights which
have not been exercised prior to the Expiration Date will become void.
The Primary Parties will not execute orders until at least the minimum
number of shares of Common Stock (25 shares) have been subscribed for or
otherwise sold. If all shares have not been subscribed for or sold within
45 days after the Expiration Date, unless such period is extended with the
consent of the OTS, all funds delivered to the Savings Bank pursuant to the
Subscription Offering will be returned promptly to the subscribers with
interest and all withdrawal authorizations will be cancelled. If an
extension beyond the 45-day period following the Expiration Date is
granted, the Primary Parties will notify subscribers of the extension of
time and of any rights of subscribers to modify or rescind their
subscriptions.
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Community Offering. To the extent that shares remain available for
purchase after satisfaction of all subscriptions of Eligible Account
Holders, the ESOP, Supplemental Eligible Account Holders and Other Members,
the Primary Parties have determined to offer shares pursuant to the Plan to
certain members of the general public, with preference given to natural
persons residing in the Local Community (such natural persons referred to
as "Preferred Subscribers"). Such persons, together with associates of and
persons acting in concert with such persons, may purchase up to $375,000 of
Common Stock in the Community Offering. See "- Limitations on Common Stock
Purchases." This amount may be increased at the sole discretion of the
Primary Parties up to 5% of the total offering of shares in the
Subscription Offering. The opportunity to subscribe for shares of Common
Stock in the Community Offering category is subject to the right of the
Primary Parties, in their sole discretion, to accept or reject any such
orders in whole or in part either at the time of receipt of an order or as
soon as practicable following the completion of the Community Offering.
If there are not sufficient shares available to fill the orders of
Preferred Subscribers after completion of the Subscription and Community
Offerings, such stock will be allocated first to each Preferred Subscriber
whose order is accepted by the Primary Parties, in an amount equal to the
lesser of 100 shares or the number of shares subscribed for by each such
Preferred Subscriber, if possible. Thereafter, unallocated shares will be
allocated among the Preferred Subscribers whose orders remain unsatisfied
in the same proportion that the unfilled subscription of each (up to 2.0%
of the total offering) bears to the total unfilled subscriptions of all
Preferred Subscribers whose subscription remains unsatisfied. If there are
any shares remaining, shares will be allocated to other members of the
general public who subscribe in the Community Offering applying the same
allocation described above for Preferred Subscribers.
The Primary Parties may commence the Community Offering concurrently
with, at any time during, or as soon as practicable after the end of the
Subscription Offering. The Community Offering may terminate at any time
after it is commenced, but must be completed within 45 days after the
completion of the Subscription Offering, unless extended by the Primary
Parties with the consent of the OTS.
Syndicated Community Offering. The Plan provides that, if feasible,
all shares of Common Stock not purchased in the Subscription and Community
Offerings, if any, may be offered for sale to the general public in a
Syndicated Community Offering through a syndicate of registered broker-
dealers to be formed or through an underwritten public offering. No person
will be permitted to subscribe in the Syndicated Community Offering for
more than $375,000 of Common Stock. The maximum amount of Common Stock
that may be purchased in the aggregate in the Syndicated Community Offering
by any person or entity, together with associates of and persons acting in
concert with such person or entity, shall not exceed an aggregate purchase
price of $375,000 of Common Stock. This amount may be increased to up to
5% of the total offering of shares in the Subscription Offering, provided
that orders for Common Stock in the Syndicated Community Offering will
first be filled to a maximum of $375,000 of the total number of shares of
Common Stock sold in the Conversion. Thereafter, any remaining shares will
be allocated on an equal number of shares basis per order until all orders
have been filled. The Primary Parties have the right to reject orders in
whole or part in their sole discretion in the Syndicated Community
Offering. Neither Trident nor any registered broker-dealer shall have any
obligation to take or purchase any shares of Common Stock in the Syndicated
Community Offering; however, Trident has agreed to use its best efforts in
the sale of shares in the Syndicated Community Offering.
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In addition to the foregoing, if a syndicate of broker-dealers
("selected dealers") is formed to assist in the Syndicated Community
Offering, during the Syndicated Community Offering, selected dealers may
only solicit indications of interest from their customers to place orders
with the Savings Bank as of a certain date (the "Order Date") for the
purchase of shares of Common Stock. When and if Trident and the Savings
Bank believe that enough indications and orders have been received in the
Offerings to consummate the Conversion and Reorganization, Trident will
request, as of the Order Date, selected dealers to submit orders to
purchase shares for which they have received indications of interest from
their customers. Selected dealers will send confirmations of the orders to
such customers on the next business day after the Order Date. Selected
dealers will debit the accounts of their customers on a date which will be
three business days from the Order Date ("Debit Date"). Customers who
authorize selected dealers to debit their brokerage accounts are required
to have the funds for payment in their account on but not before the Debit
Date. On the next business day following the Debit Date, selected dealers
will remit funds to the account that the Savings Bank established for each
selected dealer. After payment has been received by the Savings Bank from
selected dealers, funds will earn interest at the Savings Bank's passbook
savings rate until the consummation of the Conversion and Reorganization.
In the event the Conversion and Reorganization are not consummated as
described above, funds with interest will be returned promptly to the
selected dealers, who, in turn, will promptly credit their customers'
brokerage accounts.
The Syndicated Community Offering will terminate no more than 45 days
following the Expiration date, unless extended by the Primary Parties with
the approval of the OTS. See "- Stock Pricing and Number of Shares to be
Issued" below for a discussion of rights of subscribers, if any, in the
event an extension is granted.
Stock Pricing and Number of Shares to be Issued
The Plan of Conversion requires that the purchase price of the Common
Stock must be based on the appraised pro forma market value of the Company
and the Savings Bank, as determined on the basis of an independent
valuation. The Primary Parties have retained Ferguson to make such
valuation. For its services in making such appraisal and for the
preparation of a business plan, Ferguson will receive a maximum fee of
$27,500 plus out of pocket expenses not to exceed $5,000. The Primary
Parties have agreed to indemnify Ferguson and its employees and affiliates
against certain losses (including any losses in connection with claims
under the federal securities laws) arising out of its services as
appraiser, except where Ferguson's liability results from its negligence or
a failure to exercise due diligence or in circumstances in which it had
knowledge of certain material facts.
The Appraisal has been prepared by Ferguson in reliance upon the
information contained in this Prospectus, including the Consolidated
Financial Statements. Ferguson also considered the following factors,
among others: the present and projected operating results and financial
condition of the Primary Parties and the economic and demographic
conditions in the Savings Bank's existing market area; certain historical,
financial and other information relating to the Savings Bank; a comparative
evaluation of the operating and financial statistics of the Savings Bank; a
comparative evaluation of the operating and financial statistics of the
Savings Bank with those of other similarly situated publicly traded
companies located in Georgia and other regions of the United States; the
aggregate size of the offering of the Common Stock; the impact of the
Conversion and Reorganization on the Savings Bank's net worth and earnings
potential; the proposed dividend policy of the Company and the Savings
Bank; and the trading market for the securities of comparable companies and
general conditions in the market for such securities.
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On the basis of the foregoing, Ferguson has advised the Primary
Parties that in its opinion, the estimated pro forma market value of the
Savings Bank and the Company on a combined basis was $36,500,000 as of
February 27, 1997. As a result, the Valuation Price Range, from 15% below
such value to 15% above such value, is from a minimum of $31,025,000 to a
maximum of $41,975,000. The Boards of Directors of the Primary Parties
determined that the Common Stock would be sold at $20.00 per share,
resulting in a range of 1,551,250 to 2,098,750 shares of Common Stock being
offered. The Boards of Directors of the Primary Parties reviewed
Ferguson's appraisal report, including the methodology and the assumptions
used by Ferguson, and determined that the Valuation Price Range was
reasonable and adequate. The Valuation Price Range may be amended with the
approval of the OTS, if required, or if necessitated by subsequent
developments in the financial condition of any of the Primary Parties or
market conditions generally. In the event the Appraisal is updated and
changed below $31,025,000 or above $48,271,250 (the maximum of the
Valuation Price Range, as increased by 15%), such Appraisal will be filed
with the SEC by post-effective amendment.
Based upon current market and financial conditions and recent
practices and policies of the OTS, in the event the Company receives orders
for Common Stock in excess of $41,975,000 (the maximum of the Valuation
Price Range), the Company may be required by the OTS to accept all such
orders up to $48,271,250 (15% above the maximum of the Valuation Price
Range). No assurances, however, can be made that the Company will receive
orders for Common Stock in any amount or that, if such orders are received,
all such orders will be accepted because the Company's final valuation and
number of shares to be issued are subject to the receipt of an updated
Appraisal from Ferguson and the approval of such updated Appraisal by the
OTS. There is no obligation or understanding on the part of management to
take and/or pay for any shares of Common Stock in order to complete the
Offerings.
Ferguson's valuation is not intended, and must not be construed, as a
recommendation of any kind as to the advisability of purchasing shares of
Common Stock. Ferguson did not independently verify the Consolidated
Financial Statements and other information provided by the Savings Bank,
the Company and the Mutual Holding Company, nor did Ferguson value
independently the assets or liabilities of the Savings Bank, the Company or
the Mutual Holding Company. The valuation considers the Savings Bank and
the Mutual Holding Company as going concerns and should not be considered
as an indication of the liquidation value of the Savings Bank and the
Company. Moreover, because such valuation is necessarily based upon
estimates and projections of a number of matters, all of which are subject
to change from time to time, no assurance can be given that persons
purchasing Common Stock in the Conversion and Reorganization will
thereafter be able to sell such shares at prices at or above the Purchase
Price or in the range of the foregoing valuation of the pro forma market
value thereof.
No sale of shares of Common Stock may be consummated unless prior to
such consummation Ferguson confirms that nothing of a material nature has
occurred which, taking into account all relevant factors, would cause it to
conclude that the Purchase Price is materially incompatible with the
estimate of the pro forma market value of the Savings Bank and the Company
upon consummation of the Conversion and Reorganization. If such is not the
case, a new Valuation Price Range may be set and a new Subscription and
Community Offering and/or Syndicated Community Offering may be held or such
other action may be taken as the Primary Parties shall determine and the
OTS may permit or require.
Prior to the completion of the Conversion and Reorganization, the
total number of shares of Common Stock to be issued in the Offerings may be
increased or decreased to reflect changes in
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market or financial conditions or to fill the order of the ESOP without a
resolicitation of subscribers, provided that the product of the total
number of shares times the Purchase Price is not below the minimum or more
than 15% above the maximum of the Valuation Price Range (exclusive of a
number of shares equal to up to an additional 8.0% of the Common Stock
which may be issued to the ESOP out of authorized but unissued shares of
Common Stock to the extent such shares are not purchased in the Offerings
due to an oversubscription). In the event market or financial conditions
change so as to cause the aggregate Purchase Price of the shares to be
below the minimum of the Valuation Price Range or more than 15% above the
maximum of such range (exclusive of additional shares that may be issued to
the ESOP), purchasers will be resolicited (i.e., permitted to continue,
modify or rescind their orders, in which case they will need to
affirmatively reconfirm their subscriptions prior to the expiration of the
resolicitation offering or their subscription funds will be promptly
refunded with interest at the Savings Bank's passbook rate of interest).
Any change in the Valuation Price Range must be approved by the OTS.
An increase in the number of shares of Common Stock, either as a
result of an increase in the appraisal of the estimated pro forma market
value or due to the purchase by the ESOP of authorized but unissued shares
(see "- the Offerings - Subscription Offering" and " - Priority 2: ESOP"),
would decrease both a subscriber's ownership interest and the Company's pro
forma net income and equity on a per share basis while increasing pro forma
net income and equity on an aggregate basis. A decrease in the number of
shares of Common Stock would increase both a subscriber's ownership
interest and the Company's pro forma net income and equity on a per share
basis while decreasing pro forma net income and equity on an aggregate
basis. See "Risk Factors - Possible Dilutive Effect of Issuance of
Additional Shares" and "Pro Forma Data."
The appraisal report of Ferguson has been filed as an exhibit to the
Registration Statement and Application for Conversion of which this
Prospectus is a part and is available for inspection in the manner set
forth under "Additional Information."
Persons in Nonqualified States or Foreign Countries
The Primary Parties will make reasonable efforts to comply with the
securities laws of all states in the United States in which persons
entitled to subscribe for stock pursuant to the Plan reside. However, the
Primary Parties are not required to offer stock in the Subscription
Offering to any person who resides in a foreign country or resides in a
state of the United States with respect to which all of the following
apply: (a) the number of persons otherwise eligible to subscribe for
shares under the Plan who reside in such jurisdiction is small; (b) the
granting of subscription rights or the offer or sale of shares of Common
Stock to such persons would require any of the Primary Parties or their
officers, directors or employees, under the laws of such jurisdiction, to
register as a broker, dealer, salesman or selling agent or to register or
otherwise qualify its securities for sale in such jurisdiction or to
qualify as a foreign corporation or file a consent to service of process in
such jurisdiction; and (c) such registration, qualification or filing in
the judgment of the Primary Parties would be impracticable or unduly
burdensome for reasons of costs or otherwise. Where the number of persons
eligible to subscribe for shares in one state is small, the Primary Parties
will base their decision as to whether or not to offer the Common Stock in
such state on a number of factors, including but not limited to the size of
accounts held by account holders in the state, the cost of registering or
qualifying the shares or the need to register the Company, its officers,
directors or employees as brokers, dealers or salesmen.
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Limitations on Common Stock Purchases
The Plan incudes the following limitations on the number of shares of
Common Stock which may be purchased:
(1) No less than 25 shares of Common Stock may be purchased, to
the extent such shares are available;
(2) The ESOP may purchase in the aggregate up to 10% of the shares
of Common Stock to be issued in the Offerings, including any
additional shares issued in the event of an increase in the Valuation
Price Range, although at this time the ESOP intends to purchase only
8.0% of such shares;
(3) The maximum amount of Common Stock subscribed for in all
categories by any person or entity, together with associates of and
persons acting in concert with such person or entity, shall not exceed
$375,000. In addition, where more than one person or entity is an
owner of a particular deposit account or an obligor of a particular
loan account, the orders of such persons pursuant to subscription
rights related to such joint accounts collectively may not exceed the
maximum purchase limitation; and
(4) No more than 28.5% of the total number of shares sold in the
Offerings may be purchased by directors and certain specified officers
of the Mutual Holding Company and the Savings Bank and their
associates in the aggregate, excluding purchases by the ESOP.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the
Members or the Mutual Holding Company, as the sole stockholder of the
Savings Bank, the overall purchase limitation may be increased up to a
maximum of 5% of the total shares of Common Stock to be issued in the
Conversion and Reorganization or decreased to not less than 1% of the total
shares of Common Stock to be issued at the maximum of the Valuation Price
Range, at the discretion of the Primary Parties. If such amount is
increased, subscribers for the maximum amount will be, and certain other
large subscribers in the sole discretion of the Primary Parties may be,
given the opportunity to increase their subscriptions up to the then
applicable limit and if the individual amount is decreased, subscribers'
orders for the maximum amount will be adjusted without a resolicitation of
such subscribers.
In the event of an increase in the total number of shares of Common
Stock offered in the Conversion due to an increase in the Valuation Price
Range of up to 15% (the "Adjusted Maximum"), the additional shares will be
allocated in the following order of priority in accordance with the Plan:
(i) to fill the ESOP's subscription of 8.0% of the Adjusted Maximum number
of shares; (ii) in the event that there is an oversubscription by Eligible
Account Holders, to fill unfulfilled subscriptions of Eligible Account
Holders, up to the Adjusted Maximum; (iii) in the event that there is an
oversubscription by Supplemental Eligible Account Holders, to fill
unfulfilled subscriptions of Supplemental Eligible Account Holders, up to
the Adjusted Maximum; (iv) in the event that there is an oversubscription
by Other Members, to fill unfulfilled subscriptions of Other Members, up to
the Adjusted Maximum; (v) to fill unfulfilled subscriptions by Preferred
Subscribers in the Community Offering to the extent possible, up to the
Adjusted Maximum; and (vi) to fill unfulfilled subscriptions in the
Community Offering other than from Preferred Subscribers, up to the
Adjusted Maximum.
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The term "associate" of a person is defined to mean (i) any
corporation or other organization (other than the Primary Parties or a
majority-owned subsidiary of the Company or the Savings Bank) of which such
person is a director, officer or partner or is directly or indirectly the
beneficial owner of 10% or more of any class of equity securities; (ii) any
trust or other estate in which such person has a substantial beneficial
interest or as to which such person serves as trustee or in a similar
fiduciary capacity, provided, however, that such term shall not include any
tax-qualified employee stock benefit plan of the Primary Parties in which
such person has a substantial beneficial interest or serves as a trustee or
in a similar fiduciary capacity; and (iii) any relative or spouse of such
person, or any relative of such spouse, who either has the same home as
such person or who is a director or officer of one of the Primary Parties
or any of their subsidiaries.
The term "resident" as used herein means any person who, on the date
designated for that category of subscriber in the Plan, maintained a bona
fide residence within the Local Community. To the extent the person is a
corporation or other business entity, the principal place of business or
headquarters must be within the Local Community. To the extent the person
is a personal benefit plan, the circumstances of the beneficiary shall
apply with respect to this definition. In the case of all other benefit
plans, circumstances of the trustee shall be examined for purposes of this
definition. The Savings Bank may utilize deposit or loan records or such
other evidence provided to it to make a determination as to whether a
person is a bona fide resident of the Local Community. Subscribers in the
Community Offering who are natural persons also will have a purchase
preference if they were residents of the Local Community. In all cases,
however, such determination shall be in the sole discretion of the Savings
Bank.
The term "acting in concert" means (i) knowing participation in a
joint activity or interdependent conscious parallel action towards a common
goal, whether or not pursuant to an express agreement, with respect to the
purchase, ownership, voting or sale of Common Stock; (ii) a combination or
pooling of voting or other interests in the securities of the Company for a
common purpose pursuant to any contract, understanding, relationship,
agreement or other arrangement, whether written or otherwise. The Company
and the Savings Bank may presume that certain persons are acting in concert
based upon, among other things, joint account relationships and the fact
that such persons have filed joint Schedules 13D with the SEC with respect
to other companies.
Marketing Arrangements
The Primary Parties have engaged Trident as a financial advisor and
marketing agent in connection with the offering of the Common Stock, and
Trident has agreed to use its best efforts to solicit subscriptions and
purchase orders for shares of Common Stock in the Offerings. Trident is a
member of the National Association of Securities Dealers, Inc. (the "NASD")
and a broker-dealer which is registered with the SEC. Trident is
headquartered in Raleigh, North Carolina, and its telephone number is (919)
781-8900. Trident will provide various services, including but not limited
to (i) training and educating the Savings Bank's directors, officers and
employees regarding the mechanics and regulatory requirements of the stock
sales process: (2) providing its employees to staff the Stock Information
Center to assist the Savings Bank's customers and internal stock purchasers
and to keep records of orders for shares of Common Stock: (3) targeting the
Company's sales efforts, including preparation of marketing materials: and
(4) assisting in the solicitation of proxies of members for use at the
Members' Meeting. Based upon negotiations between the Company and the
Savings Bank and Trident concerning fee structure, Trident will receive a
management fee of $40,000 and a fee equal to 1.65% of the aggregate dollar
amount of capital stock sold by Trident in the Subscription and Community
Offerings. In the event that a selected dealers agreement is entered into
in connection with a Syndicated Community Offering, the Savings Bank will
pay a fee
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in an amount to be agreed upon jointly between Trident and the Savings Bank
based on the aggregate Purchase Price of Common Stock sold by an NASD
member firm pursuant to a selected dealers agreement. Fees to Trident and
to any other broker dealer may be deemed to be underwriting fees, and
Trident and such broker/dealers may be deemed to be underwriters. Trident
will also be reimbursed for its reasonable out-of-pocket expenses including
legal fees of which Trident has already received $10,000. No fees will be
paid to Trident on subscriptions by any director or executive officer or
associates of directors and executive officers or by the ESOP. The Primary
Parties have agreed to indemnify Trident for reasonable costs and expenses
in connection with certain claims or liabilities, including certain
liabilities under the Securities Act for misrepresentations or certain
untrue or alleged untrue statements of material fact or the omission or
alleged omission of a material facts required to be stated or necessary to
make not misleading certain statements contained in this Prospectus.
Directors and executive officers of the Primary Parties may
participate in the solicitation of offers to purchase Common Stock. Other
employees of the Savings Bank may participate in the Offerings in
ministerial capacities or providing clerical work in effecting a sales
transaction. Such other employees have been instructed not to solicit
offers to purchase Common Stock or provide advice regarding the purchase of
Common Stock. Questions of prospective purchasers will be directed to
executive officers or registered representatives. The Company will rely on
Rule 3a4-1 under the Exchange Act, and sales of Common Stock will be
conducted within the requirements of Rule 3a4-1, so as to permit officers,
directors and employees to participate in the sale of Common Stock. No
officer, director or employee of the Primary Parties will be compensated in
connection with his or her solicitations or other participation in the
Offerings by the payment of commissions or other remuneration based either
directly or indirectly on transactions in the Common Stock.
Procedure for Purchasing Shares in the Offerings
To ensure that each purchaser receives a Prospectus at least 48 hours
before the Expiration Date in accordance with Rule 15c2-8 of the Exchange
Act, no Prospectus will be mailed any later than five days prior to such
date or hand delivered any later than two days prior to such date.
Execution of the order form will confirm receipt or delivery of the
Prospectus in accordance with Rule 15c2-8. Order forms will only be
distributed with a Prospectus.
To purchase shares in the Offerings, an executed order form with the
required payment for each share subscribed for, or with appropriate
authorization for withdrawal from a deposit account at the Savings Bank
(which may be given by completing the appropriate blanks in the order
form), must be received by the Savings Bank at any of its offices by 12:00
noon, Eastern Time, on the Expiration Date. In addition, the Primary
Parties will require a prospective purchaser to execute a certification in
connection with any sale of Common Stock and will not accept order forms
unless such a certification is executed. Order forms which (i) are not
received by such time, (ii) are improperly completed or executed, (iii) are
received without full payment (or appropriate withdrawal instructions), or
(iv) are submitted by a person whose representations the Primary Parties
believe to be false or who they otherwise believe, either alone, or acting
in concert with others, is violating, evading or circumventing, or intends
to violate, evade or circumvent, the terms and conditions of the Plan, are
not required to be accepted. In addition, the Savings Bank will not accept
photocopied or facsimiled order forms or order forms unaccompanied by an
executed certification form. The Primary Parties have the right to waive
or permit the correction of incomplete or improperly executed forms, but do
not represent that they will do so. Once received, an executed order form
may not be modified, amended or rescinded without the consent of the
Primary Parties, unless the
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Offerings have not been completed within 45 days after the end of the
Subscription Offering unless such period has been extended with the consent
of the OTS.
In order to ensure that Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members are properly identified as to
their stock purchase priority, depositors as of the close of business on
the Eligibility Record Date (December 31, 1995) or the Supplemental
Eligibility Record Date (_______________) and depositors and borrowers as
of the close of business on the Voting Record Date (______________, 19___)
must list on the order form all accounts in which they have an interest,
giving all names in each account and the account numbers.
Payment for subscriptions may be made (i) in cash if delivered in
person at any office of the Savings Bank, (ii) by check or money order or
(iii) by authorization of withdrawal from deposit accounts maintained with
the Savings Bank. The Primary Parties will not accept payment for shares
of Common Stock by wired funds. Funds will be deposited in a segregated
account at the Savings Bank and interest will be paid on funds made by
cash, check or money order at the Savings Bank's passbook rate of interest
from the date payment is received until completion or termination of the
Conversion and Reorganization. If payment is made by authorization of
withdrawal from deposit accounts, the funds authorized to be withdrawn from
a deposit account will continue to accrue interest at the contractual rates
until completion or termination of the Conversion and Reorganization, but a
hold will be placed on such funds, thereby making them unavailable to the
depositor until completion or termination of the Conversion and
Reorganization.
If a subscriber authorizes the Savings Bank to withdraw the aggregate
amount of the purchase price from a deposit account, the Savings Bank will
do so as of the effective date of the Conversion and Reorganization. The
Savings Bank will waive any applicable penalties for early withdrawal from
certificate accounts. If the remaining balance in a certificate account is
reduced below the applicable minimum balance requirement at the time that
the funds actually are transferred under the authorization, the certificate
will be cancelled at the time of the withdrawal without penalty and the
remaining balance will earn interest at the passbook rate.
The ESOP will not be required to pay for the shares subscribed for at
the time it subscribes, but rather may pay for such shares of Common Stock
subscribed for by it at the Purchase Price upon consummation of the
Offerings, provided that there is in force from the time of its
subscription until such time, a loan commitment from an unrelated financial
institution or the Company to lend to the ESOP, at such time, the aggregate
Purchase Price of the shares for which it subscribed.
Owners of self-directed Individual Retirement Accounts ("IRAs") may
use the assets of such IRAs to purchase shares of Common Stock in the
Offerings, provided that such IRAs are not maintained at the Savings Bank.
Persons with IRAs maintained at the Savings Bank must have their accounts
transferred to a broker to purchase shares of Common Stock in the
Subscription and Community Offerings. In addition, ERISA provisions and IRS
regulations require that officers, directors and 10% stockholders who use
self-directed IRA funds to purchase shares of Common Stock in the
Subscription and Community Offerings make such purchases for the exclusive
benefit of the IRAs. Any parties wishing to use IRA funds for stock
purchases must visit the Stock Information Center on or before
_______________, 1997 so that the necessary forms may be forwarded for
execution and returned prior to the Expiration Date.
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Restrictions on Transfer of Subscription Rights and Shares
Pursuant to the rules and regulations of the OTS, no person with
subscription rights may transfer or enter into any agreement or
understanding to transfer the legal or beneficial ownership of the
subscription rights issued under the Plan or the shares of Common Stock to
be issued upon their exercise. Such rights may be exercised only by the
person to whom they are granted and only for his or her account. Each
person exercising such subscription rights will be required to certify that
he or she is purchasing shares solely for his or her own account and that
he or she has no agreement or understanding regarding the sale or transfer
of such shares. Federal regulations also prohibit any person from offering
or making an announcement of an offer or intent to make an offer to
purchase such subscription rights or shares of Common Stock prior to the
completion of the Conversion.
The Primary Parties will pursue any and all legal and equitable
remedies in the event they become aware of the transfer of subscription
rights and will not honor orders known by them to involve the transfer of
such rights.
Liquidation Rights
In the unlikely event of a complete liquidation of the Mutual Holding
Company in its present mutual form, each depositor of the Savings Bank
would receive his or her pro rata share of any assets of the Mutual Holding
Company remaining after payment of claims of all creditors. Each
depositor's pro rata share of such remaining assets would be in the same
proportion as the value of his or her deposit account was to the total
value of all deposit accounts in the Savings Bank at the time of
liquidation. After the Conversion and Reorganization, each depositor, in
the event of a complete liquidation of the Savings Bank, would have a claim
as a creditor of the same general priority as the claims of all other
general creditors of the Savings Bank. However, except as described below,
his or her claim would be solely in the amount of the balance in his or her
deposit account plus accrued interest. He or she would not have an
interest in the value or assets of the Savings Bank or the Company above
that amount.
The Plan provides for the establishment, upon the completion of the
Conversion and Reorganization, of a special "liquidation account" for the
benefit of Eligible Account Holders and Supplemental Eligible Account
Holders in an amount equal to the Savings Bank's net worth as reflected in
its latest balance sheet contained in the final Prospectus utilized in the
Offerings. Each Eligible Account Holder and Supplemental Eligible Account
Holder, if he or she were to continue to maintain his or her deposit
account at the Savings Bank, would be entitled, upon a complete liquidation
of the Savings Bank after the Conversion and Reorganization, to an interest
in the liquidation account prior to any payment to the Company as the sole
stockholder of the Savings Bank. Each Eligible Account Holder and
Supplemental Eligible Account Holder would have an initial interest in such
liquidation account for each deposit account, including passbook accounts,
transaction accounts such as checking accounts, money market deposit
accounts and certificates of deposit, held in the Savings Bank at the close
of business on December 31, 1995 or _______________, as the case may be.
Each Eligible Account Holder and Supplemental Eligible Account Holder will
have a pro rata interest in the total liquidation account for each of his
or her deposit accounts based on the proportion that the balance of each
such deposit account on the December 31, 1995 Eligibility Record Date (or
the _______________ Supplemental Eligibility Record Date, as the case may
be) bore to the balance of all deposit accounts in the Savings Bank on such
date.
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If, however, on any annual closing date thereafter, the amount in any
deposit account is less than the amount in such deposit account on December
31, 1995 or _______________, as the case may be, or any other annual
closing date, then the interest in the liquidation account relating to such
deposit account would be reduced by the proportion of any such reduction,
and such interest will cease to exist if such deposit account is closed.
In addition, no interest in the liquidation account would ever be increased
despite any subsequent increase in the related deposit account. Any assets
remaining after the above liquidation rights of Eligible Account Holders
and Supplemental Eligible Account Holders are satisfied would be
distributed to the Company as the sole stockholder of the Savings Bank.
Tax Aspects
Consummation of the Conversion and Reorganization is expressly
conditioned upon prior receipt of either a ruling from the IRS or an
opinion of counsel with respect to applicable federal tax laws, and either
a ruling from the State of Georgia or an opinion of counsel with respect to
Georgia tax laws, to the effect that consummation of the transactions
contemplated hereby will not result in a taxable reorganization under the
provisions of the applicable tax codes or otherwise result in any adverse
tax consequences to the Mutual Holding Company, the Savings Bank, the
Company or to account holders receiving subscription rights, except to the
extent, if any, that subscription rights are deemed to have fair market
value on the date such rights are issued.
Prior to consummation of the Conversion and Reorganization, Powell,
Goldstein, Frazer & Murphy LLP will issue an opinion to the Company and the
Savings Bank to the effect that, for federal income tax purposes: (1) the
conversion of the Mutual Holding Company to Interim Mutual and the
simultaneous merger of the Mutual Holding Company with and into the Savings
Bank, with the Savings Bank being the surviving institution, will qualify
as a reorganization within the meaning of Section 368(a)(1)(A) of the Code,
(2) no gain or loss will be recognized by the Savings Bank upon the receipt
of the assets of the converted Mutual Holding Company in such merger, (3)
the merger of Interim CFB with and into the Savings Bank, with the Savings
Bank being the surviving institution, will be disregarded for federal
income tax purposes and, together with the Offerings, will be treated as
(i) the formation of the Company, (ii) the sale for cash by the Company of
Common Stock pursuant to the Offerings, and (iii) the transfer by the
Company of an amount of the net proceeds received by the Company in the
Offerings ("Contributed Offering Proceeds") to the Savings Bank in
constructive exchange for the Savings Bank's Common Stock, (4) the Savings
Bank will recognize no gain or loss upon the receipt of the Contributed
Offering Proceeds from the Company in constructive exchange for the Savings
Bank's Common Stock, (5) the Company will recognize no gain or loss upon
the receipt of cash in the Offering for shares of Common Stock, (6) the
Company will recognize no gain or loss upon the transfer of the Contributed
Offering Proceeds to the Savings Bank in constructive exchange for the
Bank's Common Stock and (7) the income tax consequences of the Conversion
and Reorganization under Georgia law will be substantially the same as the
consequences for federal tax purposes.
In the opinion of Ferguson, which opinion is not binding on the IRS,
the subscription rights do not have any ascertainable value, based on the
fact that such rights are acquired by the recipients without cost, are
nontransferable and of short duration, and afford the recipients the right
only to purchase the Common Stock at a price equal to its estimated fair
market value. which will be the same price as the Purchase Price for the
unsubscribed shares of Common Stock. If the subscription rights granted to
eligible subscribers are deemed to have an ascertainable value, receipt of
such rights likely would be taxable only to those eligible subscribers who
exercise the subscription rights (either as a capital gain or ordinary
income) in an amount equal to such value, and the Primary Parties could
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recognize gain on such distribution. Eligible subscribers are encouraged
to consult with their own tax advisor as to the tax consequences in the
event that such subscription rights are deemed to have an ascertainable
value.
Unlike private rulings, an opinion is not binding on the IRS and the
IRS could disagree with conclusions reached therein. In the event of such
disagreement, there can be no assurance that the IRS would not prevail in a
judicial or administrative proceeding.
Delivery of Certificates
Certificates representing Common Stock issued in connection with the
Offerings will be mailed by the Company's transfer agent to the persons
entitled thereto at the addresses of such persons appearing on the stock
order form for Common Stock as soon as practicable following consummation
of the Conversion and Reorganization. Any certificates returned as
undeliverable will be held by the Company until claimed by persons legally
entitled thereto or otherwise disposed of in accordance with applicable
law. Until certificates for Common Stock are available and delivered to
subscribers, subscribers may not be able to sell the shares of Common Stock
for which they have subscribed, even though trading of Common Stock may be
commenced.
Required Approvals
Various approvals of the OTS are required in order to consummate the
Conversion and Reorganization. The OTS has approved the Plan of
Conversion, subject to approval by the Mutual Holding Company's Members and
the Mutual Holding Company as the Savings Bank's sole stockholder. In
addition, consummation of the Conversion and Reorganization is subject to
OTS approval of the Company's application to acquire all of the to-be-
outstanding Savings Bank Common Stock and the applications with respect to
the merger of the Mutual Holding Company (following its conversion to
Interim Mutual) into the Savings Bank and the merger of Interim CFB into
the Savings Bank, with the Savings Bank being the surviving entity in both
mergers. Applications for these approvals have been filed and are
currently pending. There can be no assurances that the requisite OTS
approvals will be received in a timely manner, in which event the
consummation of the Conversion and Reorganization may be delayed beyond the
expiration of the Offerings.
Pursuant to OTS regulations, the Plan of Conversion also must be
approved by (1) at least a majority of the total number of votes eligible
to be cast by Members of the Mutual Holding Company at the Members'
Meeting, and (2) holders of at least two-thirds of the outstanding Savings
Bank Common Stock at the Stockholders' Meeting. As of the date of this
Prospectus, the Mutual Holding Company holds 100% of all outstanding stock
of the Savings Bank Common Stock and intends to vote those shares at the
Stockholders' Meeting to approve the Plan of Conversion.
Certain Restrictions on Purchase or Transfer of Shares after the Conversion
and Reorganization
All shares of Common Stock purchased in connection with the Conversion
and Reorganization by a director or certain specified officers of the
Primary Parties identified in the Plan of Conversion will be subject to a
restriction that the shares not be sold for a period of one year following
the Conversion and Reorganization, except in the event of the death of such
director or executive officer or pursuant to a merger or similar
transaction approved by the OTS. Each certificate for restricted shares
will bear a legend giving notice of this restriction on transfer, and
appropriate stop-transfer instructions will be issued to the Company's
transfer agent. Any shares of Common Stock issued
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within this one-year period as a stock dividend, stock split or otherwise
with respect to such restricted stock will be subject to the same
restrictions. The directors and certain specified officers of the Company
will also be subject to the insider trading rules promulgated pursuant to
the Exchange Act.
Purchases of Common Stock of the Company by directors, certain
officers specified in the Plan of Conversion and their associates during
the three-year period following completion of the Conversion and
Reorganization may be made only through a broker or dealer registered with
the SEC, except with the prior written approval of the OTS. This
restriction does not apply, however, to negotiated transactions involving
more than 1.0% of the Company's outstanding Common Stock or to the purchase
of stock pursuant to any tax-qualified employee stock benefit plan, such as
the ESOP, or by any non-tax-qualified employee stock benefit plan.
Pursuant to OTS regulations, the Company will generally be prohibited
from repurchasing any shares of Common Stock within one year following
consummation of the Conversion and Reorganization. During the second and
third years following consummation of the Conversion and Reorganization,
the Company may not repurchase any shares of its Common Stock other than
pursuant to (i) an offer to all stockholders on a pro rata basis which is
approved by the OTS; (ii) the repurchase of qualifying shares of a
director, if any; (iii) purchases in the open market by a tax-qualified or
non-tax-qualified employee stock benefit plan in an amount reasonable and
appropriate to fund the plan; or (iv) purchases that are part of an open-
market program not involving more than 5% of its outstanding capital stock
during a 12-month period, if the repurchases do not cause the Savings Bank
to become undercapitalized and the Savings Bank provides to the Regional
Director of the OTS no later than ten days prior to the commencement of a
repurchase program written notice containing a full description of the
program to be undertaken and such program is not disapproved by the
Regional Director. However, the Regional Director has authority to permit
repurchases during the first year following consummation of the Conversion
and Reorganization and to permit repurchases in excess of 5% during the
second and third years upon the establishment of exceptional circumstances
(i.e., where such repurchases would be in the best interests of the
institution and its stockholders).
Amendment or Termination of the Plan
If deemed necessary or desirable by the Board of Directors of the
Primary Parties, the Plan may be amended at any time prior to the
solicitation of proxies from members and stockholders to vote on the Plan
and at any time thereafter with the concurrence of the OTS. Unless the OTS
requires otherwise, any amendment to the Plan made after approval by the
members and stockholders with OTS concurrence will not necessitate further
approval by the members or stockholders. The Plan will terminate if the
sale of all of the shares of Common Stock in the Offerings is not completed
within 24 months after the date of shareholder approval of the Plan.
Before the Plan is approved by the Mutual Holding Company or its members,
whichever is earlier, the Plan may be terminated by the Boards of Directors
of the Primary Parties without OTS approval. Thereafter, the respective
Boards of Directors may terminate the Plan only with OTS approval.
CERTAIN RESTRICTIONS ON ACQUISITION OF THE COMPANY
Certain provisions of the Company's Articles of Incorporation and
Bylaws which deal with matters of corporate governance and rights of
shareholders might be deemed to have a potential anti-takeover effect.
These provisions provide, among other things, (i) that the Board of
Directors
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of the Company shall be divided into three classes as nearly equal in
number as possible and that the members of each class shall be elected for
a term of three years, with one class being elected annually; (ii) the
authority to issue shares of authorized but unissued Common Stock and
Preferred Stock and to establish the terms of any one or more series of
Preferred Stock, including voting rights; and (iii) that certain mergers,
acquisitions and similar transactions involving the Company must be
approved by 80% of the shareholder votes entitled to be cast unless two-
thirds of the members of the Board of Directors approves the transaction;
(iv) that 80% of the shareholder votes entitled to be cast will be required
to remove a director without cause; (v) that 80% of the shareholder votes
entitled to be cast will be required to change the number of directors
unless two-thirds of the members of the Board of Directors approve the
change; (vi) that the Board of Directors may consider factors other than
price when evaluating an offer from another party to acquire the Company;
and (vii) that 80% of the shareholder votes entitle to be cast will be
required to amend the foregoing provisions of the Articles of Incorporation
unless two-thirds of the members of the Board of Directors approve the
amendment. In addition to the foregoing, and described below the Georgia
Business Corporation Act (the "GBCC") generally restricts "business
combinations" between the Company or a subsidiary and an "interested
shareholder" within the five-year period after the person or entity becomes
an interested shareholder. These provisions are described in more detail
below.
The foregoing provisions of the Articles of Incorporation and Bylaws
of the Company and Georgia law could have the effect of discouraging an
acquisition of the Company or stock purchases in furtherance of an
acquisition, and could accordingly, under certain circumstances, discourage
transactions which might otherwise have a favorable effect on the price of
the Common Stock.
In addition, the employment agreement between Mr. Dorminey and the
Savings Bank provides for a payment equal to the greater of the payments
due under the agreement or 2.99 times his average annual compensation over
the prior five years in the event of a change in control of the Savings
Bank. See "Management of the Savings Bank- Consulting Arrangements and
Employment Agreements." The foregoing provision may make it more costly
for companies or persons to acquire control of the Company.
The Board of Directors believes that the provisions described above
are prudent and will reduce vulnerability to takeover attempts and certain
other transactions that are not negotiated with and approved by the Board
of Directors of the Company. The Board of Directors believes that these
provisions are in the best interests of the Company and its future
shareholders. In the Board of Directors' judgment, the Board of Directors
is in the best position to determine the true value of the Company and to
negotiate more effectively for what may be in the best interests of its
shareholders. Accordingly, the Board of Directors believes that it is in
the best interests of the Company and its future shareholders to encourage
potential acquirors to negotiate directly with the Board of Directors and
that these provisions will encourage such negotiations and discourage
hostile takeover attempts. It is also the Board of Directors' view that
these provisions should not discourage persons from proposing a merger or
other transaction at prices reflective of the true value of the Company and
where the transaction is in the best interests of all shareholders.
Board of Directors
The Articles of Incorporation and Bylaws of the Company require that
the Board of Directors be divided into three classes as nearly equal in
number as possible and that the members of each class shall be elected for
a term of three years and until their successors are elected and qualified,
with one class being elected annually. The vote of the holders of at least
80% of the shares entitled
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to vote is required to change the size of the Board of Directors unless
two-thirds of the directors agree to the change. Under the Company's
Bylaws, any vacancy occurring in the Board of Directors, including any
vacancy created by reason of an increase in the number of directors, may be
filled by the remaining directors, and any director so chosen shall hold
office for the remainder of the term to which the director has been elected
and until his or her successor is elected and qualified. In addition, the
Company's Bylaws provide that any director may be removed for cause by the
holders of a majority of the outstanding voting shares of the Company, but
may only be removed without cause by the holders of 80% of the outstanding
voting shares of the Company. All of these provisions make it more
difficult to force an immediate change in the composition of the Board and
would therefore render more difficult an attempt to gain control of the
Company.
Limitations on Liability
Section 14-2-202 of the GBCC currently provide that directors (but not
officers) of corporations that have adopted a provision in their Articles
of Incorporation eliminating their personal liability to the Corporation or
its shareholders for monetary damages for breach of duty as a director will
not be so liable, except (i) for any breach of the director's duty of
loyalty to the corporation or its shareholders, (ii) for acts or omissions
not in good faith or that involve intentional misconduct or a knowing
violation of law, (iii) for the payment of certain unlawful dividends and
the making of certain stock purchases or redemptions or (iv) for any
transaction from which the director derived an improper personal benefit.
This provision would absolve directors of personal liability for negligence
in the performance of their duties, including gross negligence. It would
not permit a director to be exculpated, however, for liability for actions
involving conflicts of interest or breaches of the traditional "duty of
loyalty" to the Company and its shareholders, and it would not affect the
availability of injunctive or other equitable relief as a remedy.
The Company's Articles of Incorporation eliminate the personal
liability of the directors of the Company to the extent permitted by the
GBCC, except that the Articles of Incorporation provide that liability of
the Directors will be eliminated for the breach of any duty and have
modified subsection (iv) of the GBCC provision described in the preceding
paragraph to retain liability only for an improper "material tangible"
personal benefit. Should any portion of the Articles of Incorporation be
deemed to be unenforceable, the Articles of Incorporation provide that
nothing shall limit the enforceability of any other portion of the Articles
of Incorporation.
Currently the scope of the provision in the Company's Articles of
Incorporation limiting the personal liability of directors is uncertain
because of the absence of judicial precedent interpreting similar
provisions. In addition, the SEC takes the position that similar
provisions added to other corporations' charters would not protect those
corporations' directors from liability for violations of the federal
securities laws. Federal banking regulators also may take the same
position with respect to violations of federal banking laws and
regulations.
The provision limiting the personal liability of the Company's
directors does not eliminate or alter the duty of the Company's directors:
it merely limits personal liability for monetary damages to the maximum
extent now or hereafter permitted by the GBCC. Moreover, it currently
applies only to claims against a director arising out of his or her role as
a director; it currently does not apply to claims arising out of his or her
role as an officer (if he or she is also an officer) or arising out of any
other capacity in which he or she serves because Section 14-2-202 of the
GBCC does not authorize such a limitation of liability.
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The provision in the Company's Articles of Incorporation which limits
the personal liability of directors is designed to ensure that the ability
of the Company's directors to exercise their best business judgment in
managing the Company's affairs is not unreasonably impeded by exposure to
the potentially high personal costs or other uncertainties of litigation.
The nature of the tasks and responsibilities undertaken by directors of
publicly-held corporations often require such persons to make difficult
judgments of great importance which can expose such persons to personal
liability, but from which they will acquire no personal benefit. In recent
years, litigation against publicly held corporations and their directors
and officers challenging good faith business judgments and involving no
allegations of personal wrongdoing has become common. Such litigation
regularly involves damage claims in huge amounts which bear no relationship
to the amount of compensation received by the directors or officers,
particularly in the case of directors who are not employees of the
corporation. The expense of such litigation, whether it is well founded or
not, can be enormous. The provision of the Articles of Incorporation
relating to director liability is intended to reduce in appropriate cases,
the risk incident to serving as a director and to enable the Company to
elect and retain the persons most qualified to serve as directors.
Mergers, Consolidations and Sales of Assets
The Company's Articles of Incorporation require the approval of the
holders of 80% of the outstanding stock of the Company entitled to vote
thereon for mergers or consolidations, and for sales, leases or exchanges
of all or substantially all of the Company's assets unless the transaction
is approved by two-thirds of the members of the Boards of Directors. This
provision could tend to make the acquisition of the Company more difficult
to accomplish without the cooperation or favorable recommendation of the
Company's Board of Directors.
As holder of all of the outstanding Savings Bank Common Stock after
consummation of the Conversion and Reorganization, the Company generally
will be able to authorize a merger, consolidation or other business
combination involving the Savings Bank without the approval of the
shareholders of the Company.
Business Combinations with Interested Shareholders
Section 14-2-1132 of the GBCC imposes certain restrictions on business
combinations between the Company and large shareholders. Specifically, the
GBCC generally prohibits a "business combination" (as defined in the GBCC,
generally including mergers, sales and leases of assets, issuances of
securities and similar transactions) between the Company or a subsidiary
and an "interested shareholder" (as defined in Section 14-2-1110 of the
GBCC, generally the beneficial owner of 10% or more of the Common Stock)
within five years after the person or entity becomes an interested
shareholder, unless (i) prior to the person or entity becoming an
interested shareholder, the business combination or the transaction
pursuant to which such person or entity became an interested shareholder
shall have been approved by the Company's Board of Directors, (ii) upon
consummation of the transaction in which the interested shareholder became
such, the interested shareholder holds at least 90% of the Common Stock
(excluding "insider") shares held by persons who are both officers and
directors and shares held by certain employee benefit plans), or (iii)
after the shareholder becomes an interested shareholder, he or she acquires
additional shares resulting in ownership of at least 90% of the outstanding
Common Stock and obtains the approval of the holders of a majority of the
remaining shares, excluding "insider" shares as described above.
One of the effects of the Act may be to prevent highly leveraged
takeovers, which depend upon obtaining access to the acquired corporation's
assets to support or repay acquisition
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<PAGE>
indebtedness and certain coercive acquisition tactics. The Act may prevent
any interested shareholder from taking advantage of its position as a
substantial, if not controlling, shareholder and engaging in transactions
with the Company that may not be fair to the Company's other shareholders
or that may otherwise not be in the best interests of the Company, its
shareholders and other constituencies.
For similar reasons, however, these provisions may make more difficult
or discourage an acquisition of the Company, or the acquisition of control
of the Company by a principal shareholder, and thus the removal of
incumbent management. In addition, to the extent that the Act discourages
takeovers that would result in the change of the Company's management, such
a change may be less likely to occur.
Neither the Savings Bank's Charter and Bylaws nor federal laws and
regulations contain a provision which restricts business combinations
between the Savings Bank and interested shareholders in the manner set
forth in the Act.
Fair Price Provisions
Under Sections 14-2-1111 and -1112 of the GBCC, business combinations
with "interested shareholders" (as defined in Section 14-2-1110 of the GBCC
and described in the preceding section of this Prospectus) must meet one of
three criteria designed to protect minority shareholders: (i) the
transaction must be unanimously approved by the "continuing directors" of
the Company (generally directors who serve prior to the time the interested
shareholder acquired 10% beneficial ownership of the Company and who are
unaffiliated with the interested shareholder); (ii) the transaction must be
approved by two-thirds of the continuing directors and a majority of shares
held by shareholders other than the interested shareholder; or (iii) the
terms of the transaction must meet specified fair pricing criteria and
certain other tests that are intended to ensure that all shareholders
receive a fair price and equivalent consideration for their shares
regardless of when they sell their shares to an acquiring party. This
provision is designed to protect shareholders against the inequities of
certain tactics that have been used in hostile takeover attempts. For
example, in "two-tier" transactions, the acquiring party usually tenders in
cash at a substantial premium for a major stock interest in the target
corporation. After acquiring this initial interest in the corporation, the
acquiring party may acquire total ownership of the corporation by effecting
a "freeze-out" merger that forces minority shareholders to receive cash or
other consideration for their shares of the acquired corporation. As a
result, minority shareholders who do not participate in the initial tender
may receive a lower price or less desirable form of consideration than was
received by shareholders that tendered. The "fair price" provisions of the
GBCC are designed to discourage transactions of this kind and to encourage
negotiated acquisitions in which all shareholders will be more likely to
receive equal treatment.
Dissenters' Rights of Appraisal
After the Conversion and Reorganization, the rights of appraisal of
dissenting shareholders of the Company will be governed by the GBCC.
Pursuant thereto, a shareholder of a Georgia corporation generally, has the
right to dissent from any merger or consolidation involving the corporation
or the sale of all or substantially all of the corporation's assets,
subject to specified procedural requirements. However, no such appraisal
rights are available for the shares of any class or series of a
corporation's capital stock if (i) as of the record date fixed to determine
the shareholders entitled to receive notice of and to vote at the meeting
of shareholders to act upon the agreement of merger or consolidation, such
shares were either listed on a national securities exchange or designated
as a national market system security on an interdealer quotation system by
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<PAGE>
the NASD or held of record by more than 2,000 shareholders, or (ii) the
corporation is the surviving corporation of a merger and the merger did not
require the approval of the corporation's shareholders, unless in either
case, the holders of such stock are required by an agreement of merger or
consolidation to accept for that stock something other than: (a) shares of
stock of the corporation surviving or resulting from the merger or
consolidation; (b) shares of stock of any other corporation that, at the
effective date of the merger, will be listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the NASD or held of record by more than
2,000 shareholders; (c) cash in lieu of fractional shares of a corporation
described in clause (a) or (b) above; or (d) any combination of the shares
of stock and cash in lieu of fractional shares described in clauses (a)
through (c) above.
Amendment of Governing Instruments
The Articles of Incorporation of the Company provide that any
amendment of the provisions of the Articles of Incorporation or Bylaws:
(i) requiring a classified board of directors; (ii) requiring a
supermajority vote of the shareholders to change the number of directors of
the Company, remove a director without cause or approve a merger or sale of
the Company; (iii) eliminating the personal liability of directors; or (iv)
allowing the Board to consider factors in addition to price when evaluating
acquisition offers requires the affirmative vote of the holders of at least
80% of the issued and outstanding shares of Common Stock unless two-thirds
of the Board of Directors approves the amendment.
Regulatory Restrictions
The Change in Bank Control Act provides that no person, acting
directly or indirectly or through or in concert with one or more other
persons, may acquire control of a savings institution unless the OTS has
been given 60 days' prior written notice. The HOLA provides that no
company may acquire "control" of a savings institution without the prior
approval of the OTS. Any company that acquires such control becomes a
savings institution holding company subject to registration, examination
and regulation by the OTS. Pursuant to federal regulations, control of a
savings institution is conclusively deemed to have been acquired by, among
other things, the acquisition of more than 25% of any class of voting stock
of the institution or the ability to control the election of a majority of
the directors of an institution. Moreover, control is presumed to have
been acquired, subject to rebuttal, upon the acquisition of more than 10%
of any class of voting stock, or of more than 25% of any class of stock, of
a savings institution where certain enumerated "control factors" are also
present in the acquisition. The OTS may prohibit an acquisition if (i) it
would result in a monopoly or substantially lessen competition, (ii) the
financial condition of the acquiring person might jeopardize the financial
stability of the institution, or (iii) the competence, experience or
integrity of the acquiring person indicates that it would not be in the
interest of the depositors or of the public to permit the acquisition of
control by such person. The foregoing restrictions do not apply to the
acquisition of a savings institution's capital stock by one or more tax-
qualified employee stock benefit plans of the Company or the Savings Bank,
provided that the plan or plans do not have beneficial ownership in the
aggregate of more than 25% of any class of equity security of the savings
institution.
For three years following the Conversion and Reorganization, OTS
regulations prohibit any person from acquiring, either directly or
indirectly, or making an offer to acquire more than 10% of the stock of any
converted savings institution, without the prior written approval of the
OTS, except for (i) any offer with a view toward public resale made
exclusively to the institution or to underwriters or a selling group acting
on its behalf, (ii) offers that if consummated would not result
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<PAGE>
in the acquisition by such person during the preceding 12-month period of
more than one percent of such stock, (iii) offers in the aggregate for up
to 24.9% by the ESOP or other tax-qualified plans of the Company or the
Savings Bank, and (iv) an offer to acquire or acquisition of beneficial
ownership of more than 10% of the common stock of the savings institution
by a corporation whose ownership is or will be substantially the same as
the ownership of the savings institution, provided that the offer or
acquisition is made more than one year following the date of completion of
the conversion. Such prohibition also is applicable to the acquisition of
the Common Stock. In the event that any person, directly or indirectly,
violates this regulation, the securities beneficially owned by such person
in excess of 10% shall not be counted as shares entitled to vote and shall
not be voted by any person or counted as voting shares in connection with
any matters submitted to a vote of shareholders. The definition of
beneficial ownership for this regulation extends to persons holding
revocable or irrevocable proxies for an institution's stock under
circumstances that give rise to a conclusive or rebuttable determination of
control under OTS regulations.
In addition to the foregoing, the Plan prohibits any person, prior to
the completion of the Conversion and Reorganization, from offering, or
making an announcement of an intent to make an offer, to purchase
subscription rights or Common Stock. See "The Conversion and
Reorganization - Restrictions on Transfer of Subscription Rights and
Shares."
Issuance of Capital Stock
Pursuant to applicable laws and regulations, the Mutual Holding
Company is required to own not less than a majority of the outstanding
Savings Bank Common Stock. There will be no such restriction applicable to
the Company following consummation of the Conversion and Reorganization.
Neither the Charter of the Savings Bank nor the Articles of
Incorporation of the Company contain a restriction on the issuance of
shares of capital stock to directors, officers or controlling persons of
the Company and the Savings Bank, respectively. Thus, stock-related
compensation plans such as stock option plans could be adopted by the
Company and the Savings Bank without shareholder approval and shares of
Company capital stock and Savings Bank capital stock could be issued
directly to directors, officers or controlling persons without shareholder
approval. The Bylaws of the NASD, however, generally require corporations
with securities which are quoted on the Nasdaq National Market to obtain
shareholder approval of most stock compensation plans for directors,
officers and key employees of the corporation. Moreover, although
generally not required, shareholder approval of stock-related compensation
plans may be sought in certain instances in order to qualify such plans for
favorable federal income tax and securities law treatment under current
laws and regulations.
Neither the Articles of Incorporation nor Bylaws of the Company
provide for pre-emptive rights to shareholders in connection with the
issuance of capital stock.
Voting Rights
The Articles of Incorporation and Bylaws of the Company do not
authorize cumulative voting in elections of directors. Elimination of
cumulative voting will help to ensure continuity and stability of the
Company's Board of Directors and the policies adopted by it by making it
more difficult for the holders of a relatively small amount of the Savings
Bank Common Stock to elect their nominees to the Board of Directors and
possibly by delaying, deterring or discouraging proxy contests. The
Articles of Incorporation of the Company do not specify or limit the
circumstances under which separate class voting rights may be provided to a
particular class or series of Preferred Stock.
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<PAGE>
DESCRIPTION OF CAPITAL STOCK OF THE COMPANY
General
The Company is authorized to issue 10,000,000 shares of Common Stock
having a par value of $.01 per share and 10,000,000 shares of preferred stock
with no par value (the "Preferred Stock"). The Company currently expects to
issue up to a maximum of 2,098,750 shares of Common Stock and no shares of
Preferred Stock in the Conversion and Reorganization. Each share of the
Company's Common Stock will have the same relative rights as and will be
identical in all respects with each other share of Common Stock. Upon payment of
the Purchase Price for the Common Stock in accordance with the Plan of
Conversion, all such stock will be duly authorized, fully paid and
nonassessable.
The Common Stock of the Company will represent nonwithdrawable
capital, will not be an account of an insurable type, and will not be insured by
the FDIC.
Common Stock
Dividends. The Company can pay dividends if, as and when declared by
its Board of Directors, subject to compliance with limitations which are imposed
by law. See "Dividend Policy." The holders of Common Stock of the Company will
be entitled to receive and share equally in such dividends as may be declared by
the Board of Directors of the Company out of funds legally available therefor.
If the Company issues Preferred Stock, the holders thereof may have a priority
over the holders of the Common Stock with respect to dividends.
Voting Rights. Upon completion of the Conversion and Reorganization,
the holders of Common Stock of the Company will possess exclusive voting rights
in the Company. They will elect the Company's Board of Directors and act on such
other matters as are required to be presented to them under Georgia law or the
Company's Articles of Incorporation or as are otherwise presented to them by the
Board of Directors. Except as discussed in "Restrictions on Acquisition of the
Company," each holder of Common Stock will be entitled to one vote per share and
will not have any right to cumulate votes in the election of directors. If the
Company issues Preferred Stock, holders of the Preferred Stock may also possess
voting rights.
Liquidation. In the event of any liquidation, dissolution or winding
up of the Company, the holders of its Common Stock would be entitled to receive,
after payment or provision for payment of all its debts and liabilities, all of
the assets of the Company available for distribution. If Preferred Stock is
issued, the holders thereof may have a priority over the holders of the Common
Stock in the event of liquidation or dissolution.
Preemptive Rights. Holders of the Common Stock of the Company will not
be entitled to preemptive rights with respect to any shares which may be issued.
The Common Stock is not subject to redemption.
Preferred Stock
None of the shares of the Company's authorized Preferred Stock will be
issued in the Conversion and Reorganization. Such stock may be issued with such
preferences and designations as the Board of Directors may from time to time
determine. The Board of Directors can, without
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<PAGE>
stockholder approval, issue preferred stock with voting, dividend, liquidation
and conversion rights which could dilute the voting strength of the holders of
the Common Stock and may assist management in impeding an unfriendly takeover or
attempted change in control.
EXPERTS
The audited consolidated financial statements of the Mutual Holding
Company at December 31, 1996 and 1995, and for each of the years in the three-
year period ended December 31, 1996 included in this Prospectus and elsewhere in
the registration statement on Form S-1 filed with the SEC and the Application
for Conversion filed with the OTS, have been audited by Porter Keadle Moore LLP,
independent public accountants, as indicated in their report with respect
thereto, and are included in reliance upon the authority of said firm as experts
in giving said reports.
Ferguson has consented to the publication herein of the summary of its
report to the Company and the Savings Bank setting forth its opinion as to the
estimated pro forma market value of the Company and the Savings Bank to be
outstanding upon completion of the Conversion and Reorganization and its opinion
with respect to subscription rights.
LEGAL MATTERS
The legality of the Common Stock and the federal and Georgia income
tax consequences of the Conversion and Reorganization will be passed upon for
the Company, Mutual Holding Company and Carrollton by Powell, Goldstein, Frazer
& Murphy LLP, Atlanta, Georgia. Certain legal matters will be passed upon for
Trident by Brooks, Pierce, McLendon, Humphrey & Leonard, L.L.P., Greensboro,
North Carolina.
ADDITIONAL INFORMATION
The Company has filed with the SEC a Registration Statement under the
Securities Act with respect to the Common Stock offered hereby. As permitted by
the rules and regulations of the SEC, this Prospectus does not contain all the
information set forth in the Registration Statement. Such information can be
examined without charge at the public reference facilities of the SEC located at
450 Fifth Street, N.W., Washington, D.C. 20549, and copies of such material can
be obtained from the SEC at prescribed rates. In addition, the SEC maintains a
World Wide Web site that contains reports, proxy statements, information
statements and other information regarding registrants that file electronically
with the SEC, including the Company. The address is (http://www.sec.gov.). The
statements contained in this Prospectus as to the contents of any contract or
other document filed as an exhibit to the Registration Statement are, of
necessity, brief descriptions thereof and are not necessarily complete; each
such statement is qualified by reference to such contract or document.
The Mutual Holding Company has filed an Application for Conversion
with the OTS with respect to the Conversion and Reorganization. This Prospectus
omits certain information contained in that application. The application may be
examined at the principal office of the OTS, 1700 G Street, N.W., Washington,
D.C. 20552, and at the Southeast Regional Office of the OTS located at 1475
Peachtree Street, N.E., Atlanta, Georgia 30309.
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<PAGE>
In Connection with the Conversion and Reorganization, the Company will
register its Common Stock with the SEC under Section 12(g) of the Exchange Act,
and upon such registration, the Company and the holders of its stock will become
subject to the proxy solicitation rules, reporting requirements and restrictions
on stock purchases and sales by directors, officers and greater than 10%
stockholders, the annual and periodic reporting requirements and certain other
requirements of the Exchange Act. Under the Plan, the Company has undertaken
that it will not terminate such registration for a period of at least three
years following the Conversion and Reorganization.
A copy of the Articles of Incorporation and the Bylaws of the Company
are available without charge from the Company.
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<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
(WITH INDEPENDENT ACCOUNTANTS' REPORT THEREON)
<PAGE>
[LOGO APPEARS HERE]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
CF Mutual Holdings
We have audited the accompanying consolidated balance sheets of CF Mutual
Holdings and subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of earnings, capital, and cash flows for each of the
three years in the period ended December 31, 1996. The consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CF Mutual Holdings
and subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
PORTER KEADLE MOORE, LLP
/s/ Peter Keadle Moore, LLP
Successor to the practice of
Evans, Porter, Bryan & Co.
Atlanta, Georgia
February 4, 1997, except for note 15,
as to which the date is February 11, 1997
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Assets
------
1996 1995
----------- -----------
<S> <C> <C>
Cash and due from banks, including reserve requirements
of $1,658,000 and $1,050,000 $ 11,061,383 6,947,747
Interest-bearing deposits in financial institutions 3,355,586 9,494,437
Federal funds sold 8,680,000 17,615,000
----------- -----------
Cash and cash equivalents 23,096,969 34,057,184
Securities available for sale 33,927,243 -
Securities held to maturity 7,764,058 10,377,578
Other investments 2,599,741 3,247,341
Mortgage loans held for sale 282,488 3,091,269
Loans, net 269,834,098 270,880,011
Premises and equipment, net 9,288,592 7,365,297
Accrued interest receivable 2,687,472 2,397,423
Other assets 3,050,849 3,061,143
----------- -----------
$ 352,531,510 334,477,246
=========== ===========
Liabilities and Capital
-----------------------
Deposits:
Demand $ 15,903,005 12,055,514
Interest-bearing demand 47,288,356 46,625,670
Savings 34,076,732 31,736,434
Time 163,257,956 155,228,432
Time, over $100,000 47,230,149 43,641,462
----------- -----------
Total deposits 307,756,198 289,287,512
Federal Home Loan Bank advances 16,295,186 15,595,341
Subordinated debentures 2,000,000 2,000,000
Accrued interest payable and other liabilities 1,222,603 2,564,148
----------- -----------
Total liabilities 327,273,987 309,447,001
Commitments
Capital:
Retained earnings 25,278,036 25,030,245
Net unrealized loss on securities available for sale, net of tax (20,513) -
----------- -----------
Total capital 25,257,523 25,030,245
----------- -----------
$ 352,531,510 334,477,246
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ---------- ----------
<S> <C> <C> <C>
Interest income:
Interest and fees on loans $ 24,874,119 24,587,915 23,000,495
Interest-bearing deposits and federal funds sold 822,139 473,124 406,144
Interest and dividends on investment securities:
U.S. Treasury 43,805 56,716 60,930
U.S. Government agencies and mortgage-backed 2,132,908 2,326,932 2,155,765
State, county and municipals 83,541 - -
Other 233,927 268,434 196,558
---------- ---------- ----------
Total interest income 28,190,439 27,713,121 25,819,892
---------- ---------- ----------
Interest expense:
Interest on deposits:
Demand 1,385,726 1,365,946 1,183,901
Savings 889,267 828,348 1,094,354
Time 11,337,831 10,443,910 8,651,930
---------- ---------- ----------
13,612,824 12,638,204 10,930,185
Interest on FHLB advances and subordinated debentures 1,168,634 1,857,531 1,666,171
---------- ---------- ----------
Total interest expense 14,781,458 14,495,735 12,596,356
---------- ---------- ----------
Net interest income 13,408,981 13,217,386 13,223,536
Provision for loan losses 1,142,987 250,000 99,400
---------- ---------- ----------
Net interest income after provision for loan losses 12,265,994 12,967,386 13,124,136
---------- ---------- ----------
Other income:
Service charges on deposits 2,349,522 2,005,839 1,443,041
Gains on sales of securities available for sale 178,487 366,903 -
Miscellaneous 716,379 745,755 693,621
---------- ---------- ----------
Total other income 3,244,388 3,118,497 2,136,662
---------- ---------- ----------
Other expenses:
Salaries and employee benefits 6,453,278 5,346,917 6,255,624
Occupancy and equipment 1,607,963 1,493,728 1,313,795
Deposit insurance premiums 2,339,616 635,932 682,110
Other operating 4,875,135 4,287,652 4,072,090
---------- ---------- ----------
Total other expenses 15,275,992 11,764,229 12,323,619
---------- ---------- ----------
Earnings before income tax (benefit) expense 234,390 4,321,654 2,937,179
Income tax (benefit) expense (13,401) 1,374,627 553,488
---------- ---------- ----------
Net earnings $ 247,791 2,947,027 2,383,691
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
Net Unrealized
Loss on Securities
Retained Available for Sale,
Earnings Net of Tax Total
-------- ------------------- -----------
<S> <C> <C> <C>
Balance, December 31, 1993 $ 19,699,527 - 19,699,527
Net earnings 2,383,691 - 2,383,691
---------- ---------- ----------
Balance, December 31, 1994 22,083,218 - 22,083,218
Net earnings 2,947,027 - 2,947,027
---------- ---------- ----------
Balance, December 31, 1995 25,030,245 - 25,030,245
Net earnings 247,791 - 247,791
Change in unrealized loss on
securities available
for sale, net of tax - (20,513) (20,513)
---------- ---------- ----------
Balance, December 31, 1996 $ 25,278,036 (20,513) 25,257,523
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 247,791 2,947,027 2,383,691
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation, amortization and accretion 1,117,487 1,019,631 713,689
Provision for loan losses 1,142,987 250,000 99,400
FHLB stock dividend - - (39,700)
Deferred income tax benefit (946,505) (244,431) (110,918)
Gains on sales of securities available for sale (178,487) (366,903) -
Gains on sales of premises and equipment, net (66,641) (403,674) (73,181)
Change in:
Mortgage loans held for sale 2,808,781 (3,091,269) 2,890,726
Accrued interest receivable (290,050) 74,144 (816,556)
Other assets (87,809) (635,687) 62,808
Accrued interest payable (241,316) 214,526 244,020
Accrued expenses and other liabilities (143,158) 424,857 (770,982)
----------- ----------- -----------
Net cash provided by operating activities 3,363,080 188,221 4,582,997
----------- ----------- -----------
Cash flows from investing activities:
Net maturities of interest-bearing deposits - - 23,000
Proceeds from sales of securities available for sale 4,917,934 19,418,935 -
Proceeds from sales of other investments 759,600 - -
Proceeds from maturities of securities available
for sale 239,984 - -
Proceeds from maturities of securities held to maturity 2,664,499 15,969,894 3,234,583
Proceeds from maturities of other investments - 10,000,053 -
Purchases of other investments (112,000) (10,056,194) -
Purchases of securities available for sale (38,902,740) - -
Purchases of securities held to maturity - (115,000) (37,602,333)
Net change in loans (79,190) 10,181,757 (20,654,713)
Proceeds from sales of real estate 80,220 461,746 119,132
Proceeds from sales of premises and equipment 301,607 1,328,519 103,894
Purchases of premises and equipment (3,361,740) (1,130,516) (1,982,085)
Organization costs - - (212,319)
Cash received in branch acquisition - - 18,949,593
----------- ----------- -----------
Net cash provided (used) by investing
activities (33,491,826) 46,059,194 (38,021,248)
----------- ----------- -----------
Cash flows from financing activities:
Net change in demand and savings deposits 6,850,475 (10,175,766) 2,079,617
Net change in time deposits 11,618,211 10,135,548 (3,503,991)
Proceeds from FHLB advances 10,000,000 5,000,000 26,500,000
Payments of FHLB advances (9,300,155) (27,175,156) (8,675,155)
Proceeds from subordinated debentures - - 2,000,000
----------- ----------- -----------
Net cash provided (used) by financing 19,168,531 (22,215,374) 18,400,471
activities ----------- -----------
Net change in cash and cash equivalents (10,960,215) 24,032,041 (15,037,780)
Cash and cash equivalents at beginning of year 34,057,184 10,025,143 25,062,923
----------- ----------- -----------
Cash and cash equivalents at end of year $ 23,096,969 34,057,184 10,025,143
=========== =========== ===========
</TABLE>
-5-
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest $ 15,022,774 14,281,209 12,336,651
Income taxes $ 935,000 1,175,000 822,500
Supplemental schedule of noncash investing and financing activities:
Real estate acquired through foreclosure $ 401,866 428,182 665,532
Loans to facilitate sales of real estate $ 419,750 608,769 429,792
Transfer of securities held to maturity to available for sale $ - 19,052,032 -
</TABLE>
In connection with the 1994 branch acquisition, assets were acquired and
liabilities were assumed as follows:
<TABLE>
<S> <C>
Fair value of assets acquired $(1,124,185)
Liabilities assumed 21,186,730
Premium paid for core deposit intangible (1,112,952)
-----------
Cash received in connection with branch acquisition $18,949,593
===========
</TABLE>
See accompanying notes to consolidated financial statements.
-6-
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
------------
Prior to August 1, 1994, CF Mutual Holdings (the "Company") conducted its
activities pursuant to a federal mutual savings bank charter ("Mutual
Bank") and Carroll Services and Development Corporation ("Service")
operated as its wholly owned subsidiary. Effective August 1, 1994, the
operations of the Mutual Bank were transferred to a federally chartered
stock savings bank, Carrollton Federal Bank, FSB ("Bank").
Contemporaneously, Mutual Bank amended its mutual savings bank charter and
by-laws to conform to the requirements applicable to a federally chartered
mutual holding company and changed its name to CF Mutual Holdings. The
August 1, 1994 reorganization transactions were accounted for in a manner
similar to a pooling of interests.
The Company has no capital stock. All holders of the savings, demand or
other authorized accounts of the Bank are members of the Company
("Members"). With respect to all questions requiring action by the Members,
each holder of an account at the Bank is permitted to cast one vote for
each $100, or fraction thereof, of the withdrawal value of the Member's
accounts. In addition, certain borrowers from the Mutual Bank as of July
19, 1990 are entitled to one vote during the period such borrowings are in
existence. No Member has the right to cast more than one thousand votes.
The Company may distribute its net earnings to account holders of the Bank
on such a basis and in accordance with such terms and conditions as may
from time to time be authorized by the Office of Thrift Supervision
("OTS"). All account holders are entitled to equal distribution of the
assets of the Company, pro rata to the value of their accounts in the Bank,
in the event of a voluntary or involuntary liquidation, dissolution or
winding up of the Company.
The Bank is primarily regulated by the OTS and the Federal Deposit
Insurance Corporation and undergoes periodic examinations by these
regulatory authorities. The Bank primarily provides a full range of
customary banking services throughout Carroll, Coweta, Douglas, Fayette,
Heard, Haralson, Paulding and Henry counties in Georgia. Service is
primarily involved in the sale of real estate previously developed for
sale.
Basis of Presentation and Reclassification
------------------------------------------
The consolidated financial statements include the accounts of the Company,
the Bank, Service, CFB Insurance, Inc. and CFB Securities, Inc. All
significant intercompany accounts and transactions have been eliminated in
consolidation. Certain prior year amounts have been reclassified to conform
to the current year presentation.
The accounting principles followed by the Company and its subsidiaries, and
the methods of applying these principles, conform with generally accepted
accounting principles ("GAAP") and with general practices within the thrift
industry. In preparing 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 those estimates. Material estimates common to the thrift
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, the valuation allowance
for mortgage servicing rights and valuation allowances associated with the
realization of deferred tax assets which are based on future taxable
income.
Cash and Cash Equivalents
-------------------------
Cash equivalents include amounts due from banks, interest-bearing deposits
in financial institutions and federal funds sold. Generally, federal funds
are sold for one-day periods.
-7-
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Investment Securities
---------------------
The Company classifies its securities in one of three categories: trading,
available for sale, or held to maturity. There were no trading securities
at December 31, 1996 and 1995. Securities held to maturity are those
securities for which the Bank has the ability and intent to hold to
maturity. All other securities are classified as available for sale.
Available for sale securities consist of investment securities not
classified as trading securities or held to maturity securities and 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 stockholders' equity until realized. Transfers
of securities between categories are recorded at fair value at the date of
transfer. Unrealized holding gains or losses associated with transfers of
securities from held to maturity to available for sale are recorded as a
separate component of stockholders' equity.
A decline in the market value of any available for sale or held to maturity
investment 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 security as an adjustment to the yield. Realized gains and losses
are included in earnings and the cost of securities sold are derived using
the specific identification method.
Other Investments
-----------------
Other investments include Federal Home Loan Bank ("FHLB") stock and other
equity securities with no readily determinable fair value. An investment in
FHLB stock is required by law for a federally insured savings bank. These
investment securities are carried at cost and include stock dividends.
Interest Rate Cap Agreement
---------------------------
Interest rate cap agreements ("Caps"), which are principally used by the
Company in the management of interest rate exposure, are accounted for on
an accrual basis. Premiums paid for purchased Caps are being amortized to
interest expense over the terms of the Caps. Unamortized premiums are
included in other assets in the consolidated balance sheet. Amounts to be
received under the Caps are accounted for on an accrual basis, and are
recognized as a reduction of interest expense.
Mortgage Loans Held for Sale
----------------------------
Mortgage loans originated and intended for sale in the secondary market are
carried at the lower of aggregate cost or market value. The amount by which
cost exceeds market value is accounted for as a valuation allowance.
Changes, if any, in the valuation allowance are included in the
determination of net earnings in the period in which the change occurs.
Gains and losses from the sale of loans are determined using the specific
identification method.
Loans, Loan Fees and Interest Income
------------------------------------
Loans that management has the intent and ability to hold for the
foreseeable future or until maturity are reported at their outstanding
unpaid principal balances, net of the allowance for loan losses, deferred
fees or costs on originated loans and unamortized premiums or discounts on
purchased loans.
Loan fees and certain direct loan origination costs are deferred, and the
net fee or cost is recognized in interest income using the level-yield
method over the contractual lives of the loans, adjusted for estimated
prepayments based on the Bank's historical prepayment experience.
Commitment fees and costs relating to commitments whose likelihood of
exercise is remote are recognized over the commitment period on a straight-
line basis. If the commitment is subsequently exercised during the
commitment period, the remaining unamortized commitment fee at the time of
exercise is recognized over the life of the loan as an adjustment to the
yield. Premiums and discounts on purchased loans are amortized over the
remaining lives of the loans using the level-yield method. Fees arising
from servicing loans for others are recognized as earned.
-8-
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Loans, Loan Fees and Interest Income, continued
-----------------------------------------------
The Bank accounts for impaired loans in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors
for Impairment of a Loan" amended for SFAS No. 118, "Accounting by
Creditors for Impairment of a Loan - Income Recognition and Disclosure." A
loan is 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 the
fair value of the collateral of the loan if the loan is collateral
dependent. Interest income from impaired loans is recognized using a cash
basis method of accounting during the time within that period in which the
loans were impaired.
Allowance for Loan Losses
-------------------------
The allowance for loan losses is established through provisions for loan
losses charged to expense. Loans are charged against the allowance for loan
losses when management believes that the collection of the principal is
unlikely. The allowance is an amount which, in management's judgment, will
be adequate to absorb losses on existing loans that may become
uncollectible. The allowance is established through consideration of such
factors as changes in the nature and volume of the portfolio, adequacy of
collateral, delinquency trends, loan concentrations, specific problem
loans, and economic conditions that may affect the borrower's ability to
pay.
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 their judgments about information available to them
at the time of their examination.
Real Estate
-----------
Real estate acquired through foreclosure is carried at the lower of cost
(defined as fair value at foreclosure) or fair value less estimated costs
to dispose. Generally accepted accounting principles define fair value as
the amount that is expected to be received in a current sale between a
willing buyer and seller other than in a forced or liquidation sale. Fair
values at foreclosure are based on appraisals. Losses arising from the
acquisition of foreclosed properties are charged against the allowance for
loan losses. Subsequent writedowns are provided by a charge to operations
through the allowance for losses on other real estate in the period in
which the need arises.
Real estate held for sale is carried at the lower of cost or fair value
less estimated selling costs. Interest and other carrying charges relating
to properties under development are capitalized as construction costs
during the construction period. Valuations are periodically performed by
management, and provisions for losses through an allowance are established
with a charge to operations if the carrying value of a property exceeds its
estimated net realizable value.
Premises and Equipment
----------------------
Premises and equipment are stated at cost less accumulated depreciation.
Major additions and improvements are charged to the asset accounts while
maintenance and repairs that do not improve or extend the useful lives of
the assets are expensed currently. When assets are retired or otherwise
disposed of, the cost and related accumulated depreciation are removed from
the accounts, and any gain or loss is reflected in earnings for the period.
Depreciation expense is computed using the straight-line method over the
following estimated useful lives:
Land improvements 15-40 years
Buildings and improvements 15-40 years
Furniture and equipment 5-10 years
-9-
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, CONTINUED
Mortgage Servicing Rights
-------------------------
Effective January 1, 1996, the Bank adopted the provisions of SFAS No. 122
"Accounting for Mortgage Servicing Rights." SFAS No. 122 amends SFAS No.
65, "Accounting for Certain Mortgage Banking Activities." SFAS No. 122
requires a mortgage banking enterprise to recognize as a separate asset,
the rights to service mortgage loans regardless of whether the servicing
rights are acquired through either purchase or origination. Prior to SFAS
No. 122, SFAS No. 65 prohibited the capitalization of mortgage servicing
rights except where the rights to service loans were acquired from another
organization. Additionally, the new standard requires an impairment
analysis of mortgage servicing rights regardless of whether purchased or
originated.
The Bank's mortgage servicing rights represent the unamortized cost of
purchased and originated contractual rights to service mortgages for others
in exchange for a servicing fee and ancillary loan administration income.
Mortgage servicing rights are amortized over the period of estimated net
servicing income and are periodically adjusted for actual and anticipated
prepayments of the underlying mortgage loans. An impairment analysis is
performed after stratifying the rights by interest rate. Impairment,
defined as the excess of the asset's carrying value over its current fair
value, is recognized through a valuation allowance. At December 31, 1996,
no valuation allowances were required for the mortgage servicing rights.
Core Deposit Intangible
-----------------------
During 1994, the Bank entered into a Purchase and Assumption agreement with
First Union National Bank of Georgia to acquire certain loans, deposits and
other liabilities of a branch in Bremen, Georgia ("branch acquisition") for
a net purchase price approximating $1,113,000. The purchased core deposit
intangible is amortized using the straight-line method over the estimated
average life of the deposit base acquired and is included as a component of
other assets. Amortization expense approximated $74,000, $74,000 and
$69,000 for the years ended December 31, 1996, 1995 and 1994, respectively.
Income Taxes
------------
Deferred tax assets and liabilities are recorded for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases. Future tax benefits, such as net operating loss carryforwards,
are recognized to the extent that realization of such benefits is more
likely than not. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
the assets and liabilities 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 tax expense in the period that includes the enactment
date.
In the event the future tax consequences of differences between the
financial reporting bases and the tax bases of the Company's assets and
liabilities results in deferred tax assets, the standard requires an
evaluation of the probability of being able to realize the future benefits
indicated by such assets. A valuation allowance is provided 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.
A deferred tax liability is not recognized for portions of the allowance
for loan losses for income tax purposes in excess of the financial
statement balance, as described in note 8. Such a deferred tax liability
will only be recognized when it becomes apparent that those temporary
differences will reverse in the foreseeable future.
-10-
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) INVESTMENT SECURITIES
Investment securities at December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
SECURITIES AVAILABLE FOR SALE Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Government agencies $ 18,867,304 46,835 83,706 18,830,433
State, county and municipals 2,198,615 34,404 2,222 2,230,797
Mortgage-backed securities 12,892,403 24,853 51,243 12,866,013
---------- ------- ------- ----------
$ 33,958,322 106,092 137,171 33,927,243
========== ======= ======= ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
SECURITIES HELD TO MATURITY Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 499,819 25 - 499,844
U.S. Government agencies 6,216,029 34,795 90,755 6,160,069
State, county and municipals 115,000 1,206 - 116,206
Mortgage-backed securities 933,210 1,845 12,631 922,424
---------- ------- ------- ----------
$ 7,764,058 37,871 103,386 7,698,543
========== ======= ======= ==========
</TABLE>
<TABLE>
<CAPTION>
December 31, 1995
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
SECURITIES HELD TO MATURITY Cost Gains Losses Value
---- ----- ------ -----
<S> <C> <C> <C> <C>
U.S. Treasury securities $ 1,250,810 4,531 - 1,255,341
U.S. Government agencies 7,141,626 117,391 13,044 7,245,973
State, county and municipals 115,000 541 - 115,541
Mortgage-backed securities 1,870,142 5,277 16,093 1,859,326
---------- ------- ------- ----------
$ 10,377,578 127,740 29,137 10,476,181
========== ======= ======= ==========
</TABLE>
-11-
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(2) INVESTMENT SECURITIES, CONTINUED
The amortized cost and estimated fair value of securities available for
sale and securities held to maturity at December 31, 1996, by contractual
maturity, are shown below. Expected maturities may differ from contractual
maturities because borrowers may have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Securities Available Securities Held
for Sale to Maturity
--------------------------- ------------------------
Amortized Estimated Amortized Estimated
Cost Fair Value Cost Fair Value
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
U.S. Treasury securities:
Within 1 year $ - - 499,819 499,844
========== ========== ========= =========
U.S. Government agencies:
Within 1 year $ - - 581,727 585,437
1 to 5 years 2,999,824 3,014,464 2,634,302 2,660,813
5 to 10 years 11,849,330 11,839,589 3,000,000 2,913,819
More than 10 years 4,018,150 3,976,380 - -
---------- ---------- --------- ---------
$ 18,867,304 18,830,433 6,216,029 6,160,069
========== ========== ========= =========
State, county and municipals:
1 to 5 years $ - - 115,000 116,206
More than 10 years 2,198,615 2,230,797 - -
---------- ---------- --------- ---------
$ 2,198,615 2,230,797 115,000 116,206
========== ========== ========= =========
Total securities other than mortgage-backed:
Within 1 year $ - - 1,081,546 1,085,281
1 to 5 years 2,999,824 3,014,464 2,749,302 2,777,019
5 to 10 years 11,849,330 11,839,589 3,000,000 2,913,819
More than 10 years 6,216,765 6,207,177 - -
Mortgage-backed securities 12,892,403 12,866,013 933,210 922,424
---------- ---------- --------- ---------
$ 33,958,322 33,927,243 7,764,058 7,698,543
========== ========== ========= =========
</TABLE>
During 1995 the Bank used the one-time reassessment provisions of the
"Special Report - A Guide to Implementation of SFAS No. 115 on Accounting
for Certain Investments in Debt and Equity Securities" to transfer a
portion of its held to maturity securities portfolio which had an amortized
cost of $19,052,032 and a net unrealized gain of $366,903 to the available
for sale category. The special report allowed the Company to reassess the
appropriateness of its classifications of all investment securities prior
to December 31, 1995 without calling into question the Company's intent to
hold investment securities to maturity in the future.
There were no sales of securities held to maturity during 1996, 1995 and
1994. Proceeds from sales of securities available for sale during 1996 and
1995 totalled $4,917,934 and $19,418,935. Gross gains of $178,487 and
$366,903 were realized on those sales.
Securities and interest-bearing deposits with a carrying value of
approximately $2,517,000 and $3,626,000 at December 31, 1996 and 1995,
respectively, were pledged to secure U.S. government and other public
deposits.
-12-
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(3) LOANS
Major classifications of loans at December 31, 1996 and 1995 are summarized
as follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Real estate mortgage loans $ 146,577,235 175,038,710
Real estate construction loans 33,681 2,348,532
Commercial loans 57,785,878 43,943,791
Consumer and other installment loans 68,038,424 51,839,952
----------- -----------
Total loans 272,435,218 273,170,985
Less: Allowance for loan losses 2,601,120 2,290,974
----------- -----------
Loans, net $ 269,834,098 270,880,011
=========== ===========
</TABLE>
The Bank concentrates its lending activities in the origination of
permanent residential mortgage loans, commercial mortgage loans, commercial
business loans, and consumer installment loans. The majority of the Bank's
real estate loans are secured by real property located in Carroll County,
Georgia and surrounding counties.
The Bank has recognized impaired loans of approximately $5,680,000 and
$1,918,000 at December 31, 1996 and 1995. The total allowance for loan
losses related to these loans was $243,000 and $381,000 at December 31,
1996 and 1995, respectively. Interest income on impaired loans of
approximately $68,000 and $100,000 was recognized for cash payments
received in 1996 and 1995, respectively.
Activity in the allowance for loan losses is summarized as follows for the
years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Balance at beginning of year $ 2,290,974 2,391,920 2,686,508
Provisions charged to operations 1,142,987 250,000 99,400
Loans charged off (924,670) (448,484) (457,826)
Recoveries on loans previously
charged off 91,829 97,538 63,838
----------- --------- ---------
Balance at end of year $ 2,601,120 2,290,974 2,391,920
=========== ========= =========
</TABLE>
Mortgage loans serviced for others are not included in the accompanying
consolidated financial statements. Unpaid principal balances of these loans
at December 31, 1996 and 1995 approximate $53,061,000 and $48,036,000,
respectively.
(4) PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1996 and 1995 are summarized as
follows:
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Land and land improvements $ 1,131,003 1,136,802
Buildings and improvements 5,581,884 5,031,011
Furniture and equipment 7,935,857 6,368,621
Construction in progress 114,720 275,784
---------- ----------
14,763,464 12,812,218
Less: Accumulated depreciation 5,474,872 5,446,921
---------- ----------
$ 9,288,592 7,365,297
========== ==========
</TABLE>
Depreciation expense approximated $1,203,000, $1,038,000 and $889,000 at
December 31, 1996, 1995 and 1994, respectively.
-13-
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(5) TIME DEPOSITS
At December 31, 1996, contractual maturities of time deposits are
summarized as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1997 $ 133,863,983
1998 54,643,630
1999 11,684,852
2000 5,319,281
2001 and thereafter 4,976,359
--------------
$ 210,488,105
==============
</TABLE>
(6) FHLB ADVANCES
The interest rates for FHLB advances at December 31, 1996 and 1995 ranged
from 4.55% to 7.75%, respectively. FHLB advances are collateralized by FHLB
stock and first mortgage loans. Advances from FHLB outstanding at December
31, 1996 mature as follows:
<TABLE>
<CAPTION>
Year Amount
---- ------
<S> <C>
1997 $ 10,800,155
1998 2,550,155
1999 600,156
2000 600,156
2001 and Thereafter 1,744,564
-------------
$ 16,295,186
=============
</TABLE>
(7) SUBORDINATED DEBENTURES
During 1994, the Company issued Series A fixed rate subordinated debentures
to various executive officers and members of the Board of Directors in an
aggregate principal amount of $2,000,000. The subordinated debentures bear
interest at a simple interest rate per annum of 7.25%, which is payable
quarterly, and mature on September 30, 1999. The payment of the principal
and interest is subordinate and junior in right of payment to the claims of
creditors of the Company. The entire proceeds of the offering were used to
increase the capitalization of the Bank.
(8) INCOME TAXES
The following is an analysis of the components of income tax expense for
the years ended December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
--------- ---------- ---------
<S> <C> <C> <C>
Current $ 933,104 1,619,058 664,406
Deferred (946,505) (477,858) 81,555
Utilization of state operating loss
carryforwards - 233,427 79,970
Adjustment to valuation allowance - - (272,443)
----------- --------- --------
Income tax (benefit) expense $ (13,401) 1,374,627 553,488
=========== ========= ========
</TABLE>
-14-
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(8) INCOME TAXES, CONTINUED
The differences between income tax (benefit)expense and the amount computed
by applying the statutory federal income tax rate to earnings before taxes
for the years ended December 31, 1996, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- --------- --------
<S> <C> <C> <C>
Pretax income at statutory rate $ 79,693 1,469,362 998,641
Add (deduct):
Tax-exempt interest income (91,076) (83,920) (61,445)
Adjustment to valuation allowance - - (272,443)
Other (2,018) (10,815) (111,265)
-------- --------- --------
Income tax (benefit) expense $(13,401) 1,374,627 553,488
======== ========= ========
</TABLE>
The following summarizes the net deferred tax asset (liability). The net
deferred tax asset (liability) is included as a component of other assets
and accrued interest payable and other liabilities at December 31, 1996 and
1995, respectively.
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses $ 515,105 310,999
Allowance for real estate held for 123,689 100,913
development and sale
Deferred compensation 76,968 57,158
Other 53,300 24,957
State tax credits 232,055 234,170
Unrealized loss on securities available
for sale 10,568 -
---------- ---------
Total gross deferred tax assets 1,011,685 728,197
Deferred tax liabilities:
Net deferred loan fees 363,706 727,411
FHLB stock 226,697 515,041
Premises and equipment 335,224 330,762
Other 2,110 28,108
--------- ---------
Total gross deferred tax liabilities 927,737 1,601,322
--------- ---------
Net deferred tax asset (liability) $ 83,948 (873,125)
========== =========
</TABLE>
The Internal Revenue Code ("IRC") was amended during 1996 and the IRC
section 593 reserve method for loan losses for thrift institutions was
repealed. Effective January 1, 1996, the Bank now computes its tax bad debt
reserves under the rules of IRC section 585, which apply to commercial
banks. In years prior to 1996, the Bank obtained tax bad debt deductions
approximating $5.8 million in excess of its financial statement allowance
for loan losses for which no provision for federal income tax was made.
These amounts were then subject to federal income tax in future years
pursuant to the prior IRC section 593 provisions if used for purposes other
than to absorb bad debt losses. Effective January 1, 1996, approximately
$1.0 million of the excess reserve is no longer subject to recapture under
any circumstances and approximately $4.8 million of the excess reserve is
subject to recapture only if the Bank ceases to qualify as a bank pursuant
to the provisions of IRC section 585.
-15-
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9) EMPLOYEE AND DIRECTOR BENEFIT PLANS
All qualifying employees of the Bank are included in a qualified
multiemployer noncontributory defined benefit pension plan sponsored by
the Financial Institutions Retirement Fund. The Bank's policy is to fund
pension costs accrued. No pension expense was incurred during 1996 or
1995. The Bank's pension expense for 1994 was approximately $104,000. At
June 30, 1996, the date of the latest actuarial valuation, the market
value of the plan's net assets exceeded the actuarially computed value of
accumulated plan benefits.
Effective January 1, 1993, the Bank established a retirement plan
qualified pursuant to Internal Revenue Code section 401(k) ("Plan"). The
Plan allows eligible employees to defer a portion of their income by
making contributions into the Plan on a pretax basis. The Bank adopted a
matching formula which vests based on length of service. The Bank matches
50% of employee contributions up to 6% of the employees' compensation.
During the years ended December 31, 1996, 1995 and 1994, the Bank
recognized $94,000, $92,000 and $84,000 in expense related to its
obligations under the Plan.
During 1995, the Bank initiated a defined contribution postretirement
benefit plan to provide retirement benefits to its Board of Directors and
to provide death benefits for their designated beneficiaries. Under the
plan, the Bank purchased split-dollar whole life insurance contracts on
the lives of each Director. The increase in cash surrender value of the
contracts, less the Bank's cost of funds, constitutes the Bank's
contribution to the plan each year. In the event the insurance contracts
fail to produce positive returns, the Bank has no obligation to contribute
to the Plan. At December 31, 1996 and 1995, the cash surrender value of
the insurance contracts was approximately $969,000 and $890,000 and is
included as a component of other assets. Expenses incurred for benefits
were approximately $14,000 during 1996. No expenses were incurred during
1995.
(10) REGULATORY MATTERS
The Bank is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could
have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Bank must meet specific capital guidelines that
involve quantitative measures of the Bank's assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The Bank's capital amounts and classification are also subject
to qualitative judgements by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier
I capital (as defined) to risk-weighted assets (as defined), and of Tier I
capital (as defined) to average assets (as defined) and of Tangible
capital to average assets. Management believes, as of December 31, 1996
and 1995, that the Bank meets all capital adequacy requirements to which
it is subject.
As of December 31, 1996 and 1995, the most recent notification from the
OTS 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 following table.
There are no conditions or events since that notification that management
believes have changed the institution's category.
-16-
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(10) REGULATORY MATTERS, CONTINUED
The Bank's actual capital amounts and ratios are presented below.
Consolidated amounts do not materially differ from Bank-only capital
amounts and ratios.
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
------------------ ------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
---------- ------ ----------------- ------ ----------------- -------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
Total Capital
(to Risk Weighted Assets) $ 25,612,075 10.9% 18,889,301 >8.0% 23,611,627 >10.0%
-
Tier 1 Capital
(to Risk Weighted Assets) $ 23,587,913 10.0% 9,444,651 >4.0% 14,166,976 > 6.0%
Tier 1 Capital - -
(to Adjusted Assets) $ 23,587,913 6.9% 13,972,080 >4.0% 17,465,100 > 5.0%
Tangible Capital
(to Tangible Assets) $ 23,587,913 6.9% 5,239,530 >1.5% N/A N/A
-
AS OF DECEMBER 31, 1995:
Total Capital
(to Risk Weighted Assets) $ 26,914,471 12.2% 17,588,987 >8.0% 21,986,233 >10.0%
- -
Tier 1 Capital
(to Risk Weighted Assets) $ 25,015,649 11.4% 8,794,493 >4.0% 13,191,740 > 6.0%
- -
Tier 1 Capital
(to Adjusted Assets) $ 25,015,649 7.5% 13,335,941 >4.0% 16,669,926 > 5.0%
- -
Tangible Capital
(to Tangible Assets) $ 25,015,649 7.5% 5,000,978 >1.5% N/A N/A
</TABLE>
Thrift regulations limit the amount of dividends the Bank can pay to the
Company without prior regulatory approval. These limitations are a
function of excess regulatory capital and net earnings in the year the
dividend is declared. In 1997, the Bank can pay dividends totalling
approximately $3,661,000 plus net earnings during 1997.
(11) COMMITMENTS
The Bank leases certain banking facilities under operating lease
arrangements expiring through 2012. Future minimum payments required for
all operating leases with remaining terms in excess of one year are
presented below:
<TABLE>
<CAPTION>
Year Ending December 31,
------------------------
<S> <C>
1997 $ 243,839
1998 241,492
1999 223,172
2000 197,228
2001 147,729
Thereafter 773,855
---------
$ 1,827,315
=========
</TABLE>
Total rent expense was approximately $229,000, $127,000 and $101,000 for the
years ended December 31, 1996, 1995 and 1994.
-17-
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(11) COMMITMENTS, CONTINUED
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 and to manage its cost of funds. These financial instruments
include commitments to extend credit, standby letters of credit and an
interest rate cap agreement. These instruments involve, to varying
degrees, elements of credit risk in excess of the amounts recognized in
the consolidated statements of financial condition. The contract amounts
of these instruments reflect the extent of involvement the Bank has in
particular classes of financial instruments.
Commitments to originate first mortgage loans and to extend credit are
agreements to lend to a customer as long as there is no violation of any
condition established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require payment of a
fee. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent
future cash requirements. The Bank evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Bank upon extension of credit, is
based on management's credit evaluation of the counterparty. The Bank's
loans are primarily collateralized by residential and other real
properties, automobiles, savings deposits, accounts receivable, inventory
and equipment located in Carroll County, Georgia and surrounding counties.
Standby letters of credit are written conditional commitments issued by
the Bank to guarantee the performance of a customer to a third party.
Those guarantees are primarily issued to support public and private
borrowing arrangements. Most letters of credit extend for less than one
year. The credit risk involved in issuing letters of credit is essentially
the same as that involved in extending loan facilities to customers.
The Bank's exposure to credit loss in the event of nonperformance 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. All standby letters of credit are secured at December 31,
1996 and 1995.
On July 20, 1995, the Company entered into a Cap to reduce the potential
impact of increases in interest rates on its interest-bearing liabilities.
The agreement entitles the Company to receive from a counterparty, on a
quarterly basis, the amounts, if any, by which the 3-month LIBOR rate
exceeds the Cap rate of 7% on a notional amount of $25,000,000. The Cap
agreement expires on July 20, 1997.
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Financial instruments whose contract
amounts represent credit risk:
Commitments to originate first mortgage loans $ 128,000 485,000
Commitments to extend credit $ 20,840,000 20,764,000
Standby letters of credit $ 108,000 71.000
Cap agreement $ 27,000 76,000
</TABLE>
(12) MISCELLANEOUS OPERATING EXPENSES
Components of other operating expenses in excess of 1% of interest and
other income for the years ended December 31, 1996, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Advertising $ 470,273 225,317 228,482
Data processing expense $ 648,853 506,908 455,108
Office supplies $ 329,246 213,787 235,714
</TABLE>
-18-
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) CF MUTUAL HOLDINGS (PARENT COMPANY ONLY) FINANCIAL INFORMATION
Balance Sheets
December 31, 1996 and 1995
Assets
------
<TABLE>
<CAPTION>
1996 1995
---- ----
Cash and cash equivalents $ 1,327,334 752,189
Investment in subsidiaries 25,873,579 26,350,395
Other assets 222,850 152,662
---------- ----------
$ 27,423,763 27,255,246
========== ==========
Liabilities and Capital
-----------------------
Subordinated debentures $ 2,000,000 2,000,000
Accounts payable and accrued expenses 166,240 225,001
---------- ----------
Total liabilities 2,166,240 2,225,001
Capital 25,257,523 25,030,245
---------- ----------
$ 27,423,763 27,255,246
========== ==========
Statements of Earnings
For the Years Ended December 31, 1996, 1995 and 1994
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Income:
Dividend income from the Bank $ 814,000 752,000 82,700
Interest income 30,290 - -
Other 2,240 - -
---------- ---------- ---------
Total income 846,530 752,000 82,700
---------- ---------- ---------
Operating expenses:
Interest expense 145,397 147,134 19,000
Other 54,801 50,791 17,765
---------- ---------- ---------
Total operating expenses 200,198 197,925 36,765
---------- ---------- ---------
Earnings before income tax benefit
and equity in
undistributed earnings of 646,332 554,075 45,935
subsidiaries
Income tax benefit 58,762 67,440 12,500
---------- ---------- ---------
Earnings before equity in
undistributed earnings of
subsidiaries or dividends
received in excess of earnings
of subsidiaries 705,094 621,515 58,435
Dividends received in excess of (457,303) - -
earnings of subsidiaries
Equity in undistributed earnings of - 2,325,512 2,325,256
subsidiaries ---------- ---------- ---------
Net earnings $ 247,791 2,947,027 2,383,691
========== ========== =========
</TABLE>
-19-
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(13) CF MUTUAL HOLDINGS (PARENT COMPANY ONLY) FINANCIAL INFORMATION, CONTINUED
Statements of Cash Flows
For the Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings $ 247,791 2,947,027 2,383,691
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Amortization 42,464 42,464 17,765
Dividends received in excess of earnings of
subsidiaries 457,303 - -
Equity in undistributed earnings of subsidiaries - (2,325,512) (2,325,256)
Change in other assets and liabilities (172,413) (4,340) 228,769
---------- ---------- ----------
Net cash provided by operating activities 575,145 659,639 304,969
---------- ---------- ----------
Cash flows from investing activities:
Purchase of capital stock of Bank upon reorganization - - (100)
Contributions of capital to the Bank - - (2,000,000)
Organization costs - - (212,319)
---------- ---------- ---------
Net cash used in investing activities - - (2,212,419)
---------- ---------- ----------
Net cash provided by financing activities, consisting of - - 2,000,000
proceeds from subordinated debentures ---------- ---------- ----------
Net increase in cash 575,145 659,639 92,550
Cash at beginning of year 752,189 92,550 -
---------- ---------- ----------
Cash at end of year $1,327,334 752,189 92,550
========== ========== ==========
</TABLE>
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized on the face of the balance sheet, for which it is
practicable to estimate that value. The assumptions used in the estimation
of the fair value of the Company's financial instruments are detailed
below. Where quoted prices are not available, fair values are based on
estimates using discounted cash flows and other valuation techniques. The
use of discounted cash flows can be significantly affected by the
assumptions used, including the discount rate and estimates of future cash
flows. The following disclosures should not be considered a surrogate of
the liquidation value of the Company or its subsidiaries, but rather a
good-faith estimate of the increase or decrease in value of financial
instruments held by the Company since purchase, origination or issuance.
-20-
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
Cash and Cash Equivalents
-------------------------
For cash, due from banks, federal funds sold and interest-bearing
deposits with other banks, the carrying amount is a reasonable estimate
of fair value.
Securities Held to Maturity and Securities Available for Sale
-------------------------------------------------------------
Fair values for securities held to maturity and securities available
for sale are based on quoted market prices.
Other investments
-----------------
The carrying value of other investments approximates fair value.
Loans and Mortgage Loans Held for Sale
--------------------------------------
The fair value of fixed rate loans is estimated by discounting the
future cash flows using the current rates at which similar loans would
be made to borrowers with similar credit ratings. For variable rate
loans, the carrying amount is a reasonable estimate of fair value.
Deposits
--------
The fair value of demand deposits, savings accounts, NOW accounts and
certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed maturity certificates of
deposit is estimated by discounting the future cash flows using the
rates currently offered for deposits of similar remaining
maturities.
FHLB Advances
-------------
The fair value of the FHLB fixed rate borrowings are estimated using
discounted cash flows, based on the current incremental borrowing rates
for similar types of borrowing arrangements.
Subordinated Debentures
-----------------------
Rates currently available to the Company for debt with similar terms
and remaining maturities are used to estimate fair value of existing
debt.
Commitments to Originate First Mortgage Loans, Commitments to Extend
--------------------------------------------------------------------
Credit and Standby Letters of Credit
------------------------------------
Because commitments to originate first mortgage loans, commitments to
extend credit and standby letters of credit are made using variable
rates, the contract value is a reasonable estimate of fair value.
Limitations
-----------
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial
instrument. These estimates do not reflect any premium or discount that
could result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. Because no market exists
for a significant portion of the Company's financial instruments, fair
value estimates are based on many judgments. These estimates are
subjective in nature and involve uncertainties and matters of
significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of
anticipated future business and the value of assets and liabilities
that are not considered financial instruments. Significant assets and
liabilities that are not considered financial instruments include the
mortgage banking operation, deferred income taxes, premises and
equipment and purchased core deposit intangible. In addition, the tax
ramifications related to the realization of the unrealized gains and
losses can have a significant effect on fair value estimates and have
not been considered in the estimates.
-21-
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS, CONTINUED
The carrying amount and estimated fair values of the Company's financial
instruments at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Assets:
Cash and cash equivalents $ 23,096,969 23,096,969 34,057,184 34,057,184
Securities available for sale 33,927,243 33,927,423 - -
Securities held to maturity 7,764,058 7,698,543 10,377,578 10,476,181
Other investments 2,599,741 2,599,741 3,247,341 3,247,341
Loans, net 269,834,098 270,434,962 270,880,011 272,897,692
Mortgage loans held for sale 282,488 282,488 3,091,269 3,091,269
Liabilities:
Deposits 307,756,198 308,234,690 289,287,512 288,616,298
FHLB advances 16,295,186 15,854,660 15,595,341 15,534,613
Subordinated debentures 2,000,000 1,947,000 2,000,000 1,910,000
Unrecognized financial instruments:
Commitments to originate first
mortgage loans 128,000 128,000 485,000 485,000
Commitments to extend credit 20,840,000 20,840,000 20,764,000 20,764,000
Standby letters of credit 108,000 108,000 71,000 71,000
</TABLE>
(15) SUBSEQUENT EVENT
On February 11, 1997, the Board of Directors of the Company adopted a Plan
of Conversion and Reorganization pursuant to which the Company would be
converted from a federally chartered mutual holding company to a federally
chartered stock savings bank holding company. The Plan of Conversion is
subject to approval of applicable regulatory authorities and by
affirmative vote of the majority of the Company's Members. The conversion
of the Company to a stock savings bank holding company will be accounted
for at historical cost in a manner similar to a pooling of interests.
The Company will form a new entity known as Community First Banking
Company ("Community First"), which will become the holding company for the
Bank upon consummation of the Conversion and Reorganization. Community
First will in turn form a new wholly owned subsidiary known as Interim CFB
Association ("Interim CFB"). The existing Company will convert to an
interim federal savings bank and will simultaneously merge with and into
the Bank, pursuant to which the Company will cease to exist and a
"liquidation account" will be established by the Bank for the benefit of
depositor members as of specified dates. Interim CFB will then merge with
and into the Bank, pursuant to which the Bank will become a wholly owned
subsidiary of Community First.
-22-
<PAGE>
CF MUTUAL HOLDINGS AND SUBSIDIARIES
Notes to Consolidated Financial Statements, continued
(15) SUBSEQUENT EVENT, CONTINUED
The Plan of Conversion provides for the establishment, upon the completion
of the conversion, of a special "liquidation account" for the benefit of
"Eligible Account Holders and Supplemental Eligible Account Holders"
("Holders") in an amount equal to the Company's retained earnings as of
the date of its latest statement of financial condition contained in the
final prospectus for the sale of the common stock. Each Holder, if he or
she continues to maintain a deposit account at the Bank, would be entitled
on a complete liquidation of the Company after conversion, to an interest
in the liquidation account prior to any payment to stockholders of
Community First. Each eligible account Holder would have an initial
interest in such liquidation account for each deposit account held in the
Company on the qualifying date, December 31, 1995. Each Supplemental
Eligible Account Holder would have a similar interest at a separate
qualifying date, which has not yet been determined. The interest as to
each deposit account would be in the same proportion of the total
liquidation account as the balance of the deposit account on the
qualifying dates was to the aggregate balance in all the deposit accounts
of Holders on such qualifying dates. However, if the amount in the deposit
account on any annual closing date of the Company is less than the amount
in such account on the respective qualifying dates, then the interest in
this special liquidation account would be reduced from time to time by an
amount proportionate to any such reduction, and the interest would cease
to exist if such deposit account were closed. The interest in the special
liquidation account will never be increased despite any increase in the
related deposit account after the respective qualifying dates.
Under the Plan of Conversion, up to 2,098,750 shares of the common stock
of the Company will be offered for sale by Community First, subject to
adjustment. As part of the Plan of Conversion, Community First will
conduct a subscription offering of the common stock for holders of
subscription rights in the following order of priority: (i) depositors of
the Company as of December 31, 1995 with deposits of at least $50
(Eligible Account Holders); (ii) tax-qualified employee benefit plans of
the Company (the Company currently plans to implement an ESOP); (iii)
other depositors of the Company as of December 31, 1995 with deposits of
at least $50 (Supplemental Eligible Account Holders); and (iv) depositors
who are neither Eligible Account Holders nor Supplemental Eligible Account
Holders and certain borrowers, subject to the provisions of the Plan.
The Company may offer shares of common stock in a community offering to
the general public in Georgia and other states with a preference to
natural persons residing in Carroll, Coweta, Douglas, Fayette, Haralson,
Heard, Paulding and Henry counties, Georgia, subject to the prior rights
of holders of subscription rights. The Company has the right, in its sole
discretion, to accept or reject, in whole or in part, any orders to
purchase shares of the common stock received in the community offering.
At December 31, 1996, no costs have been incurred related to the
aforementioned Plan of Conversion. Upon consummation of the Plan of
Conversion and related stock offering, any amounts incurred will be netted
against the proceeds from the stock offering and result in a reduction of
paid-in capital. Should the Plan of Conversion and stock offering not be
consummated, such costs will be charged to expense in 1997.
-23-
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
No dealer, salesman or any other person has been authorized to give any
information or to make any representation other than as contained in this
Prospectus in connection with the offering made hereby, and, if given or made,
such other information or representation must not be relied upon as having been
authorized by the Company, the Mutual Holding Company, the Savings Bank or
Trident Securities, Inc. This Prospectus does not constitute an offer to sell or
a solicitation of an offer to buy any of the securities offered hereby to any
person in any jurisdiction in which such offer or solicitation is not authorized
or in which the person making such offer or solicitation is not qualified to do
so, or to any person to whom it is unlawful to make such offer or solicitation
in such jurisdiction. Neither the delivery of this Prospectus nor any sale
hereunder shall under any circumstances create any implication that there has
been no change in the affairs of the Company or the Savings Bank since any of
the dates as of which information is furnished herein or since the date hereof.
-----------------
TABLE OF CONTENTS
-----------------
Page
----
Summary.....................................................................
Selected Consolidated Financial and Other Data..............................
Risk Factors................................................................
Community First Banking Company.............................................
Carrollton Federal Bank.....................................................
CF Mutual Holdings..........................................................
Proposed Management Purchases...............................................
Use of Proceeds.............................................................
Dividend Policy.............................................................
Market for Common Stock.....................................................
Capitalization..............................................................
Regulatory Capital..........................................................
Pro Forma Data..............................................................
Management's Discussion and Analysis of Financial...........................
Condition and Results of Operations.........................................
Business....................................................................
Taxation....................................................................
Regulation..................................................................
Management of the Company...................................................
Management of the Savings Bank..............................................
The Conversion and Reorganization...........................................
Certain Restrictions on Acquisition
of the Company..............................................................
Description of Capital Stock................................................
Experts.....................................................................
Legal Matters...............................................................
Additional Information......................................................
Index to Consolidated Financial Statements..................................
Until ____________, 1997 or 25 days after commencement of the Syndicated
Community Offering, if any, whichever is later, all dealers effecting
transactions in the registered securities, whether or not participating in this
distribution, may be required to deliver a Prospectus. This is in addition to
the obligation of dealers to deliver a Prospectus when acting as underwriters
and with respect to their unsold allotments or subscriptions.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,098,750 Shares
(Estimated Maximum)
COMMUNITY FIRST BANKING COMPANY
(Proposed Holding Company for
Carrollton Federal Bank, FSB)
COMMON STOCK
----------
PROSPECTUS
----------
TRIDENT SECURITIES, INC.
, 1997
-------- --
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following are the estimated expenses, other than underwriting
discounts and commissions, to be borne by the Company in connection with the
issuance and distribution of the Common Stock being registered.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee $14,628
OTS filing fees 8,400
National Association of Securities Dealers, Inc. Filing Fee 5,328
Nasdaq Stock Market Listing Fee 17,068
Blue Sky Fees and Expenses *
Legal Fees and Expenses *
Accounting Fees and Expenses *
Printing and Engraving Expenses *
Marketing agent fees and expenses *
Appraiser's fees and expenses *
Transfer Agent and Registrar Fee *
Miscellaneous *
------
TOTAL $ *
======
</TABLE>
- -------------------------
* To be provided by amendment.
Item 14. Indemnification of Directors and Officers.
The Company's Bylaws contain certain indemnification provisions
providing that directors, officers, and employees or agents of the Company will
be indemnified against expenses actually and reasonably incurred by them if they
are successful on the merits of a claim or proceeding.
When a case or dispute is not ultimately determined on its merits (i.e.,
it is settled), the indemnification provisions provide that the Company will
indemnify directors when they meet the applicable standard of conduct. The
applicable standard of conduct is met if the director acted in good faith and in
a manner he or she reasonably believed to be in or not opposed to the best
interests of the Company, and with respect to an employee benefit plan, for a
purpose the director believed in good faith to be in the interests of the
participants and beneficiaries of the plan. The standard of conduct with respect
to any criminal action or proceeding is met if the director had no reasonable
cause to believe his or her conduct was unlawful. Whether the applicable
standard of conduct has been met is determined by the Board of Directors, the
shareholders or independent legal counsel in each specific case.
The Company can also provide for greater indemnification than that set
forth in the Bylaws if it chooses to do so, subject to approval by the Company's
shareholders. The Company may not, however, indemnify a director for liability
arising out of circumstances which constitute exceptions to limitation of a
director's liability for monetary damages. See "--Limitation of Liability".
II-1
<PAGE>
The Company may purchase and maintain insurance on behalf of any
director against any liability asserted against such person and incurred by
him or her in any such capacity, whether or not the Company would have had
the power to indemnify against such liability.
In addition, Article 11 of the Company's Articles of Incorporation,
subject to certain exceptions, eliminates the potential personal liability
of a director for monetary damages to the Company and to the shareholders
of the Company for breach of any duty as a director. There is no
elimination of liability for (a) a breach of duty involving appropriation
of a business opportunity of the Company, (b) an act or omission not in
good faith or involving intentional misconduct or a knowing violation of
law, (c) a transaction from which the director derives an improper material
tangible personal benefit, or (d) as to any payment of a dividend or
approval of a stock repurchase that is illegal under the Georgia Business
Corporation Code. The Articles of Incorporation do not eliminate or limit
the right of the Company or its shareholders to seek injunctive or other
equitable relief not involving monetary damages.
Item 15. Recent Sales of Unregistered Securities.
The only securities to be sold by the Registrant prior to effectiveness
of this registration statement will be of 10 shares of common stock to be
issued to its sole shareholder, Carrollton Federal Bank, FSB, for $20.00
per share, which shares will be cancelled upon consummation of the
Conversion and Reorganization. Because the shares will be sold to only one
entity and were sold only to facilitate the organization of the Registrant,
the sale will be exempt from registration under the Securities Act of 1933
pursuant to Section 4(2) thereof.
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------ -----------
<S> <C>
1.1 Form of Agency Agreement*
2.1 Plan of Conversion and Agreement and Plan of Reorganization, as
amended
3.1 Articles of Incorporation of the Registrant
3.2 Bylaws of the Registrant
4.1 Specimen Stock Certificate of the Registrant*
4.2 See Exhibits 3.1 and 3.2 for provisions of the Registrant's
Articles of Incorporation and Bylaws governing the rights of
holders of securities of the Registrant
5.1 Opinion of Powell, Goldstein, Frazer & Murphy LLP regarding the
legality of the securities to be issued*
</TABLE>
II-2
<PAGE>
<TABLE>
<S> <C>
8.1 Opinion of Powell, Goldstein, Frazer & Murphy LLP regarding income
tax consequences*
10.1 Form of 1997 Stock Option Plan, assuming the Plan is submitted to
the Company's shareholders for approval within 12 months after the
Conversion
10.2 Form of Management Recognition Plan, assuming the Plan is
submitted to the Company's shareholders for approval within 12
months after the Conversion
10.3 Form of Employee Stock Ownership Plan and Trust
10.4 Form of Employee Stock Ownership Plan Trust Agreement
10.5 Employment Agreement between Gary D. Dorminey and the Registrant
dated September 1, 1994, with the first and second amendments
thereto dated September 1, 1995 and September 1, 1996,
respectively
10.5 401(k) Retirement Plan *
10.6 Retirement Plan *
23.1 Consent of Porter Keadle Moore LLP
23.2 Consent of Powell, Goldstein, Frazer & Murphy LLP (included in its
opinions filed as Exhibits 5.1 and 8.1) *
23.3 Consent of Ferguson & Co. L.L.P. *
24.1 Power of Attorney (appears on the signature page to this
Registration Statement)
27.1 Financial Data Schedule (for SEC use only)
99.1 Proxy Statement and form of proxy for solicitation of members of
CF Mutual Holdings *
99.3 Appraisal Report of Ferguson & Co. L.L.P. *
99.4 Stock Order Form *
99.5 Transmittal Letters *
99.6 Question and Answer Brochure *
</TABLE>
II-3
<PAGE>
(b) Financial Statement Schedules
The financial statement schedules for which provision is made in the
applicable accounting regulations of the Commission are either not required
under the related instructions or are inapplicable and have therefore been
omitted.
Item 17. Undertakings.
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(i) To include any Prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the Prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
---- ----
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offerings.
The undersigned Registrant hereby undertakes to furnish stock
certificates to or in accordance with the instructions of the respective
purchasers of the Common Stock, so as to make delivery to each purchaser
promptly following the closing under the Plan of Conversion.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being registered,
the Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against
public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, State of
Georgia on _______________, 1997.
COMMUNITY FIRST BANKING COMPANY
By:
-----------------------------------------------
Gary D. Dorminey
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that each person whose signature appears
on the signature pages to this Registration Statement constitutes and
appoints Gary D. Dorminey and D. Lane Poston, and each of them, his or her
true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for the undersigned and in his or her
name, place, and stead, in any and all capacities, to sign any and all
amendments to this Registration Statement, and to file the same, with all
exhibits hereto and other documents in connection herewith with the
Securities and Exchange Commission, granting unto said attorneys-in-fact
and agents and each of them, full power and authority to do so 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 he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or either of them, or their or his substitute
or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
Name Position Date
---- -------- ----
<S> <C> <C>
Chairman of the Board , 1997
- ---------------------- ---------------
T. Aubrey Silvey
Chief Executive Officer, , 1997
- ---------------------- President and Director ---------------
Gary D. Dorminey (principal executive officer)
</TABLE>
[Signatures continued on following page]
II-5
<PAGE>
[Signatures continued from previous page]
<TABLE>
<CAPTION>
Name Position Date
---- -------- ----
<S> <C> <C>
Vice Chairman of the Board , 1997
- ---------------------- -------------
Gary M. Bullock
Director , 1997
- ---------------------- -------------
Anna L. Berry
Director , 1997
- ---------------------- -------------
Jerry L. Clayton
Director , 1997
- ---------------------- -------------
Thomas E. Reeve, Jr.
Director , 1997
- ---------------------- -------------
Michael P. Steed
Director , 1997
- ---------------------- -------------
Dean B. Talley
Director , 1997
- ---------------------- -------------
Thomas S. Upchurch
Chief Financial Officer , 1997
- ----------------------- (principal financial and -------------
C. Lane Gable accounting officer)
</TABLE>
II-6
<PAGE>
INDEX OF EXHIBITS
Exhibit Sequential
Number Description Page
------ ----------- ----
1.1 Form of Agency Agreement*
2.1 Plan of Conversion and Agreement and Plan of Reorganization,
as amended
3.1 Articles of Incorporation of the Registrant
3.2 Bylaws of the Registrant
4.1 Specimen Stock Certificate of the Registrant*
4.2 See Exhibits 3.1 and 3.2 for provisions of the Registrant's
Articles of Incorporation and Bylaws governing the rights of
holders of securities of the Registrant
5.1 Opinion of Powell, Goldstein, Frazer & Murphy LLP regarding
the legality of the securities to be issued*
8.1 Opinion of Powell, Goldstein, Frazer & Murphy LLP regarding
income tax consequences*
10.1 Form of 1997 Stock Option Plan, assuming the Plan is submitted
to the Company's shareholders for approval within 12 months
after the Conversion
10.2 Form of Management Recognition Plan, assuming the Plan is
submitted to the Company's shareholders for approval within 12
months after the Conversion
10.3 Form of Employee Stock Ownership Plan and Trust
10.4 Form of Employee Stock Ownership Plan Trust Agreement
10.5 Employment Agreement between Gary D. Dorminey and the
Registrant dated September 1, 1994, with the first and second
amendments thereto dated September 1, 1995 and September 1,
1996, respectively
10.5 401(k) Retirement Plan *
10.6 Retirement Plan *
23.1 Consent of Porter Keadle Moore LLP
II-7
<PAGE>
23.2 Consent of Powell, Goldstein, Frazer & Murphy LLP (included
in its opinions filed as Exhibits 5.1 and 8.1) *
23.3 Consent of Ferguson & Co. L.L.P.
24.1 Power of Attorney (appears on the signature page to this
Registration Statement)
27.1 Financial Data Schedule (for SEC use only)
99.1 Proxy Statement and form of proxy for solicitation of members
of CF Mutual Holdings *
99.3 Appraisal Report of Ferguson & Co. L.L.P. *
99.4 Stock Order Form *
99.5 Transmittal Letters *
99.6 Question and Answer Brochure *
II-8
<PAGE>
PLAN OF CONVERSION
OF
CF MUTUAL HOLDINGS
AND
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
COMMUNITY FIRST BANKING COMPANY
AND
CARROLLTON FEDERAL BANK
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION
NUMBER PAGE
- ------ ----
<S> <C>
1. INTRODUCTION.................................................. 1
2. DEFINITIONS................................................... 3
3. GENERAL PROCEDURE FOR CONVERSION AND REORGANIZATION........... 8
4. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF
CONVERSION STOCK.............................................. 10
5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS............... 11
6. SUBSCRIPTION RIGHTS OF THE TAX-QUALIFIED EMPLOYEE STOCK
BENEFIT PLANS................................................. 12
7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT
HOLDERS....................................................... 13
8. SUBSCRIPTION RIGHTS OF OTHER MEMBERS.......................... 13
9. COMMUNITY OFFERING, SYNDICATED COMMUNITY OFFERING
AND OTHER OFFERINGS........................................... 14
10. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF
CONVERSION STOCK.............................................. 16
11. TIMING OF SUBSCRIPTION OFFERING; MANNER OF EXERCISING
SUBSCRIPTION RIGHTS AND ORDER FORMS........................... 17
12. PAYMENT FOR CONVERSION STOCK.................................. 19
13. ACCOUNT HOLDERS IN NONQUALIFIED STATES OR FOREIGN
COUNTRIES..................................................... 20
14. VOTING RIGHTS OF STOCKHOLDERS................................. 20
15. LIQUIDATION ACCOUNT........................................... 21
16. TRANSFER OF DEPOSIT ACCOUNTS.................................. 22
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SECTION
NUMBER PAGE
- ------ ----
<S> <C>
17. REQUIREMENTS FOLLOWING CONVERSION AND REORGANIZATION
FOR REGISTRATION, MARKET MAKING AND STOCK EXCHANGE
LISTING....................................................... 22
18. DIRECTORS AND OFFICERS OF THE BANK............................ 23
19. REQUIREMENTS FOR STOCK PURCHASE BY DIRECTORS AND
OFFICERS FOLLOWING THE CONVERSION AND REORGANIZATION.......... 23
20. RESTRICTIONS ON TRANSFER OF STOCK............................. 23
21. RESTRICTIONS ON ACQUISITION OF STOCK OF COMMUNITY
FIRST......................................................... 24
22. TAX RULINGS OR OPINIONS....................................... 24
23. STOCK COMPENSATION PLANS...................................... 25
24. PAYMENT OF FEES TO BROKERS.................................... 25
25. EFFECTIVE DATE................................................ 25
26. AMENDMENT OR TERMINATION OF THE PLAN.......................... 26
27. INTERPRETATION OF THE PLAN.................................... 26
</TABLE>
Annex A - Plan of Merger between the Mutual Holding Company (following its
conversion) and the Bank
Annex B - Plan of Merger between the Bank and Interim CFB
<PAGE>
1. INTRODUCTION.
For purposes of this section, all capitalized terms have the meanings
ascribed to them in Section 2.
BACKGROUND.
- ----------
On August 1, 1994, Carrollton Federal Bank, FSB, a federally chartered
mutual savings bank reorganized into the mutual holding company form of
organization. To accomplish this transaction, the Bank organized a federally
chartered, stock savings bank (Carrollton Federal Bank) as a wholly owned
subsidiary. The mutual Bank then transferred substantially all of its assets
and liabilities to the stock Bank in exchange for 100 shares of Bank Common
Stock, and reorganized itself into a federally chartered mutual holding company
known as CF Mutual Holdings. No other Bank Common Stock was issued in
connection with the mutual holding company reorganization or thereafter and, as
a consequence, CF Mutual Holdings holds 100% of the outstanding Bank Common
Stock.
The Boards of Directors of the Mutual Holding Company and the Bank believe
that a conversion of the Mutual Holding Company to stock form and reorganization
of the Bank pursuant to this Plan of Conversion is in the best interests of the
Mutual Holding Company and the Bank, as well as the best interests of their
respective Members and Stockholders. The Boards of Directors determined that
this Plan of Conversion equitably provides for the interests of Members through
the granting of subscription rights and the establishment of a liquidation
account. The Conversion and Reorganization will result in the Bank's being
wholly owned by a stock holding company, which is a more common structure and
form of ownership than a mutual holding company. In addition, the Conversion
and Reorganization will result in the raising of additional capital for the Bank
and Community First.
Subsequent to the formation of the Mutual Holding Company, there have been
certain changes in the policies of the OTS relating to mutual holding companies.
In addition, market conditions for the stocks of savings institutions and their
holding companies have improved. In light of the foregoing, the Boards of
Directors of the Mutual Holding Company and the Bank believe that it is in the
best interests of such companies and their respective Members and Stockholders
to raise additional capital at this time, and that the most feasible way to do
so is through the Conversion and Reorganization.
SUMMARY OF TRANSACTION.
- ----------------------
Implementation of the Conversion and Reorganization will require a number
of steps and transactions, as described in greater detail in Section 3 hereof.
The Bank will form a new first-tier, wholly owned subsidiary known as Community
First Banking Company ("Community First"), which will become the holding company
for the Bank upon consummation of the Conversion and Reorganization. Community
First will in turn form a new wholly owned subsidiary known as CFB Interim
Savings Bank ("Interim CFB"). The Mutual Holding Company will convert to an
interim federal savings bank and will simultaneously merge with and into the
Bank pursuant to the Plan of Merger included as Annex A hereto, pursuant to
which
<PAGE>
the Mutual Holding Company will cease to exist and a liquidation account will be
established by the Bank for the benefit of depositor Members as of specified
dates, and Interim CFB will then merge with and into the Bank pursuant to the
Plan of Merger included as Annex B hereto, pursuant to which the Bank will
become a wholly owned subsidiary of Community First and, in connection
therewith, each share of Bank Common Stock outstanding immediately prior to the
effective time thereof shall be automatically cancelled.
SUMMARY OF THE OFFERING.
- -----------------------
In connection with the Conversion and Reorganization, Community First will
offer shares of Conversion Stock in the Offerings as provided herein. Shares of
Conversion Stock will be offered in a Subscription Offering in descending order
of priority to Eligible Account Holders, Tax-Qualified Employee Stock Benefit
Plans, Supplemental Eligible Account Holders and Other Members. Any shares of
Conversion Stock remaining unsold after the Subscription Offering will be
offered for sale to the public through a Community Offering and/or Syndicated
Community Offering, as determined by the Boards of Directors of Community First
and the Bank in their sole discretion.
OTHER FACTORS.
- -------------
The Conversion and Reorganization are intended to provide a larger capital
base to support the Bank's lending and investment activities and thereby enhance
the Bank's capabilities to serve the borrowing and other financial needs of the
communities it serves. Community First will provide opportunities for greater
organizational flexibility and diversification than is presently available
through the Mutual Holding Company.
This Plan was adopted by the Boards of Directors of the Mutual Holding
Company and the Bank on February 11, 1997.
This Plan is subject to the approval of the OTS and must be adopted by (1)
at least a majority of the total number of votes eligible to be cast by Voting
Members of the Mutual Holding Company at the Special Meeting and (2) holders of
at least two-thirds of the outstanding Bank Common Stock at the Stockholders'
Meeting. All of the outstanding Bank Common Stock is owned by the Mutual
Holding Company, which will vote to approve the Plan.
After the Conversion and Reorganization, the Bank will continue to be
regulated by the OTS, as its chartering authority, and by the FDIC, which
insures the Bank's deposits. In addition, the Bank will continue to be a member
of the Federal Home Loan Bank System and all insured savings deposits will
continue to be insured by the FDIC up to the maximum provided by law.
2
<PAGE>
2. DEFINITIONS.
-----------
As used in this Plan, the terms set forth below have the following meaning:
2.1. Purchase Price means the price per share at which the Conversion
--------------
Stock is ultimately sold by Community First in the Offerings in accordance with
the terms hereof .
2.2. Acting in Concert means (i) knowing participation in a joint
-----------------
activity or interdependent conscious parallel action towards a common goal,
whether or not pursuant to an express agreement, with respect to the purchase,
ownership, voting or sale of Common Stock; (ii) a combination or pooling of
voting or other interests in the securities of Community First for a common
purpose pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise. Community First and the Bank
may presume that certain persons are acting in concert based upon, among other
things, joint account relationships and the fact that such persons have filed
joint Schedules 13D with the SEC with respect to other companies.
2.3. Affiliate means a Person who, directly or indirectly, through one or
---------
more intermediaries, controls or is controlled by or is under common control
with the Person specified.
2.4. Associate, when used to indicate a relationship with any Person,
---------
means (i) a corporation or organization (other than the Mutual Holding Company,
the Bank, a majority-owned subsidiary of the Bank or Community First) of which
such Person is a director, officer or partner or is, directly or indirectly, the
beneficial owner of 10% or more of any class of equity securities, (ii) any
trust or other estate in which such Person has a substantial beneficial interest
or as to which such Person serves as trustee or in a similar fiduciary capacity,
provided, however, that such term shall not include any Tax-Qualified Employee
Stock Benefit Plan or Non-Tax-Qualified Employee Stock Benefits Plan of
Community First or the Bank in which such Person has a substantial beneficial
interest or serves as a trustee or in a similar fiduciary capacity, and (iii)
any relative or spouse of such Person, or any relative of such spouse, who has
the same home as such Person or who is a director or officer of Community First,
the Mutual Holding Company or the Bank or any of the subsidiaries of the
foregoing.
2.5. Bank means Carrollton Federal Bank, FSB in its mutual form prior to
----
the formation of the Mutual Holding Company; Carrollton Federal Bank in its
present stock form; or Carrollton Federal Bank in its stock form following
consummation of the Conversion and Reorganization, as the sense of the reference
indicates.
2.6. Bank Common Stock means the common stock of the Bank, par value
-----------------
$1.00 per share, which stock is not and will not be insured by the FDIC or any
other governmental authority.
3
<PAGE>
2.7. Bank Merger means the merger of Interim CFB with and into the Bank
-----------
pursuant to the Plan of Merger included as Annex B hereto.
2.8. Code means the Internal Revenue Code of 1986, as amended.
----
2.9. Community First means Community First Banking Company, a Georgia
---------------
corporation which will be organized as a first-tier, wholly owned subsidiary of
the Bank, and which will, upon completion of the Conversion and Reorganization,
hold all of the issued and outstanding stock of the Bank.
2.10. Community First Common Stock means the common stock of Community
----------------------------
First, par value $1.00 per share, which stock cannot and will not be insured by
the FDIC or any other governmental authority.
2.11. Community Offering means the offering for sale by Community First of
------------------
any shares of Conversion Stock not subscribed for in the Subscription Offering
to (i) natural persons residing in the Local Community, and (ii) such other
Persons within or without the State of Georgia as may be selected by Community
First and the Bank within their sole discretion.
2.12. Control (including the terms "controlling," "controlled by," and
-------
"under common control with") means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
2.13. Conversion and Reorganization means (i) the conversion of the Mutual
-----------------------------
Holding Company to an interim federal savings bank and the subsequent merger
with the Bank, pursuant to which the Mutual Holding Company will cease to exist,
(ii) the Bank Merger, pursuant to which the Bank will become a wholly owned
subsidiary of Community First and, in connection therewith, each share of Bank
Common Stock outstanding immediately prior to the effective time thereof shall
automatically be cancelled, and (iii) the issuance of Conversion Stock by
Community First in the Offerings as provided herein, which will increase the
number of shares of Community First Common Stock outstanding and the
capitalization of Community First and the Bank.
2.14. Conversion Stock means the Community First Common Stock to be issued
----------------
and sold in the Offerings pursuant to the Plan of Conversion.
2.15. Deposit Account means savings and demand accounts, including
---------------
passbook accounts, money market deposit accounts and negotiable order of
withdrawal accounts, and certificates of deposit and other authorized accounts
of the Bank held by a Member.
2.16. Director, Officer and Employee means the terms as applied
------------------------------
respectively to any person who is a director, officer or employee of the Mutual
Holding Company, the Bank or any subsidiary thereof.
4
<PAGE>
2.17. Eligible Account Holder means any Person holding a Qualifying
-----------------------
Deposit on the Eligibility Record Date for purposes of determining Subscription
Rights and establishing subaccount balances in the liquidation account to be
established pursuant to Section 15 hereof with the beneficial owner of
individual retirement accounts, Keogh savings accounts and similar retirement
accounts being deemed the holder thereof.
2.18. Eligibility Record Date means the date for determining Qualifying
-----------------------
Deposits of Eligible Account Holders and is the close of business on December
31, 1995.
2.19. Estimated Price Range means the range of the estimated aggregate pro
---------------------
forma market value of the total number of shares of Conversion Stock to be
issued in the Offerings, as determined by the Independent Appraiser in
accordance with Section 4 hereof.
2.20. FDIC means the Federal Deposit Insurance Corporation or any
----
successor thereto.
2.21. Independent Appraiser means the independent investment banking or
---------------------
financial consulting firm retained by Community First and the Bank to prepare an
appraisal of the estimated aggregate pro forma market value of Community First
and the Bank.
2.22. Interim Mutual means Interim Mutual Holdings, an interim federal
--------------
savings bank, which will be formed as a result of the conversion of CF Mutual
Holdings into the stock form of organization.
2.23. Interim CFB means CFB Interim Savings Bank, which will be formed as
-----------
a first-tier, wholly owned subsidiary of Community First to facilitate the Bank
Merger.
2.24. Local Community means Carroll County, the Georgia county in which
---------------
the Bank has its home office and the Georgia counties of Coweta, Douglas,
Fayette, Haralson, Heard, Henry and Paulding.
2.25. Maximum Shares means the number of shares of Conversion Stock which
--------------
would be issued at the maximum of the Estimated Price Range.
2.26. Member means any Person qualifying as a member of the Mutual Holding
------
Company in accordance with its mutual charter and bylaws and the laws of the
United States.
2.27. MHC Merger means the merger of Interim Mutual with and into the Bank
----------
pursuant to the Plan of Merger included as Annex A hereto.
2.28. Mutual Holding Company means CF Mutual Holdings prior to its
----------------------
conversion into an interim federal savings bank.
2.29. Offerings means the Subscription Offering, the Community Offering
---------
and the Syndicated Community Offering.
5
<PAGE>
2.30. Officer means the chairman of the board of directors, president,
-------
vice-president, secretary, treasurer or principal financial officer, comptroller
or principal accounting officer and any other person performing similar
functions with respect to any organization whether incorporated or
unincorporated.
2.31. Order Form means the form or forms provided by Community First,
----------
containing all such terms and provisions as set forth in Section 12 hereof, to a
Participant or other Person by which Conversion Stock may be ordered in the
Offerings.
2.32. Other Member means a Voting Member who is not an Eligible Account
------------
Holder or a Supplemental Eligible Account Holder.
2.33. OTS means the Office of Thrift Supervision or any successor thereto.
---
2.34. Participant means any Eligible Account Holder, Tax-Qualified
-----------
Employee Stock Benefit Plan, Supplemental Eligible Account Holder and Other
Member as of the Voting Record Date.
2.35. Person means an individual, a corporation, a partnership, an
------
association, a joint stock company, a trust, an unincorporated organization or a
government or any political subdivision thereof.
2.36. Plan or Plan of Conversion means collectively this Plan of
--------------------------
Conversion of CF Mutual Holdings and Agreement and Plan of Reorganization as
adopted by the Boards of Directors of the Mutual Holding Company and the Bank
and any amendment hereto approved as provided herein. The Board of Directors of
Community First shall adopt this Plan as soon as practicable following its
organization, and the Board of Directors of Interim CFB shall adopt the Plan of
Merger included as Annex B hereto as soon as practicable following its
organization.
2.37. Primary Parties mean the Mutual Holding Company, the Bank and
---------------
Community First.
2.38. Prospectus means the one or more documents to be used in offering
----------
the Conversion Stock in the Offerings.
2.39. Proxy Statement means the definitive proxy statement forwarded to
---------------
Voting Members in connection with the Special Meeting.
2.40. Qualifying Deposits means the aggregate balance of all Deposit
-------------------
Accounts in the Bank of (i) an Eligible Account Holder at the close of business
on the Eligibility Record Date, provided such aggregate balance is not less than
$50, and (ii) a Supplemental Eligible Account Holder at the close of business on
the Supplemental Eligibility Record Date, provided such aggregate balance is not
less than $50.
6
<PAGE>
2.41. Resident means any Person who, on the date designated for that
--------
category of subscriber in the Plan, maintained a bona fide residence within the
Local Community. To the extent the Person is a corporation or other business
entity, the principal place of business or headquarters shall be within the
Local Community. To the extent the Person is a personal benefit plan, the
circumstances of the beneficiary shall apply with respect to this definition.
In the case of all other benefit plans, circumstances of the trustee shall be
examined for purposes of this definition. The Bank may utilize deposit or loan
records or such other evidence provided to it to make a determination as to
whether a Person is a bona fide resident of the Local Community. Subscribers in
the Community Offering who are natural persons also will have a purchase
preference if they were residents of the Local Community on December 31, 1996.
In all cases, however, such determination shall be in the sole discretion of the
Bank.
2.42. SEC means the Securities and Exchange Commission.
---
2.43. Special Meeting means the Special Meeting of Members of the Mutual
---------------
Holding Company called for the purpose of submitting this Plan to the Members
for their approval, including any adjournments of such meeting.
2.44. Stockholders mean the Mutual Holding Company, the sole Person who
------------
owns shares of Bank Common Stock.
2.45. Stockholders' Meeting means the special meeting of the sole
---------------------
Stockholder of the Bank called for the purpose of submitting this Plan to the
sole Stockholder for its approval, including any adjournments of such meeting.
2.46. Subscription Offering means the offering of the Conversion Stock to
---------------------
Participants.
2.47. Subscription Rights means nontransferable rights to subscribe for
-------------------
Conversion Stock granted to Participants pursuant to the terms of this Plan.
2.48. Supplemental Eligible Account Holder means any Person, except
------------------------------------
Directors and Officers of the Bank and their Associates, holding a Qualifying
Deposit at the close of business on the Supplemental Eligibility Record Date
with the beneficial owner of individual retirement accounts, Keogh savings
accounts and similar retirement accounts being deemed the holder thereof.
2.49. Supplemental Eligibility Record Date, if applicable, means the date
------------------------------------
for determining Qualifying Deposits of Supplemental Eligible Account Holders and
shall be required if the Eligibility Record Date is more than 15 months prior to
the date of the latest amendment to the Application for Conversion filed by the
Mutual Holding Company prior to approval of such application by the OTS. If
applicable, the Supplemental Eligibility Record Date shall be the last day of
the calendar quarter preceding OTS approval of the Application for Conversion
submitted by the Mutual Holding Company pursuant to this Plan of Conversion.
7
<PAGE>
2.50. Syndicated Community Offering means the offering for sale by a
-----------------------------
syndicate of broker-dealers to the general public of shares of Conversion Stock
not purchased in the Subscription Offering and the Community Offering.
2.51. Tax-Qualified Employee Stock Benefit Plan means any defined benefit
-----------------------------------------
plan or defined contribution plan, such as an employee stock ownership plan,
stock bonus plan, profit-sharing plan or other plan, which is established for
the benefit of the employees of Community First and the Bank and which, with its
related trust, meets the requirements to be "qualified" under Section 401 of the
Code as from time to time in effect. A "Non-Tax-Qualified Employee Stock
Benefit Plan" is any defined benefit plan or defined contribution stock benefit
plan which is not so qualified.
2.52. Voting Member means a Person who at the close of business on the
-------------
Voting Record Date is entitled to vote as a Member of the Mutual Holding Company
in accordance with its mutual charter and bylaws.
2.53. Voting Record Date means the date or dates for determining the
------------------
eligibility of Members to vote at the Special Meeting and sole Stockholder to
vote at the Stockholders' Meeting, as applicable.
3. GENERAL PROCEDURE FOR CONVERSION AND REORGANIZATION.
---------------------------------------------------
(a) After the Bank's organization of Community First, and the receipt of
all requisite regulatory approvals, Community First will form Interim CFB as a
first-tier, wholly owned subsidiary of Community First, and the Board of
Directors of Interim CFB shall adopt the Plan of Merger included as Annex B
hereto by at least a two-thirds vote. In addition, Community First shall approve
such Plan of Merger in its capacity as the sole Stockholder of Interim CFB.
(b) An application for the Conversion and Reorganization, including the
Plan and all other requisite material (the "Application for Conversion"), shall
be submitted to the OTS for approval. The Mutual Holding Company and the Bank
also will cause notice of the adoption of the Plan by the Boards of Directors of
the Mutual Holding Company and the Bank to be given by publication in a
newspaper having general circulation in each community in which an office of the
Bank is located; and will cause copies of the Plan to be made available at each
office of the Mutual Holding Company and the Bank for inspection by Members and
the sole Stockholder. After receipt of notice from the OTS to do so, the Mutual
Holding Company and the Bank will post the notice of the filing of the
Application for Conversion in each of their offices and will again cause to be
published, in accordance with the requirements of applicable regulations of the
OTS, a notice of the filing with the OTS of an application to convert the Mutual
Holding Company from mutual to stock form.
8
<PAGE>
(c) Promptly following receipt of requisite approval of the OTS, this Plan
will be submitted to the Members for their consideration and approval at the
Special Meeting. The Mutual Holding Company shall mail to all Voting Members, at
their last known address appearing on the records of the Mutual Holding Company
and the Bank, a Proxy Statement in either long or summary form describing the
Plan which will be submitted to a vote of the Members at the Special Meeting.
Community First also shall mail to all such Members (as well as other
Participants) either a Prospectus and Order Form for the purchase of Conversion
Stock or a letter informing them of their right to receive a Prospectus and
Order Form and a postage prepaid card to request such materials. In addition,
all such Members may request a copy of the articles of incorporation and bylaws
of Community First. The Plan must be approved by the affirmative vote of at
least a majority of the total number of votes eligible to be cast by Voting
Members at the Special Meeting.
(d) Subscription Rights to purchase shares of Conversion Stock will be
issued without payment therefor to Eligible Account Holders, Tax-Qualified
Employee Stock Benefit Plans, Supplemental Eligible Account Holders, if any, and
Other Members, as set forth in Sections 5, 6, 7 and 8 hereof.
(e) The Bank shall file preliminary proxy materials with the OTS in order
to seek the approval of the Plan by its Stockholders. Promptly following
clearance of such proxy materials and the receipt of any other requisite
approval of the OTS, the Bank will mail definitive proxy materials to the Mutual
Holding Company, its sole stockholder as of the Voting Record Date, at its
address appearing on the records of the Bank, for its consideration and approval
of this Plan at the Stockholders' Meeting. The Plan must be approved by the
holders of at least two-thirds of the outstanding Bank Common Stock as of the
Voting Record Date, and the Mutual Holding Company intends to vote to approve
the Plan.
(f) Community First shall submit or cause to be submitted an Application H-
(e)1 or H-(e)1-S to the OTS for approval of the acquisition of the Bank. Such
application also shall include applications to form Interim Mutual and Interim
CFB. In addition, an application to merge Interim Mutual and the Bank and an
application to merge Interim CFB and the Bank shall be filed with the OTS,
either as an exhibit to the Application H-(e)1 or H-(e)1-S or separately. All
notices required to be published in connection with such applications shall be
published at the times required.
(g) Community First shall file a Registration Statement with the SEC to
register Community First Common Stock to be issued in the Conversion and
Reorganization under the Securities Act of 1933, as amended, and shall register
such Community First Common Stock under any applicable state securities laws.
Upon registration and after the receipt of all required regulatory approvals,
the Conversion Stock shall be offered for sale in a Subscription Offering to
Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans and
Supplemental Eligible Account Holders, if any, and Other Members as of the
Voting Record Date. It is anticipated that any shares of Conversion Stock
remaining unsold after the Subscription Offering will be sold through a
Community Offering and/or a Syndicated Community Offering. The
9
<PAGE>
purchase price per share for the Conversion Stock shall be a uniform price
determined in accordance with Section 4 hereof. Community First shall
contribute to the Bank an amount of the net proceeds received by Community First
from the sale of Conversion Stock as shall be determined by the Boards of
Directors of Community First and the Bank and as shall be approved by the OTS.
(h) The effective date of the Conversion and Reorganization shall be the
date set forth in Section 26 hereof. Upon the effective date, the following
transactions shall occur:
(i) The Mutual Holding Company shall convert into an interim stock
savings bank, Interim Mutual, and Interim Mutual shall simultaneously merge
with and into the Bank in the MHC Merger, with the Bank being the surviving
institution. As a result of the MHC Merger, (x) the shares of Bank Common
Stock currently held by the Mutual Holding Company shall be extinguished
and (y) Members of the Mutual Holding Company will be granted interests in
the liquidation account to be established by the Bank pursuant to Section
15 hereof.
(ii) Interim CFB shall merge with and into the Bank pursuant to the
Bank Merger, with the Bank being the surviving institution. As a result of
the Bank Merger, (x) the shares of Community First Common Stock held by the
Bank shall be extinguished; and (y) the shares of common stock of Interim
CFB held by Community First shall be converted into shares of Bank Common
Stock on a one-for-one basis, with the result that the Bank shall become a
wholly owned subsidiary of Community First.
(iii) Community First shall sell the Conversion Stock in the
Offerings, as provided herein.
(i) The Primary Parties may retain and pay for the services of financial
and other advisors and investment bankers to assist in connection with any or
all aspects of the Conversion and Reorganization, including in connection with
the Offerings, the payment of fees to brokers and investment bankers for
assisting Persons in completing and/or submitting Order Forms. All fees,
expenses, retainers and similar items shall be reasonable.
4. TOTAL NUMBER OF SHARES AND PURCHASE PRICE OF CONVERSION STOCK.
-------------------------------------------------------------
(a) The aggregate price at which shares of Conversion Stock shall be sold
in the Offerings shall be based on a pro forma valuation of the aggregate market
value of Community First and the Bank prepared by the Independent Appraiser.
The valuation shall be based on financial information relating to the Primary
Parties, market, financial and economic conditions, a comparison of the Primary
Parties with selected publicly held financial institutions and holding companies
and with comparable financial institutions and holding companies and such other
factors as the Independent Appraiser may deem to be important. The valuation
shall be stated
10
<PAGE>
in terms of an Estimated Price Range, the maximum of which shall generally be no
more than 15% above the estimated aggregate pro forma value and the minimum of
which shall generally be no more than 15% below the estimated aggregate pro
forma value. The valuation shall be updated during the Conversion and
Reorganization as market and financial conditions warrant and as may be required
by the OTS.
(b) Based upon the independent valuation, the Boards of Directors of the
Primary Parties shall fix the Purchase Price and the number (or range) of shares
of Conversion Stock to be offered in the Subscription Offering, Community
Offering and/or Syndicated Community Offering. The total number of shares of
Conversion Stock to be issued in the Offerings shall be determined by the Boards
of Directors of the Primary Parties upon conclusion of the Offerings in
consultation with the Independent Appraiser and any financial advisor or
investment banker retained by the Primary Parties in connection therewith.
(c) Subject to the approval of the OTS, the Estimated Price Range may be
increased or decreased to reflect market, financial and economic conditions
prior to completion of the Conversion and Reorganization, or to enable Tax-
Qualified Employee Stock Benefit Plans to purchase up to 10% of the Conversion
Stock, and under such circumstances the Primary Parties may increase or decrease
the total number of shares of Conversion Stock to be issued in the Conversion
and Reorganization to reflect any such change. Notwithstanding anything to the
contrary contained in this Plan, no resolicitation of subscribers shall be
required and subscribers shall not be permitted to modify or cancel their
subscriptions unless the gross proceeds from the sale of the Conversion Stock
issued in the Conversion and Reorganization are less than the minimum or more
than 15% above the maximum of the Estimated Price Range set forth in the
Prospectus. In the event of an increase in the total number of shares offered
in the Conversion and Reorganization due to an increase in the Estimated Price
Range, the priority of share allocation shall be as set forth in this Plan.
5. SUBSCRIPTION RIGHTS OF ELIGIBLE ACCOUNT HOLDERS.
-----------------------------------------------
(a) Each Eligible Account Holder shall receive, without payment,
Subscription Rights to purchase up to the greater of (i) $375,000 of Conversion
Stock, (ii) one-tenth of 1% of the total offering of shares of Conversion Stock
in the Subscription Offering, and (iii) 15 times the product (rounded down to
the next whole number) obtained by multiplying the total number of shares of
Conversion Stock offered in the Subscription Offering by a fraction, of which
the numerator is the amount of the Qualifying Deposits of the Eligible Account
Holder and the denominator is the total amount of all Qualifying Deposits of all
Eligible Account Holders, subject to Section 13 hereof.
(b) In the event of an oversubscription for shares of Conversion Stock
pursuant to Section 5(a), available shares shall be allocated among subscribing
Eligible Account Holders so as to permit each Eligible Account Holder, to the
extent possible, to purchase a number of shares which will make his or her total
allocation equal to the lesser of the number of shares subscribed for or 100
shares. Any available shares remaining after each subscribing Eligible
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<PAGE>
Account Holder has been allocated the lesser of the number subscribed for or 100
shares shall be allocated among the subscribing Eligible Account Holders in the
proportion which the Qualifying Deposits of each such subscribing Eligible
Account Holder bears to the total Qualifying Deposits of all such subscribing
Eligible Account Holders, provided that no fractional shares shall be issued.
If the amount so allocated exceeds the amount subscribed for by any one or more
Eligible Account Holders, the excess shall be reallocated (one or more times as
necessary) among those Eligible Account Holders whose subscriptions are not
fully satisfied on the same principle described above until all available shares
have been allocated or subscriptions satisfied. Subscription Rights of Eligible
Account Holders who are also Directors or Officers and their Associates shall be
subordinated to those of other Eligible Account Holders to the extent that they
are attributable to increased deposits during the one-year period preceding the
Eligibility Record Date.
6. SUBSCRIPTION RIGHTS OF THE TAX-QUALIFIED EMPLOYEE STOCK BENEFIT PLANS.
---------------------------------------------------------------------
Notwithstanding the purchase limitations discussed below, Tax-Qualified
Employee Stock Benefit Plans of Community First and the Bank shall receive,
without payment, Subscription Rights to purchase in the aggregate up to 10% of
the Conversion Stock, including any shares of Conversion Stock to be issued in
the Conversion and Reorganization as a result of an increase in the Estimated
Price Range after commencement of the Subscription Offering and prior to
completion of the Conversion and Reorganization. Consistent with applicable
laws and regulations and policies and practices of the OTS, Tax-Qualified
Employee Stock Benefit Plans may use funds contributed by Community First or the
Bank and/or borrowed from an independent financial institution to exercise such
Subscription Rights, and Community First and the Bank may make scheduled
discretionary contributions thereto, provided that such contributions do not
cause Community First or the Bank to fail to meet any applicable regulatory
capital requirement. Notwithstanding anything to the contrary set forth in this
Plan of Conversion, in the event that the number of shares of Conversion Stock
issued in the Conversion Reorganization exceeds the Maximum Shares, such Tax-
Qualified Employee Stock Benefit Plans shall have the first priority right to
purchase any shares of Conversion Stock issued exceeding the Maximum Shares (up
to an aggregate of 10% of Conversion Stock, including any shares of Conversion
Stock to be issued in the Conversion and Reorganization as a result of an
increase in the Estimated Price Range after commencement of the Subscription
Offering and prior to completion of the Conversion Reorganization). In the
event that there is an oversubscription for shares of Conversion Stock, and as a
result, Tax-Qualified Employee Stock Benefit Plans of Community First and the
Bank are unable to purchase in the Conversion and Reorganization the amount they
subscribe for (up to the 10% limitation described above), then, upon receipt of
all necessary regulatory approvals, the Boards of Directors of Community First
and the Bank shall be authorized to (i) issue from authorized, unissued shares
at the purchase price paid by subscribers in the Offering or (ii) approve the
purchase by such Tax-Qualified Employee Stock Benefit Plans in the open market
after the Conversion and Reorganization, of such shares as are necessary for
such Tax-Qualified Employee Stock Benefit Plans to purchase the amount
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<PAGE>
subscribed for, using funds contributed by Community First or the Bank and/or
borrowed from Community First or an independent financial institution.
7. SUBSCRIPTION RIGHTS OF SUPPLEMENTAL ELIGIBLE ACCOUNT HOLDERS.
------------------------------------------------------------
(a) In the event that the Eligibility Record Date is more than 15 months
prior to the date of the latest amendment to the Application for Conversion
filed prior to OTS approval, then, and only in that event, a Supplemental
Eligibility Record Date shall be set and each Supplemental Eligible Account
Holder shall receive, without payment, Subscription Rights to purchase up to the
greater of (i) $375,000 of Conversion Stock, (ii) one-tenth of 1% of the total
offering of shares of Conversion Stock in the Subscription Offering, and (iii)
15 times the product (rounded down to the next whole number) obtained by
multiplying the total number of shares of Conversion Stock offered in the
Subscription Offering by a fraction, of which the numerator is the amount of the
Qualifying Deposits of the Supplemental Eligible Account Holder and the
denominator is the total amount of all Qualifying Deposits of all Supplemental
Eligible Account Holders, subject to Section 13 hereof and the availability of
shares of Conversion Stock for purchase after taking into account the shares of
Conversion Stock purchased by Eligible Account Holders and Tax-Qualified
Employee Stock Benefit Plans through the exercise of Subscription Rights under
Sections 5 and 6 hereof.
(b) In the event of an oversubscription for shares of Conversion Stock
pursuant to Section 7(a), available shares shall be allocated among subscribing
Supplemental Eligible Account Holders so as to permit each Supplemental Eligible
Account Holder, to the extent possible, to purchase a number of shares which
will make his or her total allocation (including the number of shares, if any,
allocated in accordance with Section 5(a)) equal to the lesser of the number of
shares subscribed for or 100 shares. Any available shares remaining after each
subscribing Supplemental Eligible Account Holder has been allocated the lesser
of the number subscribed for or 100 shares shall be allocated among the
subscribing Supplemental Eligible Account Holders in the proportion which the
Qualifying Deposits of each such subscribing Supplemental Eligible Account
Holder bears to the total Qualifying Deposits of all such subscribing
Supplemental Eligible Account Holders, provided that no fractional shares shall
be issued. If the amount so allocated exceeds the amount subscribed for by any
one or more Supplemental Eligible Account Holders, the excess shall be
reallocated (one or more times as necessary) among those Supplemental Eligible
Account Holders whose subscriptions are not fully satisfied on the same
principle described above until all available shares have been allocated or
subscriptions satisfied.
8. SUBSCRIPTION RIGHTS OF OTHER MEMBERS.
------------------------------------
(a) Each Other Member shall receive, without payment, Subscription Rights
to purchase up to the greater of (i) $375,000 of Conversion Stock, and (ii) one-
tenth of 1% of the total offering of shares of Conversion Stock in the
Subscription Offering, in each case subject to Section 13 hereof and the
availability of shares of Conversion Stock for purchase after taking
13
<PAGE>
into account the shares of Conversion Stock purchased by Eligible Account
Holders, Tax-Qualified Employee Stock Benefit Plans, and Supplemental Eligible
Account Holders, if any, through the exercise of Subscription Rights under
Sections 5, 6 and 7 hereof.
(b) If, pursuant to this Section 8, Other Members subscribe for a number of
shares of Conversion Stock in excess of the total number of shares of Conversion
Stock remaining, available shares shall be allocated among subscribing Other
Members so as to permit each such Other Member, to the extent possible, to
purchase a number of shares which will make his or her total allocation equal to
the lesser of the number of shares subscribed for or 100 shares. Any remaining
shares shall be allocated among subscribing Other Members on a pro rata basis in
the same proportion as each such Other Member's subscription bears to the total
subscriptions of all subscribing Other Members, provided that no fractional
shares shall be issued.
9. COMMUNITY OFFERING, SYNDICATED COMMUNITY OFFERING AND OTHER OFFERINGS.
---------------------------------------------------------------------
(a) If less than the total number of shares of Conversion Stock are sold in
the Subscription Offering, it is anticipated that all remaining shares of
Conversion Stock shall, if practicable, be sold in a Community Offering and/or a
Syndicated Community Offering. Subject to the requirements set forth herein,
the manner in which the Conversion Stock is sold in the Community Offering
and/or the Syndicated Community Offering shall have as the objective the
achievement of the widest possible distribution of such stock.
(b) In the event of a Community Offering, all shares of Conversion Stock
which are not subscribed for in the Subscription Offering shall be offered for
sale by means of a direct community marketing program, which may provide for the
use of brokers, dealers or investment banking firms experienced in the sale of
financial institution securities. Any available shares in excess of those not
subscribed for in the Subscription Offering will be available for purchase by
members of the general public to whom a Prospectus is delivered by Community
First or on its behalf, with preference given to natural persons residing in the
Local Community ("Preferred Subscribers").
(c) A Prospectus and Order Form shall be furnished to such Persons as the
Primary Parties may select in connection with the Community Offering, and each
order for Conversion Stock in the Community Offering shall be subject to the
absolute right of the Primary Parties to accept or reject any such order in
whole or in part either at the time of receipt of an order or as soon as
practicable following completion of the Community Offering. Available shares
will be allocated first to each Preferred Subscriber whose order is accepted in
an amount equal to the lesser of 100 shares or the number of shares subscribed
for by each such Preferred Subscriber, if possible. Thereafter, unallocated
shares shall be allocated among the Preferred Subscribers whose accepted orders
remain unsatisfied in the same proportion that the unfilled order of each (up to
2% of the total offering) bears to the total unfilled orders of all Preferred
Subscribers whose accepted orders remain unsatisfied, provided that no
fractional shares shall be issued. If there are any shares remaining after all
accepted orders by Preferred Subscribers
14
<PAGE>
have been satisfied, any remaining shares shall be allocated to other members of
the general public who purchase in the Community Offering, applying the same
allocation described above for Preferred Subscribers.
(d) The amount of Conversion Stock that any Person may purchase in the
Community Offering shall not exceed $375,000 of Conversion Stock; provided,
however, that this amount may be increased to up to 5% of the total offering of
shares in the Conversion and Reorganization, subject to any required regulatory
approval but without the further approval of Members of the Mutual Holding
Company or the Stockholders of the Bank; and provided further that, subject to
the provisions set forth in Section 9(b) and (c) of this Plan and to the extent
applicable, orders for Conversion Stock in the Community Offering shall first be
filled to a maximum of 2% of the total number of shares of Conversion Stock sold
in the Offerings and thereafter any remaining shares shall be allocated on an
equal number of shares basis per order until all orders have been filled. The
Primary Parties may commence the Community Offering concurrently with, at any
time during, or as soon as practicable after the end of, the Subscription
Offering, and the Community Offering must be completed within 45 days after the
completion of the Subscription Offering, unless extended by the Primary Parties
with any required regulatory approval.
(e) Subject to such terms, conditions and procedures as may be determined
by the Primary Parties, all shares of Conversion Stock not subscribed for in the
Subscription Offering or ordered in the Community Offering may be sold by a
syndicate of broker-dealers to the general public in a Syndicated Community
Offering. Each order for Conversion Stock in the Syndicated Community Offering
shall be subject to the absolute right of the Primary Parties to accept or
reject any such order in whole or in part either at the time of receipt of an
order or as soon as practicable after completion of the Syndicated Community
Offering. The amount of Conversion Stock that any Person may purchase in the
Syndicated Community Offering shall not exceed $375,000 of Conversion Stock;
provided, however, that this amount may be increased to up to 5% of the total
offering of shares in the Conversion and Reorganization, subject to any required
regulatory approval but without the further approval of Members or the Mutual
Holding Company, as the sole stockholder of the Bank; and provided further that,
to the extent applicable, orders for Conversion Stock in the Syndicated
Community Offering shall first be filled to a maximum of 2% of the total number
of shares of Conversion Stock sold in the Offerings and thereafter any remaining
shares shall be allocated on an equal number of shares basis per order until all
orders have been filled. The Primary Parties may commence the Syndicated
Community Offering concurrently with, at any time during, or as soon as
practicable after the end of, the Subscription Offering and/or Community
Offering, and the Syndicated Community Offering must be completed within 45 days
after the completion of the Subscription Offering, unless extended by the
Primary Parties with any required regulatory approval.
(f) If for any reason a Syndicated Community Offering of shares of
Conversion Stock not sold in the Subscription Offering and the Community
Offering cannot be effected, or in the event that any insignificant residue of
shares of Conversion Stock is not sold in the Subscription Offering, Community
Offering or Syndicated Community Offering, the Primary Parties shall use
15
<PAGE>
their best efforts to obtain other purchasers for such shares in such manner and
upon such conditions as may be satisfactory to the OTS.
10. LIMITATIONS ON SUBSCRIPTIONS AND PURCHASES OF CONVERSION STOCK.
--------------------------------------------------------------
(a) The maximum number of shares of Conversion Stock which may be purchased
in the Conversion by Tax-Qualified Employee Stock Benefit Plans shall not exceed
10% of the total number of shares of Conversion Stock sold in the Offerings,
including any shares which may be issued in the event of an increase in the
maximum of the Estimated Price Range to reflect changes in market, financial and
economic conditions after commencement of the Subscription Offering and prior to
completion of the Offerings.
(b) Except in the case of Tax-Qualified Employee Stock Benefit Plans in the
aggregate, as set forth in Section 10(a) hereof, and in addition to the other
restrictions and limitations set forth herein, the maximum number of shares of
Conversion Stock which any Person together with any Associate or group of
Persons acting in concert may, directly or indirectly, subscribe for or purchase
in the Conversion and Reorganization shall not exceed $375,000. In addition,
where more than one Person is an owner of a particular deposit account or an
obligor of a particular loan account, the orders of such Persons pursuant to
Subscription Rights related to such joint accounts collectively may not exceed
the maximum purchase limitation.
(c) The number of shares of Conversion Stock which Directors and Officers
and their Associates may purchase in the aggregate in the Offerings shall not
exceed 28.5% of the total number of shares of Conversion Stock sold in the
Offerings, including any shares which may be issued in the event of an increase
in the maximum of the Estimated Price Range to reflect changes in market,
financial and economic conditions after commencement of the Subscription
Offering and prior to completion of the Offerings.
(d) For purposes of the foregoing limitations and the determination of
Subscription Rights, (i) Directors, Officers and Employees shall not be deemed
to be Associates or a group acting in concert solely as a result of their
capacities as such, (ii) shares purchased by Tax-Qualified Employee Stock
Benefit Plans shall not be attributable to the individual trustees or
beneficiaries of any such plan for purposes of determining compliance with the
maximum purchase limitations set forth herein, and (iii) shares purchased by
Tax-Qualified Employee Stock Benefit Plans shall not be attributable to the
individual trustees or beneficiaries of any such plan for purposes of
determining compliance with the limitation set forth in Section 10(c) hereof.
(e) No Person may purchase fewer than shares of Conversion Stock in the
Offerings, to the extent such shares are available; provided, however, that if
the Purchase Price is greater than $20.00 per share, such minimum number of
shares shall be adjusted so that the aggregate Purchase Price for such minimum
shares will not exceed $500.00.
16
<PAGE>
(f) Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of the Members of
the Mutual Holding Company or the Stockholders of the Bank, the Primary Parties
may increase or decrease any of the individual or aggregate purchase limitations
set forth herein to a percentage which does not exceed 5% of the total offering
of shares of Community First Common Stock in the Conversion and Reorganization
whether prior to, during or after the Subscription Offering, Community Offering
and/or Syndicated Community Offering. In the event that an individual purchase
limitation is increased after commencement of the Subscription Offering or any
other offering, the Primary Parties shall permit any Person who subscribed for
the maximum number of shares of Conversion Stock to purchase an additional
number of shares, so that such Person shall be permitted to subscribe for the
then maximum number of shares permitted to be subscribed for by such Person,
subject to the rights and preferences of any Person who has priority
Subscription Rights. In the event that an individual purchase limitation is
decreased after commencement of the Subscription Offering or any other offering,
the orders of any Person who subscribed for more than the new purchase
limitation shall be decreased by the minimum amount necessary so that such
Person shall be in compliance with the then maximum number of shares permitted
to be subscribed for by such Person.
(g) The Primary Parties shall have the right to take all such action as
they may, in their sole discretion, deem necessary, appropriate or advisable in
order to monitor and enforce the terms, conditions, limitations and restrictions
contained in this Section 10 and elsewhere in this Plan and the terms,
conditions and representations contained in the Order Form, including, but not
limited to, the absolute right (subject only to any necessary regulatory
approvals or concurrences) to reject, limit or revoke acceptance of any
subscription or order and to delay, terminate or refuse to consummate any sale
of Conversion Stock which they believe might violate, or is designed to, or is
any part of a plan to, evade or circumvent such terms, conditions, limitations,
restrictions and representations. Any such action shall be final, conclusive
and binding on all persons, and the Primary Parties and their respective
directors, employees and agents shall be free from any liability to any Person
on account of any such action.
11. TIMING OF SUBSCRIPTION OFFERING; MANNER OF EXERCISING SUBSCRIPTION RIGHTS
-------------------------------------------------------------------------
AND ORDER FORMS.
---------------
(a) The Subscription Offering may be commenced concurrently with or at any
time after the mailing to Voting Members of the Mutual Holding Company and
Stockholders of the Bank of the proxy statement(s) to be used in connection with
the Special Meeting and the Stockholders' Meeting. The Subscription Offering
may be closed before the Special Meeting and the Stockholders' Meeting, provided
that the offer and sale of the Conversion Stock shall be conditioned upon the
approval of the Plan by the Voting Members of the Mutual Holding Company and the
sole Stockholder of the Bank at the Special Meeting and the Stockholders'
Meeting, respectively.
17
<PAGE>
(b) The exact timing of the commencement of the Subscription Offering
shall be determined by the Primary Parties in consultation with the Independent
Appraiser and any financial or advisory or investment banking firm retained by
them in connection with the Conversion and Reorganization. The Primary Parties
may consider a number of factors, including, but not limited to, their current
and projected future earnings, local and national economic conditions, and the
prevailing market for stocks in general and stocks of financial institutions in
particular. The Primary Parties shall have the right to withdraw, terminate,
suspend, delay, revoke or modify any such Subscription Offering, at any time and
from time to time, as they in their sole discretion may determine, without
liability to any Person, subject to compliance with applicable securities laws
and any necessary regulatory approval or concurrence.
(c) The Primary Parties shall, promptly after the SEC has declared the
Registration Statement which includes the Prospectus effective and all required
regulatory approvals have been obtained, distribute or make available the
Prospectus, together with Order Forms for the purchase of Conversion Stock, to
all Participants for the purpose of enabling them to exercise their respective
Subscription Rights, subject to Section 13 hereof. The Primary Parties may
elect to mail a Prospectus and Order Form only to those Participants who request
such materials by returning a postage-paid card to the Primary Parties by a date
specified in the letter informing them of their Subscription Rights. Under such
circumstances, the Subscription Offering shall not be closed until the
expiration of 30 days after the mailing by the Primary Parties of the postage-
paid card to Participants.
(d) A single Order Form for all Deposit Accounts maintained with the Bank
by an Eligible Account Holder and any Supplemental Eligible Account Holder may
be furnished, irrespective of the number of Deposit Accounts maintained with the
Bank on the Eligibility Record Date and Supplemental Eligibility Record Date,
respectively. No person holding a subscription right may exceed any otherwise
applicable purchase limitation by submitting multiple orders for Conversion
Stock. Multiple orders are subject to adjustment, as appropriate, on a pro rata
basis and deposit balances will be divided equally among such orders in
allocating shares in the event of an oversubscription.
(e) The recipient of an Order Form shall have no less than 20 days and no
more than 45 days from the date of mailing of the Order Form (with the exact
termination date to be set forth on the Order Form) to properly complete and
execute the Order Form and deliver it to the Primary Parties. The Primary
Parties may extend such period by such amount of time as they determine is
appropriate. Failure of any Participant to deliver a properly executed Order
Form to the Primary Parties, along with payment (or authorization for payment by
withdrawal) for the shares of Conversion Stock subscribed for, within the time
limits prescribed, shall be deemed a waiver and release by such person of any
rights to subscribe for shares of Conversion Stock. Each Participant shall be
required to confirm to the Primary Parties by executing an Order Form that such
Person has fully complied with all of the terms, conditions, limitations and
restrictions in the Plan. Subscription Rights are not transferable, and any
misrepresentation in the Order Form as to the identity of the Participant or the
Participant's interest in the transaction will
18
<PAGE>
constitute a false entry on the books of a financial institution whose deposits
are insured by the FDIC.
(f) The Primary Parties shall have the absolute right, in their sole
discretion and without liability to any Participant or other Person, to reject
any Order Form, including, but not limited to, any Order Form that is (i)
improperly completed or executed; (ii) not timely received; (iii) not
accompanied by the proper payment (or authorization of withdrawal for payment)
or, in the case of institutional investors in the Community Offering, not
accompanied by an irrevocable order together with a legally binding commitment
to pay the full amount of the purchase price prior to 48 hours before the
completion of the Offerings; or (iv) submitted by a Person whose representations
the Primary Parties believe to be false or who they otherwise believe, either
alone, or acting in concert with others, is violating, evading or circumventing,
or intends to violate, evade or circumvent, the terms and conditions of the
Plan. Any attempt to violate the prohibition on transfer of the Subscription
Rights shall void any such Subscription Rights. The Primary Parties may, but
will not be required to, waive any irregularity on any Order Form or may require
the submission of corrected Order Forms or the remittance of full payment for
shares of Conversion Stock by such date as they may specify. The interpretation
of the Primary Parties of the terms and conditions of the Order Forms shall be
final and conclusive.
12. PAYMENT FOR CONVERSION STOCK.
----------------------------
(a) Payment for shares of Conversion Stock subscribed for by Participants
in the Subscription Offering and payment for shares of Conversion Stock ordered
by Persons in the Community Offering shall be equal to the Purchase Price
multiplied by the number of shares which are being subscribed for or ordered,
respectively. Such payment may be made in cash, if delivered in person, or by
check or money order at the time the Order Form is delivered to the Primary
Parties. The Primary Parties will not accept payment for shares of Conversion
Stock by wire transfer. The Primary Parties may elect to provide Participants
and/or other Persons who have a Deposit Account with the Bank the opportunity to
pay for shares of Conversion Stock by authorizing the Bank to withdraw from such
Deposit Account an amount equal to the aggregate Purchase Price of such shares.
(b) Consistent with applicable laws and regulations and policies and
practices of the OTS, payment for shares of Conversion Stock subscribed for by
Tax-Qualified Employee Stock Benefit Plans may be made with funds contributed by
Community First and/or the Bank and/or funds obtained pursuant to a loan from an
unrelated financial institution pursuant to a loan commitment which is in force
from the time that any such plan submits an Order Form until the closing of the
transactions contemplated hereby. Such funds need not be delivered until such
closing, provided such commitment is in place at the time the Order Form is
delivered.
(c) If a Participant or other Person authorizes the Bank to withdraw the
amount of the Purchase Price from his or her Deposit Account, the Bank shall
have the right to make such withdrawal or to freeze funds equal to the aggregate
Purchase Price upon receipt of the Order
19
<PAGE>
Form. Notwithstanding any regulatory provisions regarding penalties for early
withdrawals from certificate accounts, the Bank may allow payment by means of
withdrawal from certificate accounts without the assessment of such penalties.
In the case of an early withdrawal of only a portion of such account, the
certificate evidencing such account shall be cancelled if any applicable minimum
balance requirement ceases to be met. In such case, the remaining balance will
earn interest at the regular passbook rate. However, where any applicable
minimum balance is maintained in such certificate account, the rate of return on
the balance of the certificate account shall remain the same as prior to such
early withdrawal. This waiver of the early withdrawal penalty applies only to
withdrawals made in connection with the purchase of Conversion Stock and is
entirely within the discretion of the Primary Parties.
(d) The Bank shall pay interest, at not less than the passbook rate, for
all amounts paid in cash, by check or money order to purchase shares of
Conversion Stock in the Subscription Offering and the Community Offering from
the date payment is received until the date the Conversion and Reorganization is
completed or terminated.
(e) The Bank shall not knowingly loan funds or otherwise extend credit to
any Participant or other Person to purchase Conversion Stock.
(f) Each share of Conversion Stock shall be non-assessable upon payment in
full of the Purchase Price.
13. ACCOUNT HOLDERS IN NONQUALIFIED STATES OR FOREIGN COUNTRIES.
-----------------------------------------------------------
The Primary Parties shall make reasonable efforts to comply with the
securities laws of all jurisdictions in the United States in which Participants
reside. However, no Participant will be offered or receive any Conversion Stock
under the Plan if such Participant resides in a foreign country or resides in a
jurisdiction of the United States with respect to which all of the following
apply: (a) there is a small number of Participants otherwise eligible to
subscribe for shares under this Plan who reside in such jurisdiction; (b) the
granting of Subscription Rights or the offer or sale of shares of Conversion
Stock to such Participants would require any of the Primary Parties or any of
their respective Directors and Officers, under the laws of such jurisdiction, to
register as a broker-dealer, salesman or selling agent or to register or
otherwise qualify the Conversion Stock for sale in such jurisdiction, or any of
the Primary Parties would be required to qualify as a foreign corporation or
file a consent to service of process in such jurisdiction; and (c) such
registration, qualification or filing in the judgment of the Primary Parties
would be impracticable or unduly burdensome for reasons of cost or otherwise.
14. VOTING RIGHTS OF STOCKHOLDERS.
-----------------------------
Following consummation of the Conversion and Reorganization, voting rights
with respect to the Bank shall be held and exercised exclusively by Community
First as holder of all
20
<PAGE>
of the Bank's outstanding voting capital stock, and voting rights with respect
to Community First shall be held and exercised exclusively by the holders of
Community First's voting capital stock.
15. LIQUIDATION ACCOUNT.
-------------------
(a) At the time of the MHC Merger, the Bank shall establish a liquidation
account in an amount equal to 100% of the Bank's total stockholders' equity as
reflected in its latest statement of financial condition contained in the final
Prospectus utilized in the Conversion and Reorganization. The function of the
liquidation account will be to preserve the rights of certain holders of Deposit
Accounts in the Bank who maintain such accounts in the Bank following the
Conversion and Reorganization to a priority to distributions in the unlikely
event of a liquidation of the Bank subsequent to the Conversion and
Reorganization.
(b) The liquidation account shall be maintained for the benefit of
Eligible Account Holders and Supplemental Eligible Account Holders, if any, who
maintain their Deposit Accounts in the Bank after the Conversion and
Reorganization. Each such account holder will, with respect to each Deposit
Account held, have a related inchoate interest in a portion of the liquidation
account balance, which interest will be referred to in this Section 15 as the
"subaccount balance." All Deposit Accounts having the same social security
number will be aggregated for purposes of determining the initial subaccount
balance with respect to such Deposit Accounts, except as provided in Section
15(d) hereof.
(c) In the event of a complete liquidation of the Bank subsequent to the
Conversion and Reorganization (and only in such event), each Eligible Account
Holder and Supplemental Eligible Account Holder, if any, shall be entitled to
receive a liquidation distribution from the liquidation account in the amount of
the then current subaccount balances for Deposit Accounts then held (adjusted as
described below) before any liquidation distribution may be made with respect to
the capital stock of the Bank. No merger, consolidation, sale of bulk assets or
similar combination transaction with another FDIC-insured institution in which
the Bank is not the surviving entity shall be considered a complete liquidation
for this purpose. In any merger or consolidation transaction, the liquidation
account shall be assumed by the surviving entity.
(d) The initial subaccount balance for a Deposit Account held by an
Eligible Account Holder and Supplemental Eligible Account Holder, if any, shall
be determined by multiplying the opening balance in the liquidation account by a
fraction, of which the numerator is the amount of the Qualifying Deposits of
such account holder and the denominator is the total amount of Qualifying
Deposits of all Eligible Account Holders or Supplemental Eligible Account
Holders, as applicable. For Deposit Accounts in existence at both the
Eligibility Record Date and the Supplemental Eligibility Record Date, if any,
separate initial subaccount balances shall be determined on the basis of the
Qualifying Deposits in such Deposit Accounts on each such record date. Initial
subaccount balances shall not be increased, and shall be subject to downward
adjustment as provided below.
21
<PAGE>
(e) If the aggregate deposit balance in the Deposit Account(s) of any
Eligible Account Holder or Supplemental Eligible Account Holder, if any, at the
close of business on any December 31 annual closing date, commencing December
31, 1997, is less than the lesser of (a) the aggregate deposit balance in such
Deposit Account(s) at the close of business on any other annual closing date
subsequent to such record dates or (b) the aggregate deposit balance in such
Deposit Account(s) as of the Eligibility Record Date or the Supplemental
Eligibility Record Date, the subaccount balance for such Deposit Account(s)
shall be adjusted by reducing such subaccount balance in an amount proportionate
to the reduction in such deposit balance. In the event of such a downward
adjustment, the subaccount balance shall not be subsequently increased,
notwithstanding any subsequent increase in the deposit balance of the related
Deposit Account(s). The subaccount balance of an Eligible Account Holder or
Supplemental Eligible Account Holder, if any, will be reduced to zero if the
account holder ceases to maintain a Deposit Account at the Bank that has the
same social security number as appeared on his Deposit Account(s) at the
Eligibility Record Date or, if applicable, the Supplemental Eligibility Record
Date.
(f) Subsequent to the Conversion and Reorganization, the Bank may not pay
cash dividends generally on deposit accounts and/or capital stock of the Bank,
or repurchase any of the capital stock of the Bank, if such dividend or
repurchase would reduce the Bank's regulatory capital below the aggregate amount
of the then current subaccount balances for Deposit Accounts then held;
otherwise, the existence of the liquidation account shall not operate to
restrict the use or application of any of the net worth accounts of the Bank.
(g) For purposes of this Section 15, a Deposit Account includes a
predecessor or successor account which is held by an account holder with the
same social security number.
16. TRANSFER OF DEPOSIT ACCOUNTS.
----------------------------
Each Deposit Account in the Bank at the time of the consummation of the
Conversion and Reorganization shall become, without further action by the
holder, a Deposit Account in the Bank equivalent in withdrawable amount to the
withdrawal value (as adjusted to give effect to any withdrawal made for the
purchase of Conversion Stock), and subject to the same terms and conditions
(except as to voting and liquidation rights) as such Deposit Account in the Bank
immediately preceding consummation of the Conversion and Reorganization.
Holders of Deposit Accounts in the Bank shall not, as such holders, have any
voting rights.
17. REQUIREMENTS FOLLOWING CONVERSION AND REORGANIZATION FOR REGISTRATION,
----------------------------------------------------------------------
MARKET MAKING AND STOCK EXCHANGE LISTING.
----------------------------------------
In connection with the Conversion and Reorganization, Community First shall
register Community First Common Stock pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended, and shall undertake not to deregister such
stock for a period of three years thereafter. Community First also shall use
its best efforts to (i) encourage and assist a market maker to establish and
maintain a market for Community First Common Stock and (ii) list
22
<PAGE>
Community First Common Stock on a national or regional securities exchange or to
have quotations for such stock disseminated on the National Association of
Securities Dealers Automated Quotation System.
18. DIRECTORS AND OFFICERS OF THE BANK.
----------------------------------
Each person serving as a Director or Officer of the Bank and the Mutual
Holding Company at the time of the Conversion and Reorganization shall continue
to serve as a Director or Officer of the Bank and Community First for the
balance of the term for which the person was elected prior to the Conversion and
Reorganization, and until a successor is elected and qualified. The number,
names, business addresses and terms of the Directors of the Bank are set forth
in the Plans of Merger included as Annexes A and B hereto.
19. REQUIREMENTS FOR STOCK PURCHASES BY DIRECTORS AND OFFICERS FOLLOWING THE
------------------------------------------------------------------------
CONVERSION AND REORGANIZATION.
-----------------------------
For a period of three years following the Conversion and Reorganization,
the Directors and Officers of Community First and the Bank and their Associates
may not purchase, without the prior written approval of the OTS, Community First
Common Stock except from a broker-dealer registered with the SEC. This
prohibition shall not apply, however, to (i) a negotiated transaction arrived at
by direct negotiation between buyer and seller and involving more than 1% of the
outstanding Community First Common Stock and (ii) purchases of stock made by and
held by any Tax-Qualified Employee Stock Benefit Plan (and purchases of stock
made by and held by any Non-Tax-Qualified Employee Stock Benefit Plan following
the receipt of stockholder approval of such plan) which may be attributable to
individual officers or directors.
The foregoing restriction on purchases of Community First Common Stock
shall be in addition to any restrictions that may be imposed by federal and
state securities laws.
20. RESTRICTIONS ON TRANSFER OF STOCK.
---------------------------------
All shares of the Conversion Stock which are purchased by Persons other
than Directors and Officers shall be transferable without restriction, except in
connection with a transaction proscribed by Section 21 of this Plan. Shares of
Conversion Stock purchased by Directors and Officers of Community First and the
Bank on original issue from Community First (by subscription or otherwise) shall
be subject to the restriction that such shares shall not be sold or otherwise
disposed of for value for a period of one year following the date of purchase,
except for any disposition of such shares following the death of the original
purchaser or pursuant to any merger or similar transaction approved by the OTS.
The shares of Conversion Stock issued by Community First to Directors and
Officers shall bear the following legend giving appropriate notice of such one-
year restriction:
23
<PAGE>
The shares of stock evidenced by this Certificate are restricted as to
transfer for a period of one year from the date of this Certificate
pursuant to Part 563b of the Rules and Regulations of the Office of Thrift
Supervision. These shares may not be transferred during such one-year
period without a legal opinion of counsel for the Company that said
transfer is permissible under the provisions of applicable law and
regulation. This restrictive legend shall be deemed null and void after
one year from the date of this Certificate.
In addition, Community First shall give appropriate instructions to the
transfer agent for Community First Common Stock with respect to the applicable
restrictions relating to the transfer of restricted stock. Any shares issued at
a later date as a stock dividend, stock split or otherwise with respect to any
such restricted stock shall be subject to the same holding period restrictions
as may then be applicable to such restricted stock.
The foregoing restriction on transfer shall be in addition to any
restrictions on transfer that may be imposed by federal and state securities
laws.
21. RESTRICTIONS ON ACQUISITION OF STOCK OF COMMUNITY FIRST.
-------------------------------------------------------
The articles of incorporation of Community First shall prohibit any Person
together with Associates or group of Persons acting in concert from offering to
acquire or acquiring, directly or indirectly, beneficial ownership of more than
10% of any class of equity securities of Community First, or of securities
convertible into more than 10% of any such class, for five years following
completion of the Conversion and Reorganization. The articles of incorporation
of Community First also shall provide that all equity securities beneficially
owned by any Person in excess of 10% of any class of equity securities during
such five-year period shall be considered "excess shares," and that excess
shares shall not be counted as shares entitled to vote and shall not be voted by
any Person or counted as voting shares in connection with any matters submitted
to the stockholders for a vote. The foregoing restrictions shall not apply to
(i) any offer with a view toward public resale made exclusively to Community
First by underwriters or a selling group acting on its behalf, (ii) the purchase
of shares by a Tax-Qualified Employee Stock Benefit Plan established for the
benefit of the employees of Community First and its subsidiaries which is exempt
from approval requirements under 12 C.F.R. (S)574.3(c)(1)(vi) or any successor
thereto, and (iii) any offer or acquisition approved in advance by the
affirmative vote of two-thirds of the entire Board of Directors of Community
First. Directors, Officers or Employees of Community First or the Bank or any
subsidiary thereof shall not be deemed to be Associates or a group acting in
concert with respect to their individual acquisitions of any class of equity
securities of Community First solely as a result of their capacities as such.
22. TAX RULINGS OR OPINIONS.
-----------------------
Consummation of the Conversion and Reorganization is conditioned upon prior
receipt by the Primary Parties of either a ruling or an opinion of counsel with
respect to federal tax laws, and either a ruling or an opinion of counsel with
respect to Georgia tax laws, to the effect
24
<PAGE>
that consummation of the transactions contemplated hereby will not result in a
taxable reorganization under the provisions of the applicable codes or otherwise
result in any adverse tax consequences to the Primary Parties or to account
holders receiving Subscription Rights before or after the Conversion and
Reorganization, except in each case to the extent, if any, that Subscription
Rights are deemed to have fair market value on the date such rights are issued.
23. STOCK COMPENSATION PLANS.
------------------------
(a) Community First and the Bank are authorized to adopt Tax-Qualified
Employee Stock Benefit Plans in connection with the Conversion and
Reorganization, including without limitation an employee stock ownership plan.
(b) Community First and the Bank also are authorized to adopt stock option
plans, restricted stock grant plans and other Non-Tax-Qualified Employee Stock
Benefit Plans in accordance with applicable laws and regulations.
(c) Existing as well as any newly created Tax-Qualified Employee Stock
Benefit Plans may purchase shares of Conversion Stock in the Offerings, to the
extent permitted by the terms of such benefit plans and this Plan. Community
First and the Bank may make scheduled discretionary distributions to such
benefit plans, provided such contributions do not cause such institutions to
fail to meet applicable regulatory capital requirements.
24. PAYMENT OF FEES TO BROKERS.
--------------------------
The Primary Parties may elect to offer to pay fees on a per share basis to
securities brokers who assist purchasers of Conversion Stock in the Offerings.
25. EFFECTIVE DATE.
--------------
The effective date of the Conversion and Reorganization shall be the date
upon which the last of the following actions occurs: (i) the filing of Articles
of Combination with the OTS with respect to the MHC Merger, (ii) the filing of
Articles of Combination with the OTS with respect to the Bank Merger and (iii)
the closing of the issuance of the shares of Conversion Stock in the Offerings.
The filing of Articles of Combination relating to the MHC Merger and the Bank
Merger and the closing of the issuance of shares of Conversion Stock in the
Offerings shall not occur until all requisite regulatory, Member and Stockholder
approvals have been obtained, all applicable waiting periods have expired and
sufficient subscriptions and orders for the Conversion Stock have been received.
It is intended that the closing of the MHC Merger, the Bank Merger and the sale
of shares of Conversion Stock in the Offerings shall occur consecutively and
substantially simultaneously.
25
<PAGE>
26. AMENDMENT OR TERMINATION OF THE PLAN.
------------------------------------
If deemed necessary or desirable by the Boards of Directors of the Primary
Parties, this Plan may be substantively amended, as a result of comments from
regulatory authorities or otherwise, at any time prior to the solicitation of
proxies from Members and Stockholders to vote on the Plan and at any time
thereafter with the concurrence of the OTS. Any amendment to this Plan made
after approval by the Members and Stockholders with the concurrence of the OTS
shall not necessitate further approval by the Members or Stockholders unless
otherwise required by the OTS. This Plan shall terminate if the sale of all
shares of Conversion Stock is not completed within 24 months from the date of
the Special Meeting. Prior to the earlier of the Special Meeting and the
Stockholders' Meeting, this Plan may be terminated by the Boards of Directors of
the Primary Parties without approval of the OTS; after the Special Meeting or
the Stockholders' Meeting, the Boards of Directors may terminate this Plan only
with the approval of the OTS.
27. INTERPRETATION OF THE PLAN.
--------------------------
All interpretations of this Plan and application of its provisions to
particular circumstances by a majority of each of the Boards of Directors of the
Primary Parties shall be final, subject to the authority of the OTS.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
26
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Plan to be executed by their
duly authorized officers as of this _____ day of February, 1997.
CF MUTUAL HOLDINGS
Attest: ___________________ By:__________________________________________
Gary D. Dorminey
Secretary President and Chief Executive Officer
CARROLLTON FEDERAL BANK
Attest: ___________________ By: _________________________________________
Gary D. Dorminey
Secretary President and Chief Executive Officer
COMMUNITY FIRST BANKING COMPANY
Attest: ___________________ By: _________________________________________
Gary D. Dorminey
Secretary President and Chief Executive Officer
27
<PAGE>
ANNEX A AND ANNEX B
TO BE FILED BY AMENDMENT
28
<PAGE>
ARTICLES OF INCORPORATION
OF
COMMUNITY FIRST BANKING COMPANY
1.
The name of the Corporation is: "Community First Banking Company."
2.
The Corporation is organized pursuant to the provisions of the Georgia
Business Corporation Code.
3.
The object of the Corporation is pecuniary gain and profit, and the
Corporation is formed for the purpose of becoming and operating as a bank
holding company and engaging in such related and permissible activities in
connection therewith as the Board of Directors may from time to time specify by
resolution.
4.
(a) The Corporation shall have authority to issue Ten Million (10,000,000)
shares of common stock (the "Common Stock"), $.01 par value, and Ten Million
(10,000,000) shares of preferred stock (the "Preferred Stock").
(b) The Board of Directors of the Corporation is authorized, subject to
limitations prescribed by law and the provisions of this Article, to provide for
the issuance of the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Georgia to establish
from time to time the number of shares to be included in each such series,
<PAGE>
and to fix the designation, powers, preferences, and relative rights of the
shares of each such series and the qualifications, or restrictions thereof. The
authority of the Board of Directors with respect to each series shall include,
but not be limited to, determination of the following:
(i) The number of shares constituting that series and the distinctive
designation of that series;
(ii) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and
the relative rights of priority, if any, of payments of dividends
on shares of that series;
(iii) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such
voting rights;
(iv) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provisions
for adjustment of the conversion rate in such events as the Board
of Directors shall determine;
(v) Whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be
redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions and
at different redemption rates;
(vi) Whether that series shall have a sinking fund for the redemption
or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund;
-2-
<PAGE>
(vii) The rights of the shares of that series in the event of voluntary
or involuntary liquidation, dissolution or winding-up of the
Corporation, and the relative rights of priority, if any, of
payment of shares of that series; and
(viii) Any other relative rights, preferences and limitations of that
series.
5.
The initial registered office of the Corporation shall be at 110 Dixie
Street, Carrollton, Georgia 30117. The initial registered agent of the
Corporation at such address shall be Gary D. Dorminey.
6.
The mailing address of the initial principal office of the corporation is
110 Dixie Street, Carrollton, Georgia 30117.
7.
(a) The Board of Directors shall be divided into three (3) classes, Class
I, Class II and Class III, which shall be as nearly equal in number as possible.
Each director in Class I shall be elected to an initial term of one (1) year,
each director in Class II shall be elected to an initial term of two (2) years,
each director in Class III shall be elected to an initial term of three (3)
years, and each director shall serve until the election and qualification of his
or her successor or until his or her earlier resignation, death or removal from
office. Upon the expiration of the initial terms of office for each Class of
directors, the directors of each Class shall be elected for
-3-
<PAGE>
terms of three (3) years, to serve until the election and qualification of their
successors or until their earlier resignation, death or removal from office.
(b) Unless two-thirds (2/3) of the directors then in office shall approve
the proposed change, this Article 7 may be amended or rescinded only by the
affirmative vote of the holders of at least eighty percent (80%) of the issued
and outstanding shares of the Corporation entitled to vote in an election of
directors, at any regular or special meeting of the shareholders, and notice of
the proposed change must be contained in the notice of the meeting.
8.
(a) Except as provided in paragraph (b) of this Article 8, the Board of
Directors shall have the right to adopt, amend or repeal the bylaws of the
Corporation by the affirmative vote of a majority of all directors then in
office, and the shareholders shall have such right by the affirmative vote of a
majority of the issued and outstanding shares of the Corporation entitled to
vote in an election of directors.
(b) Notwithstanding paragraph (a) of this Article 8, any amendment of the
bylaws of the Corporation changing the number of directors shall require the
affirmative vote of two-thirds (2/3) of all directors then in office or the
affirmative vote of the holders of eighty percent (80%) of the issued and
outstanding shares of the Corporation entitled to vote in an election of
directors, at any regular or special meeting of the shareholders, and notice of
the proposed change must be contained in the notice of the meeting.
-4-
<PAGE>
9.
(a) At any shareholders' meeting with respect to which notice of such
purpose has been given, the entire Board of Directors or any individual director
may be removed without cause only by the affirmative vote of the holders of at
least eighty percent (80%) of the issued and outstanding shares of the
Corporation entitled to vote in an election of directors.
(b) At any shareholders' meeting with respect to which notice of such
purpose has been given, the entire Board of Directors or any individual director
may be removed with cause only by the affirmative vote of the holders of at
least a majority of the issued and outstanding shares of the Corporation
entitled to vote in an election of directors.
(c) For purposes of this Article 9, a director of the Corporation may be
removed for cause if (i) the director has been convicted of a felony; (ii) any
bank regulatory authority having jurisdiction over the Corporation requests or
demands the removal; or (iii) at least two-thirds (2/3) of the directors of the
Corporation then in office, excluding the director to be removed, determine that
the director's conduct has been inimical to the best interests of the
Corporation.
(d) Unless two-thirds (2/3) of the directors then in office shall approve
the proposed change, this Article 9 may be amended or rescinded only by the
affirmative vote of the holders of at least eighty percent (80%) of the issued
and outstanding shares of the Corporation entitled to vote in an election of
directors, at any regular or special meeting of the shareholders, and notice of
the proposed change must be contained in the notice of the meeting.
-5-
<PAGE>
10.
The initial Board of Directors of the Corporation shall consist of nine (9)
members who shall be and whose addresses are:
T. Aubrey Silvey
371 Hamp Jones Road
Carrollton, Georgia 30117
Gary D. Dorminey
103 Briarwood Drive
Carrollton, Georgia 30117
Anna L. Berry
174 McAlpin Drive
Heflin, Alabama 36264
Gary M. Bullock
40 Patricia Lane
Carrollton, Georgia 30117
Jerry L. Clayton
516 Knollwood Avenue
Bremen, Georgia 30110
Thomas E. Reeve, Jr.
146 Griffin Drive
Carrollton, Georgia 30117
Michael P. Steed
205 Rebecca Morris Street
Bowdon, Georgia 30108
Dean B. Talley
103 Fairway Drive
Carrollton, Georgia 30117
Thomas S. Upchurch
147 Frances Street
Bowdon, Georgia 30108
-6-
<PAGE>
11.
(a) A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages, for breach of any duty as
a director, except for liability for:
(i) any appropriation, in violation of his or her duties, of any
business opportunity of the Corporation;
(ii) acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law;
(iii) the types of liability set forth in Section 14-2-832 of the
Georgia Business Corporation Code dealing with unlawful
distributions of corporate assets to shareholders; or
(iv) any transaction from which the director derived an improper
material tangible personal benefit.
(b) Any repeal or modification of this Article by the shareholders of the
Corporation shall be prospective only and shall not adversely affect any right
or protection of a director of the Corporation existing at the time of such
repeal or modification.
(c) Unless two-thirds (2/3) of the directors then in office shall approve
the proposed change, this Article 11 may be amended or rescinded only by the
affirmative vote of the holders of at least eighty percent (80%) of the issued
and outstanding shares of the Corporation entitled to vote thereon, at any
regular or special meeting of the shareholders, and notice of the proposed
change must be contained in the notice of the meeting.
-7-
<PAGE>
12.
Any action required by law or by the Bylaws of the Corporation to be taken
at a meeting of the shareholders of the Corporation, and any action which may be
taken at such a meeting, may be taken without a meeting, if written consent,
setting forth the action so taken, is signed by persons entitled to vote at a
meeting those shares having sufficient voting power to cast not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote were present and voted. Notice
of such action without a meeting by less than unanimous written consent shall be
given within ten (10) days after taking such action to those shareholders of
record on the date when the written consent is first executed and whose shares
were not represented on the written consent.
13.
(a) Except as set forth in subparagraph (b) of this Article 13, the
affirmative vote of the holders of at least eighty percent (80%) of the issued
and outstanding shares of the Corporation entitled to vote thereon shall be
required to approve:
(i) any merger or share exchange of the Corporation with or into
any other corporation; and
(ii) any sale, lease, exchange or other disposition of all or
substantially all of the assets of the Corporation to any
other corporation, person or other entity.
-8-
<PAGE>
(b) The provisions of this Article 13 shall not apply to:
(i) any merger or similar transaction with any corporation if
two-thirds (2/3) of the directors of the Corporation then in
office approve such transaction prior to its consummation;
(ii) any merger or share exchange of the Corporation with, or any
sale or lease to the Corporation (or any subsidiary thereof)
of any assets of, or any sale or lease by the Corporation
(or any subsidiary thereof) of any of its assets to, any
corporation of which a majority of the outstanding shares of
all classes of stock entitled to vote in an election of
directors is owned of record or beneficially by the
Corporation and its subsidiaries.
(c) Unless two-thirds (2/3) of the directors then in office shall approve
the proposed change, this Article 13 may be amended or rescinded only by the
affirmative vote of the holders of at least eighty percent (80%) of the issued
and outstanding shares of the Corporation entitled to vote thereon at any
regular or special meeting of the shareholders, and notice of the proposed
change must be contained in the notice of the meeting.
14.
(a) The Board of Directors, when evaluating any offer of another party (i)
to make a tender offer or exchange offer for any equity security of the
Corporation, (ii) to merge or consolidate any other corporation with the
Corporation, or (iii) to purchase or otherwise acquire all or substantially all
of the assets of the Corporation, shall, in determining what is in the best
interests of the Corporation and its shareholders, give due consideration to all
relevant factors, including without limitation: (A) the short-term and long-
term social and economic effects on the
-9-
<PAGE>
employees, customers, shareholders and other constituents of the Corporation and
its subsidiaries, and on the communities within which the Corporation and its
subsidiaries operate (it being understood that any subsidiary bank of the
Corporation is charged with providing support to and being involved in the
communities it serves); and (B) the consideration being offered by the other
party in relation to the then-current value of the Corporation in a freely
negotiated transaction and in relation to the Board of Directors' then-estimate
of the future value of the Corporation as an independent entity.
(b) Unless two-thirds (2/3) of the directors then in office shall approve
the proposed change, this Article 14 may be amended or rescinded only by the
affirmative vote of the holders of at least eighty percent (80%) of the issued
and outstanding shares of the Corporation entitled to vote thereon, at any
regular or special meeting of the shareholders, and notice of the proposed
change must be contained in the notice of the meeting.
15.
Should any provision of these Articles of Incorporation, or any clause
hereof, be held to be invalid, illegal or unenforceable, in whole or in part,
the remaining provisions and clauses of these Articles of Incorporation shall
remain valid and fully enforceable.
16.
The Incorporator of the Corporation is Gary D. Dorminey, whose address is
103 Briarwood Drive, Carrollton, Georgia 30117.
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<PAGE>
IN WITNESS WHEREOF, the undersigned has caused these Amended and Restated
Articles of Incorporation to be executed, this ____ day of March 1997.
COMMUNITY FIRST BANKING COMPANY
_________________________________
Walter G. Moeling, IV, Esq.
Attorney for Incorporator
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<PAGE>
BYLAWS
COMMUNITY FIRST BANKING COMPANY
<PAGE>
BYLAWS
COMMUNITY FIRST BANKING COMPANY
INDEX
-----
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE ONE - OFFICES......................................................... 1
ARTICLE TWO - SHAREHOLDERS' MEETINGS.......................................... 1
2.1 Annual Meeting...................................................... 1
2.2 Special Meetings.................................................... 1
2.3 Place............................................................... 1
2.4 Notice.............................................................. 1
2.5 Quorum.............................................................. 2
2.6 Proxies; Required Vote.............................................. 2
2.7 Presiding Officer and Secretary..................................... 2
2.8 Shareholder List.................................................... 2
2.9 Action in Lieu of Meeting........................................... 2
ARTICLE THREE - DIRECTORS..................................................... 2
3.1 Management.......................................................... 2
3.2 Number of Directors................................................. 3
3.3 Vacancies........................................................... 3
3.4 Election of Directors............................................... 3
3.5 Nomination of Directors............................................. 3
3.6 Removal............................................................. 4
3.7 Resignation......................................................... 4
3.8 Compensation........................................................ 4
3.9 Honorary and Advisory Directors..................................... 4
ARTICLE FOUR - COMMITTEES..................................................... 4
4.1 Executive Committee................................................. 4
4.2 Other Committees.................................................... 5
4.3 Removal............................................................. 6
ARTICLE FIVE - MEETINGS OF THE BOARD OF DIRECTORS............................. 6
5.1 Time and Place...................................................... 6
5.2 Regular Meetings.................................................... 6
5.3 Special Meetings.................................................... 6
5.4 Content and Waiver of Notice........................................ 6
5.5 Quorum; Participation by Telephone.................................. 6
5.6 Action in Lieu of Meeting........................................... 6
5.7 Interested Directors and Officers................................... 7
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE SIX - OFFICERS, AGENTS AND EMPLOYEES................................. 7
6.1 General Provisions................................................. 7
6.2 Powers and Duties of the Chairman of the Board and the President... 7
6.3 Powers and Duties of Vice Presidents............................... 8
6.4 Powers and Duties of the Secretary................................. 8
6.5 Powers and Duties of the Treasurer................................. 9
6.6 Appointment, Powers and Duties of Assistant Secretaries............ 9
6.7 Appointment, Powers and Duties of Assistant Treasurers............. 9
6.8 Delegation of Duties............................................... 9
ARTICLE SEVEN - CAPITAL STOCK................................................ 9
7.1 Certificates....................................................... 9
7.2 Shareholder List................................................... 10
7.3 Transfer of Shares................................................. 10
7.4 Record Dates....................................................... 10
7.5 Registered Owner................................................... 10
7.6 Transfer Agent and Registrars...................................... 11
7.7 Lost Certificates.................................................. 11
7.8 Fractional Shares or Scrip......................................... 11
ARTICLE EIGHT - BOOKS AND RECORDS; SEAL; ANNUAL STATEMENTS................... 11
8.1 Inspection of Books and Records.................................... 11
8.2 Seal............................................................... 12
8.3 Annual Statements.................................................. 12
ARTICLE NINE - INDEMNIFICATION............................................... 12
9.1 Authority to Indemnify............................................. 12
9.2 Mandatory Indemnification.......................................... 13
9.3 Advance for Expenses............................................... 13
9.4 Court-ordered Indemnification and Advances for Expenses............ 13
9.5 Determination of Indemnification................................... 13
9.6 Authorization of Indemnification................................... 14
9.7 Other Rights....................................................... 14
9.8 Insurance.......................................................... 14
9.9 Continuation of Expenses........................................... 15
ARTICLE TEN - NOTICES: WAIVERS OF NOTICE..................................... 15
10.1 Notices........................................................... 15
10.2 Waivers of Notice................................................. 15
ARTICLE ELEVEN - BUSINESS COMBINATION........................................ 15
ARTICLE TWELVE - FAIR PRICING................................................ 15
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
ARTICLE THIRTEEN - EMERGENCY POWERS.......................................... 15
13.1 Bylaws............................................................ 15
13.2 Lines of Succession............................................... 16
13.3 Head Office....................................................... 16
13.4 Period of Effectiveness........................................... 16
13.5 Notices........................................................... 16
13.6 Officers as Directors Pro Tempore................................. 16
13.7 Liability of Officers, Directors and Agents....................... 16
ARTICLE FOURTEEN - CHECKS, NOTES, DRAFTS, ETC................................ 16
ARTICLE FIFTEEN - AMENDMENTS................................................. 17
</TABLE>
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<PAGE>
BYLAWS
OF
COMMUNITY FIRST BANKING COMPANY
ARTICLE ONE
OFFICES
The corporation shall at all times maintain its principal office in
Carrollton, Georgia, its registered office in the State of Georgia and its
registered agent at that address, but it may have other offices located within
or outside the State of Georgia as the Board of Directors may determine.
ARTICLE TWO
SHAREHOLDERS' MEETINGS
2.1 Annual Meeting. A meeting of shareholders of the corporation shall be
--------------
held annually, within six (6) months after the end of each fiscal year of the
corporation. The annual meeting shall be held at such time and place and on
such date as the Directors shall determine from time to time and as shall be
specified in the notice of the meeting.
2.2 Special Meetings. Special meetings of the shareholders may be called
----------------
at any time by the corporation's Board of Directors, its President, and by the
corporation upon the written request of any one or more shareholders, owning an
aggregate of not less than twenty-five percent of the outstanding capital stock
of the corporation. Special meetings shall be held at such a time and place and
on such date as shall be specified in the notice of the meeting.
2.3 Place. Annual or special meetings of shareholders may be held within
-----
or without the State of Georgia.
2.4 Notice. Notice of annual or special shareholders meetings stating
------
place, day and hour of the meeting shall be given in writing not less than ten
nor more than sixty days before the date of the meeting, either mailed to the
last known address as shown on the stock records of the corporation, transmitted
by telefax or other commonly accepted means of communication or personally given
to each shareholder. Notice of any special meeting of shareholders shall state
the purpose or purposes for which the meeting is called. The notice of any
meeting at which amendments to or restatements of the articles of incorporation,
merger or share exchange of the corporation, or the disposition of corporate
assets requiring shareholder approval are to be considered shall state such
purpose, and shall further comply with all requirements of law. Notice of a
meeting may be waived by an instrument in writing executed before or after the
meeting. The waiver need not specify the purpose of the meeting or the business
transacted, unless one of the purposes of the meeting concerns a plan of merger
or share exchange, in which event the waiver shall comply with the further
requirements of law concerning such waivers. Attendance at such meeting in
person or by proxy shall constitute a waiver of notice thereof.
<PAGE>
2.5 Quorum. At all meetings of shareholders a majority of the outstanding
------
shares of stock shall constitute a quorum for the transaction of business, and
no resolution or business shall be transacted without the favorable vote of the
holders of a majority of the shares represented at the meeting and entitled to
vote. A lesser number may adjourn from day to day, and shall announce the time
and place to which the meeting is adjourned. Notice of any adjourned meeting
need only be given by announcement at the meeting at which the adjournment is
taken.
2.6 Proxies; Required Vote. At every meeting of the shareholders,
----------------------
including meetings of shareholders for the election of Directors, any
shareholder having the right to vote shall be entitled to vote in person or by
proxy, but no proxy shall be voted after eleven months from its date, unless
said proxy provides for a longer period. Each shareholder shall have one vote
for each share of stock having voting power, registered in his or her name on
the books of the corporation. If a quorum is present, the affirmative vote of
the majority of the shares represented at the meeting and entitled to vote on
the subject matter shall be the act of the shareholders, except as otherwise
provided by law, by the Articles of Incorporation or by these bylaws.
2.7 Presiding Officer and Secretary. At every meeting of shareholders,
-------------------------------
the Chairman or the President, or, if such officers shall not be present, then
the person appointed by one of them shall preside. In the absence of the
Chairman and President, the Board of Directors shall designate one of its
members in attendance to act as Chairman. The Secretary or an Assistant
Secretary, or if such officers shall not be present, the appointee of the
presiding officer of the meeting, shall act as secretary of the meeting.
2.8 Shareholder List. The officer or agent having charge of the stock
----------------
transfer books of the corporation shall produce for inspection of any
shareholder at, and continuously during, every meeting of the shareholders, a
complete alphabetical list of shareholders showing the address and share
holdings of each shareholder. If the record of shareholders readily shows such
information, it may be produced in lieu of such a list.
2.9 Action in Lieu of Meeting. Any action to be taken at a meeting of the
-------------------------
shareholders of the corporation, or any action that may be taken at a meeting of
the shareholders, may be taken without a meeting if a consent in writing setting
forth the action so taken shall be signed by those persons who would be entitled
to vote at a meeting those shares having voting power to cast not less than the
minimum number (or numbers, in the case of voting by class) of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote were present and voted.
ARTICLE THREE
DIRECTORS
3.1 Management. Subject to these bylaws, or any lawful agreement between
----------
the shareholders, the full and entire management of the affairs and business of
the corporation shall be vested in the Board of Directors, which shall have and
may exercise all of the powers that may be exercised or performed by the
corporation.
-2-
<PAGE>
3.2 Number of Directors. The Board of Directors shall consist of not less
-------------------
than three (3) nor more than twenty-five (25) members. The number of Directors
may be fixed or changed from time to time, within the minimum and maximum, by
the shareholders by the affirmative vote of eighty percent (80%) of the issued
and outstanding shares of the corporation entitled to vote in an election of
Directors, or by the Board of Directors by the affirmative vote of two-thirds
(66-2/3%) of all Directors then in office.
3.3 Vacancies. The Directors may fill the place of any Director which may
---------
become vacant prior to the expiration of such Director's term, though less than
a quorum, or by the sole remaining Director, as the case may be, such
appointment by the Directors to continue until the expiration of the term of the
Director whose place has become vacant, whether by death, resignation or
removal, or by an increase in the number of Directors.
3.4 Election of Directors. The Board of Directors shall be divided into
---------------------
three (3) classes, Class I, Class II and Class III, which shall be nearly equal
in number as possible. Each Director in Class I shall be elected to an initial
term of one (1) year, each Director in Class II shall be elected to an initial
term of two (2) years and each Director in Class III shall be elected to an
initial term of three (3) years, and each Director shall serve until the
election and qualification of his or her successor or until his or her earlier
resignation, death or removal from office. Upon the expiration of the initial
terms of office for each Class of Directors, the Directors of each Class shall
be elected for terms of three (3) years, to serve until the election and
qualification of their successors or until their earlier resignation, death or
removal from office.
3.5 Nomination of Directors. Nominations for election to the Board of
-----------------------
Directors may be made by the Board of Directors or by any shareholder of any
outstanding class of capital stock of the corporation entitled to vote for
election of directors. Nominations other than those made by or on behalf of the
existing management shall be made in writing and be delivered or mailed to the
president of the corporation not less than 30 days nor more than 60 days prior
to any meeting of shareholders called for the election of directors; provided,
however, that if less than 21 days notice of the meeting is given to
shareholders, such nominations shall be received by the president of the
corporation not later than the close of business on the seventh day following
the day on which the notice of meeting was mailed. Such notification shall
contain the following information to the extent known to the notifying
shareholder:
(i) The name and address of each proposed nominee.
(ii) The principal occupation of each proposed nominee.
(iii) The total number of shares of capital stock of the association
that will be voted for each proposed nominee.
(iv) The name and residence address of the notifying shareholder.
(v) The number of shares of capital stock of the corporation owned
by the notifying shareholder.
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<PAGE>
Nominations not made in accordance herewith may, in his or her discretion, be
disregarded by the chairperson of the meeting, and the vote tellers may
disregard all votes cast for each such nominee.
3.6 Removal. Subject to any further limitations in the Articles of
-------
Incorporation, any Director may be removed from office, at a meeting with
respect to which notice of such purpose is given (a) without cause, only upon
the affirmative vote of the holders of at least eighty percent (80%) of the
issued and outstanding shares of the corporation, and (b) with cause, only upon
the affirmative vote of the holders of a majority of the issued and outstanding
shares of the corporation.
3.7 Resignation. Any Director may resign at any time either orally at any
-----------
meeting of the Board of Directors or by so advising the Chairman of the Board or
the President or by giving written notice to the corporation. A Director who
resigns may postpone the effectiveness of his or her resignation to a future
date or upon the occurrence of a future event specified in a written tender of
resignation. If no time of effectiveness is specified therein, a resignation
shall be effective upon tender. A vacancy shall be deemed to exist at the time
a resignation is tendered, and the Board of Directors or the shareholders may,
then or thereafter, elect a successor to take office when the resignation by its
terms becomes effective.
3.8 Compensation. Directors may be allowed such compensation for their
------------
services as Directors as may from time to time be fixed by resolution of the
Board of Directors.
3.9 Honorary and Advisory Directors. When a Director of the corporation
-------------------------------
retires under the retirement policies of the corporation as established from
time to time by the Board of Directors, such Director automatically shall become
an Honorary Director of the corporation following his or her retirement. The
Board of Directors of the corporation also may appoint any individual an
Honorary Director, Director Emeritus, or member of any advisory board
established by the Board of Directors. Any individual automatically becoming an
Honorary Director or appointed an Honorary Director, Director Emeritus, or
member of an advisory board as provided by this Section 3.8 may be compensated
as provided in Section 3.7, but such individual may not vote at any meeting of
the Board of Directors or be counted in determining a quorum as provided in
Section 5.5 and shall not have any responsibility or be subject to any liability
imposed upon a Director, or otherwise be deemed a Director.
ARTICLE FOUR
COMMITTEES
4.1 Executive Committee. (a) The Board of Directors may, by resolution
-------------------
adopted by a majority of the entire Board, designate an Executive Committee
consisting of one or more Directors. Each Executive Committee member shall hold
office until the first meeting of the Board of Directors after the annual
meeting of shareholders and until the member's successor is elected and
qualified, or until the member's death, resignation or removal, or until the
member shall cease to be a Director.
-4-
<PAGE>
(b) During the intervals between the meetings of the Board of
Directors, the Executive Committee may exercise all the authority of the Board
of Directors; provided, however, that the Executive Committee shall not have the
power to amend or repeal any resolution of the Board of Directors that by its
terms shall not be subject to amendment or repeal by the Executive Committee,
and the Executive Committee shall not have the authority of the Board of
Directors in reference to (i) the amendment of the Articles of Incorporation or
bylaws of the corporation; (ii) the adoption of a plan of merger or
consolidation; (iii) the sale, lease, exchange or other disposition of all or
substantially all the property and assets of the corporation; or (iv) a
voluntary dissolution of the corporation or the revocation of any such voluntary
dissolution.
(c) The Executive Committee shall meet from time to time on call of
the Chairman of the Board or the President or of any two or more members of the
Executive Committee. Meetings of the Executive Committee may be held at such
place or places, within or without the State of Georgia, as the Executive
Committee shall determine or as may be specified or fixed in the respective
notices or waivers of such meetings. The Executive Committee may fix its own
rules of procedure, including provision for notice of its meetings. It shall
keep a record of its proceedings and shall report these proceedings to the Board
of Directors at the meeting thereof held next after they have been taken, and
all such proceedings shall be subject to revision or alteration by the Board of
Directors except to the extent that action shall have been taken pursuant to or
in reliance upon such proceedings prior to any such revision or alteration.
(d) The Executive Committee shall act by majority vote of its
members; provided, however, that contracts or transactions of and by the
corporation in which officers or Directors of the corporation are interested
shall require the affirmative vote of a majority of the disinterested members of
the Executive Committee at a meeting of the Executive Committee at which the
material facts as to the interest and as to the contract or transaction are
disclosed or known to the members of the Executive Committee prior to the vote.
(e) Members of the Executive Committee may participate in committee
proceedings by means of conference telephone or similar communications equipment
by means of which all persons participating in the proceedings can hear each
other, and such participation shall constitute presence in person at such
proceedings.
(f) The Board of Directors, by resolution adopted in accordance with
paragraph (a) of this section, may designate one or more Directors as alternate
members of the Executive Committee who may act in the place and stead of any
absent member or members at any meeting of said committee.
4.2 Other Committees. The Board of Directors, by resolution adopted by a
----------------
majority of the entire Board, may designate one or more additional committees,
each committee to consist of one or more of the Directors of the corporation,
which shall have such name or names and shall have and may exercise such powers
of the Board of Directors, except the powers denied to the Executive Committee,
as may be determined from time to time by the Board of Directors. Such
committees shall provide for their own rules of procedure, subject to the same
restrictions thereon as provided above for the Executive Committee.
-5-
<PAGE>
4.3 Removal. The Board of Directors shall have power at any time to
-------
remove any member of any committee, with or without cause, and to fill vacancies
in and to dissolve any such committee.
ARTICLE FIVE
MEETINGS OF THE BOARD OF DIRECTORS
5.1 Time and Place. Meetings of the Board of Directors may be held at any
--------------
place either within or without the State of Georgia.
5.2 Regular Meetings. Regular meetings of the Board of Directors may be
----------------
held without notice at such time and place, within or without the State of
Georgia, as shall be determined by the Board of Directors from time to time.
5.3 Special Meetings. Special meetings of the Board of Directors may be
----------------
called by the Chairman of the Board or the President on not less than one day's
notice by mail, telegram, cablegram, personal delivery, telephone, telefax, or
other commonly accepted means of communication to each Director and shall be
called by the Chairman of the Board or the President in like manner and on like
notice on the written request of any two or more Directors. Any such special
meeting shall be held at such time and place, within or without the State of
Georgia, as shall be stated in the notice of the meeting.
5.4 Content and Waiver of Notice. No notice of any meeting of the Board
----------------------------
of Directors need state the purposes thereof. Notice of any meeting may be
waived by an instrument in writing executed before or after the meeting.
Attendance in person at any such meeting shall constitute a waiver of notice
thereof unless the director at the beginning of the meeting (or promptly upon
his or her arrival) objects to holding the meeting or transacting business at
the meeting and does not thereafter vote for or assent to action taken at the
meeting.
5.5 Quorum; Participation by Telephone. At all meetings of the Board of
----------------------------------
Directors, the presence of a majority of the authorized number of Directors
shall be necessary and sufficient to constitute a quorum for the transaction of
business. Directors may participate in any meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by means of such communications equipment shall constitute the presence in
person at such meeting. Except as may be otherwise specifically provided by
law, the Articles of Incorporation or these bylaws, all resolutions adopted and
all business transacted by the Board of Directors shall require the affirmative
vote of a majority of the Directors present at the meeting. In the absence of a
quorum, a majority of the Directors present at any meeting may adjourn the
meeting from time to time until a quorum is present. Notice of any adjourned
meeting need only be given by announcement at the meeting at which the
adjournment is taken.
5.6 Action in Lieu of Meeting. Any action required or permitted to be
-------------------------
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if a written consent thereto is signed by all members
of the Board of Directors or of such committee, as the case may be, and such
written consent is filed with the minutes of the
-6-
<PAGE>
proceedings of the Board of Directors and upon compliance with any further
requirements of law pertaining to such consents.
5.7 Interested Directors and Officers. An interested Director or officer
---------------------------------
is one who is a party to a contract or transaction with the corporation or who
is an officer or Director of, or has a financial interest in, another
corporation, partnership or association which is a party to a contract or
transaction with the corporation. Contracts and transactions between the
corporation and one or more interested Directors or officers shall not be void
or voidable solely because of the involvement or vote of such interested persons
as long as (a) the contract or transaction is approved in good faith by the
Board of Directors or appropriate committee by the affirmative vote of a
majority of disinterested Directors, even if the disinterested Directors be less
than a quorum, at a meeting of the Board or committee at which the material
facts as to the interested person or persons and the contract or transaction are
disclosed or known to the Board or committee prior to the vote; or (b) the
contract or transaction is approved in good faith by the shareholders after the
material facts as to the interested person or persons and the contract or
transaction have been disclosed to them; or (c) the contract or transaction is
fair as to the corporation as of the time it is authorized, approved or ratified
by the Board, committee or shareholders. Interested Directors may be counted in
determining the presence of a quorum at a meeting of the Board or committee
which authorizes the contract or transaction.
ARTICLE SIX
OFFICERS, AGENTS AND EMPLOYEES
6.1 General Provisions. The officers of the corporation shall be a
------------------
President and a Secretary, and may include a Treasurer, Chairman of the Board,
one or more Vice Presidents, one or more Assistant Secretaries, and one or more
Assistant Treasurers. The officers shall be elected by the Board of Directors
at the first meeting of the Board of Directors after the annual meeting of the
shareholders in each year or shall be appointed as provided in these bylaws.
The Board of Directors may elect other officers, agents and employees, who shall
have such authority and perform such duties as may be prescribed by the Board of
Directors. All officers shall hold office until the meeting of the Board of
Directors following the next annual meeting of the shareholders after their
election or appointment and until their successors shall have been elected or
appointed and shall have qualified. Any two or more offices may be held by the
same person. Any officer, agent or employee of the corporation may be removed
by the Board of Directors with or without cause. Removal without cause shall be
without prejudice to such person's contract rights, if any, but the election or
appointment of any person as an officer, agent or employee of the corporation
shall not of itself create contract rights. The compensation of officers,
agents and employees elected by the Board of Directors shall be fixed by the
Board of Directors or by a committee thereof, and this power may also be
delegated to any officer, agent or employee as to persons under his or her
direction or control. The Board of Directors may require any officer, agent or
employee to give security for the faithful performance of his or her duties.
6.2 Powers and Duties of the Chairman of the Board and the President. The
----------------------------------------------------------------
powers and duties of the Chairman of the Board and the President, subject to the
supervision and control of
-7-
<PAGE>
the Board of Directors, shall be those usually appertaining to their respective
offices and whatever other powers and duties are prescribed by these bylaws or
by the Board of Directors.
(a) The Chairman of the Board shall preside at all meetings of the
---------------------
Board of Directors and at all meetings of the shareholders. The Chairman of the
Board shall perform such other duties as the Board of Directors may from time to
time direct, but shall not participate in any major policy-making functions of
the corporation other than in his or her capacity as a director. The Vice-
Chairman shall act as Chairman of the Board of Directors in the absence of the
Chairman unless another director is elected Chairman.
(b) The President shall, unless otherwise provided by the Board of
---------
Directors, be the chief executive officer of the corporation. The President
shall have general charge of the business and affairs of the corporation and
shall keep the Board of Directors fully advised. The President shall employ and
discharge employees and agents of the corporation, except such as shall be
elected by the Board of Directors, and he or she may delegate these powers. The
President shall have such powers and perform such duties as generally pertain to
the office of the President, as well as such further powers and duties as may be
prescribed by the Board of Directors. The President may vote the shares or
other securities of any other domestic or foreign corporation of any type or
kind which may at any time be owned by the corporation, may execute any
shareholders' or other consents in respect thereof and may in his or her
discretion delegate such powers by executing proxies, or otherwise, on behalf of
the corporation. The Board of Directors, by resolution from time to time, may
confer like powers upon any other person or persons.
6.3 Powers and Duties of Vice Presidents. Each Vice President shall have
------------------------------------
such powers and perform such duties as the Board of Directors or the President
may prescribe and shall perform such other duties as may be prescribed by these
bylaws. In the absence or inability to act of the President, unless the Board
of Directors shall otherwise provide, the Vice President who has served in that
capacity for the longest time and who shall be present and able to act, shall
perform all duties and may exercise any of the powers of the President. The
performance of any such duty by a Vice President shall be conclusive evidence of
his or her power to act.
6.4 Powers and Duties of the Secretary. The Secretary shall have charge
----------------------------------
of the minutes of all proceedings of the shareholders and of the Board of
Directors and shall be responsible for the taking and maintenance of the minutes
of all their meetings at which he or she is present. Except as otherwise
provided by these bylaws, the Secretary shall attend to the giving of all
notices to shareholders and Directors. He or she shall have charge of the seal
of the corporation, shall attend to its use on all documents the execution of
which on behalf of the corporation under its seal is duly authorized and shall
attest the same by his or her signature whenever required. The Secretary shall
have charge of the record of shareholders of the corporation, of all written
requests by shareholders that notices be mailed to them at an address other than
their addresses on the record of shareholders, and of such other books and
papers as the Board of Directors may direct. Subject to the control of the
Board of Directors, the Secretary shall have all such powers and duties as
generally are incident to the position of Secretary or as may be assigned to the
Secretary by the President or the Board of Directors.
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<PAGE>
6.5 Powers and Duties of the Treasurer. The Treasurer shall have charge
----------------------------------
of all funds and securities of the corporation, shall endorse the same for
deposit or collection when necessary and deposit the same to the credit of the
corporation in such banks or depositaries as the Board of Directors may
authorize. The Treasurer may endorse all commercial documents requiring
endorsements for or on behalf of the corporation and may sign all receipts and
all commercial documents requiring endorsements for or on behalf of the
corporation and may sign all receipts and vouchers for payments made to the
corporation. The Treasurer shall have all such powers and duties as generally
are incident to the position of Treasurer or as may be assigned to the Treasurer
by the President or by the Board of Directors.
6.6 Appointment, Powers and Duties of Assistant Secretaries. Assistant
-------------------------------------------------------
Secretaries may be appointed by the President or elected by the Board of
Directors. In the absence or inability of the Secretary to act, any Assistant
Secretary may perform all the duties and exercise all the powers of the
Secretary. The performance of any such duty shall be conclusive evidence of the
Assistant Secretary's power to act. An Assistant Secretary shall also perform
such other duties as the Secretary or the Board of Directors may assign to him
or her.
6.7 Appointment, Powers and Duties of Assistant Treasurers. Assistant
------------------------------------------------------
Treasurers may be appointed by the President or elected by the Board of
Directors. In the absence or inability of the Treasurer to act, an Assistant
Treasurer may perform all the duties and exercise all the powers of the
Treasurer. The performance of any such duty shall be conclusive evidence of the
Assistant Treasurer's power to act. An Assistant Treasurer shall also perform
such other duties as the Treasurer or the Board of Directors may assign to him
or her.
6.8 Delegation of Duties. In case of the absence of any officer of the
--------------------
corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board of Directors (or in the case of Assistant Secretaries or
Assistant Treasurers only, the President) may confer for the time being the
powers and duties, or any of them, of such officer upon any other officer or
elect or appoint any new officer to fill a vacancy created by death,
resignation, retirement or termination of any officer. In such latter event
such new officer shall serve until the next annual election of officers.
ARTICLE SEVEN
CAPITAL STOCK
7.1 Certificates. (a) The interest of each shareholder shall be evidenced
------------
by a certificate or certificates representing shares of the corporation which
shall be in such form as the Board of Directors may from time to time adopt and
shall be numbered and shall be entered in the books of the corporation as they
are issued. Each certificate representing shares shall set forth upon the face
thereof the following:
(i) the name of this corporation;
ii) that the corporation is organized under the laws of the
State of Georgia;
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(iii) the name or names of the person or persons to whom the
certificate is issued;
(iv) the number and class of shares, and the designation of the
series, if any, which the certificate represents; and
(v) if any shares represented by the certificate are nonvoting
shares, a statement or notation to that effect; and, if the shares represented
by the certificate are subordinate to shares of any other class or series with
respect to dividends or amounts payable on liquidation, the certificate shall
further set forth on either the face or back thereof a clear and concise
statement to that effect.
(b) Each certificate shall be signed by the President or a Vice
President and the Secretary or an Assistant Secretary and may be sealed with the
seal of the corporation or a facsimile thereof. If a certificate is
countersigned by a transfer agent or registered by a registrar, other than the
corporation itself or an employee of the corporation, the signature of any such
officer of the corporation may be a facsimile. In case any officer or officers
who shall have signed, or whose facsimile signature or signatures shall have
been used on, any such certificate or certificates shall cease to be such
officer or officers of the corporation, whether because of death, resignation or
otherwise, before such certificate or certificates shall have been delivered by
the corporation, such certificate or certificates may nevertheless be delivered
as though the person or persons who signed such certificate or certificates or
whose facsimile signatures shall have been used thereon had not ceased to be
such officer or officers.
7.2 Shareholder List. The corporation shall keep or cause to be kept a
----------------
record of the shareholders of the corporation which readily shows, in
alphabetical order or by alphabetical index, and by classes or series of stock,
if any, the names of the shareholders entitled to vote, with the address of and
the number of shares held by each. Said record shall be presented and kept open
at all meetings of the shareholders.
7.3 Transfer of Shares. Transfers of stock shall be made on the books of
------------------
the corporation only by the person named in the certificate, or by power of
attorney lawfully constituted in writing, and upon surrender of the certificate,
or in the case of a certificate alleged to have been lost, stolen or destroyed,
upon compliance with the provisions of Section 7.7 of these bylaws.
7.4 Record Dates. For the purpose of determining shareholders entitled to
------------
notice of or to vote at any meeting of shareholders or any adjournment thereof,
or entitled to receive payment of any dividend, or in order to make a
determination of shareholders for any other proper purpose, the Board of
Directors may fix in advance a date as the record date for any such
determination of shareholders, such date to be not more than seventy days and,
in case of a meeting of shareholders, not less than ten days, prior to the date
on which the particular action requiring such determination of shareholders is
to be taken.
7.5 Registered Owner. The corporation shall be entitled to treat the
----------------
holder of record of any share of stock of the corporation as the person entitled
to vote such share, to receive any dividend or other distribution with respect
to such share, and for all other purposes and
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<PAGE>
accordingly shall not be bound to recognize any equitable or other claim or
interest in such share on the part of any other person, whether or not it shall
have express or other notice thereof, except as otherwise provided by law.
7.6 Transfer Agent and Registrars. The Board of Directors may appoint one
-----------------------------
or more transfer agents and one or more registrars and may require each stock
certificate to bear the signature or signatures of a transfer agent or a
registrar or both.
7.7 Lost Certificates. Any person claiming a certificate of stock to be
-----------------
lost, stolen or destroyed shall make an affidavit or affirmation of the fact in
such manner as the Board of Directors may require and, if the Directors so
require, shall give the corporation a bond of indemnity in form and amount and
with one or more sureties satisfactory to the Board of Directors, whereupon an
appropriate new certificate may be issued in lieu of the certificate alleged to
have been lost, stolen or destroyed.
7.8 Fractional Shares or Scrip. The corporation may, when and if
--------------------------
authorized so to do by its Board of Directors, issue certificates for fractional
shares or scrip in order to effect share transfers, share distributions or
reclassifications, mergers, consolidations or reorganizations. Holders of
fractional shares shall be entitled, in proportion to their fractional holdings,
to exercise voting rights, receive dividends and participate in any of the
assets of the corporation in the event of liquidation. Holders of scrip shall
not, unless expressly authorized by the Board of Directors, be entitled to
exercise any rights of a shareholder of the corporation, including voting
rights, dividend rights or the right to participate in any assets of the
corporation in the event of liquidation. In lieu of issuing fractional shares
or scrip, the corporation may pay in cash the fair value of fractional interests
as determined by the Board of Directors; and the Board of Directors may adopt
resolutions regarding rights with respect to fractional shares or scrip as it
may deem appropriate, including without limitation the right for persons
entitled to receive fractional shares to sell such fractional shares or purchase
such additional fractional shares as may be needed to acquire one full share, or
sell such fractional shares or scrip for the account of such persons.
ARTICLE EIGHT
BOOKS AND RECORDS; SEAL; ANNUAL STATEMENTS
8.1 Inspection of Books and Records.
-------------------------------
(a) A shareholder of record shall be entitled to the inspection rights
with respect to the corporation's records set forth in O.C.G.A. Section 14-2-
1602(b), subject to all of the terms and conditions set forth therein and in
this Article Eight. A shareholder of record of at least two percent (2%) of the
outstanding shares of the corporation shall be entitled to the inspection rights
set forth in O.C.G.A. Section 14-2-1602(d), subject to the terms and conditions
therein and in this Article Eight. The records of the corporation are
confidential to the corporation and, except to the extent set forth herein,
shall not be disclosed to any party, except as provided by law.
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<PAGE>
(b) A shareholder may inspect and copy the records described in the
immediately preceding paragraph only if (i) his or her demand is made in good
faith and for a proper purpose that is reasonably relevant to his or her
legitimate interest as a shareholder; (ii) the shareholder describes with
reasonable particularity his or her purpose and the records he or she desires to
inspect; (iii) the records are directly connected with the stated purpose; and
(iv) the records are to be used only for that purpose.
(c) If the Secretary or a majority of the corporation's Board of
Directors or Executive Committee members find that the request is proper, the
Secretary shall promptly notify the shareholder of the time and place at which
the inspection may be conducted.
(d) If said request is found by the Secretary, the Board of Directors
or the Executive Committee to be improper, the Secretary shall so notify the
requesting shareholder on or prior to the date on which the shareholder
requested to conduct the inspection. The Secretary shall specify in said notice
the basis for the rejection of the shareholder's request (which may include
prior action or conduct of the shareholder).
(e) The Secretary, the Board of Directors and the Executive Committee
shall at all times be entitled to rely on the corporate records in making any
determination hereunder.
8.2 Seal. The corporate seal shall be in such form as the Board of
----
Directors may from time to time determine. In the event it is inconvenient to
use such a seal at any time, the signature of the corporation followed by the
word "Seal" enclosed in parentheses or scroll shall be deemed the seal of the
corporation.
8.3 Annual Statements. Not later than four months after the close of each
-----------------
fiscal year, and in any case prior to the next annual meeting of shareholders,
the corporation shall prepare:
(a) A balance sheet showing in reasonable detail the financial
condition of the corporation as of the close of its fiscal year, and
(b) A profit and loss statement showing the results of its operations
during its fiscal year. Upon written request, the corporation promptly shall
mail to any shareholder of record a copy of its most recent balance sheet and
profit and loss statement.
ARTICLE NINE
INDEMNIFICATION
9.1 Authority to Indemnify. The corporation shall indemnify or obligate
----------------------
itself to indemnify an individual made a party to a proceeding because he or she
is or was a director, officer, employee or agent of the corporation (or was
serving at the request of the corporation as a director, officer or employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise) for reasonable expenses, judgments, fines, penalties and amounts
paid in settlement (including attorneys' fees), incurred in connection with the
proceeding if the individual acted in manner he or she believed in good faith to
be in or not opposed to the best interests of
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<PAGE>
the corporation and, in the case of any criminal proceeding, he or she had no
reasonable cause to believe his or her conduct was unlawful. The termination of
a proceeding by judgment, order, settlement, or conviction, or upon a plea of
nolo contendere or its equivalent is not, of itself, determinative that the
- ---- ----------
director, officer, employee or agent did not meet the standard of conduct set
forth above. Indemnification permitted under this action in connection with a
proceeding by or in the right of the corporation is limited to reasonable
expenses incurred in connection with the proceeding.
9.2 Mandatory Indemnification. To the extent that a director, officer,
-------------------------
employee or agent of the corporation has been successful, on the merits or
otherwise, in the defense of any proceeding to which he or she was a party, or
in defense of any claim, issue, or matter therein, because he or she is or was a
director, officer, employee or agent of the corporation, the corporation shall
indemnify the director, employee or agent against reasonable expenses incurred
by him or her in connection therewith.
9.3 Advance for Expenses. The corporation shall pay for or reimburse the
--------------------
reasonable expenses incurred by a director, officer, employee or agent of the
corporation who is a party to a proceeding in advance of final disposition of
the proceeding if (a) he or she furnishes the corporation written affirmation of
his or her good faith belief that he or she has met the standard of conduct set
forth in Section 9.1 of this section, and (b) he or she furnishes the
corporation a written undertaking, executed personally or on his or her behalf,
to repay any advances if it is ultimately determined that he or she is not
entitled to indemnification. The undertaking required by this section must be
an unlimited general obligation but need not be secured and may be accepted
without reference to financial ability to make repayment.
9.4 Court-ordered Indemnification and Advances for Expenses. A director,
-------------------------------------------------------
officer, employee or agent of the corporation who is a party to a proceeding may
apply for indemnification or advances for expenses to the court conducting the
proceeding or to another court of competent jurisdiction.
9.5 Determination of Indemnification. Except as provided in Section 9.2
--------------------------------
and except as may be ordered by the court, the corporation may not indemnify a
director, officer, employee or agent under Section 9.1 unless authorized
thereunder and a determination has been made in the specific case that
indemnification of the director, officer, employee or agent is permissible in
the circumstances because he or she has met the standard of conduct set forth in
Section 9.1. The determination shall be made:
(a) By the board of directors by majority vote of a quorum consisting
of directors not at the time parties to the proceedings;
(b) If a quorum cannot be obtained, by majority vote of a committee
duly designated by the board of directors (in which designation directors who
are parties may participate), consisting solely of two or more directors not at
the time parties to the proceeding;
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<PAGE>
(c) By special legal counsel:
(i) Selected by the board of directors or its committee in the
manner prescribed in paragraph (a) or (b) of this section; or
(ii) If a quorum of the board of directors cannot be obtained and
a committee cannot be designated, selected by majority vote of the full board of
directors (in which selection directors who are parties may participate); or
(d) By the shareholders, but shares owned by or voted under the
control of directors who are at the time parties to the proceeding may not be
voted on the determination.
9.6 Authorization of Indemnification. Authorization of indemnification or
--------------------------------
an obligation to indemnify and evaluation as the reasonableness of expenses
shall be made in the same manner as the determination that indemnification is
permissible, except that if the determination is made by special legal counsel,
authorization of indemnification and evaluation as to reasonableness of expenses
shall be made by those entitled under subsection (c) of Section 9.5 to select
counsel.
9.7 Other Rights. The indemnification and advancement of expenses
------------
provided by or granted pursuant to this Article Nine shall not be deemed
exclusive of any other rights, in respect of indemnification or otherwise, to
which those seeking indemnification or advancement of expenses may be entitled
under any bylaw, resolution, agreement or contract either specifically or in
general terms approved by the affirmative vote of the holders of a majority of
the shares entitled to vote thereon taken at a meeting the notice of which
specified that such bylaw, resolution or agreement would be placed before the
stockholders, both as to action by a director, trustee, officer, employee or
agent in his or her official capacity and as to action in another capacity while
holding such office or position; except that no such other rights, in respect to
indemnification or otherwise, may be provided or granted to a director, trustee,
officer, employee, or agent pursuant to this Section 9.7 by the corporation for
liability for (a) any appropriation, in violation of his or her duties, of any
business opportunity of the corporation; (b) acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law; (c) the
types of liability set forth in Section 14-2-832 of the Georgia Business
Corporation Code dealing with illegal or unauthorized distributions of corporate
assets, whether as dividends or in liquidation of the corporation or otherwise;
or (d) any transaction from which the director derived an improper material
tangible personal benefit.
9.8 Insurance. The corporation may purchase and maintain insurance on
---------
behalf of an individual who is or was a director, officer, employee, or agent of
the corporation or who, while a director, officer, employee, or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise against liability asserted against or incurred by him or her in that
capacity or arising from his or her status as a director, officer, employee, or
agent whether or not the corporation would have power to indemnify him or her
against the same liability under this Article Nine.
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<PAGE>
9.9 Continuation of Expenses. The indemnification and advancement of
------------------------
expenses provided by or granted pursuant to this Article Nine shall continue as
to a person who has ceased to be a director, trustee, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of such a person.
ARTICLE TEN
NOTICES: WAIVERS OF NOTICE
10.1 Notices. Except as otherwise specifically provided in these bylaws,
-------
whenever under the provisions of these bylaws notice is required to be given to
any shareholder, Director or officer, it shall not be construed to mean personal
notice, but such notice may be given by personal notice, by telegram or
cablegram, or by mail by depositing the same in the post office or letter box in
a postage prepaid sealed wrapper, addressed to such shareholder, Director or
officer at such address as appears on the books of the corporation, and such
notice shall be deemed to be given at the time when the same shall be thus sent
or mailed.
10.2 Waivers of Notice. Except as otherwise provided in these bylaws,
-----------------
when any notice is required to be given by law, by the Articles of Incorporation
or by these bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. In the case of a shareholder, such waiver of notice may
be signed by the shareholder's attorney or proxy duly appointed in writing.
ARTICLE ELEVEN
BUSINESS COMBINATION
The requirements of Article 11, Part 2 of the Georgia Business Corporation
Code shall be applicable to the corporation.
ARTICLE TWELVE
FAIR PRICING
The requirements of Article 11, Part 3 of the Georgia Business Corporation
Code shall be applicable to the corporation.
ARTICLE THIRTEEN
EMERGENCY POWERS
13.1 Bylaws. The Board of Directors may adopt emergency bylaws, subject
------
to repeal or change by action of the shareholders, which shall, notwithstanding
any provision of law, the Articles of Incorporation or these Bylaws, be
operative during any emergency in the conduct of the business of the corporation
resulting from an attack on the United States or on a locality in which the
corporation conducts its business or customarily holds meeting of its Board of
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<PAGE>
Directors or its shareholders, or during any nuclear or atomic disaster, or
during the existence of any catastrophe, or other similar emergency condition,
as a result of which a quorum of the Board of Directors or a standing committee
thereof cannot readily be convened for action. The emergency bylaws may make
any provision that may be practical and necessary for the circumstances of the
emergency.
13.2 Lines of Succession. The Board of Directors, either before or during
-------------------
any such emergency, may provide, and from time to time modify, lines of
succession in the event that during such an emergency any or all officers or
agents of the corporation shall for any reason be rendered incapable of
discharging their duties.
13.3 Head Office. The Board of Directors, either before or during any
-----------
such emergency, may (effective during the emergency) change the head office or
designate several alternative head offices or regional offices, or authorize the
officers to do so.
13.4 Period of Effectiveness. To the extent not inconsistent with any
-----------------------
emergency bylaws so adopted, these bylaws shall remain in effect during any such
emergency and upon its termination, the emergency bylaws shall cease to be
operative.
13.5 Notices. Unless otherwise provided in emergency bylaws, notice of
-------
any meeting of the Board of Directors during any such emergency may be given
only to such of the Directors as it may be feasible to reach at the time, and by
such means as may be feasible at the time, including publication, radio or
television.
13.6 Officers as Directors Pro Tempore. To the extent required to
---------------------------------
constitute a quorum at any meeting of the Board of Directors during any such
emergency, the officers of the corporation who are present shall, unless
otherwise provided in emergency bylaws, be deemed, in order of rank and within
the same rank in order of seniority, Directors for such meeting.
13.7 Liability of Officers, Directors and Agents. No officer, Director,
-------------------------------------------
agent or employee acting in accordance with any emergency bylaw shall be liable
except for willful misconduct. No officer, Director, agent or employee shall be
liable for any action taken by him or her in good faith in such an emergency in
furtherance of the ordinary business affairs of the corporation even though not
authorized by the bylaws then in effect.
ARTICLE FOURTEEN
CHECKS, NOTES, DRAFTS, ETC.
Checks, notes, drafts, acceptances, bills of exchange and other orders or
obligations for the payment of money shall be signed by such officer or officers
or person or persons as the Board of Directors by resolution shall from time to
time designate.
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ARTICLE FIFTEEN
AMENDMENTS
The bylaws of the corporation may be altered or amended and new bylaws may
be adopted by the shareholders at any annual or special meeting of the
shareholders or by the Board of Directors at any regular or special meeting of
the Board of Directors; provided, however, that, if such action is to be taken
at a meeting of the shareholders, notice of the general nature of the proposed
change in the bylaws shall be given in the notice of meeting. The shareholders
may provide by resolution that any bylaw provision repealed, amended, adopted,
or altered by them may not be repealed, amended, adopted or altered by the Board
of Directors. Except as otherwise provided in the Articles of Incorporation,
action by the shareholders with respect to bylaws shall be taken by an
affirmative vote of a majority of all shares entitled to elect Directors, and
action by the Board of Directors with respect to bylaws shall be taken by an
affirmative vote of a majority of all Directors then holding office.
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COMMUNITY FIRST BANKING COMPANY
1997 STOCK OPTION PLAN
<PAGE>
COMMUNITY FIRST BANKING COMPANY
1997 STOCK OPTION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1 DEFINITIONS....................................................... 1
1.1 Definitions...................................................... 1
SECTION 2 THE STOCK OPTION PLAN............................................. 4
2.1 Purpose of the Plan.............................................. 4
2.2 Stock Subject to the Plan........................................ 4
2.3 Administration of the Plan....................................... 4
2.4 Eligibility and Limits........................................... 5
SECTION 3 GENERAL TERMS OF OPTIONS.......................................... 5
3.1 General Terms and Conditions..................................... 5
3.2 Other Terms and Conditions of Options............................ 6
(a) Option Price.............................................. 6
(b) Option Term............................................... 7
(c) Payment................................................... 7
(d) Conditions to the Exercise of an Option................... 7
(e) Termination of Incentive Stock Option..................... 7
(f) Special Provisions for Certain Substitute Options......... 7
3.3 Treatment of Awards Upon Termination of Service.................. 8
SECTION 4 GENERAL PROVISIONS................................................ 8
4.1 Withholding...................................................... 8
4.2 Changes in Capitalization; Merger; Liquidation................... 8
4.3 Cash Awards...................................................... 9
4.4 Compliance with Code............................................. 9
4.5 Right to Terminate Service....................................... 9
4.6 Restrictions on Delivery and Sale of Shares; Legends............. 9
4.7 Non-alienation of Benefits....................................... 10
4.8 Termination and Amendment of the Plan............................ 10
4.9 Stockholder Approval............................................. 10
4.10 Indemnification of Committee..................................... 10
4.11 Choice of Law.................................................... 11
4.12 Effective Date of Plan........................................... 11
</TABLE>
<PAGE>
COMMUNITY FIRST BANKING COMPANY
1997 STOCK OPTION 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) "Affiliate" means a person that directly or indirectly, through
---------
one or more intermediaries, controls, or is controlled by, or is under common
control with, a specified person.
(b) "Board of Directors" means the board of directors of the Company.
------------------
(c) "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.
(d) "Change in Control" means any one of the following events which
-----------------
first occurs after [AUGUST 29, 1997]:
(i) the acquisition by any person or persons acting in
concert of the Company's then outstanding voting securities if, after the
transaction, the acquiring person (or persons) owns, controls or holds with
power to vote twenty-five percent (25%) or more of any class of voting
securities of the Company or such other transaction as may be described under 12
C.F.R. Section 225.41(b)(1) or any successor thereto;
(ii) within any twelve-month period (beginning on or after
[AUGUST 29, 1997]) the persons who were directors of the Company immediately
before the beginning of such twelve-month period (the "Incumbent Directors")
shall cease to constitute at least a majority of the Board of Directors;
provided that any director who was not a director as of [AUGUST 29, 1997] shall
be deemed to be an Incumbent Director if that director was elected to the Board
of Directors by, or on the recommendation of or with the approval of, at least
two-thirds of the directors who then qualified as Incumbent Directors; and
provided further that no director whose initial assumption of office is in
connection with an actual or threatened election contest, as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act
of 1934 relating to the election of directors of the Company, shall be deemed to
be an Incumbent Director; or
<PAGE>
(iii) the approval by the stockholders of the Company of a
reorganization, merger or consolidation with respect to which persons who were
the stockholders of the Company immediately prior to such reorganization, merger
or consolidation do not, immediately thereafter, own more than fifty percent
(50%) of the combined voting power entitled to vote in the election of directors
of the reorganized, merged or consolidated company's then outstanding voting
securities.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
----
(f) "Committee" means the committee appointed by the Board of
---------
Directors to administer the Plan pursuant to Plan Section 2.3.
(g) "Company" means Community First Banking Company, a Georgia
-------
corporation.
(h) "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.
(i) "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.
(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
-2-
<PAGE>
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.
(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 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 an Option
-----------
hereunder.
(q) "Plan" means the Community First Banking Company 1997 Stock
----
Incentive Plan.
(r) "Stock" means the Company's common stock, $.01 par value per
-----
share.
(s) "Stock Incentive Agreement" means an agreement between the
-------------------------
Company and a Participant or other documentation evidencing an award of an
Option.
(t) "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 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.
(u) "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
-3-
<PAGE>
of whether a leave of absence constitutes a Termination of Service, or whether a
Termination of Service is for Cause.
SECTION 2 THE STOCK OPTION PLAN
2.1 Purpose of the Plan. The Plan is intended to (a) provide incentive to
-------------------
employees and directors of the Company and its affiliates to stimulate their
efforts toward the continued success of the 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 employees and
directors by providing them with a means to acquire a proprietary interest in
the Company by acquiring shares 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 4.2, [10% OF THE SHARES OF STOCK SOLD IN THE OFFERING] shares of Stock,
$.01 par value, (the "Maximum Plan Shares") are hereby reserved exclusively for
issuance pursuant to Options. At no time shall the Company have outstanding
Options and shares of Stock issued in respect of Options in excess of the
Maximum Plan Shares. The shares of Stock attributable to the nonvested, unpaid,
unexercised, unconverted or otherwise unsettled portion of any Option 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 and directors of the Company or its affiliates
to whom Options shall be granted and the terms and provisions of Options,
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 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.
As to any matter involving a Participant who is not a "reporting person"
for purposes of Section 16 of the Exchange Act, the Committee may delegate to
any member of the Board of Directors or officer of the Company the
administrative authority to (a) interpret the provisions of the Participant's
Stock Incentive Agreement and (b) determine the treatment of Options upon a
Termination of Service, as contemplated by Plan Section 3.3.
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 Exchange Act, 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 Exchange Act, and, during those periods that the Company has issued
equity securities required to be registered under Section 12 of the Exchange
Act, the Board of Directors shall consider the advisability of
-4-
<PAGE>
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 pleasure 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. Options may be granted only to employees and
----------------------
directors of the Company or an 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, the maximum number of
shares of Stock with respect to which Options may be granted during any single
fiscal year of the Company to any Participant shall not exceed [100,000],
subject to adjustment as provided in Section 4.2.
SECTION 3 GENERAL TERMS OF OPTIONS
3.1 General Terms and Conditions.
----------------------------
(a) The number of shares of Stock as to which an Option 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 Option 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. Each Stock Incentive Agreement shall be
subject to the terms of the Plan and any provision in a Stock Incentive
Agreement that is inconsistent with the Plan shall be null and void.
(c) The date an Option is granted shall be the date on which the
Committee has approved the terms and conditions of the Stock Incentive Agreement
and has determined the recipient
-5-
<PAGE>
of the Option and the number of shares covered by the Option and has taken all
such other action necessary to complete the grant of the Option.
(d) The Committee may provide in any Stock Incentive Agreement that,
in the event of a Change in Control, the Option 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
cash-out of an Option shall be 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.
(e) Options 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 Other 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
------------
4.2 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,
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.
-6-
<PAGE>
(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, (i) 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; (ii) in a cashless exercise
through a broker; (iii) 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; or (iv) any combination of the foregoing. 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
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
-7-
<PAGE>
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 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, in the absence of
such provision, as the Committee may determine. The portion of any award
exercisable in the event of continuation or the 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 GENERAL PROVISIONS
4.1 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, 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. A Participant may pay the
withholding tax in cash, or, if the applicable Stock Incentive Agreement
provides, a Participant may elect to have the number of shares of Stock he is to
receive reduced by 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 an Option (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.
4.2 Changes in Capitalization; Merger; Liquidation.
----------------------------------------------
(a) The number of shares of Stock reserved for the grant of Options;
the number of shares of Stock reserved for issuance upon the exercise or
payment, as applicable, of each outstanding Option; and the Exercise Price of
each outstanding Option 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
-8-
<PAGE>
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 cash or
stock 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, 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 4.2 may
provide, in the Committee's discretion, for the elimination without payment
therefor of any fractional shares that might otherwise become subject to any
Options.
(c) The existence of the Plan and the Options 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.
4.3 Cash Awards. The Committee may, at any time and in its discretion,
-----------
grant to any holder of an Option 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 Option or the exercise of rights thereunder.
4.4 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.
4.5 Right to Terminate Service. Nothing in the Plan or in any Stock
--------------------------
Incentive Agreement shall confer upon any Participant the right to continue as
an employee, officer or director 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.
4.6 Restrictions on Delivery and Sale of Shares; Legends. Each Option 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 Option upon any securities exchange or under any state or
federal law is necessary or desirable as a condition of or in connection with
the granting of such Option or the purchase or delivery of shares thereunder,
the delivery of any or all
-9-
<PAGE>
shares pursuant to such Option 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 Options 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 an Option, that the Participant or other recipient of an
Option represent, in writing, that the shares received pursuant to the Option
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 an Option
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.
4.7 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.
4.8 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 an Option shall adversely affect
the rights of the Participant under such Option.
4.9 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 stockholder approval is not
obtained as provided herein, the Plan and any and all Options issued thereunder
shall be rendered null and void.
4.10 Indemnification of Committee. In addition to such other rights of
----------------------------
indemnification that they may have as directors of the Company or as members of
the Committee, the members of the Committee shall be indemnified by the Company
against the reasonable expenses, including attorneys' fees actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any option granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Committee member is liable for negligence in the
performance of his duties; provided that within 60 days after institution of any
such action, suit or proceeding a Committee member shall in writing offer the
Company the opportunity, at its own expense, to handle and defend the same.
-10-
<PAGE>
4.11 Choice of Law. The laws of the State of Georgia shall govern the
-------------
Plan, to the extent not preempted by federal law.
4.12 Effective Date of Plan. The Plan shall become effective upon the date
----------------------
the Plan is approved by the Board of Directors, but any Options granted
hereunder following approval by the Board of Directors shall be conditioned upon
receipt of stockholder approval within twelve (12) months of the date of
approval by the Board of Directors.
IN WITNESS WHEREOF, the Company has caused this Plan to be executed this
____ day of __________________, 1997.
COMMUNITY FIRST BANKING COMPANY
By:_______________________________
Title:____________________________
Attest:
______________________________
Secretary
[CORPORATE SEAL]
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<PAGE>
DRAFT
3/14/97
COMMUNITY FIRST BANKING COMPANY
MANAGEMENT RECOGNITION PLAN
<PAGE>
COMMUNITY FIRST BANKING COMPANY
MANAGEMENT RECOGNITION PLAN
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1 DEFINITIONS............................................... 1
1.1 Definitions............................................... 1
SECTION 2 THE MANAGEMENT RECOGNITION PLAN........................... 3
2.1 Purpose of the Plan....................................... 3
2.2 Stock Subject to the Plan................................. 3
2.3 Administration of the Plan................................ 3
2.4 Eligibility and Limits.................................... 4
SECTION 3 GENERAL TERMS OF STOCK AWARDS............................. 4
3.1 General Terms and Conditions.............................. 4
3.2 Other Terms and Conditions of Stock Awards................ 4
3.3 Treatment of Awards Upon Termination of Service........... 5
SECTION 4 RESTRICTIONS ON STOCK..................................... 5
4.1 Escrow of Shares.......................................... 5
4.2 Forfeiture of Shares...................................... 5
4.3 Restrictions on Transfer.................................. 5
SECTION 5 GENERAL PROVISIONS........................................ 6
5.1 Withholding............................................... 6
5.2 Changes in Capitalization; Merger; Liquidation............ 6
5.3 Cash Awards............................................... 7
5.4 Right to Terminate Service................................ 7
5.5 Restrictions on Delivery and Sale of Shares; Legends...... 7
5.6 Non-alienation of Benefits................................ 7
5.7 Termination and Amendment of the Plan..................... 8
5.8 Stockholder Approval...................................... 8
5.9 Indemnification of Committee.............................. 8
5.10 Choice of Law............................................. 8
5.11 Effective Date of Plan.................................... 8
</TABLE>
<PAGE>
COMMUNITY FIRST BANKING COMPANY
MANAGEMENT RECOGNITION 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) "Affiliate" means a person that directly or indirectly, through
---------
one or more intermediaries, controls, or is controlled by, or is under common
control with, a specified person.
(b) "Board of Directors" means the board of directors of the Company.
------------------
(c) "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.
(d) "Change in Control" means any one of the following events which
-----------------
first occurs after [AUGUST 29, 1997]:
(i) the acquisition by any person or persons acting in
concert of the Company's then outstanding voting securities if, after the
transaction, the acquiring person (or persons) owns, controls or holds with
power to vote twenty-five percent (25%) or more of any class of voting
securities of the Company or such other transaction as may be described under 12
C.F.R. Section 225.41(b)(1) or any successor thereto;
(ii) within any twelve-month period (beginning on or after
[AUGUST 29, 1997]) the persons who were directors of the Company immediately
before the beginning of such twelve-month period (the "Incumbent Directors")
shall cease to constitute at least a majority of the Board of Directors;
provided that any director who was not a director as of [AUGUST 29, 1997] shall
be deemed to be an Incumbent Director if that director was elected to the Board
of Directors by, or on the recommendation of or with the approval of, at least
two-thirds of the directors who then qualified as Incumbent Directors; and
provided further that no director whose initial assumption of office is in
connection with an actual or threatened election contest, as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange Act
of 1934 relating to the election of directors of the Company, shall be deemed to
be an Incumbent Director; or
<PAGE>
(iii) the approval by the stockholders of the Company of a
reorganization, merger or consolidation with respect to which persons who were
the stockholders of the Company immediately prior to such reorganization, merger
or consolidation do not, immediately thereafter, own more than fifty percent
(50%) of the combined voting power entitled to vote in the election of directors
of the reorganized, merged or consolidated company's then outstanding voting
securities.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
----
(f) "Committee" means the Board of Directors.
---------
(g) "Company" means Community First Banking Company, a Georgia
-------
corporation.
(h) "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, 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.
(i) "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.
(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. In that regard, 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.
(k) "Participant" means an individual who receives a Stock Award
-----------
hereunder.
-2-
<PAGE>
(l) "Plan" means the Community First Banking Company Management
----
Recognition Plan.
(m) "Stock" means the Company's common stock, $.01 par value per
-----
share.
(n) "Stock Incentive Agreement" means an agreement between the
-------------------------
Company and a Participant or other documentation evidencing the grant of a Stock
Award.
(o) "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 MANAGEMENT RECOGNITION PLAN
2.1 Purpose of the Plan. The Plan is intended to (a) provide incentive to
-------------------
employees and directors of the Company and its affiliates to stimulate their
efforts toward the continued success of the 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 employees and
directors by providing them with a means to acquire a proprietary interest in
the Company by acquiring shares 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 4.2, [4% OF THE SHARES OF STOCK SOLD IN THE OFFERING], $.01 par value,
(the "Maximum Plan Shares") are hereby reserved exclusively for issuance
pursuant to Stock Awards. At no time shall the Company have outstanding Stock
Awards issued in respect of shares of Stock in excess of the Maximum Plan
Shares. The shares of Stock attributable to the nonvested, unpaid, unconverted
or otherwise unsettled portion of any Stock Award that is forfeited or cancelled
or expires or terminates for any reason without becoming vested, paid, 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 and directors of the Company or its affiliates
to whom Stock Awards shall be granted and the terms and provisions of the Stock
Awards, 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
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,
-3-
<PAGE>
awards under the Plan (whether or not such persons are similarly situated). The
Committee's decisions shall be final and binding on all Participants.
As to any matter involving a Participant who is not a "reporting person"
for purposes of Section 16 of the Exchange Act, the Committee may delegate to
any member of the Board of Directors or officer of the Company the
administrative authority to (a) interpret the provisions of the Participant's
Stock Incentive Agreement and (b) determine the treatment of Stock Awards upon a
Termination of Service, as contemplated by Plan Section 3.3.
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 Awards may be granted only to employees
----------------------
and directors of the Company or an affiliate.
SECTION 3 GENERAL TERMS OF STOCK AWARDS
3.1 General Terms and Conditions.
----------------------------
(a) The number of shares of Stock as to which a Stock Award 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.
(b) Each Stock Award 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. Each Stock Incentive Agreement shall be
subject to the terms of the Plan and any provision in a Stock Incentive
Agreement that is inconsistent with the Plan shall be null and void.
(c) The date a Stock Award is granted shall be the date on which the
Committee has approved the terms and conditions of the Stock Incentive Agreement
and has determined the recipient of the Stock Award and the number of shares
covered by the Stock Award and has taken all such other action necessary to
complete the grant of the Stock Award.
(d) The Committee may provide in any Stock Incentive Agreement for the
waiver of any restrictions or conditions contained therein in the event of a
Change in Control.
(e) A Stock Award shall not be transferable or assignable; provided,
however, the shares of Stock subject to any Stock Award may be transferred or
assigned on such express terms and conditions as set forth in the Stock
Incentive Agreement.
3.2 Other Terms and Conditions of Stock Awards. The Stock Incentive
------------------------------------------
Agreement reflecting any Stock Award shall contain all restrictions and
conditions to which the Stock Award is subject and the certificate for the
shares of Stock subject to the Stock Award shall bear evidence
-4-
<PAGE>
of those restrictions and conditions. Subsequent to the date of a grant of a
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 of Stock to which the Stock Award is subject.
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, or may grant a Stock Award without the
requirement of a cash payment. The Stock Incentive Agreement also shall specify
the extent to which a Participant may enjoy dividend and voting rights attendant
to shares of Stock subject to a Stock Award.
3.3 Treatment of Awards Upon Termination of Service. Any Stock Award to a
-----------------------------------------------
Participant who suffers a Termination of Service may be cancelled, accelerated,
paid or continued, as provided in the Stock Incentive Agreement or, in the
absence of such provision, as the Committee may determine.
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
applicable 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 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, 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. 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, 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, 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 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 Forfeiture of Shares. In the event that the Participant violates a
--------------------
noncompetition agreement as set forth in the Stock Incentive Agreement or
otherwise, notwithstanding any provision in the Stock Incentive Agreement to the
contrary, the Committee may forfeit all Stock Incentives and shares of Stock
issued to the holder pursuant to the Plan; provided, however, that the Company
shall return to the holder the lesser of any consideration paid by the
Participant in exchange for Stock issued to the Participant pursuant to the Plan
or the then Fair Market Value of any Stock forfeited hereunder.
4.3 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. 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
-5-
<PAGE>
Incentive Agreement 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, and the shares so transferred shall
continue to be bound by the Plan and the applicable Stock Incentive Agreement.
SECTION 5 GENERAL PROVISIONS
5.1 Withholding. The Company shall have the right to require a
-----------
Participant to remit to the Company an amount sufficient to satisfy any federal,
state and local withholding tax requirements prior to or at any time after the
delivery of any certificate or certificates in connection with the grant of a
Stock Award. A Participant may pay the withholding tax in cash, or, if the
applicable Stock Incentive Agreement provides, a Participant may elect to have
the number of shares of Stock he is to receive reduced by 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 grant
or vesting of a Stock Award (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.
----------------------------------------------
(a) The number of shares of Stock subject to a Stock Award 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 cash or
stock 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, if not expressly addressed therein, as
the Committee subsequently may determine in the event of any such merger,
consolidation, extraordinary dividend (including a
-6-
<PAGE>
spin-off), reorganization or other change in the corporate structure of the
Company or its Stock or tender offer for shares of Stock.
(c) The existence of the Plan and the Stock Awards 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 Award 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 or vesting of a Stock Award.
5.4 Right to Terminate Service. Nothing in the Plan or in any Stock
--------------------------
Incentive Agreement shall confer upon any Participant the right to continue as
an employee, officer or director 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.
5.5 Restrictions on Delivery and Sale of Shares; Legends. Each Stock Award
----------------------------------------------------
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 Award upon any securities exchange or under any
state or federal law is necessary or desirable as a condition of or in
connection with the granting of such Stock Award or the purchase or delivery of
shares thereunder, the delivery of any or all shares pursuant to such Stock
Award 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 deliverable under the Stock Awards then
outstanding, the Committee may require, as a condition of any delivery of Stock
pursuant to a Stock Award, that the Participant represent, in writing, that the
shares received pursuant to the Stock Award 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 Award 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.
5.6 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.
-7-
<PAGE>
5.7 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 Award shall adversely
affect the rights of the Participant under such Stock Award.
5.8 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 stockholder approval is not
obtained as provided herein, the Plan and any and all Stock Awards issued
thereunder shall be rendered null and void.
5.9 Indemnification of Committee. In addition to such other rights of
----------------------------
indemnification that they may have as directors of the Company or as members of
the Committee, the members of the Committee shall be indemnified by the Company
against the reasonable expenses, including attorneys' fees actually and
necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any Stock Award granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Company) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Committee member is liable for negligence in the
performance of his duties; provided that within 60 days after institution of any
such action, suit or proceeding a Committee member shall in writing offer the
Company the opportunity, at its own expense, to handle and defend the same.
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, but any Stock Awards granted
hereunder following approval by the Board of Directors shall be conditioned upon
receipt of stockholder approval within twelve (12) months of the date of
approval by the Board of Directors.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
-8-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Plan to be executed this
____ day of ________________, 1997.
COMMUNITY FIRST BANKING COMPANY
By: _______________________________
Title: ____________________________
Attest:
______________________________
Secretary
[CORPORATE SEAL]
-9-
<PAGE>
DRAFT
3/14/97
COMMUNITY FIRST BANKING COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
THIS INDENTURE is made on the _____ day of _____________, 1997, by
COMMUNITY FIRST BANKING COMPANY, a bank duly organized and existing under the
laws of the State of Georgia (hereinafter called the "Primary Sponsor").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Primary Sponsor desires to enable its employees and those of
its affiliates to share in the growth and prosperity of the Primary Sponsor and
to provide participating employees an opportunity to accumulate capital for
their retirement; and
WHEREAS, the Primary Sponsor now desires to establish an employee stock
ownership plan within the meaning of Internal Revenue Code Section 4975(e)(7);
NOW, THEREFORE, the Primary Sponsor does hereby establish the Community
First Banking Company Employee Stock Ownership Plan, effective as of the
Effective Date (as defined herein), to read as follows:
<PAGE>
COMMUNITY FIRST BANKING COMPANY
EMPLOYEE STOCK OWNERSHIP PLAN
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1 DEFINITIONS..................................... 1
SECTION 2 ELIGIBILITY..................................... 9
SECTION 3 CONTRIBUTIONS................................... 9
SECTION 4 ALLOCATIONS..................................... 9
SECTION 5 ACQUISITION AND INVESTMENT OF TRUST ASSETS...... 13
SECTION 6 PAYMENT OF BENEFITS ON TERMINATION OF
EMPLOYMENT...................................... 15
SECTION 7 PAYMENT OF BENEFITS ON RETIREMENT............... 17
SECTION 8 DEATH BENEFITS.................................. 17
SECTION 9 GENERAL RULES ON DISTRIBUTIONS.................. 18
SECTION 10 DIVERSIFICATION OF INVESTMENTS.................. 20
SECTION 11 VOTING OF COMPANY STOCK......................... 21
SECTION 12 CONDITIONS OF DISTRIBUTION OF COMPANY STOCK..... 22
SECTION 13 ADMINISTRATION OF THE PLAN...................... 24
SECTION 14 CLAIM REVIEW PROCEDURE.......................... 26
SECTION 15 LIMITATION OF ASSIGNMENT, PAYMENTS TO LEGALLY
INCOMPETENT DISTRIBUTEE AND UNCLAIMED PAYMENTS.. 27
SECTION 16 PROHIBITION AGAINST DIVERSION................... 28
SECTION 17 LIMITATION OF RIGHTS............................ 28
SECTION 18 AMENDMENT TO OR TERMINATION OF THE
PLAN AND THE TRUST.............................. 29
SECTION 19 ADOPTION OF PLAN BY AFFILIATES.................. 30
SECTION 20 QUALIFICATION AND RETURN OF CONTRIBUTIONS....... 30
SECTION 21 INCORPORATION OF SPECIAL LIMITATIONS............ 31
APPENDIX A LIMITATION ON ALLOCATIONS................. A-1
APPENDIX B TOP-HEAVY PROVISIONS...................... B-1
</TABLE>
<PAGE>
SECTION 1
DEFINITIONS
-----------
Wherever 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 words and phrases shall, when used herein,
have the meanings set forth below:
1.1 "Account" means a Member's aggregate balance in the following accounts
-------
(and such subaccounts as the Plan Administrator deems necessary or appropriate
in connection with the maintenance of such accounts), as adjusted pursuant to
the Plan as of any given date:
(a) "ESOP Account" which shall reflect a Member's interest in Company
------------
Stock and other assets resulting from contributions made by a Plan Sponsor
under Plan Section 3.1 or from releases from the Loan Suspense Account.
(b) "Loan Suspense Account" which shall consist of Company Stock
---------------------
acquired by the Fund with the proceeds of an Acquisition Loan and any cash
dividends thereon that have not been allocated to ESOP Accounts.
(c) "Suspense Account" which shall consist of assets which must remain
----------------
unallocated to the Accounts of Members pursuant to Section 6 of Appendix A.
1.2 "Acquisition Loan" means a loan or other extension of credit made to
----------------
the Plan by or subject to the Guarantee of a person described in Code Section
4975(e)(2), including a direct loan of cash, a purchase-money transaction or an
assumption of a Plan obligation, used by the Trustee to finance an acquisition
of Company Stock or to repay an Acquisition Loan.
1.3 "Affiliate" means (a) any corporation which is a member of the same
---------
controlled group of corporations (within the meaning of Code Section 414(b)) as
is a Plan Sponsor, (b) any other trade or business (whether or not incorporated)
under common control (within the meaning of Code Section 414(c)) with a Plan
Sponsor, (c) any other corporation, partnership or other organization which is a
member of an affiliated service group (within the meaning of Code Section
414(m)) with a Plan Sponsor, and (d) any other entity required to be aggregated
with a Plan Sponsor pursuant to regulations under Code Section 414(o).
Notwithstanding the foregoing, for purposes of applying the limitations set
forth in Appendix A and for purposes of determining Annual Compensation under
Appendix A, the references to Code Sections 414(b) and (c) above shall be as
modified by Code Section 415(h).
1.4 "Annual Compensation" means the amount paid to an Employee by a Plan
-------------------
Sponsor (and Affiliates for purposes of Appendix B during a Plan Year as
compensation that would be subject to income tax withholding under Code Section
3401(a) (but without regard to any rules that limit the remuneration included in
wages based on the nature or location of the employment or the services
performed, such as the exception for agricultural labor in Code Section
3401(a)(2)), to the extent not in excess of the Annual Compensation Limit for
all purposes under the Plan except determining Highly Compensated Employees or
Key Employees. Notwithstanding the above, Annual Compensation shall be
determined as follows:
1
<PAGE>
(a) in determining with respect to each Plan Sponsor the amount of
contributions made by or on behalf of an Employee under Plan Section 3 and
allocations under Plan Section 4, Annual Compensation shall only include
amounts received for the portion of the Plan Year during which the Employee
was a Member; and
(b) for all purposes under the Plan except Appendices A and B hereto,
Annual Compensation shall include any amount which would have been paid
during a Plan Year, but was contributed by a Plan Sponsor on behalf of an
Employee pursuant to a salary reduction agreement which is not includable
in the gross income of the Employee under Section 125, 402(e)(3), or 402(h)
of the Code.
1.5 "Annual Compensation Limit" means $160,000, which amount may be
-------------------------
adjusted in subsequent Plan Years based on changes in the cost of living as
announced by the Secretary of the Treasury.
1.6 "Beneficiary" means the person or trust that a Member designated most
-----------
recently in writing to the Plan Administrator; provided, however, that if the
Member has failed to make a designation, no person designated is alive, no trust
has been established, or no successor Beneficiary has been designated who is
alive, the term "Beneficiary" means (a) the Member's spouse or (b) if no spouse
is alive, the Member's surviving children, or (c) if no children are alive, the
Member's parent or parents, or (d) if no parent is alive, the deceased Member's
estate. Notwithstanding the preceding sentence, the spouse of a married Member
shall be his Beneficiary unless that spouse has consented in writing to the
designation by the Member of some other person or trust and the spouse's consent
acknowledges the effect of the designation and is witnessed by a notary public
or a Plan representative. A Member may change his designation at any time.
However, a Member may not change his designation without further consent of his
spouse under the terms of the preceding sentence unless the spouse's consent
permits designation of another person or trust without further spousal consent
and acknowledges that the spouse has the right to limit consent to a specific
beneficiary and that the spouse voluntarily relinquishes this right.
Notwithstanding the above, the spouse's consent shall not be required if the
Member establishes to the satisfaction of the Plan Administrator that the spouse
cannot be located, if the Member has a court order indicating that he is legally
separated or has been abandoned (within the meaning of local law) unless a
"qualified domestic relations order" (as defined in Code Section 414(p))
provides otherwise, or if there are other circumstances as the Secretary of the
Treasury prescribes. If the spouse is legally incompetent to give consent,
consent by the spouse's legal guardian shall be deemed to be consent by the
spouse. If, subsequent to the death of a Member, the Member's Beneficiary dies
while entitled to receive benefits under the Plan, the successor Beneficiary, if
any, or the Beneficiary listed under Subsection (a), (b) (c) or (d) shall be the
Beneficiary.
1.7 "Board of Directors" means the Board of Directors of the Primary
------------------
Sponsor.
1.8 "Break in Service" means the failure of an Employee, in connection
----------------
with a termination of employment other than by reason of death or attainment of
a Retirement Date, to complete more than 500 Hours of Service in any Plan Year.
1.9 "Code" means the Internal Revenue Code of 1986, as amended.
----
2
<PAGE>
1.10 "Company Stock" means qualifying employer securities within the
-------------
meaning of Code Section 4978(e)(5) which are (a) shares of common stock issued
by the Primary Sponsor or a corporation which is a member of a controlled group
of corporations which includes the Primary Sponsor (within the meaning of Code
Section 1563(a), determined without regard to Code Sections 1563(a)(4) and
(e)(3)(C)), which are readily tradable on an established securities market or,
if there is no such common stock, shares of common stock issued by the Primary
Sponsor or a corporation which is a member of a controlled group of corporations
which includes the Primary Sponsor (within the meaning of Code Section 1563(a),
determined without regard to Code Sections 1563(a)(4) and (e)(3)(C)), which have
voting power and dividend rights no less favorable than the voting power and
dividend rights of any other common stock issued by the Primary Sponsor or the
other corporation, or (b) shares of noncallable preferred stock issued by the
Primary Sponsor, which are at all times immediately convertible into stock
described in (a) above at a reasonable conversion price.
1.11 "Direct Rollover" means a payment by the Plan to the Eligible
---------------
Retirement Plan specified by the Distributee.
1.12 "Disability" means the inability to engage in any substantial gainful
----------
activity by reason of any medically determinable physical or mental impairment
that can be expected to result in death or which has lasted or can be expected
to last for a continuous period of not less than twelve (12) months. The
determination of whether or not a Disability exists shall be determined by the
Plan Administrator and shall be substantiated by competent medical evidence.
1.13 "Distributee" means an Employee or former Employee. In addition, the
-----------
Employee's or former Employee's surviving spouse and the Employee's or former
Employee's spouse or former spouse who is the alternate payee under a qualified
domestic relations order (as defined in Code Section 414(p)), are Distributees
with regard to the interest of the spouse or former spouse.
1.14 "Effective Date" means the date on which the Plan document and Trust
--------------
are executed.
1.15 "Eligibility Service" means a twelve-consecutive-month period during
-------------------
which the Employee completes no less than 1,000 Hours of Service beginning on
the date on which the Employee first performs an Hour of Service upon his
employment or reemployment or, in the event the Employee fails to complete 1,000
Hours of Service in that twelve-consecutive-month period, any Plan Year
thereafter during which the Employee completes no less than 1,000 Hours of
Service, including the Plan Year which includes the first anniversary of the
date the Employee first performed an Hour of Service upon his employment or
reemployment.
1.16 "Eligible Employee" means any Employee of a Plan Sponsor other than an
------------------
Employee who is (a) covered by a collective bargaining agreement between a union
and a Plan Sponsor, provided that retirement benefits were the subject of good
faith bargaining, unless the collective bargaining agreement provides for
participation in the Plan, (b) a leased employee within the meaning of Code
Section 414(n)(2), or (c) deemed to be an Employee of a Plan Sponsor pursuant to
regulations under Code Section 414(o).
3
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1.17 "Eligible Retirement Plan" means an individual retirement account
------------------------
described in Code Section 408(a), an individual retirement annuity described in
Code Section 408(b), an annuity plan described in Code Section 403(a) or a
qualified trust described in Code Section 401(a) that accepts the Distributee's
Eligible Rollover Distribution. However, in the case of an Eligible Rollover
Distribution to the surviving spouse, an Eligible Retirement Plan is an
individual retirement account or individual retirement annuity.
1.18 "Eligible Rollover Distribution" means any distribution of all or any
------------------------------
portion of the Distributee's Account, except that an Eligible Rollover
Distribution does not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently than annually) made
for the life (or life expectancy) of the Distributee or the joint lives (or
joint life expectancies) of the Distributee and the Distributee's designated
Beneficiary, or for a specified period of ten years or more; any distribution to
the extent such distribution is required under Code Section 401(a)(9); and the
portion of any distribution that is not includable in gross income (determined
without regard to the exclusion for net unrealized appreciation with respect to
employer securities).
1.19 "Employee" means any person who is (a) employed by a Plan Sponsor or
--------
an Affiliate for purposes of the Federal Insurance Contributions Act, (b) a
leased employee within the meaning of Code Section 414(n)(2) with respect to a
Plan Sponsor, or (c) deemed to be an employee of a Plan Sponsor pursuant to
regulations under Code Section 414(o).
1.20 "Entry Date" means the January 1st and July 1st of each Plan Year.
----------
Notwithstanding the foregoing, for the first Plan Year, Entry Date shall also
mean the Effective Date of the Plan.
1.21 "ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended.
1.22 "Fair Market Value" refers to the fair market value of Company Stock
-----------------
and means:
(a) if the Company Stock is Publicly Traded, the price most recently
bid or asked, as appropriate, or paid for Company Stock listed on any
exchange, quoted through a national securities exchange or association,
traded in the over-the-counter market or reported by any other commercial
service; or
(b) if the Company Stock is not Publicly Traded, the value based upon
an appraisal performed by an Independent Appraiser.
1.23 "Fiduciary" means each Named Fiduciary and any other person who
---------
exercises or has any discretionary authority or control regarding management or
administration of the Plan, any other person who renders investment advice for a
fee or has any authority or responsibility to do so with respect to any assets
of the Plan, or any other person who exercises or has any authority or control
respecting management or disposition of assets of the Plan.
1.24 "Fund" means the amount at any given time of cash and other property
----
held by the Trustee pursuant to the Plan. The Fund may consist of one or more
subfunds as the Plan Administrator may establish from time to time.
4
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1.25 "Guarantee" means any guarantee of payment of an Acquisition Loan by
---------
a person or entity other than the Plan.
1.26 "Highly Compensated Employee" means each Employee who during the Plan
---------------------------
Year immediately preceding the Plan Year in question:
(a) was at any time an owner of more than five percent (5%) of the
outstanding stock of a Plan Sponsor or Affiliate or more than five percent
(5%) of the total combined voting power of all stock of a Plan Sponsor or
Affiliate; or
(b) received Annual Compensation in excess of $80,000 (for the Plan
Year beginning in 1997) which amount shall be adjusted for changes in the
cost of living as provided in regulations issued by the Secretary of the
Treasury.
For purposes of this Section, a former Employee shall be treated as a
Highly Compensated Employee if (1) the former Employee was a Highly Compensated
Employee at the time the former Employee separated from service with the Plan
Sponsor or Affiliate or (2) the former Employee was a Highly Compensated
Employee at any time after the former Employee attained age 55.
For purposes of this Section, Employees who are nonresident aliens and who
receive no earned income from the Plan Sponsor or an Affiliate from sources
within the United States shall not be treated as Employees.
For purposes of this Section, Annual Compensation shall include amounts
paid by Affiliates and shall be determined without regard to the Annual
Compensation Limit, as adjusted.
1.27 "Hour of Service" means:
---------------
(a) Each hour for which an Employee is paid, or entitled to payment,
for the performance of duties for a Plan Sponsor or any Affiliate during
the applicable computation period, and such hours shall be credited to the
computation period in which the duties are performed;
(b) Each hour for which an Employee is paid, or entitled to payment,
by a Plan Sponsor or any Affiliate on account of a period of time during
which no duties are performed (irrespective of whether the employment
relationship has terminated) due to vacation, holiday, illness, incapacity
(including disability), layoff, jury duty, military duty or leave of
absence;
(c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by a Plan Sponsor or any Affiliate,
and such hours shall be credited to the computation period or periods to
which the award or agreement for back pay pertains rather than to the
computation period in which the award, agreement or payment is made;
provided, that the crediting of Hours of Service for back pay awarded or
agreed to with respect to periods described in Subsection (b) of this
Section shall be subject to the limitations set forth in Subsection (f);
5
<PAGE>
(d) Solely for purposes of determining whether a Break in Service has
occurred, each hour during any period that the Employee is absent from work
(1) by reason of the pregnancy of the Employee, (2) by reason of the birth
of a child of the Employee, (3) by reason of the placement of a child with
the Employee in connection with the adoption of the child by the Employee,
or (4) for purposes of caring for such child for a period immediately
following its birth or placement. The hours described in this Subsection
(d) shall be credited (A) only in the computation period in which the
absence from work begins, if the Employee would be prevented from incurring
a Break in Service in that year solely because of that credit, or (B), in
any other case, in the next following computation period;
(e) Without duplication of the Hours of Service counted pursuant to
Subsection (d) hereof and solely for such purposes as required pursuant to
the Family and Medical Leave Act of 1993 and the regulations thereunder
("FMLA"), each hour (as determined pursuant to FMLA) for which an Employee
is granted leave under FMLA (1) for the birth of a child, (2) for placement
with the Employee of a child for adoption or foster care, (3) to care for
the Employee's spouse, child or parent with a serious health condition, or
(4) for a serious health condition that makes the Employee unable to
perform the functions of the Employee's job;
(f) The Plan Administrator shall credit Hours of Service in accordance
with the provisions of Section 2530.200b-2(b) and (c) of the U.S.
Department of Labor Regulations or such other federal regulations as may
from time to time be applicable and determine Hours of Service from the
employment records of a Plan Sponsor or in any other manner consistent with
regulations promulgated by the Secretary of Labor, and shall construe any
ambiguities in favor of crediting Employees with Hours of Service.
Notwithstanding any other provision of this Section, in no event shall an
Employee be credited with more than 501 Hours of Service during any single
continuous period during which he performs no duties for the Plan Sponsor
or Affiliate; and
(g) In the event that a Plan Sponsor or an Affiliate acquires
substantially all of the assets of another corporation or entity or a
controlling interest of the stock of another corporation or merges with
another corporation or entity and is the surviving entity, then service of
an Employee who was employed by the prior corporation or entity and who is
employed by the Plan Sponsor or an Affiliate at the time of the acquisition
or merger shall be counted in the manner provided, with the consent of the
Primary Sponsor, in resolutions adopted by the Plan Sponsor authorizing the
counting of such service.
1.28 "Independent Appraiser" means an individual meeting requirements
---------------------
similar to those contained in Treasury regulations under Code Section 170(a)(1)
who holds himself out to the public as an appraiser, who is qualified to make an
appraisal of Company Stock, who understands that a false or fraudulent
overstatement of the value of Company Stock may subject him to a civil penalty
under Code Section 6701, and who is not:
(a) the seller of Company Stock;
(b) a Plan Sponsor or an Affiliate;
6
<PAGE>
(c) any person employed by or related to (within the meaning of Code
Section 267(b)) the persons described in Subsections (a) or (b) above;
(d) a party to the transaction by which the person selling or
contributing any Company Stock to the Plan acquired the Company Stock
(unless the Company Stock is sold or contributed to the Plan within two
months of its acquisition and its appraised price does not exceed its
acquisition cost); or
(e) any person whose relationship with a person described in
Subsections (a), (b), (c) or (d) above is such that a reasonable person
would question the independence of the appraiser.
1.29 "Investment Committee" means a committee which may be established to
--------------------
direct the Trustee with respect to investments of the Fund.
1.30 "Investment Manager" means a Fiduciary, other than the Trustee, the
------------------
Plan Administrator, or a Plan Sponsor, who may be appointed by the Primary
Sponsor:
(a) who has the power to manage, acquire, or dispose of any assets of
the Fund or a portion thereof; and
(b) who (1) is registered as an investment adviser under the
Investment Advisers Act of 1940; (2) is a bank as defined in that Act; or
(3) is an insurance company qualified to perform services described in
Subsection (a) above under the laws of more than one state; and
(c) who has acknowledged in writing that he is a Fiduciary with
respect to the Plan.
1.31 "Member" means any Employee or former Employee who has become a
------
participant in the Plan for so long as his vested Account has not been fully
distributed pursuant to the Plan.
1.32 "Named Fiduciary" means only the following:
---------------
(a) The Plan Administrator;
(b) The Trustee;
(c) The Board of Directors;
(d) The Investment Committee; and
(e) The Investment Manager.
1.33 "Normal Retirement Age" means age 65.
---------------------
7
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1.34 "Plan Administrator" means the organization or person designated to
------------------
administer the Plan or, in the absence of the designation of any other
organization or person, Carrollton Federal Bank, FSB.
1.35 "Plan Sponsor" means individually the Primary Sponsor and any
------------
Affiliate or other entity which has adopted the Plan and Trust.
1.36 "Plan Year" means the calendar year.
---------
1.37 "Publicly Traded" means Company Stock that is listed on a national
---------------
securities exchange under Section 6 of the Securities Exchange Act of 1934 (15
U.S.C. Section 78f) or that is quoted on a system sponsored by a national
securities association registered under Section 15A(b) of the Securities
Exchange Act of 1934 (15 U.S.C. Section 78o).
1.38 "Retirement Date" means the date on which the Member retires on or
---------------
after (a) attaining Normal Retirement Age or (b) becoming subject to a
Disability.
1.39 "Termination Completion Date" means the last day of the fifth
---------------------------
consecutive Break in Service computation period, determined under the Plan
Section which defines Break in Service, in which a Member completes a Break in
Service.
1.40 "Termination of Employment" means the termination of employment of an
-------------------------
Employee from all Plan Sponsors and Affiliates for any reason other than death
or attainment of a Retirement Date. Transfer from an Employee from one Plan
Sponsor to another Plan Sponsor or to an Affiliate shall not be deemed for any
purpose under the Plan to be a Termination of Employment. In addition, transfer
of an Employee to another company in connection with a corporate transaction
involving a sale of assets, merger or sale of an Affiliate, shall not be deemed
to be a Termination of Employment, for purposes of the timing of distributions
(but not vesting or eligibility) under Plan Section 6, if the company to which
such Employee is transferred agrees to accept a transfer of assets from the Plan
to its tax qualified plan in a trust-to-trust transfer meeting the requirements
of Code Section 414(l).
1.41 "Trust" means each trust established under an agreement between the
-----
Primary Sponsor and a Trustee to hold the Fund or any subfund thereof, or any
successor agreement.
1.42 "Trustee" means the trustee appointed to hold and invest the Fund or,
-------
if applicable, each trustee appointed to hold and invest each subfund of the
Fund.
1.43 "Valuation Date" means the last day of each Plan Year or any other day
--------------
which the Plan Administrator declares to be a Valuation Date.
1.44 "Vesting Service" means each Plan Year during which an Employee has
---------------
completed no less than 1,000 Hours of Service. In the case of an Employee with
any vested right in Plan Sponsor contributions at the time of a Termination of
Employment, all service prior to a Break in Service will be credited, but only
if the Employee, upon re-employment, completes a year of Vesting Service
following re-employment. Notwithstanding anything contained herein to the
contrary, Vesting Service shall not include:
8
<PAGE>
(a) In the case of an Employee who completes five consecutive Breaks
in Service for purposes of determining the vested portion of his Account
derived from Plan Sponsor contributions which accrued before his
Termination Completion Date, all service in Plan Years after his
Termination Completion Date.
(b) In the case of an Employee who completes five consecutive Breaks
in Service and at that time does not have any vested right in Plan Sponsor
contributions, all service before those Breaks in Service commenced.
SECTION 2
ELIGIBILITY
-----------
2.1 Each Eligible Employee shall become a Member as of the Entry Date
coinciding with or next following the later of the date the Eligible Employee
(a) completes his or her Eligibility Service or (b) attains age 21.
2.2 Each former Member of the Plan who is reemployed by a Plan Sponsor
shall become a Member of the Plan as of the date of his reemployment as an
Eligible Employee.
2.3 Each former Employee who completes his Eligibility Service but
terminates employment with a Plan Sponsor before becoming a Member of the Plan
shall become a Member of the Plan as of the latest of the date the former
Employee (a) is reemployed, (b) would have become a Member of the Plan if the
former Employee had not terminated employment, or (c) becomes an Eligible
Employee.
SECTION 3
CONTRIBUTIONS
-------------
3.1 The Plan Sponsor may make contributions to the Fund with respect to a
Plan Year in an amount determined by resolution of the Board of Directors at its
discretion, but in an amount not less than the amount needed to pay in full any
principal and interest payments required by any outstanding Acquisition Loan.
3.2 Contributions may be made only in Company Stock, cash or other
property which is acceptable to the Trustee; provided that Plan Sponsor
contributions shall be made in cash as needed to pay any principal and interest
payments required by an Acquisition Loan, if any. In no event will the sum of
contributions under Plan Section 3.1 exceed the deductible limits under Code
Section 404.
SECTION 4
ALLOCATIONS
-----------
4.1 As of the last day of each Plan Year, the Plan Sponsor contributions
made under Plan Section 3.1 and forfeitures from ESOP Accounts shall be
allocated among the ESOP Accounts of Members who are employed by a Plan Sponsor
on the last day of the Plan Year,
9
<PAGE>
or whose death or Retirement Date occurred during the Plan Year, and shall be
allocated to each such Member's ESOP Account in the proportion that the Member's
Annual Compensation bears to the Annual Compensation of all Members entitled to
an allocation under this Section.
4.2 Allocations of Net Income or Loss.
---------------------------------
(a) As of each Valuation Date, the Trustee shall allocate to each
Account its share of the net income or net loss of the Fund as hereinafter
set forth:
(1) Any cash dividends paid or other cash income received with
respect to Company Stock allocated to the ESOP Account of a Member as
of the record date on which the cash dividend was declared or the date
the other cash income was accrued and any income thereon attributable
to the cash dividend or other income shall, unless used by the Trustee
at its sole discretion to repay an Acquisition Loan, be allocated to
that Member's ESOP Account. In a uniform and non-discriminatory
manner, the Plan Administrator may direct the Trustee to distribute to
Members the cash dividends allocated to Members' ESOP Accounts in
accordance with the preceding sentence within ninety (90) days after
the end of the Plan Year in which the dividends are paid to the Trust.
Any cash dividend paid or other cash income received from the sale of
Company Stock with respect to Company Stock allocated to the Loan
Suspense Account as of the record date on which such cash dividend was
declared or the date such other cash income was accrued and any income
thereon attributable to such cash dividend or other income shall,
unless used by the Trustee to repay an Acquisition Loan, be allocated
pursuant to Section 4.2(a)(3).
(2) Any additional shares of Company Stock which are issued with
respect to any Company Stock held in an ESOP Account, including, but
not limited to, stock dividends, shall be allocated to that ESOP
Account as of the Valuation Date coinciding with or next following the
date on which the additional shares of Company Stock are delivered to
the Trustee. The additional shares of Company Stock shall be
allocated to each ESOP Account based upon the number of shares of
Company Stock in each ESOP Account as of the record date.
(3) Except as otherwise provided in the Plan and Trust, the net
loss and the net income of the Fund, other than cash income received
with respect to Company Stock, shall be determined separately by the
Trustee as of each Valuation Date as follows:
(A) To the cash income, if any, since the last Valuation
Date there shall be added or subtracted, as the case may be, any
net increase or decrease in the fair market value of the assets
of the Fund, any gain or loss on the sale or exchange of assets
of the Fund, any gain or loss on the sale or exchange of assets
of the Fund since the last Valuation Date, accrued interest since
the last Valuation Date with respect to any interest-bearing
security, the amount of any dividend declared since the last
Valuation Date but not paid on shares of stock owned by the Fund
if the market quotation used in determining the value of the
shares is
10
<PAGE>
ex-dividend, and the amount of any other assets of the Fund
determined by the Trustee to be income since the last Valuation
Date.
(B) From the sum thereof there shall be deducted all
charges, expenses, and liabilities accrued since the last
Valuation Date which are proper under the provisions of the Plan
and Trust and which in the discretion of the Trustee are properly
chargeable against income of the Fund for the period; provided,
however, that interest paid on any Acquisition Loan shall be
disregarded.
The net income or net loss, so determined, of the Fund
attributable to Accounts under the Plan shall be allocated as of the
Valuation Date to each such Account in the proportion that the value
of the Account (or appropriate subaccount) as of the preceding
Valuation Date, reduced by any distributions from such Account (or
appropriate subaccount) thereafter, bears to all such Accounts (or
appropriate subaccount) of all Members as of the preceding Valuation
Date, as so reduced.
(b) If the Trustee should, by virtue of the receipt of any warrants,
options, rights to purchase or rights to subscribe become entitled to
purchase or subscribe for shares of Company Stock, the Trustee may purchase
or subscribe for the additional shares of Company Stock. Any shares of
Company Stock which the Trustee purchases shall be credited to all ESOP
Accounts pursuant to the provisions of Subsection (c) below. In the event
that the Trustee is unable to purchase or subscribe for any additional
shares of Company Stock, the Trustee shall sell (if practicable) any
warrants, options or rights beyond those which can be used as permitted,
and shall credit ESOP Accounts with the proceeds from any sale pursuant to
the provisions of Subsection (a)(3) above.
(c) Any additional shares of Company Stock which the Trustee has
purchased since the last Valuation Date with cash not constituting the
contribution of a Plan Sponsor for the Plan Year shall be credited to ESOP
Accounts as of the date of purchase in the proportion that the total amount
to be invested from each ESOP Account in Company Stock on the date of
purchase bears to the aggregate amount to be invested from all ESOP
Accounts in Company Stock on the date of purchase.
4.3 Allocations from the Loan Suspense Account.
------------------------------------------
(a) Company Stock purchased with the proceeds of an Acquisition Loan
shall be credited to the Loan Suspense Account.
(b) Any shares of Company Stock which are released from the Loan
Suspense Account by reason of the payment of principal or interest on an
Acquisition Loan attributable to assets allocated to ESOP Accounts shall be
credited to the ESOP Accounts as of the Valuation Date with respect to
which the payment of principal and interest was made, all in the proportion
that the total amount to be paid from each ESOP Account on the date of
payment bears to the aggregate amount paid from all ESOP Accounts on the
date of payment.
11
<PAGE>
(c) Any shares of Company Stock which have been released from the Loan
Suspense Account by reason of the payment of a cash dividend on Company
Stock held in the Loan Suspense Account which is used to make a payment on
an Acquisition Loan or by reason of the repayment prior to the last day of
the Plan Year of any or all of an Acquisition Loan from a source other than
ESOP Accounts (including, but not limited to, proceeds attributable to the
sale of Company Stock held in the Loan Suspense Account but only to the
extent such proceeds are to be treated as annual additions for purposes of
Appendix A in accordance with Plan Section 4.3(f) below) shall be allocated
to ESOP Accounts in the manner set forth in Plan Section 4.1.
(d) If the proceeds on the sale of Company Stock held in the Loan
Suspense Account are used to make a payment on an Acquisition Loan (to the
extent such proceeds are to be treated as earnings in accordance with
Section 4.4(f) below), such proceeds shall be allocated to each Member's
ESOP Account in the proportion that the balance of the Member's ESOP
Account as of the immediately preceding Valuation Date bears to the total
value of all Members' ESOP Accounts as of the immediately preceding
Valuation Date.
(e) In the event cash dividends paid with respect to any shares of
Company Stock allocated to a Member's ESOP Account are used to repay an
Acquisition Loan, each affected Member's ESOP Account shall be credited as
of the Valuation Date immediately following the record date with shares of
Company Stock released from the Loan Suspense Account in the proportion
that the total amount of such cash dividends applied to the repayment of
the Acquisition Loan that would otherwise have been allocated to the
Member's ESOP Account bears to the aggregate amount of such cash dividends
that would otherwise have been allocated to all ESOP Accounts; provided,
however that such shares shall not have a Fair Market Value less than the
cash portion of the dividend which otherwise would have been allocated to
the Member's ESOP Account.
(f) If shares of Company Stock are sold from the Loan Suspense Account
and the proceeds are used to repay an Acquisition Loan in whole or in part,
the proceeds in excess of the repayment (the "Excess Proceeds") shall be
treated as consisting of two components: (1) an annual addition component
which amounts shall be treated as annual additions pursuant to Appendix A
and which shall be calculated by multiplying the Excess Proceeds by a
fraction the numerator of which is the amount the Plan paid for the shares
of Company Stock sold from the Loan Suspense Account and the denominator of
which is the total proceeds received for the shares of Company Stock sold
from the Loan Suspense Account; and (2) an earnings component.
4.4 All valuations of shares of Company Stock made with respect to
activities carried on by the Plan which shares of Company Stock are not readily
tradeable on an established securities market shall be made by an Independent
Appraiser.
4.5 No portion of the Plan assets attributable to Company Stock purchased
pursuant to a sale with respect to which Code Section 1042(a) applies shall
accrue under the Plan or any other plan maintained by a Plan Sponsor, either
directly or indirectly, for the benefit of (a) a seller or any individual who is
related to the seller (within the meaning of Code Section 267(b))
12
<PAGE>
at any time from the date of sale until the later of (1) the date which is ten
years after the date of the sale or (2) the date of the allocation attributable
to the final payment of any Acquisition Loan incurred in connection with the
sale; or (b) any other person who owns after application of Code Section 318(a)
(but without regard to paragraph (2)(B)(i) thereof) more than twenty-five
percent (25%) of the outstanding portion of (1) any class of or (2) the total
value of any class of stock of the corporation that issued the Company Stock
acquired or of any member of the same controlled group of corporations within
the meaning of Code Section 409(1). However, Members who are lineal descendants
of the seller may receive an aggregate allocation of not more than five percent
(5%) of the Company Stock purchased by the Plan, and a Member who is described
in Subsection (b) of this Section may receive allocations of the Company Stock
purchased by the Plan if he failed to meet the criteria set forth in that
Subsection either (i) during the one-year period ending on the date of the
purchase or (ii) on the date as of which that Company Stock is allocated to
Members' ESOP Accounts.
SECTION 5
ACQUISITION AND INVESTMENT OF TRUST ASSETS
------------------------------------------
5.1 Acquisition Loans
-----------------
(a) The Plan Administrator may direct the Trustee to obtain
Acquisition Loans. An Acquisition Loan shall meet all requirements
necessary to constitute an "exempt loan" within the meaning of Treasury
Regulation Section 54.4975-7(b)(1)(iii). At the time an Acquisition Loan
is made, the interest rate for the Acquisition Loan and the price of
Company Stock to be acquired therewith may not be such that assets of the
Plan might be drained off. The terms of an Acquisition Loan must, at the
time the Acquisition Loan is made, be at least as favorable to the Plan as
the terms of a comparable loan resulting from arm's length negotiations
between independent parties. The proceeds of any Acquisition Loan shall be
used within a reasonable time after the Acquisition Loan is obtained and
may only be used to purchase Company Stock, to repay the Acquisition Loan,
or to repay any prior Acquisition Loan. An Acquisition Loan shall provide
for no more than a reasonable rate of interest. An Acquisition Loan must
be without recourse against the Plan and must be for a specific term and
not payable at the demand of any person, except in case of default. For
purposes of this Section, "default" shall mean the failure to pay any
amount due under the Acquisition Loan, or any other event specified in the
agreement memorializing the Acquisition Loan. The Acquisition Loan's
number of years to maturity must be definitely ascertainable. The only
assets of the Fund that may be given as collateral for an Acquisition Loan
are shares of Company Stock acquired with its proceeds or used as
collateral on a prior Acquisition Loan repaid with the proceeds of the
current Acquisition Loan. The Company Stock pledged shall be placed in the
Loan Suspense Account. No person entitled to payment under an Acquisition
Loan shall have recourse against the Fund other than that collateral, Plan
Sponsor contributions in cash that are made to meet obligations under the
Acquisition Loan, and earnings attributable to that collateral and
investment of Plan Sponsor contributions. In the event of a default upon
an Acquisition Loan, the value of assets of the Plan transferred in
satisfaction thereof shall not exceed the amount of default. If the lender
under an Acquisition Loan is a person described in Code Section 4975(e)(2),
the Acquisition Loan shall provide for a transfer of Plan assets upon
default only upon and
13
<PAGE>
to the extent of the failure of the Plan to meet the payment schedule of
the Acquisition Loan. A pledge of Company Stock must provide for the
release of shares pledged, as provided in (b) below, upon the payment of
any portion of the Acquisition Loan. An amendment of a loan in order to
qualify under this Section shall not be a refinancing of the loan or the
making of another loan.
(b) For each Plan Year during the duration of the Acquisition Loan,
the number of shares of Company Stock released from any pledge and from the
Loan Suspense Account must equal the number of shares acquired with the
proceeds of the Acquisition Loan held immediately before release for the
current Plan Year multiplied by a fraction the numerator of which is the
amount of principal and interest paid for that Plan Year and the
denominator of which is the sum of the numerator plus the principal and
interest to be paid for all future Plan Years; provided, at a minimum, that
the number of shares of Company Stock to be released in any Plan Year from
any pledge and from the Loan Suspense Account shall comply with Plan
Section 4.3(e). These years are determined without taking into account any
possible extension or renewal periods. In the event the interest is
variable, the interest to be paid in future years must be computed by using
the interest rate applicable as of the end of the Plan Year. If collateral
in the Loan Suspense Account includes more than one class of Company Stock,
the number of shares of each class to be released for a Plan Year must be
determined by applying the same fraction to each class. Notwithstanding
the above, the number of shares of Company Stock released from any pledge
and from the Loan Suspense Account for each Plan Year during the duration
of an Acquisition Loan may be determined by reference to principal payments
only, if (1) the Acquisition Loan provides for payments of principal and
interest at a cumulative rate that is not less rapid at any time than level
annual payments of those amounts for ten years, (2) interest included in
any payment is disregarded only to the extent that it would be determined
to be interest under standard loan amortization tables, and (3) by reason
of a renewal, extension, or refinancing during or prior to the Plan Year,
the sum of the expired duration of the Acquisition Loan, the renewal
period, the extension period, and the duration of a new Acquisition Loan do
not exceed ten years.
(c) Payments of principal and interest on any Acquisition Loan during
a Plan Year shall be made by the Trustee, as directed by the Plan
Administrator, only from (1) Plan Sponsor contributions made to the Trust
to meet the Plan's obligation under an Acquisition Loan, earnings from Plan
Sponsor contributions, and any cash dividends attributable to Company Stock
given as collateral for an Acquisition Loan (both received during or prior
to the Plan Year) and any cash dividends attributable to Company Stock
acquired with the proceeds of an Acquisition Loan and allocated to Members'
ESOP Accounts, (2) the proceeds of a subsequent Acquisition Loan made to
repay a prior Acquisition Loan, and (3) the proceeds of the sale of shares
of Company Stock held as collateral for an Acquisition Loan. Company Stock
and earnings must be accounted for separately by the Plan until the
Acquisition Loan is repaid.
(d) In the event that the contributions are insufficient to enable the
Trust to pay principal and interest on the Acquisition Loan as it is due,
then upon the Trustee's request the Plan Sponsor shall make an Acquisition
Loan to the Trust, as described in Treasury Regulations Section 54.4975-
7(b)(4)(iii), in sufficient amounts to meet principal
14
<PAGE>
and interest payments. The new Acquisition Loan shall also meet all
requirements of an exempt loan within the meaning of Treasury Regulations
Section 54.4975-7(b)(1)(iii). Company Stock released from the pledge of
the prior Acquisition Loan shall be pledged as collateral to secure the new
Acquisition Loan. The Company Stock will be released from this new pledge
and allocated to the ESOP Accounts of the Members in accordance with
applicable provisions of the Plan.
The provisions of this Section 5.1 shall continue to be applicable to shares of
Company Stock acquired hereunder and held in the Loan Suspense Account even if
the Plan ceases to be an employee stock ownership plan under Code Section
4975(e)(7).
5.2 Company Stock. The Fund shall be invested by the Trustee primarily in
-------------
Company Stock in accordance with directions from the Plan Administrator. All
purchases of Company Stock by the Trustee shall be made only as directed by the
Plan Administrator and only at prices which do not exceed the Fair Market Value
of Company Stock. The Plan Administrator may direct the Trustee to invest and
hold up to one hundred percent (100%) of the Fund in Company Stock.
SECTION 6
PAYMENT OF BENEFITS ON TERMINATION OF EMPLOYMENT
------------------------------------------------
6.1 (a) In the event of a Termination of Employment, a Member whose
vested Account exceeds $3,500 may request at any time after the Member's
Termination of Employment payment of his vested Account which shall be made
in cash or in kind at the Member's election, in a lump sum payment.
Payment will be made as soon as practicable after the last day of the Plan
Year in which the Member requests a distribution in writing. No
distribution of the Member's Account will be made without a Member's
request prior to Normal Retirement Age.
(b) In the event of a Termination of Employment, a Member whose vested
Account is $3,500 or less shall be distributed in a lump sum payment,
either in cash or in kind based upon a Member's election in writing, as
soon as practicable after the last day of the Plan Year in which the
Member's Termination of Employment occurs.
(c) If a Member who has a Termination of Employment has not previously
received a distribution of his Account under Subsections (a) or (b),
payment will be made to him in any event on or before sixty (60) days
following the end of the Plan Year in which the Member attains Normal
Retirement Age.
(d) Whole shares of Company Stock otherwise distributable to the
Member shall be distributed in kind and the value of any fractional share
or right to a fractional share shall be paid in cash to the extent cash is
available. If cash is not available, then a fractional share shall be
distributed in kind. The Trustee may exchange any fractional share or
right to a fractional share for available cash in the Accounts of all other
Members to the extent that the required amount of cash is available and
shall immediately allocate the fractional share or right to a fractional
share to such other Accounts. The
15
<PAGE>
fractional share or right to a fractional share shall be treated as having
been purchased by the Trustee on the date of the exchange.
6.2 That portion of a Member's Account in which he is vested shall be that
part of his ESOP Account computed according to the following vesting schedule
taking into account any Vesting Service through the date of the Member's
Termination of Employment:
Full Years of Percentage
Vesting Service Vested
--------------- ----------
Less than 5 0%
5 100%
6.3 (a) If any portion of a Member's vested Account derived from Plan
Sponsor contributions is paid prior to his Termination Completion Date, a
portion of his Account equal to his total non-vested Account derived from
Plan Sponsor contributions multiplied by a fraction, the numerator of which
is the amount of the distribution attributable to Plan Sponsor
contributions and the denominator of which is the total vested Account
attributable to Plan Sponsor contributions, shall be immediately forfeited.
The amount forfeited shall not exceed the Member's nonvested Account. Upon
the Termination of Employment of a Member who is not vested in any part of
his Account, the Member shall be deemed to have received a distribution and
his Account shall be immediately forfeited.
(b) If the Member is reemployed by a Plan Sponsor or an Affiliate
prior to his Termination Completion Date and (1) if the Member's Account
was partially vested and the Member repays to the Fund no later than the
fifth anniversary of the Member's reemployment by the Plan Sponsor or an
Affiliate all of that portion of his vested Account which was paid to him
or (2) if the Member's Account was not vested upon his Termination of
Employment, then any portion of his Account which was forfeited shall be
restored effective on the Valuation Date coinciding with or next following
the repayment or the Member's reemployment, respectively. The restoration
on any Valuation Date of the forfeited portion of the Account of a Member
pursuant to the preceding sentence shall be made first from forfeitures
available for allocation on that Valuation Date, to the extent available,
and secondly from net income calculated as of that Valuation Date, if any.
Only after restorations have been made shall the remaining net income be
available for allocation under Plan Section 4.
(c) If a Member who is partially vested in his Account does not
receive, prior to his Termination Completion Date, a distribution of any
portion of his vested Account, then no forfeiture of that Member's
nonvested portion of his Account shall occur until that Member's
Termination Completion Date.
6.4 If a Plan amendment directly or indirectly changes the vesting
schedule, the vesting percentage for each Member in his Account accumulated to
the date when the amendment is adopted shall not be reduced as a result of the
amendment. In addition, any Member with at least three (3) years of Vesting
Service may irrevocably elect to remain under
16
<PAGE>
the pre-amendment vesting schedule with respect to all of his benefits accrued
both before and after the amendment.
6.5 If a Member has a Termination of Employment and is subsequently
reemployed by a Plan Sponsor or an Affiliate prior to receiving a distribution
of his Account under the Plan, such Member shall not be entitled to a
distribution under this Section while he is an Employee.
SECTION 7
PAYMENT OF BENEFITS ON RETIREMENT
---------------------------------
7.1 (a) A retired Member whose Account exceeds $3,500 may request payment
of his vested Account at any time after the Member's Retirement Date
occurs. Based upon the election of the Member, all payments will be made
in a lump sum in either cash or in kind. Payment will be made as soon as
practicable following the last day of the Plan Year in which the Member
requests a distribution in writing. No distribution of the Member's
Account will be made without his request prior to his Normal Retirement
Age.
(b) A retired Member whose Account is $3,500 or less shall be
distributed in a lump sum payment either in cash or in kind based upon a
Member's election as soon as practicable following the end of the Plan Year
after the Member attains a Retirement Date.
(c) If a retired Member has not previously received a distribution
under Subsections (a) or (b), payment of the Account will be made on or
before sixty (60) days following the end of the Plan Year in which the
Member attains Normal Retirement Age.
(d) Whole shares of Company Stock otherwise distributable to the
Member shall be distributed in kind and the value of any fractional share
or right to a fractional share shall be paid in cash to the extent cash is
available. If cash is not available, then a fractional share shall be
distributed in kind. The Trustee may exchange any fractional share or
right to a fractional share for available cash in the Accounts of all other
Members to the extent that the required amount of cash is available and
shall immediately allocate the fractional share or right to a fractional
share to such other Accounts. The fractional share or right to a
fractional share shall be treated as having been purchased by the Trustee
on the date of the exchange.
7.2 The Account of a Member who has attained a Retirement Date or has
attained Normal Retirement Age shall be fully vested and nonforfeitable.
SECTION 8
DEATH BENEFITS
--------------
(a) If a Member dies prior to a Termination of Employment, his
Beneficiary shall receive the Member's Account in a lump sum, either in
cash or in kind at the election of the Beneficiary as soon as practicable
following last day of the Plan Year in which the Member dies. If a Member
dies following a Termination of Employment but
17
<PAGE>
after receiving a distribution of his Account, the Member's Beneficiary
shall receive the Member's vested Account in a lump sum, either in cash or
in kind at the election of the Beneficiary as soon as practicable following
the last day of the Plan Year in which the Member dies.
(b) Whole shares of Company Stock otherwise distributable to the
Member shall be distributed in kind and the value of any fractional share
or right to a fractional share shall be paid in cash to the extent cash is
available. If cash is not available, then a fractional share shall be
distributed in kind. The Trustee may exchange any fractional share or
right to a fractional share for available cash in the Accounts of all other
Members to the extent that the required amount of cash is available and
shall immediately allocate the fractional share or right to a fractional
share to such other Accounts. The fractional share or right to a
fractional share shall be treated as having been purchased by the Trustee
on the date of the exchange.
SECTION 9
GENERAL RULES ON DISTRIBUTIONS
------------------------------
9.1 Accounts shall not be adjusted for earnings or losses incurred after
the Valuation Date coinciding with or preceding the date of distribution of the
Account.
9.2 Notwithstanding any provisions of the Plan to the contrary that would
otherwise limit a Distributee's election under this Section 9, a Distributee may
elect, at the time and in the manner prescribed by the Plan Administrator, to
have any portion of a distribution pursuant to this Section which is an Eligible
Rollover Distribution paid directly to an Eligible Retirement Plan specified by
the Distributee in a Direct Rollover so long as all Eligible Rollover
Distributions to a Distributee for a calendar year total or are expected to
total at least $200 and, in the case of a Distributee who elects to directly
receive a portion of an Eligible Rollover Distribution and directly roll the
balance over to an Eligible Retirement Plan, the portion that is to be directly
rolled over totals at least $500. If the Eligible Rollover Distribution is one
to which Code Sections 401(a)(11) and 417 do not apply, such Eligible Rollover
Distribution may commence less than 30 days after the notice required under
Treasury Regulations Section 1.411(a)-11(c) is given, provided that:
(a) the Plan Administrator clearly informs the Distributee that the
Distributee has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or not to
elect a distribution (and, if applicable, a particular distribution
option), and
(b) the Distributee, after receiving the notice, affirmatively elects
a distribution.
9.3 Notwithstanding any other provisions of the Plan,
(a) Prior to the death of a Member, all retirement payments hereunder
shall --
18
<PAGE>
(1) be distributed to the Member not later than the required
beginning date (as defined below) or,
(2) be distributed, commencing not later than the required
beginning date (as defined below)--
(A) in accordance with regulations prescribed by the
Secretary of the Treasury, over the life of the Member or over
the lives of the Member and his designated individual
Beneficiary, if any, or
(B) in accordance with regulations prescribed by the
Secretary of the Treasury, over a period not extending beyond the
life expectancy of the Member or the joint life and last survivor
expectancy of the Member and his designated individual
Beneficiary, if any.
(b) (1) If --
(A) the distribution of a Member's retirement payments have
begun in accordance with Subsection (a)(2) of this Section, and
(B) the Member dies before his entire vested Account has
been distributed to him,
then the remaining portion of his vested Account shall be distributed
at least as rapidly as under the method of distribution being used
under Subsection (a)(2) of this Section as of the date of his death.
(2) If a Member dies before the commencement of retirement
payments hereunder, the entire interest of the Member shall be
distributed within five (5) years after his death.
(3) If --
(A) any portion of a Member's vested Account is payable to
or for the benefit of the Member's designated individual
Beneficiary, if any,
(B) that portion is to be distributed, in accordance with
regulations prescribed by the Secretary of the Treasury, over the
life of the designated individual Beneficiary or over a period
not extending beyond the life expectancy of the designated
individual Beneficiary, and
(C) the distributions begin not later than one (1) year
after the date of the Member's death or such later date as the
Secretary of the Treasury may by regulations prescribe,
then, for purposes of Paragraph (2) of this Subsection (b), the
portion referred to in Subparagraph (A) of this Paragraph (3) shall be
treated as distributed on the date on which the distributions to the
designated individual Beneficiary begin.
19
<PAGE>
(4) If the designated individual Beneficiary referred to in
Paragraph (3)(A) of this Subsection (b) is the surviving spouse of the
Member, then --
(A) the date on which the distributions are required to
begin under Paragraph (3)(C) of this Subsection (b) shall not be
earlier than the date on which the Member would have attained age
70-1/2, and
(B) if the surviving spouse dies before the distributions
to such spouse begin, this Subsection (b) shall be applied as if
the surviving spouse were the Member.
(c) For purposes of this Section, the term "required beginning date"
means April 1 of the calendar year following the later of the calendar year
in which the Member attains age 70-1/2 or the calendar year in which the
retirees or Member terminates employment; except that with respect to a
Member who is a five percent (5%) owner (as described in Code Section
416(i)(1)(B)(i)) for the Plan Year ending with the calendar year in which
the Member attains age 70-1/2, a distribution shall commence no later than
April 1st of the calendar year following the calendar year in which the
Member attains age 70-1/2.
(d) Distributions will be made in accordance with the regulations
under Code Section 401(a)(9), including the minimum distribution incidental
benefit requirement of Treas. Reg. Section 1.401(a)(9)-2.
SECTION 10
DIVERSIFICATION OF INVESTMENTS
------------------------------
10.1 Each Member who is an Employee and who has both completed ten years of
membership in the Plan and attained age 55 may elect within ninety (90) days
after the close of each Plan Year in the election period described in Plan
Section 10.4 to direct the Plan to diversify a number of shares of Company Stock
equal to (a) 25% of the Company Stock that has been allocated to the Member's
ESOP Account valued as of the Valuation Date preceding the date of
diversification (b) reduced by the number of shares of Company Stock previously
distributed pursuant to this Section. The resulting number of shares of Company
Stock may be rounded to the nearest whole integer. For the last year in which a
Member may make an election, this Section shall be applied by substituting for
25% percent.
10.2 (a) The Plan Administrator shall distribute the appropriate number
of shares of Company Stock to each Member making an election.
(b) In lieu of a distribution under Subsection (a), the Plan
Administrator, on a uniform and nondiscriminatory basis, may allow Members
who have the right to receive a distribution under Subsection (a) to direct
the Plan to transfer the portion of each such Member's ESOP Account that is
covered by the election to another qualified plan of the Plan Sponsor which
accepts such transfers, provided that such plan permits employee-directed
investment among at least three (3) diversified investment funds, none of
which invests in Company Stock to a substantial degree.
20
<PAGE>
10.3 Company Stock subject to elections made under Plan Section 10.1 shall
be diversified no later than ninety (90) days after the period during which the
election may be made.
10.4 As used in Plan Section 10.1, election period shall mean the six Plan
Year period beginning with the Plan Year in which the Member has attained age 55
and completed ten years of membership in the Plan.
10.5 Notwithstanding the preceding provisions of this Section, if the Fair
Market Value of Company Stock allocated to a Member's ESOP Account is five
hundred dollars ($500) or less on the Valuation Date immediately preceding the
first day on which a Member is eligible to make an election described in Plan
Section 10.1, then that Member shall not be eligible to make a diversification
election.
SECTION 11
VOTING OF COMPANY STOCK
-----------------------
11.1 Except as provided in this Section, the Trustee shall vote shares of
Company Stock held in the Fund. However, as to any corporate matter which
involves the voting of shares of Company Stock with respect to the approval or
disapproval of any merger or consolidation, recapitalization, reclassification,
liquidation, dissolution, sale of substantially all of the assets or any similar
transaction as provided in regulations issued by the Secretary of the Treasury
or, if Company Stock is required to be registered under Section 12 of the
Securities Exchange Act of 1934, or would be required to be so registered except
for the exemption from registration provided in Subsection (g)(2)(H) of that
Section 12, the Trustee shall vote shares of Company Stock as follows:
(a) Whole shares of Company Stock held in ESOP Accounts for which it
has received instructions from Member shall be voted in accordance with
those instructions. In the absence of voting instructions by a Member,
whole shares of Company Stock held in a Member's ESOP Account shall be
voted by the Trustee unless the fiduciary requirements of ERISA require
otherwise.
(b) The combined fractional shares and fractional rights to shares of
Company Stock held in ESOP Accounts shall be voted to the extent possible
in the same proportion as whole shares of Company Stock held in such
Accounts are directed to be voted by Members unless the fiduciary
requirements of ERISA require otherwise.
(c) Shares of Company Stock held in the Suspense Account and Loan
Suspense Account shall be voted by the Trustee.
(d) The Primary Sponsor shall furnish the Trustee, Members and
Beneficiaries with notices and information statements when voting or other
rights as to Company Stock are to be exercised.
11.2 All decisions affecting Company Stock held under the Fund which do not
involve voting of such Company Stock, including, without limitation, decisions
to reject or consent to
21
<PAGE>
tender or exchange offers and similar decisions, shall be determined by the
Trustee in the same manner as voting decisions as described in Section 11.1
above.
SECTION 12
CONDITIONS OF DISTRIBUTION OF COMPANY STOCK
-------------------------------------------
12.1 To the extent necessary to comply with federal or state securities
laws, each certificate for Company Stock distributed pursuant to the Plan shall
be marked "RESTRICTED" on its face and, to the extent appropriate at the time,
shall bear on its reverse side legends to the following effect:
(a) That the securities evidenced by the certificate were issued and
distributed without registration under the federal Securities Act of 1933
(the "1933 Act") or under the applicable laws of any state or states
(collectively referred to as the "State Acts"), in reliance upon certain
exemptive provisions of the 1933 Act or any applicable State Acts;
(b) That the securities cannot be sold or transferred unless, in the
opinion of counsel reasonably acceptable to the Primary Sponsor, the sale
or transfer would be:
(A) pursuant to an effective registration statement under the
1933 Act or pursuant to an exemption from registration; and
(B) a transaction which is exempt under any applicable State
Acts or pursuant to an effective registration statement under or in a
transaction which is otherwise in compliance with the State Acts; and
(c) That the securities evidenced by the certificate were issued and
distributed in accordance with the provisions of the Plan and Trust
Agreement, are subject to the provisions thereof, and may not be sold or
transferred except in compliance with said provisions.
12.2 If necessary to comply with the 1933 Act or any applicable State Acts,
shares of Company Stock distributable under the Plan must be acquired for
investment and not with a view to the public distribution thereof. In
furtherance thereof, as a condition of receiving Company Stock under the Plan,
the distributee may be required to execute an investment letter and any other
documents that in the opinion of counsel reasonably acceptable to the Primary
Sponsor, as issuer, are necessary to comply with the 1933 Act or any applicable
State Acts or any other applicable laws regulating the issuance or transfer of
securities.
12.3 (a) Each share of Company Stock distributed from the ESOP Accounts
shall be subject to Put Rights. The Put Rights grant to the distributee
(or his heirs or legatees) the right to require the Primary Sponsor or its
designee to purchase any shares of Company Stock which have been
distributed from the Plan provided that the Company Stock is not Publicly
Traded at the time (the "Put"). The Put shall be exercisable by giving
written notice to the Primary Sponsor during a period of 60 days beginning
on the date of distribution or a period of 60 days following the
determination of the Company Stock's Fair Market Value for the Plan Year
following the date of distribution. In the
22
<PAGE>
case of Company Stock which is Publicly Traded without restriction when
distributed but ceases to be so traded during the Put period, the Primary
Sponsor must give notice to each distributee (or his heirs or legatees) in
writing on or before the tenth day after the date the Company Stock ceases
to be so traded informing each distributee (or his heirs or legatees) that
for the remainder of the period the Company Stock is subject to the Put and
setting forth the terms of the Put. The number of days between the tenth
day and the date on which notice is actually given, if later, must be added
to the duration of the Put. The period during which the Put is exercisable
does not include the time when a distributee (or his heirs or legatees) is
unable to exercise it because the Primary Sponsor is prohibited from
honoring it by applicable federal or state law, and the Primary Sponsor
shall not be in breach of the Put if it is prohibited from honoring it by
applicable federal or state law. Company Stock purchased pursuant to the
Put shall, to the extent permitted by state law, be purchased in cash at
Fair Market Value in substantially equal payments made over a period not in
excess of five years commencing within 30 days after the exercise of the
Put. If a Member exercises his Put Rights following the last day of a Plan
Year but prior to the preparation of the valuation report to be issued by
the Independent Appraiser for that Plan Year, the determination of Fair
Market Value shall be based upon the valuation report prepared by the
Independent Appraiser for the immediately preceding Plan Year. The Primary
Sponsor shall provide adequate security and pay reasonable interest on any
unpaid amounts. Payment under the Put may not be restricted by the
provisions of any loan or any other arrangement, including the terms of the
Primary Sponsor's articles of incorporation, unless required by applicable
state law.
(b) Each share of Company Stock distributed from any of the Accounts
shall be subject to First Refusal Rights. The First Refusal Rights provide
that prior to any sale of Company Stock which is not Publicly Traded at
that time, the distributee (or his heirs or legatees) must first offer the
Company Stock which he wishes to sell to the Primary Sponsor or its
designee at the greater of (1) Fair Market Value, or (2) the same purchase
price and on the same terms as a bona fide offer made by a third party
within the preceding 14 days to whom the distributee (or his heirs or
legatees) desires to sell the Company Stock, and that if the Primary
Sponsor or its designee is not willing or able to purchase the Company
Stock within 14 days after receipt by the Primary Sponsor of written
notification by the distributee of the purchase price and payment terms,
then the distributee (or his heirs or legatees) may proceed to sell the
Company Stock to the third party in accordance with the offer within 28
days after receipt by the distributee of the bona fide offer. In no event
may the Company Stock be sold or transferred for value, nor shall the
Primary Sponsor recognize any purchaser or transferee as the owner of the
Company Stock, unless the terms of the First Refusal Rights, as specified
above, have been followed.
Except as provided in Subsections (a) and (b) above, no Company Stock
acquired with the proceeds of an Acquisition Loan may be subject to a put, call,
option, buy-sell or similar arrangement while held by or when distributed from
the Plan.
The provisions of this Section 12.3 shall continue to be applicable to
shares of Company Stock acquired with the proceeds of an Acquisition Loan even
if the Plan ceases to be an employee stock ownership plan under Code Section
4975(e)(7).
23
<PAGE>
Each share of Company Stock distributed from the Plan shall contain legends
indicating the rights contained in this Section 12.
SECTION 13
ADMINISTRATION OF THE PLAN
--------------------------
13.1 Trust Agreement. The Primary Sponsor shall establish a Trust with
---------------
the Trustee designated by the Board of Directors for the management of the Fund,
which Trust shall form a part of the Plan and is incorporated herein by
reference.
13.2 Operation of the Plan Administrator. The Primary Sponsor shall
-----------------------------------
appoint a Plan Administrator or may itself serve as the Plan Administrator. If
an organization is appointed to serve as the Plan Administrator, then the Plan
Administrator may designate in writing a person who may act on behalf of the
Plan Administrator. The Primary Sponsor shall have the right to remove the Plan
Administrator at any time by notice in writing. The Plan Administrator may
resign at any time by written notice of resignation to the Trustee and the
Primary Sponsor. Upon removal or resignation, or in the event of the
dissolution of the Plan Administrator, the Primary Sponsor shall appoint a
successor.
13.3 Fiduciary Responsibility.
------------------------
(a) The Plan Administrator, as a Named Fiduciary, may allocate its
fiduciary responsibilities among Fiduciaries other than the Trustee,
designated in writing by the Plan Administrator and may designate in
writing persons other than the Trustee to carry out its fiduciary
responsibilities under the Plan. The Plan Administrator may remove any
person designated to carry out its fiduciary responsibilities under the
Plan by notice in writing to such person.
(b) The Plan Administrator and each other Fiduciary may employ persons
to perform services and to render advice with regard to any of the
Fiduciary's responsibilities under the Plan.
(c) Each Plan Sponsor shall indemnify and hold harmless each person
constituting the Plan Administrator or the Investment Committee, if any,
from and against any and all claims, losses, costs, expenses (including,
without limitation, attorney's fees and court costs), damages, actions or
causes of action arising from, on account of or in connection with the
performance by such person of his duties in such capacity, other than such
of the foregoing arising from, on account of or in connection with the
willful neglect or willful misconduct of such person.
13.4 Duties of the Plan Administrator.
--------------------------------
(a) The Plan Administrator shall advise the Trustee with respect to
all payments under the terms of the Plan and shall direct the Trustee in
writing to make such payments from the Fund; provided, however, in no event
shall the Trustee be required to make such payments if the Trustee has
actual knowledge that such payments are contrary to the terms of the Plan
and the Trust.
24
<PAGE>
(b) The Plan Administrator shall from time to time establish rules,
not contrary to the provisions of the Plan and the Trust, for the
administration of the Plan and the transaction of its business. All
elections and designations under the Plan by a Member or Beneficiary shall
be made on forms prescribed by the Plan Administrator. The Plan
Administrator shall have discretionary authority to construe the terms of
the Plan and shall determine all questions arising in the administration,
interpretation and application of the Plan, including, but not limited to,
those concerning eligibility for benefits and it shall not act so as to
discriminate in favor of any person. All determinations of the Plan
Administrator shall be conclusive and binding on all Employees, Members,
Beneficiaries and Fiduciaries, subject to the provisions of the Plan and
the Trust and subject to applicable law.
(c) The Plan Administrator shall furnish Members and Beneficiaries
with all disclosures now or hereafter required by ERISA or the Code. The
Plan Administrator shall file, as required, the various reports and
disclosures concerning the Plan and its operations as required by ERISA and
by the Code, and shall be solely responsible for establishing and
maintaining all records of the Plan and the Trust.
(d) The Fair Market Value of shares of Company Stock shall be
determined as of each Valuation Date. In the case of a transaction between
the Plan and a disqualified person within the meaning of Code Section 4975,
the Fair Market Value of shares of Company Stock must be determined as of
the date of the transaction.
(e) The statement of specific duties for a Plan Administrator in this
Section is not in derogation of any other duties which a Plan Administrator
has under the provisions of the Plan or the Trust or under applicable law.
13.5 Investment Manager. The Primary Sponsor may, by action in writing
------------------
certified by notice to the Trustee, appoint an Investment Manager. Any
Investment Manager may be removed in the same manner in which appointed, and in
the event of any removal, the Investment Manager shall, as soon as possible, but
in no event more than thirty (30) days after notice of removal, turn over all
assets managed by it to the Trustee or to any successor Investment Manager
appointed, and shall make a full accounting to the Primary Sponsor with respect
to all assets managed by it since its appointment as an Investment Manager.
13.6 Investment Committee. The Primary Sponsor may, by action in writing
--------------------
certified by notice to the Trustee, appoint an Investment Committee. The
Primary Sponsor shall have the right to remove any person on the Investment
Committee at any time by notice in writing to such person. A person on the
Investment Committee may resign at any time by written notice of resignation to
the Primary Sponsor. Upon such removal or resignation, or in the event of the
death of a person on the Investment Committee, the Primary Sponsor may appoint a
successor. Until a successor has been appointed, the remaining persons on the
Investment Committee may continue to act as the Investment Committee.
13.7 Action by a Plan Sponsor. Any action to be taken by a Plan Sponsor
------------------------
shall be taken by resolution or written direction duly adopted by its board of
directors or appropriate governing body, as the case may be; provided, however,
that by such resolution or written direction, the board of directors or
appropriate governing body, as the case may be, may
25
<PAGE>
delegate to any officer or other appropriate person of a Plan Sponsor the
authority to take any such actions as may be specified in such resolution or
written direction, other than the power to amend, modify or terminate the Plan
or the Trust or to determine the basis of any Plan Sponsor contributions.
13.8 Expenses of the Plan and Trust. All expenses of administering the
------------------------------
Plan and Trust shall be charged to and paid out of the Trust assets to the
extent permissible under ERISA. The Primary Sponsor in its discretion may pay
all or any portion of such expenses, and payment of expenses by the Primary
Sponsor shall not be deemed to be employer contributions.
SECTION 14
CLAIM REVIEW PROCEDURE
----------------------
14.1 If a Member or Beneficiary is denied a claim for benefits under a
Plan, the Plan Administrator shall provide to the claimant written notice of the
denial within 90 days after the Plan Administrator receives the claim, unless
special circumstances require an extension of time for processing the claim. If
such an extension of time for processing is required, written notice of the
extension shall be furnished to the claimant prior to the termination of the
initial 90-day period. In no event shall the extension exceed a period of 90
days from the end of such initial period. The extension notice shall indicate
the special circumstances requiring an extension of time and the date by which
the Plan Administrator expects to render the final decision.
14.2 If the claimant is denied a claim for benefits, the Plan
Administrator shall provide, within the time frame set forth in Plan Section
13.1, written notice of the denial which shall set forth:
(a) the specific reasons for the denial;
(b) specific references to the pertinent provisions of the Plan on
which the denial is based;
(c) a description of any additional material or information necessary
for the claimant to perfect the claim and an explanation of why the
material or information is necessary; and
(d) an explanation of the Plan's claim review procedure.
14.3 After receiving written notice of the denial of a claim, a claimant
or his representative may:
(a) request a full and fair review of the denial by written
application to the Plan Administrator;
(b) review pertinent documents; and
(c) submit issues and comments in writing to the Plan Administrator.
26
<PAGE>
14.4 If the claimant wishes a review of the decision denying his claim to
benefits under the Plan, he must submit the written application to the Plan
Administrator within sixty (60) days after receiving written notice of the
denial.
14.5 Upon receiving the written application for review, the Plan
Administrator may schedule a hearing for purposes of reviewing the claimant's
claim, which hearing shall take place not more than thirty (30) days from the
date on which the Plan Administrator received the written application for
review.
14.6 At least ten (10) days prior to the scheduled hearing, the claimant
and his representative designated in writing by him, if any, shall receive
written notice of the date, time, and place of the scheduled hearing. The
claimant or his representative may request that the hearing be rescheduled for
his convenience on another reasonable date or at another reasonable time or
place.
14.7 All claimants requesting a review of the decision denying their claim
for benefits may employ counsel for purposes of the hearing.
14.8 No later than sixty (60) days following the receipt of the written
application for review, the Plan Administrator shall submit its decision on the
review in writing to the claimant involved and to his representative, if any;
provided, however, a decision on the written application for review may be
extended, in the event special circumstances such as the need to hold a hearing
require an extension of time, to a day no later than one hundred twenty (120)
days after the date of receipt of the written application for review. The
decision shall include specific reasons for the decision and specific references
to the pertinent provisions of the Plan on which the decision is based.
SECTION 15
LIMITATION OF ASSIGNMENT, PAYMENTS TO LEGALLY
---------------------------------------------
INCOMPETENT DISTRIBUTEE AND UNCLAIMED PAYMENTS
----------------------------------------------
15.1 No benefit which shall be payable under the Plan to any person shall
be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and any attempt to anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge the same shall be
void; and no such benefit shall in any manner be liable for, or subject to, the
debts, contracts, liabilities, engagements or torts of any person, nor shall it
be subject to attachment or legal process for, or against, such person, and the
same shall not be recognized under the Plan, except to such extent as may be
required by law. Notwithstanding the above, this Section shall not apply to a
"qualified domestic relations order" (as defined in Code Section 414(p)), and
benefits may be paid pursuant to the provisions of such an order. The Plan
Administrator shall develop procedures (in accordance with applicable federal
regulations) to determine whether a domestic relations order is qualified, and,
if so, the method and the procedures for complying therewith. In addition, a
distribution to an "alternate payee" (as defined in Code Section 414(p)) shall
be permitted if such distribution is authorized by a qualified domestic
relations order, even if the affected Member has not yet separated from service
and has not yet reached the "earliest retirement age" (as defined in Code
Section 414(p)).
27
<PAGE>
15.2 If any person who shall be entitled to any benefit under the Plan
shall become bankrupt or shall attempt to anticipate, alienate, sell, transfer,
assign, pledge, encumber or charge such benefit under the Plan, then the payment
of any such benefit in the event a Member or Beneficiary is entitled to payment
shall, in the discretion of the Plan Administrator, cease and terminate and in
that event the Trustee shall hold or apply the same for the benefit of such
person, his spouse, children, other dependents or any of them in such manner and
in such proportion as the Plan Administrator shall determine.
15.3 Whenever any benefit which shall be payable under the Plan is to be
paid to or for the benefit of any person who is then a minor or determined to be
incompetent by qualified medical advice, the Plan Administrator need not require
the appointment of a guardian or custodian, but shall be authorized to cause the
same to be paid over to the person having custody of such minor or incompetent,
or to cause the same to be paid to such minor or incompetent without the
intervention of a guardian or custodian, or to cause the same to be paid to a
legal guardian or custodian of such minor or incompetent if one has been
appointed or to cause the same to be used for the benefit of such minor or
incompetent.
15.4 If the Plan Administrator cannot ascertain the whereabouts of any
Member to whom a payment is due under the Plan, the Plan Administrator may
direct that the payment and all remaining payments otherwise due to the Member
be cancelled on the records of the Plan and the amount thereof applied as a
forfeiture in accordance with Plan Section 4.1(a), as applicable, except that,
in the event the Member later notifies the Plan Administrator of his whereabouts
and requests the payments due to him under the Plan, the Plan Sponsor shall
contribute to the Plan an amount equal to the payment to be paid to him as soon
as administratively feasible.
SECTION 16
PROHIBITION AGAINST DIVERSION
-----------------------------
At no time shall any part of the Fund be used for or diverted to purposes
other than the exclusive benefit of the Members or their Beneficiaries, subject,
however, to the payment of all taxes and administrative expenses and subject to
the provisions of the Plan with respect to returns of contributions.
SECTION 17
LIMITATION OF RIGHTS
--------------------
Membership in the Plan shall not give any Employee any right or claim
except to the extent that such right is specifically fixed under the terms of
the Plan. The adoption of the Plan and the Trust by any Plan Sponsor shall not
be construed to give any Employee a right to be continued in the employ of a
Plan Sponsor or as interfering with the right of a Plan Sponsor to terminate the
employment of any Employee at any time.
28
<PAGE>
SECTION 18
AMENDMENT TO OR TERMINATION OF THE
----------------------------------
PLAN AND THE TRUST
------------------
18.1 The Primary Sponsor reserves the right at any time to modify or amend
or terminate the Plan or the Trust in whole or in part; provided, however, that
the Primary Sponsor shall have no power to modify or amend the Plan in such
manner as would cause or permit any portion of the funds held under a Plan to be
used for, or diverted to, purposes other than for the exclusive benefit of
Members or their Beneficiaries, or as would cause or permit any portion of a
fund held under the Plan to become the property of a Plan Sponsor; and provided
further, that the duties or liabilities of the Trustee shall not be increased
without its written consent. No such modifications or amendments shall have the
effect of retroactively changing or depriving Members or Beneficiaries of rights
already accrued under the Plan. No Plan Sponsor other than the Primary Sponsor
shall have the right to so modify, amend or terminate the Plan or the Trust.
Notwithstanding the foregoing, each Plan Sponsor may terminate its own
participation in the Plan and Trust pursuant to the Plan.
18.2 Each Plan Sponsor other than the Primary Sponsor shall have the right
to terminate its participation in the Plan and Trust by resolution of its board
of directors or other appropriate governing body and notice in writing to the
Primary Sponsor and the Trustee unless such termination would result in the
disqualification of the Plan or the Trust or would adversely affect the exempt
status of the Plan or the Trust as to any other Plan Sponsor. If contributions
by or on behalf of a Plan Sponsor are completely terminated, the Plan and Trust
shall be deemed terminated as to such Plan Sponsor. Any termination by a Plan
Sponsor, shall not be a termination as to any other Plan Sponsor.
18.3 (a) If the Plan is terminated by the Primary Sponsor or if
contributions to the Trust should be permanently discontinued, it shall
terminate as to all Plan Sponsors and the Fund shall be used, subject to
the payment of expenses and taxes, for the benefit of Members and
Beneficiaries, and for no other purposes, and the Account of each affected
Member shall be fully vested and nonforfeitable, notwithstanding the
provisions of the Section of the Plan which sets forth the vesting
schedule.
(b) In the event of the partial termination of the Plan, each
affected Member's Account shall be fully vested and nonforfeitable,
notwithstanding the provisions of the Section of the Plan which sets forth
the vesting schedule.
18.4 In the event of the termination of the Plan or the Trust with respect
to a Plan Sponsor, the Accounts of the Members with respect to the Plan as
adopted by such Plan Sponsor shall be held subject to the instructions of the
Plan Administrator.
18.5 In the case of any merger or consolidation of the Plan with, or any
transfer of the assets or liabilities of the Plan to, any other plan qualified
under Code Section 401, the terms of the merger, consolidation or transfer shall
be such that each Member would receive (in the event of termination of the Plan
or its successor immediately thereafter) a benefit which is no less than the
benefit which the Member would have received in the event of termination of the
Plan immediately before the merger, consolidation or transfer.
29
<PAGE>
18.6 Notwithstanding any other provision of the Plan, an amendment to the
Plan --
(a) which eliminates or reduces an early retirement benefit, if any,
or which eliminates or reduces a retirement-type subsidy (as defined in
regulations issued by the Department of the Treasury), if any, or
(b) which eliminates an optional form of benefit
shall not be effective with respect to benefits attributable to service before
the amendment is adopted. In the case of a retirement-type subsidy described in
Subsection (a) above, this Section shall be applicable only to a Member who
satisfies, either before or after the amendment, the preamendment conditions for
the subsidy.
SECTION 19
ADOPTION OF PLAN BY AFFILIATES
------------------------------
Any corporation or other business entity related to the Primary Sponsor by
function or operation and any Affiliate, if the corporation, business entity or
Affiliate is authorized to do so by written direction adopted by the Board of
Directors, may adopt the Plan and the related Trust by action of the board of
directors or other appropriate governing body of such corporation, business
entity or Affiliate. Any adoption shall be evidenced by certified copies of the
resolutions of the foregoing board of directors or governing body indicating the
adoption and by the execution of the Trust by the adopting corporation, or
business entity or Affiliate. The resolution shall state and define the
effective date of the adoption of the Plan by the Plan Sponsor and, for the
purpose of Code Section 415, the "limitation year" as to such Plan Sponsor.
Notwithstanding the foregoing, however, if the Plan and Trust as adopted by an
Affiliate or other corporation or business entity under the foregoing provisions
shall fail to receive the initial approval of the Internal Revenue Service as a
qualified Plan and Trust under Code Sections 401(a) and 501(a), any
contributions by the Affiliate or other corporation or business entity after
payment of all expenses will be returned to such Plan Sponsor free of any trust,
and the Plan and Trust shall terminate, as to the adopting Affiliate or other
corporation or business entity.
SECTION 20
QUALIFICATION AND RETURN OF CONTRIBUTIONS
-----------------------------------------
20.1 If the Plan and the related Trust fail to receive the initial
approval of the Internal Revenue Service as a qualified plan and trust within
one (1) year after the date of denial of qualification (a) the contribution of a
Plan Sponsor after payment of all expenses will be returned to a Plan Sponsor
free of the Plan and Trust, (b) contributions made by a Member shall be returned
to the Member who made the contributions, and (c) the Plan and Trust shall
thereupon terminate.
20.2 All Plan Sponsor contributions to the Plan are contingent upon
deductibility. To the extent permitted by the Code and other applicable laws
and regulations thereunder, upon a Plan Sponsor's request, a contribution which
was made by reason of a mistake of fact or which
30
<PAGE>
was nondeductible under Code Section 404, shall be returned to a Plan Sponsor
within one (1) year after the payment of the contribution, or the disallowance
of the deduction (to the extent disallowed), whichever is applicable.
In the event of a contribution which was made by reason of a mistake of
fact or which was nondeductible, the amount to be returned to the Plan Sponsor
shall be the excess of the contribution above the amount that would have been
contributed had the mistake of fact or the mistake in determining the deduction
not occurred, less any net loss attributable to the excess. Any net income
attributable to the excess shall not be returned to the Plan Sponsor. No return
of any portion of the excess shall be made to the Plan Sponsor if the return
would cause the balance in a Member's Account to be less than the balance would
have been had the mistaken contribution not been made.
SECTION 21
INCORPORATION OF SPECIAL LIMITATIONS
------------------------------------
Appendices A and B to the Plan, attached hereto, are incorporated by
reference and the provisions of the same shall apply notwithstanding anything to
the contrary contained herein.
WHEREOF, the Primary Sponsor has caused this indenture to be executed as of
the date first above written.
COMMUNITY FIRST BANKING COMPANY
By:_________________________________
Title:______________________________
ATTEST:
_______________________________
Title: ________________________
[CORPORATE SEAL]
31
<PAGE>
APPENDIX A
LIMITATION ON ALLOCATIONS
-------------------------
SECTION 1
The "annual addition" for any Member for any one limitation year may not
exceed the lesser of:
(a) $30,000 (as adjusted for changes in the cost of living as provided
in regulations issued by the Secretary of the Treasury); or
(b) 25% of the Member's Annual Compensation.
Notwithstanding the foregoing, if no more than one-third (1/3) of the Plan
Sponsor contributions to the Plan for the limitation year are allocated to
Highly Compensated Employees, the annual addition shall not include forfeitures
of Company Stock acquired with the proceeds of an Acquisition Loan or Plan
Sponsor contributions applied to the payment of interest on an Acquisition Loan.
SECTION 2
For the purposes of this Appendix A, the term "annual addition" for any
Member means for any limitation year, the sum of certain Plan Sponsor,
Affiliate, and Member contributions, forfeitures, and other amounts as
determined in Code Section 415(c)(2) in effect for that limitation year.
SECTION 3
In the event that a Plan Sponsor or an Affiliate maintains a defined
benefit plan under which a Member also participates, the sum of the defined
benefit plan fraction and the defined contribution plan fraction for any
limitation year for any Member may not exceed 1.0.
(a) The defined benefit plan fraction for any limitation year is a
fraction:
(1) the numerator of which is the projected annual benefit of
the Member under the defined benefit plan (determined as of the close
of such year); and
(2) the denominator of which is the lesser of
(A) the product of 1.25, multiplied by the maximum annual
benefit allowable under Code Section 415(b)(1)(A), or
(B) the product of
A-1
<PAGE>
(i) 1.4, multiplied by
(ii) the maximum amount which may be taken into
account under Section 415(b)(1)(B) of the Code with respect
to the Member under the defined benefit plan for the
limitation year (determined as of the close of the
limitation year).
(b) The defined contribution plan fraction for any limitation year is
a fraction:
(1) the numerator of which is the sum of a Member's annual
additions as of the close of the year; and
(2) the denominator of which is the sum of the lesser of the
following amounts determined for the year and for all prior limitation
years during which the Member was employed by a Plan Sponsor or an
Affiliate:
(A) the product of 1.25, multiplied by the dollar
limitation in effect under Code Section 415(c)(1)(A) for the
limitation year (determined without regard to Section 415(c)(6)
of the Code); or
(B) the product of
(i) 1.4, multiplied by
(ii) the amount which may be taken into account
under Code Section 415(c)(1)(B) (or Code Section 415(c)(7),
if applicable) with respect to the Member for the limitation
year.
SECTION 4
For purposes of this Appendix A, the term "limitation year" shall mean a
Plan Year unless a Plan Sponsor elects, by adoption of a written resolution, to
use any other twelve-month period adopted in accordance with regulations issued
by the Secretary of the Treasury.
SECTION 5
For purposes of applying the limitations of this Appendix A, all defined
contribution plans maintained or deemed to be maintained by a Plan Sponsor shall
be treated as one defined contribution plan, and all defined benefit plans now
or previously maintained or deemed to be maintained by a Plan Sponsor shall be
treated as one defined benefit plan. In the event any of the actions to be
taken pursuant to Section 6 of this Appendix A or pursuant to any language of
similar import in another defined contribution plan are required to be taken as
a result of the annual additions of a Member exceeding the limitations set forth
in Section 1 of this Appendix A, because of the Member's participation in more
than one defined contribution plan, the actions shall be taken first with regard
to such other defined contribution plan.
A-2
<PAGE>
SECTION 6
In the event that as a result of either the allocation of forfeitures to
the Account of a Member or a reasonable error in estimating the Member's Annual
Compensation, the annual addition allocated to the Account of a Member exceeds
the limitations set forth in Section 1 of this Appendix A or in the event that
the aggregate contributions made on behalf of a Member under both a defined
benefit plan and a defined contribution plan, subject to the reduction of
allocations in other defined contribution plans required by Section 5 of this
Appendix A, cause the aggregate limitation fraction set forth in Section 3 of
this Appendix A to be exceeded, the Plan Administrator shall, in writing, direct
the Trustee to take such of the following actions as the Plan Administrator
shall deem appropriate, specifying in each case the amount or amounts of
contributions involved:
(a) Contributions made by the Plan Sponsor on behalf of the Member
pursuant to Plan Section 3.1 shall be reduced by the excess amount. The
amount of the reduction shall be reallocated to the Accounts of Members who
are not affected by the limitations in the same proportion as the
contribution of the Plan Sponsor for the year is allocated under Plan
Section 4.1 to the Accounts of such Members; and
(b) If further reduction is necessary, forfeitures allocated to the
Member's ESOP Account shall be reduced by the amount of the remaining
excess. The amount of the reduction shall be reallocated to the ESOP
Accounts of Members who are not affected by the limitations in the same
manner as the contributions of the Plan Sponsor for the year are allocated
to the ESOP Accounts of such Members pursuant to Plan Section 4.1.
(c) If the contribution of the Plan Sponsor and forfeitures would
cause the annual addition to exceed the limitations set forth herein with
respect to all Members under the Plan, the portion of such contribution in
excess of the limitations shall be segregated in a suspense account. While
the suspense account is maintained, (1) no Plan Sponsor contributions under
the Plan shall be made which would be precluded by this Appendix A, (2)
income, gains and losses of the Fund shall not be allocated to such
suspense account and (3) amounts in the suspense account shall be allocated
in the same manner as Plan Sponsor contributions and forfeitures under the
Plan as of each Valuation Date on which Plan Sponsor contributions may be
allocated until the suspense account is exhausted. In the event of the
termination of the Plan, the amounts in the suspense account shall be
returned to the Plan Sponsor to the extent that such amounts may not then
be allocated to the Members' Accounts.
A-3
<PAGE>
APPENDIX B
TOP-HEAVY PROVISIONS
--------------------
SECTION 1
As used in this Appendix B, the following words shall have the following
meanings:
(a) "Determination Date" means, with respect to any Plan Year, the
------------------
last day of the preceding Plan Year, or, in the case of the first Plan
Year, means the last day of the first Plan Year.
(b) "Key Employee" means an Employee or former Employee (including a
------------
Beneficiary of a Key Employee or former Key Employee) who at any time
during the Plan Year containing the Determination Date or any of the four
(4) preceding Plan Years is:
(1) An officer of the Plan Sponsor or any Affiliate whose Annual
Compensation was greater than fifty percent (50%) of the amount in
effect under Code Section 415(b)(1)(A) for the calendar year in which
the Plan Year ends, where the term `officer' means an administrative
executive in regular and continual service to the Plan Sponsor or
Affiliate; provided, however, that in no event shall the number of
officers exceed the lesser of Clause (A) or (B) of this Subparagraph
(1), where:
(A) equals fifty (50) Employees; and
(B) equals the greater of (i) three (3) Employees or (ii)
ten percent (10%) of the number of Employees during the Plan
Year, with any non-integer being increased to the next higher
integer.
If for any Plan Year no officer of the Plan Sponsor meets the
requirements of this Subparagraph (1), the highest paid officer of the
Plan Sponsor for the Plan Year shall be considered an officer for
purposes of this Subparagraph.
(2) One of the ten (10) Employees owning both (A) more than one-
half percent (1/2%) of the outstanding stock of the Plan Sponsor or an
Affiliate, more than one-half percent (1/2%) of the total combined
voting power of all stock of the Plan Sponsor or an Affiliate, or more
than one-half percent (1/2%) of the capital or profits interest in the
Plan Sponsor or an Affiliate, and (B) the largest percentage ownership
interests in the Plan Sponsor or any of its Affiliates, and whose
Annual Compensation is equal to or greater than the amount in effect
under Section 1(a) of Appendix A to the Plan for the calendar year in
which the Determination Date falls; or
(3) An owner of more than five percent (5%) of the outstanding
stock of the Plan Sponsor or an Affiliate or more than five percent
(5%) of the total combined voting power of all stock of the Plan
Sponsor or an Affiliate; or
B-1
<PAGE>
(4) An owner of more than one percent (1%) of the outstanding
stock of the Plan Sponsor or an Affiliate or more than one percent
(1%) of the total combined voting power of all stock of the Plan
Sponsor or an Affiliate, and who in such Plan Year had Annual
Compensation from the Plan Sponsor and all of its Affiliates of more
than $150,000.
Employees other than Key Employees are sometimes referred to in this
Appendix B, as "non-key employees."
(c) "Required Aggregation Group" means:
--------------------------
(1) each plan of the Plan Sponsor and its Affiliates which
qualifies under Code Section 401(a) in which a Key Employee is a
participant, and
(2) each other plan of the Plan Sponsor and its Affiliates which
qualifies under Code Section 401 (a) and which enables any plan
described in Subsection (a) of this Section to meet the requirements
of Section 401(a)(4) or 410 of the Code.
(d) (1) "Top-Heavy" means:
---------
(A) if the Plan is not included in a Required Aggregation
Group, the Plan's condition in a Plan Year for which, as of the
Determination Date:
(i) the present value of the cumulative Accounts
under the Plan for all Key Employees exceeds 60 percent of
the present value of the cumulative Accounts under the Plan
for all Members; and
(ii) the Plan, when included in every potential
combination, if any, with any or all of:
(I) any Required Aggregation Group, and
(II) any plan of the Plan Sponsor which
is not part of any Required Aggregation Group and which
qualifies under Code Section 401 (a)
is part of a Top-Heavy Group (as defined in Paragraph (2) of
this Subsection); and
(B) if the Plan is included in a Required Aggregation
Group, the Plan's condition in a Plan Year for which, as of the
Determination Date:
(i) the Required Aggregation Group is a Top-Heavy
Group (as defined in Paragraph (2) of this Subsection); and
B-2
<PAGE>
(ii) the Required Aggregation Group, when included
in every potential combination, if any, with any or all of
the plans of the Plan Sponsor and its Affiliates which are
not part of the Required Aggregation Group and which qualify
under Code Section 401(a), is part of a Top-Heavy Group (as
defined in Paragraph (2) of this Subsection).
(C) For purposes of Subparagraphs (A)(ii) and (B)(ii) of
this Paragraph (1), any combination of plans must satisfy the
requirements of Sections 401(a)(4) and 410 of the Code.
(2) A group shall be deemed to be a Top-Heavy Group if:
(A) the sum, as of the Determination Date, of the present
value of the cumulative accrued benefits for all Key Employees
under all plans included in such group exceeds
(B) 60 percent of a similar sum determined for all
participants in such plans.
(3) (A) For purposes of this Section, the present value of the
accrued benefit for any participant in a defined contribution
plan as of any Determination Date or last day of a plan year
shall be the sum of:
(i) as to any defined contribution plan other than a
simplified employee pension, the account balance as of the
most recent valuation date occurring within the plan year
ending on the Determination Date or last day of a plan year,
and
(ii) as to any simplified employee pension, the
aggregate employer contributions, and
(iii) an adjustment for contributions due as of the
Determination Date or last day of a plan year.
In the case of a plan that is not subject to the minimum funding
requirements of Code Section 412, the adjustment in Clause (iii)
of this Subparagraph (A) shall be the amount of any contributions
actually made after the valuation date but on or before the
Determination Date or last day of the plan year to the extent not
included under Clause (i) or (ii) of this Subparagraph (A);
provided, however, that in the first plan year of the plan, the
adjustment in Clause (iii) of this Subparagraph (A) shall also
reflect the amount of any contributions made thereafter that are
allocated as of a date in such first plan year. In the case of a
plan that is subject to the minimum funding requirements, the
account balance in Clause (i) and the aggregate contributions in
Clause (ii) of this Subparagraph (A) shall include contributions
that would be allocated as of a date not later than the
Determination Date or last day of a plan year, even though those
B-3
<PAGE>
amounts are not yet required to be contributed, and the
adjustment in Clause (iii) of this Subparagraph (A) shall be the
amount of any contribution actually made (or due to be made)
after the valuation date but before the expiration of the
extended payment period in Code Section 412(c)(10) to the extent
not included under Clause (i) or (ii) of this Subparagraph (A).
(B) For purposes of this Subsection, the present value of
the accrued benefit for any participant in a defined benefit plan
as of any Determination Date or last day of a plan year must be
determined as of the most recent valuation date which is within a
12-month period ending on the Determination Date or last day of a
plan year as if such participant terminated as of such valuation
date; provided, however, that in the first plan year of a plan,
the present value of the accrued benefit for a current
participant must be determined either (i) as if the participant
terminated service as of the Determination Date or last day of a
plan year or (ii) as if the participant terminated service as of
such valuation date, but taking into account the estimated
accrued benefit as of the Determination Date or last day of a
plan year. For purposes of this Subparagraph (B), the valuation
date must be the same valuation date used for computing plan
costs for minimum funding, regardless of whether a valuation is
performed that year. The actuarial assumptions utilized in
calculating the present value of the accrued benefit for any
participant in a defined benefit plan for purposes of this
Subparagraph (B) shall be established by the Plan Administrator
after consultation with the actuary for the plan, and shall be
reasonable in the aggregate and shall comport with the
requirements set forth by the Internal Revenue Service in Q&A T-
26 and T-27 of Regulation Section 1.416-1.
(C) For purposes of determining the present value of the
cumulative accrued benefit under a plan for any participant in
accordance with this Subsection, the present value shall be
increased by the aggregate distributions made with respect to the
participant (including distributions paid on account of death to
the extent they do not exceed the present value of the cumulative
accrued benefit existing immediately prior to death) under each
plan being considered, and under any terminated plan which if it
had not been terminated would have been in a Required Aggregation
Group with the Plan, during the 5-year period ending on the
Determination Date or last day of the plan year that falls within
the calendar year in which the Determination Date falls.
(D) For purposes of this Paragraph (3), participant
contributions which are deductible as "qualified retirement
contributions" within the meaning of Code Section 219 or any
successor, as adjusted to reflect income, gains, losses, and
other credits or charges attributable thereto, shall not be
considered to be part of the accrued benefits under any plan.
B-4
<PAGE>
(E) For purposes of this Paragraph (3), if any employee is
not a Key Employee with respect to any plan for any plan year,
but such employee was a Key Employee with respect to such plan
for any prior plan year, any accrued benefit for such employee
shall not be taken into account.
(F) For purposes of this Paragraph (3), if any employee has
not performed any service for any Plan Sponsor or Affiliate
maintaining the plan during the five-year period ending on the
Determination Date, any accrued benefit for that employee shall
not be taken into account.
(G) (i) In the case of an "unrelated rollover" (as defined
below) between plans which qualify under Code Section
401(a), (a) the plan providing the distribution shall count
the distribution as a distribution under Subparagraph (C) of
this Paragraph (3), and (b) the plan accepting the
distribution shall not consider the distribution part of the
accrued benefit under this Section; and
(ii) in the case of a "related rollover" (as defined
below) between plans which qualify under Code Section
401(a), (a) the plan providing the distribution shall not
count the distribution as a distribution under Subparagraph
(C) of this Paragraph (3), and (b) the plan accepting the
distribution shall consider the distribution part of the
accrued benefit under this Section.
For purposes of this Subparagraph (G), an "unrelated rollover" is a rollover as
defined in Code Section 402(c)(4) or 408(d)(3) or a plan-to-plan transfer which
is both initiated by the participant and made from a plan maintained by one
employer to a plan maintained by another employer where the employers are not
Affiliates. For purposes of this Subparagraph (G), a "related rollover" is a
rollover as defined in Code Section 402(c)(4) or 408(d)(3) or a plan-to-plan
transfer which is either not initiated by the participant or made to a plan
maintained by the employer or an Affiliate.
SECTION 2
(a) Notwithstanding anything contained in the Plan to the contrary,
except as otherwise provided in Subsection (b) of this Section, in any Plan
Year during which the Plan is Top-Heavy, allocations of Plan Sponsor
contributions and forfeitures for the Plan Year for the Account of each
Member who is not a Key Employee and who has not separated from service
with the Plan Sponsor prior to the end of the Plan Year shall not be less
than 3 percent of the Member's Annual Compensation. In the event either
this Plan or any other defined contribution plan is Top-Heavy, the minimum
allocation contemplated by this Section 2 shall be provided under this
Plan, unless the provisions of any other defined contribution plan
expressly provide otherwise. For purposes of this Subsection, an
allocation to a Member's Account resulting from any Plan Sponsor
contribution attributable to a salary reduction or similar arrangement
shall not be taken into account.
B-5
<PAGE>
(b) (1) The percentage referred to in Subsection (a) of this Section
for any Plan Year shall not exceed the percentage at which allocations
are made or required to be made under the Plan for the Plan Year for
the Key Employee for whom the percentage is highest for the Plan Year.
For purposes of this Paragraph, an allocation to the Account of a Key
Employee resulting from any Plan Sponsor contribution attributable to
a salary reduction or similar agreement shall be taken into account.
(2) For purposes of this Subsection (b), all defined
contribution plans which are members of a Required Aggregation Group
shall be treated as part of the Plan.
(3) This Subsection (b) shall not apply to any plan which is a
member of a Required Aggregation Group if the plan enables a defined
benefit plan which is a member of the Required Aggregation Group to
meet the requirements of Code Section 401(a)(4) or 410.
(4) If the Plan Sponsor maintains a defined benefit plan which
is qualified under Code Section 401(a) and which would be Top-Heavy
within the meaning of the Plan for its plan year ending within or
coincident with the Plan Year, no allocation shall be made pursuant to
Subsection (a) of this Section on behalf of any Member who
participates in the defined benefit plan and acquires a year of
service within the meaning of paragraphs (4), (5) and (6) of Code
Section 411(a) under the defined benefit plan for the plan year, if
the defined benefit plan provides generally that the accrued benefit
of the Member when expressed as an annual retirement benefit shall
not, when expressed as a percentage of the Member's Annual
Compensation, be less than the lesser of (A) 2 percent multiplied by
the number of such years of service in plan years during which such
plan was Top-Heavy, or (B) 20 percent.
SECTION 3
In any limitation year (as defined in Section 4 of Appendix A to the Plan)
which contains any portion of a Plan Year in which the Plan is Top-Heavy, the
number "1.0" shall be substituted for the number "1.25" in Section 3 of Appendix
A to the Plan.
B-6
<PAGE>
SECTION 4
Notwithstanding anything contained in the Plan to the contrary, in any Plan
Year during which the Plan is Top-Heavy, a Member's interest in his Account
shall not vest at any rate which is slower than the following schedule,
effective as of the first day of that Plan Year:
Full Years of Percentage
Vesting Service Vested
--------------- ----------
Less than 3 0%
3 or more 100%
The Schedule set forth above in this Section 4 shall be inapplicable to a Member
who has failed to perform an Hour of Service after the Determination Date on
which the Plan has become Top-Heavy. When the Plan ceases to be Top-Heavy, the
Schedule set forth above in this Section 4 shall cease to apply; provided
however, that the provisions of the Plan Section dealing with changes in the
vesting schedule shall apply.
B-7
<PAGE>
COMMUNITY FIRST BANKING COMPANY DRAFT
EMPLOYEE STOCK OWNERSHIP PLAN 3/14/97
TRUST AGREEMENT
THIS TRUST AGREEMENT is made as of the ____ day of ____________, 1997, by
and between COMMUNITY FIRST BANKING COMPANY, a bank organized and existing under
the laws of the State of Georgia (hereinafter referred to as the "Primary
Sponsor"); Carrollton Federal Bank, FSB, each other Affiliate or other entity
adopting the Community First Banking Company Employee Stock Ownership Plan (the
"Plan"), as provided therein (the Primary Sponsor, and each such other Affiliate
or other entity being hereinafter sometimes individually referred to as a "Plan
Sponsor"); and STEVE MCCORD, THOMAS E. REEVES, JR., LISA LAWSON and ANNA L.
BERRY, (hereinafter collectively referred to as the "Trustee");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Primary Sponsor has established the Plan which is intended to
qualify as an employee stock ownership plan, within the meaning of Section
4975(e)(7) of the Internal Revenue Code of 1986; and
WHEREAS, the Primary Sponsor and the Trustee desire to enter into this
Trust Agreement for the purpose of confirming the terms and conditions of the
Trustee's appointment as trustee of the Plan;
NOW, THEREFORE, the Primary Sponsor and the Trustee do hereby enter into
this Trust Agreement, effective as of the date first set forth above, which
shall read as follows:
SECTION I.
DEFINITIONS
-----------
All terms and definitions contained in the Plan are hereby incorporated in
the Trust Agreement by reference except to the extent that the terms of the
Trust Agreement clearly indicate to the contrary.
SECTION II.
THE FUND
--------
The Primary Sponsor hereby establishes the Fund with the Trustee. Each Plan
Sponsor which adopts the Plan and this Trust Agreement may make its contribution
to the Fund. The Fund shall include the total amount at any given time of
Company Stock, property and cash transferred to the Trustee, as adjusted
for net income or net loss, and shall be held, managed
<PAGE>
and administered by the Trustee in trust in accordance with the provisions of
the Plan and of the Trust Agreement without distinction between principal and
income. At no time shall any part of the Fund be used for or diverted to
purposes other than the exclusive benefit of the Members or their Beneficiaries,
subject, however, to the payment of taxes and administrative expenses and to the
return of contributions to a Plan Sponsor under the specific conditions set
forth in the Plan.
SECTION III.
MAINTENANCE OF AND DISTRIBUTIONS FROM ACCOUNTS
----------------------------------------------
(a) The Plan Administrator shall maintain Accounts and appropriate
subaccounts in accordance with the Plan.
(b) A written notice to the Trustee, to the extent authorized in and given
in accordance with the terms and conditions of the Plan, is the notice of the
person giving it, and the Trustee may rely upon the notice and the authenticity
and genuineness thereof and of the signatures thereon, and the authority of the
person or persons executing and delivering it, without making inquiry in regard
thereto. The Trustee is not charged with any notice whatsoever unless given in
accordance with the Plan, including, without limitation, notification of any
changes in the identity or authority of any Fiduciary (other than the Trustee)
or any other person acting in regard to the Plan.
(c) Persons authorized to give directions to the Trustee on behalf of the
Plan Administrator shall be identified to the Trustee by written notice from the
Primary Sponsor and such notice shall contain specimens of the authorized
signatures. The Trustee shall be entitled to rely upon such written notice as
evidence of the written identity and authority of the person(s) appointed until
a written cancellation of the appointment is received by the Trustee.
(d) The Trustee shall from time to time, on the written direction of the
Plan Administrator, or such other means of direction as mutually agreed upon by
the Trustee and the Plan Administrator, make payments or distributions out of
the Fund to persons in the manner and in the amounts as may be specified in the
directions of the Plan Administrator, and upon any payments being made, the
amount thereof shall no longer constitute a part of the Fund. The Plan
Administrator assumes all responsibility with respect to all directions and the
application of payments or distributions. The Trustee is under no duty to
enforce payments of any contributions to the Fund.
(e) In the event that any payment ordered by the Plan Administrator is
mailed by the Trustee to a Member or his Beneficiary specified in such order to
the last known address of such person filed with the Plan Administrator and is
then returned to the Trustee because such person cannot be located at such
address, the Trustee shall promptly notify the Plan Administrator. Upon the
expiration of sixty (60) days after such notification the order shall become
void and,
-2-
<PAGE>
unless and until a further order is received from the Plan Administrator by the
Trustee with respect to such payment, the Trustee shall thereafter continue to
administer the Fund as if the order had not been made by the Plan Administrator.
The Trustee shall not be obligated to search for or ascertain the whereabouts of
any Member or his Beneficiary.
(f) In the event that any dispute arises as to the persons to whom the
payment of any funds or delivery of any assets shall be made by the Trustee, the
Trustee may withhold payment or delivery until the dispute has been determined
by a court of competent jurisdiction or has been settled by the parties
concerned and may, in its sole discretion, submit the dispute to a court of
competent jurisdiction.
SECTION IV.
INVESTMENTS
-----------
(a) Subject to the provisions of this Section IV and Sections V and VI
hereof and Plan Section 5, the Trustee agrees to invest with the care, skill and
diligence under the circumstances then prevailing that a prudent man acting in
like capacity and familiar with such matters pursuant to the Plan and this Trust
Agreement would use in the conduct of an enterprise of a like character and with
like aims.
(b) The Trustee shall invest the assets of the Plan primarily in shares of
Company Stock, to the extent shares of Company Stock are available.
(c) Since from time to time shares of Company Stock may not be available,
the Trustee, subject to the terms of the Plan and the Trust Agreement and the
provisions of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), shall have the authority to invest and reinvest the principal and
income of the Fund without distinction between principal and income, in
securities or in property, real, personal or mixed and wherever situated,
whether or not productive of income, as the Trustee shall deem advisable, in its
sole discretion. Without limiting the foregoing, the Trustee may purchase,
acquire, obtain, retain, sell, transfer, pledge, hypothecate or encumber common
or preferred stocks, shares of mutual funds, bonds and mortgages, other
evidences of indebtedness, savings accounts or certificates of deposit,
including without limitation, savings accounts or certificates of deposit
established by the Trustee or its affiliates, and group trusts or collective
investment funds, including without limitation, group trusts or collective
investment funds permitted for any retirement plans qualified under Code Section
401(a) maintained by the Trustee or its affiliates and any single trust or group
trust or collective investment fund which may hold securities issued by the
Primary Sponsor or its Affiliates, covered call options, put options, and
financial futures contracts, irrespective of whether the securities or property
are of a character authorized from time to time by applicable state law for
trust investments.
-3-
<PAGE>
(d) Notwithstanding any language in the Trust Agreement to the contrary,
the Trustee shall not invest in any securities issued by a Plan Sponsor or any
affiliate (as defined in ERISA Section 407(d)(7)) of a Plan Sponsor unless the
securities are "qualifying employer securities" which means (i) securities of a
Plan Sponsor or any affiliate which are stock, or (ii) a marketable obligation,
as defined in ERISA Section 407(e), of a Plan Sponsor or any affiliate;
provided, however, that in no event is the Trustee required to invest in
qualifying employer securities if the Trustee makes a good faith determination
that the investment would be contrary to ERISA Section 406 or Code Section 4975.
Notwithstanding anything herein to the contrary, the Trustee shall not invest in
any real property leased to or used by a Plan Sponsor or any affiliate of a Plan
Sponsor unless the real property is "qualifying employer real property" which
means parcels of real property and related personal property which are leased to
the Plan Sponsor or to any affiliate and which are geographically dispersed and
are suitable (or adaptable without excessive cost) for more than one use;
provided, however, that in no event is the Trustee required to invest in
qualifying employer real property if the Trustee makes a good faith
determination that the investment would be contrary to ERISA or the Code.
SECTION V.
INVESTMENT MANAGER
------------------
(a) In the event an Investment Manager is designated in accordance with
the provisions of the Plan, the Trustee, at the direction of the Primary
Sponsor, shall either (1) turn over to the Investment Manager for investment all
or a portion of the Fund as is specified in a written direction to the Trustee
from the Primary Sponsor or (2) invest and reinvest all or a portion of the Fund
as is specified in a written direction to the Trustee from the Primary Sponsor
in the manner in which the Investment Manager directs the Trustee in writing. In
either event, whether the Trustee actually gives the Investment Manager
possession of all or any portion of the Fund or is required to invest all or any
portion of the Fund as directed by the Investment Manager, the Trustee shall
have no discretion with respect to the investment or reinvestment of such
portion and shall not be liable for that portion of the Fund invested by or
under the direction of the Investment Manager or for any acts or omissions of
the Investment Manager or for following or for taking or refraining from taking
any action at any direction of the Investment Manager given prior to receipt by
the Trustee of written notice from the Primary Sponsor of revocation of the
designation of the Investment Manager or for the failure of the Investment
Manager to give a direction or for any act or omission in connection with that
failure. The Trustee shall have no responsibility for any assets of the Fund
while in the possession of the Investment Manager or while the assets have not
been returned to the possession of the Trustee, and the Trustee is entitled to
rely upon notice of the designation of an Investment Manager from the Primary
Sponsor until notified in writing by the designating party that the designation
is no longer in effect.
(b) During any period of time in which an Investment Manager directs the
investment of a portion of the Fund, the Trustee shall continue to receive all
securities purchased
-4-
<PAGE>
against payment therefor and to deliver all securities sold against receipt of
the proceeds therefrom. Any duly designated Investment Manager, authorized to
direct investments, may from time to time issue orders on behalf of the Trustee
for the purchase or sale of securities directly to a broker or dealer and for
that purpose the Trustee shall, upon request, execute and deliver to the
Investment Manager one or more trading authorizations. Written notification of
the issuance of each order shall be given promptly to the Trustee by the
Investment Manager and the execution of each order shall be confirmed by the
broker to the Investment Manager and to the Trustee. The notification is the
authority of the Trustee to receive securities purchased against payment
therefor and to deliver securities sold against receipt of the proceeds
therefrom, as the case may be. All directions concerning investments of the
Investment Manager shall be signed by the person or persons, acting on behalf of
the Investment Manager as may be duly authorized in writing; provided, however,
that the transmission by the Investment Manager to the Trustee of directions by
photostatic teletransmission with duplicate or facsimile signature or signatures
is considered a delivery in writing of the directions until the Trustee is
notified in writing by the Plan Administrator that the use of devices with
duplicate or facsimile signatures is no longer authorized. Notwithstanding the
preceding, the Investment Manager and the Trustee may enter into agreements for
the confirmation of trades using electronic confirmation procedures. These
electronic confirmations shall be the authority for the Trustee to receive
securities purchased against payment therefor and to deliver securities sold
against receipt of the proceeds therefrom. The Trustee is entitled to rely upon
directions which it receives by such means prior to receipt of notice from the
Plan Administrator that they are no longer authorized, and the Trustee is not
responsible for the consequences of any unauthorized use of a device which use
was not known by the Trustee at the time to be unauthorized.
(c) Notwithstanding any other provision of the Trust Agreement or the
Plan, the Trustee is under no duty to make any review of investments acquired
for the Plan at the direction or order of an Investment Manager or to make any
recommendation with respect to disposing of or continuing to retain any such
investment .
(d) Notwithstanding any other provision of the Trust Agreement or the
Plan, the Trustee has no obligation to determine the existence of any
conversion, redemption, exchange, subscription or other right relating to any
securities purchased, of which notice was given prior to the purchase of the
securities, and has no obligation to exercise any such right unless the Trustee
is informed of its existence by the Investment Manager and is requested in
writing by the Investment Manager to exercise such right within a reasonable
time before the time for the exercise thereof expires. The Trustee shall have no
obligation to vote any proxies attributable to the securities purchased or held
at the direction of or held by or subject to the control of an Investment
Manager and such Investment Manager shall be solely responsible for voting all
such proxies.
-5-
<PAGE>
SECTION VI.
INVESTMENT COMMITTEE
--------------------
(a) In the event an Investment Committee is designated by the Primary
Sponsor, the Trustee shall, unless the Primary Sponsor shall otherwise direct
the Trustee in writing, invest and reinvest all of the Fund in the manner that
the Investment Committee shall direct the Trustee; provided, however, that the
Trustee shall only be subject to proper directions of the Investment Committee
which are made in accordance with the terms of the Plan and this Trust Agreement
and are not contrary to ERISA.
(b) The Primary Sponsor may direct in writing that only a portion of the
Fund shall be invested and reinvested as the Investment Committee shall direct,
in which case the Trustee shall invest and reinvest the balance of the Fund
pursuant to Section IV hereof, subject to Sections V and VI hereof and Plan
Section 5.
SECTION VII.
TRUSTEE POWERS
--------------
In the administration of the Fund, in addition to, and not in limitation
of, any powers or authority of the Trustee under this Trust Agreement or which
the Trustee may have under applicable law in addition thereto (all such
additional powers and authority being specifically hereby granted to the
Trustee), the Trustee is authorized and empowered to do the following, in its
sole discretion in relation to any portion of the Fund for which it has
investment responsibility or discretion, or as directed, to the extent
investment responsibility or discretion is assigned to an Investment Manager or
the Investment Committee:
(a) To purchase or subscribe for any securities or property, including,
without limitation, shares of mutual funds, and to retain the same in trust;
(b) To sell, exchange, convey, transfer, or otherwise dispose of, any
securities or property held by it, by private contract or at public auction,
with or without advertising, and no person dealing with the Trustee shall be
bound to see to the application of the purchase money;
(c) Subject to the provisions of Plan Section 11, to vote any stocks,
bonds, or other securities, subject however to the provisions of the Plan,
except for those securities held at the direction of an Investment Manager as
described in Section V of the Trust Agreement; to give general or special
proxies or powers of attorney with or without power of substitution; to exercise
any conversion privileges, subscription rights or other options, and to make any
payments incidental thereto; to oppose or to consent to, or otherwise
participate in, corporate reorganizations or other changes affecting corporate
securities, and to delegate discretionary powers, and to pay any assessments or
charges in connection therewith; and generally to exercise
-6-
<PAGE>
any of the powers of an owner with regard to stocks, bonds, securities or other
property held as part of the Fund;
(d) To write covered call options and to purchase or sell put options and
financial futures contracts;
(e) To employ and act through suitable agents, accountants, appraisers and
attorneys (who may be counsel for the Trustee) and to pay their reasonable
expenses and compensation;
(f) To borrow or raise moneys for the purposes of the Fund in such
amounts, and upon the terms as the Trustee in its absolute discretion may deem
advisable; and for any sums so borrowed to issue its promissory note as Trustee,
and to secure the repayment thereof by pledging all or any part of the Fund; and
no person lending money to the Trustee shall be bound to see to the application
of the money lent;
(g) To settle, compromise or submit to arbitration any claims, to commence
or defend any suits or legal or administrative proceedings arising or necessary
or appropriate in connection with the Fund, and to represent the Plan and Trust
in all suits and legal and administrative proceedings;
(h) To keep such portions of the Fund in cash or cash balances as the
Trustee may, from time to time, deem to be in the best interest of the Trust, it
being understood that the Trustee shall not be required to pay any interest on
any cash balances; and
(i) To transfer, at any time and from time to time, all or any part of the
Fund, after receiving written approval from the Primary Sponsor, all or any part
of the Fund in one or more group trusts or collective investment funds now
existing or hereafter established (including, without limitation, group trusts
or collective investment funds now or hereafter established by the Trustee)
which contemplate the commingling for investment purposes of the funds therein
with trust assets of other retirement plans qualified under Code Section 401(a)
and established by other businesses, institutions and organizations. To the
extent required by Revenue Ruling 81-100 and to the extent consistent with the
Plan, the terms and provisions of the declaration of trust creating any group
trust or collective investment fund in which all or any part of the Fund is
invested, as in force and effect at the time of the investment and as thereafter
amended, are hereby adopted and made a part hereof, and any part of the Fund so
invested shall be subject to all of the terms and provisions, as in force and
effect at the time of the investment and as thereafter amended, of any
declaration of trust creating the group trust or collective investment fund. The
Trustee shall, after receiving initial written approval from the Primary
Sponsor, from time to time withdraw from the group trust or collective
investment fund all or such part of the Fund as the Trustee shall deem
advisable.
In addition, the Trustee shall have the following powers and authority in
the administration of the Fund, to be exercised in its sole discretion,
regardless of whether an
-7-
<PAGE>
Investment Manager or the Investment Committee has been designated to instruct
the Trustee with respect to the investment of any portion of the Fund:
(1) To register any investment held as a part of the Fund in its own
name or in the name of a nominee, and to hold any investment in bearer form
or through or by a central clearing corporation maintained by institutions
active in the national securities markets, but the books and records of the
Trustee shall at all times show that all investments are part of the Fund;
(2) To make, execute, acknowledge and deliver any and all documents
of transfer and conveyance and any and all other instruments or agreements
that may be necessary or appropriate to carry out the powers of the Trustee
under this Trust Agreement or incidental thereto; and
(3) Generally, to do all acts and to execute and deliver all
instruments as in the judgment of the Trustee may be necessary or desirable
to carry out any powers or authority of the Trustee, without advertisement
and without order of court and without having to post bond or make any
returns or report of its doings to any court.
Notwithstanding any other term or condition of the Plan or this Trust
Agreement, the Trustee shall not engage in any transaction with the assets of
the Fund in violation of the provisions of ERISA Section 406.
SECTION VIII.
LIABILITY & INDEMNIFICATION
---------------------------
(a) The Trustee shall not be responsible for computing or collecting
contributions due under the Plan.
(b) The Trustee in its capacity as trustee shall not be liable for claims
of any persons arising under the Plan; such claims shall be limited to the Fund.
The Trustee shall not be liable to make distributions or payments of any kind
unless sufficient funds are available therefor in the Fund. The Trustee shall be
responsible only for such money and other property as are received by it as
trustee under this Agreement.
(c) The Trustee shall be under no liability for any loss of any kind which
may result by reason of any action taken by it in accordance with any direction
of a Plan Sponsor or the Plan Administrator.
(d) The Primary Sponsor agrees, to the fullest extent permitted by law, to
indemnify and hold harmless the Trustee from and against any and all losses,
claims, damages, liabilities or expenses (including, without limitation, any and
all expenses reasonably incurred in
-8-
<PAGE>
investigating, preparing or defending against any litigation or proceeding,
whether civil, criminal, administrative, or investigative, commenced or
threatened), incurred by or imposed on the Trustee and arising either with
respect to the investment in, or any other action taken with respect to, assets
held by the Fund or with respect to the discharge of its duties hereunder;
provided, however, that the Trustee shall not be indemnified or held harmless
- -------- -------
with respect to any losses, claims, damages, liabilities or expenses which arise
from willful misconduct or bad faith by the Trustee.
(e) Communications to the Trustee shall be sent to the Trustee's at the
address the Trustee shall indicate in a written instrument delivered to the Plan
Administrator. Communications to the Plan Administrator, or a Plan Sponsor shall
be sent to the Plan Sponsor's principal office, or to such other address as the
Plan Administrator shall specify in a written instrument delivered to the
Trustee.
(f) If a dispute arises as to the payment of any funds or delivery of any
assets by the Trustee, the Trustee may withhold such payment or delivery until
the dispute is determined by a court of competent jurisdiction or finally
settled in writing by the parties concerned.
SECTION IX.
TRUSTEE COMPENSATION
--------------------
(a) The Trustee's compensation and expenses shall be as may be agreed upon
from time to time in a separate written agreement between the Primary Sponsor
and the Trustee. Such compensation and expenses shall be paid from the Fund
unless (1) the Primary Sponsor pays any of such compensation or expenses, or (2)
the payment of such compensation or expenses would constitute a "prohibited
transaction" within the meaning of ERISA Section 406 or Code Section 4975 (in
which event such amounts shall be paid by the Primary Sponsor). In the event the
Primary Sponsor shall fail to pay to the Trustee its compensation and expenses
within ninety (90) days of invoicing of the same to the Primary Sponsor by the
Trustee, the Trustee is authorized to use the assets held by the Trustee under
the Fund to pay its unpaid compensation and expenses. Notwithstanding the
foregoing, no person, if any, who serves as the Trustee and who receives full-
time pay from a Plan Sponsor is entitled to receive any compensation from the
Fund, except for the reimbursement of expenses properly and actually incurred by
that person in his or her role as Trustee.
(b) All taxes of whatever kind or nature that may be levied or assessed
upon the Trust shall be paid from the Fund.
-9-
<PAGE>
SECTION X.
TRUSTEE RESPONSIBILITY
----------------------
The Trustee is not responsible for the application, investment or other
disposition of any funds or property held or managed by, or otherwise subject to
direction by, any person other than the Trustee. The Trustee is not responsible
for the application of any funds or property held by it under the Trust
Agreement which have been paid to the Plan Administrator or which have been paid
pursuant to the Plan and this Trust Agreement or as directed by the Plan
Administrator. The Trustee has no responsibility with respect to any
administration of the Plan or the payment of any benefits under the Plan.
SECTION XI.
RECORDKEEPING
-------------
The Trustee shall keep accurate and detailed accounts of all investments,
receipts, disbursements and other transactions pursuant to the Plan relative to
the Fund, and all accounts, books and records relating thereto shall be open to
inspection and audit at all reasonable times by the Plan Administrator. Within
ninety (90) days following the last day of each Plan Year or the receipt of a
Plan Sponsor's contribution, if later, and within ninety (90) days after (a) the
removal or resignation of the Trustee, (b) the death, removal or resignation of
an individual trustee, if any, or (c) the termination of the Trust (hereinafter
the date of an event described in Subsection (a), (b) or (c) of this Section is
referred to as a "Report Date"), the Trustee shall file with the Plan
Administrator a written account setting forth (1) all investments, receipts,
disbursements and other transactions effected by it during such Plan Year or
during the period from the last Valuation Date to the Report Date and (2) the
determination of the Trustee of the net income or net loss of the Fund pursuant
to Plan Section 4 for such Plan Year or during the period from the last
Valuation Date to the Report Date, as the case may be, except that unless the
Report Date is also a Valuation Date, no allocation of net income, net loss,
earnings, gains or losses shall be made to a Member's Account.
SECTION XII.
REMOVAL OR RESIGNATION OF TRUSTEE AND
-------------------------------------
AMENDMENT OR TERMINATION OF TRUST
---------------------------------
(a) The Trustee may be removed by the Primary Sponsor at any time upon
thirty (30) days' notice in writing to the Trustee; provided, however, that such
notice may be waived in writing by the Trustee. The Trustee may resign at any
time upon thirty (30) days' notice in writing to the Board of Directors and the
Plan Administrator; provided, however, that such notice may be waived in writing
by the Board of Directors.
-10-
<PAGE>
(b) Upon the removal or resignation of the Trustee, the Board of Directors
shall appoint a successor who shall have the same powers and duties as those
conferred upon the Trustee under this Trust Agreement, and, upon receipt by the
Trustee of a written acceptance of such appointment by the successor trustee,
the Trustee shall assign, transfer and pay over to such successor trustee the
funds and properties then constituting the Fund. In the event that by the end of
the thirty (30) day notice period, the Board of Directors has failed to appoint
a successor trustee or the Trustee has not received a written acceptance from
such a successor trustee, then at any time after the end of such thirty (30) day
notice period the Trustee may file an appropriate action in a court of competent
jurisdiction and assign, transfer and pay over to the custody of such court the
funds and properties then held by the Trustee constituting the Fund. Upon the
assignment, transfer and payment to a successor trustee or to such court, as the
case may be, the Trustee shall be relieved of all further duties,
responsibilities, obligations and liabilities in connection with the Plan or the
Fund. The Trustee is authorized, however, to reserve therefrom money or property
as it may deem advisable for payment of its fees and expenses in connection with
the settlement of its account or otherwise, and any balance of such reserve
remaining after the payment of such fees and expenses shall be paid over to the
successor trustee or to the court.
(c) The Primary Sponsor reserves the right at any time to amend, in whole
or in part, any or all of the provisions of the Trust Agreement by notice
thereof delivered in writing to the Trustee, provided that any amendment which
affects the rights, duties or responsibilities of the Trustee may not be made
without the written consent of the Trustee.
(d) The Trust shall continue for such time as may be necessary to
accomplish the purposes for which it was created and shall terminate only upon
the complete distribution of the Fund. The Trust may be terminated as of any
date by the Primary Sponsor by notice to the Trustee and the Plan Administrator,
which notice shall specify the date as of which the Trust shall terminate, must
be received by the Trustee prior to such date and must be given in the manner
prescribed for notices in the Plan. Upon termination of the Trust, the Trustee
shall liquidate the Fund and, after paying the reasonable expenses of the Trust,
including expenses involved in the termination, distribute the balance thereof
according to the written directions of the Plan Administrator.
(e) The contributions made by each Plan Sponsor to the Trustee pursuant to
the Plan are conditioned upon the conditions set forth in the Plan as to
qualification and returns of contributions, and the returns of contributions by
the Trustee to the Plan Sponsors in certain events is governed by such
provisions of the Plan.
(f) Any notice to be given to the Trustee in connection with the Plan or
the Trust Agreement shall be promptly given and shall be given in accordance
with the Plan.
(g) This Trust Agreement shall be administered, construed and enforced
according to the laws of the State of Georgia and the laws of the United States
to the extent that they
-11-
<PAGE>
preempt state law or are otherwise applicable to the Fund, and the Trustee is
liable to account only in the courts of that state and in any court of
appropriate jurisdiction of the United States. All transfers of funds or other
property to or from the Trustee are deemed to take place in the State of
Georgia.
IN WITNESS WHEREOF, the parties hereto have caused this Trust Agreement to
be duly executed as of the day and year first above written.
PRIMARY SPONSOR:
COMMUNITY FIRST BANKING COMPANY
By: _______________________________
Title:_____________________________
ATTEST:
By: _______________________
[SEAL]
TRUSTEE:
___________________________________
Steve McCord
___________________________________
Thomas E. Reeves, Jr.
___________________________________
Lisa Lawson
___________________________________
Anna L. Berry
-12-
<PAGE>
THIRD AMENDMENT TO DRAFT
AMENDED AND RESTATED EMPLOYMENT CONTRACT 3/14/97
THIS AGREEMENT is made as of the ____ day of ________________, 1997,
between CARROLLTON FEDERAL BANK, FSB ("Bank") and GARY D. DORMINEY ("Employee").
W I T N E S S E T H:
WHEREAS, the parties entered into an Amended and Restated Employment
Contract, made as of the 1st day of September, 1994, as amended by First
Amendment thereto dated as of the 1st day of September, 1995, and by the Second
Amendment thereto dated as of the 1st day of September, 1996, which employment
contract and First and Second Amendment are by reference incorporated herein
(the "Employment Contract"); and
WHEREAS, the Employment Contract currently runs through August 31, 1999,
subject to certain extensions upon written notice to the Employee and written
acceptance by the Employee; and
WHEREAS, the Bank now desires to have the Employment Contract's three-year
term renew annually unless written notice is provided by either party indicating
to the contrary; and
WHEREAS, Article 3.07 of the Employment Contract provides that the Employee
shall receive a payment equal to the greater of the remaining balance of his
Employment Contract or 2.99 times his average compensation over the five (5)
years preceding said termination in the event of voluntary or involuntary
employment termination; and
WHEREAS, the Board of Directors of the Bank have agreed to provide the
Employee with a severance amount equal to 2.99 times his average compensation
(as explained above), subject to the conditions set forth herein; and
WHEREAS, the parties wish to document their intention and agreement that
the term of the Employment Contract be changed as stated above;
NOW, THEREFORE, in consideration of the premises and the mutual benefits
flowing to the parties by virtue of the modification of the contract, the
parties do agree as follows:
1. By deleting Article 1.02 of the Employment Contract and substituting
therefor the following:
"1.02 Extension of Term. The three-year term of the Agreement shall
-----------------
be automatically renewed each September 1st (the `Renewal Date'), unless
either party shall notify the other party in writing within ninety (90)
days before a Renewal Date of that party's intent that the renewal shall
not take place. In the event such a timely notice is provided, the term of
this Agreement shall expire
<PAGE>
on the third anniversary of the Renewal Date immediately following the date
the written notice was provided pursuant to this Article 1.02, unless the
Agreement is terminated earlier pursuant to any other applicable provision
of this Agreement."
2. By deleting the second sentence of Article 3.07 and substituting
therefor the following:
"If termination, voluntary or involuntary, demotion or change of place of
employment, follows a change in control of the Bank as defined in this
paragraph, the Employee or, in the event of his death, his beneficiaries,
shall be entitled to a payment equal to 2.99 times his average annual
compensation over the five (5) years preceding termination."
3. The Employment Contract shall otherwise continue in full force and
effect.
IN WITNESS WHEREOF, the parties have executed this Third Amendment to the
Employment Contract under seal as of the year and date first above written.
CARROLLTON FEDERAL BANK, FSB
By: _______________________________(SEAL)
T. AUBREY SILVEY, Chairman
_______________________________(SEAL)
GARY D. DORMINEY
2
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We have issued our report dated February 4, 1997, except for note 15, as to
which the date is February 11, 1997, accompanying the financial statements
of CF Mutual Holdings and Subsidiaries contained in the Registration
Statement on Form S-1 and the Prospectus. We consent to the use of the
aforementioned report in the Registration Statement on Form S-1 and the
Prospectus, and to the use of our name as it appears under the caption
"Experts."
PORTER KEADLE MOORE LLP
Successor to the practice of
Evans, Porter, Bryan & Co.
Atlanta, Georgia
March ___, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CF
MUTUAL HOLDINGS AUDITED FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 11,061,383
<INT-BEARING-DEPOSITS> 3,355,586
<FED-FUNDS-SOLD> 8,680,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 33,927,243
<INVESTMENTS-CARRYING> 7,764,058
<INVESTMENTS-MARKET> 7,698,543
<LOANS> 272,435,218
<ALLOWANCE> 2,601,120
<TOTAL-ASSETS> 352,531,510
<DEPOSITS> 307,756,198
<SHORT-TERM> 0
<LIABILITIES-OTHER> 19,517,789
<LONG-TERM> 0
0
0
<COMMON> 0
<OTHER-SE> 25,251,523
<TOTAL-LIABILITIES-AND-EQUITY> 352,531,510
<INTEREST-LOAN> 24,874,119
<INTEREST-INVEST> 2,494,181
<INTEREST-OTHER> 822,139
<INTEREST-TOTAL> 28,190,439
<INTEREST-DEPOSIT> 13,617,824
<INTEREST-EXPENSE> 14,781,458
<INTEREST-INCOME-NET> 13,408,981
<LOAN-LOSSES> 1,142,987
<SECURITIES-GAINS> 178,487
<EXPENSE-OTHER> 15,275,992
<INCOME-PRETAX> 234,390
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 247,791
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.21
<LOANS-NON> 6,243,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 9,960,000<F1>
<ALLOWANCE-OPEN> 2,290,974
<CHARGE-OFFS> 924,670
<RECOVERIES> 91,829
<ALLOWANCE-CLOSE> 2,601,120
<ALLOWANCE-DOMESTIC> 2,601,120
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Total Classified assets
</FN>
</TABLE>
