<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 30, 1998
REGISTRATION NO. _________________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________________
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
CAPITOL CITY BANCSHARES, INC.
-------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 6060 58-1994305
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
Of Incorporation) Classification Code No.) Identification No.)
CAPITOL CITY BANCSHARES, INC.
562 Lee Street, S.W.
Atlanta, Georgia 30311
(404) 752-6067
------------------------------------------------------------------
(Address, including zip code, and telephone number, including area code,
of Registrant's Principal Executive Offices )
GEORGE G. ANDREWS, PRESIDENT AND CEO
CAPITOL CITY BANCSHARES, INC.
562 Lee Street, S.W.
Atlanta, GA 30311
(404) 752-6067
With a copy to:
John T. McGoldrick, Jr., Esq.
Martin, Snow, Grant & Napier
P.O. Box 1606
Macon, Georgia 31202-1606
(912) 749-1716
---------------------------------------------------------------------------
(Name, address, including zip code, and telephone number, including area code,
of Agent for Service)
Approximate date of commencement of the proposed sale of the securities to the
public: As soon as practicable after the effective date of the Registration
Statement.
If the securities being registered on this form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [X]
_________________________________________________
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
Proposed Proposed
maximum maximum
Title of each class of Amount to offering aggregate Amount of
securities to be registered be registered/1/ price offering price registration fee/2/
per unit
- - -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock,
$6 par value 532,088 shares N/A $5,782,000.00 $1,705.69
- - ------------------------------------------------------------------------------------------------------
</TABLE>
_______________________
/1/
As provided in the Plan of Reorganization and Agreement of Merger between
Capitol City Bancshares, Inc., Capitol City Bank and Trust, and Capitol City
Interim, Inc., each of the 532,088 shares of the $6.00 par value common stock of
Capitol City Bank and Trust will be converted into the right to receive one (1)
share of the $6.00 par value common stock of the registrant. The registrant will
de-register the indicated shares if the shareholders of Capitol City Bank and
Trust do not approve the proposed reorganization.
/2/
In accordance with Rule 457(f)(2), the registration fee has been calculated
on the basis of the book value of $10.87 per share ($5,782,000.00 in the
aggregate) as of June 30, 1998 of the 532,088 shares of Capitol City Bank and
Trust to be received by the registrant in connection with the reorganization.
<PAGE>
CAPITOL CITY BANK AND TRUST
562 Lee Street, S.W.
Atlanta, Georgia 30311
(404) 752-6067
September ____, 1998
Dear Shareholders:
The Board of Directors of Capitol City Bank and Trust (the "Bank")
cordially invites you to attend the Special Meeting of Shareholders which will
be held at _________ o'clock ___.m. on September _____, 1998, at 562 Lee Street,
S.W., Atlanta, Georgia 30311.
At the special meeting the Bank's shareholders will be asked to consider
and vote upon a Plan of Reorganization and Agreement of Merger entered into with
Capitol City Bancshares, Inc. ("Bancshares") and Capitol City Interim, Inc.
("Interim") on April 14, 1998 (the "Agreement") pursuant to which the Bank would
become and thereafter be operated as a wholly owned subsidiary of Bancshares.
If the Agreement is approved, each outstanding share of the $6.00 par value
common stock of the Bank will be converted on a tax-free basis into one share of
the $6.00 par value common stock of Bancshares. As a result of the
reorganization, the equity interest of the Bank's existing shareholders in
Bancshares will be the same as their present interest in the Bank, provided none
of the Bank's shareholders dissent and elect to exercise their statutory
appraisal rights, and the Bank will thereafter be operated as a wholly owned
subsidiary of Bancshares.
The accompanying proxy statement includes a description of the terms and
conditions of the proposed reorganization, a description of the business and
financial condition of the Bank and certain other significant information,
including a description of the statutory appraisal rights of dissenting
shareholders. A copy of the Agreement is attached as Appendix "A" to the proxy
statement.
THE BOARD OF DIRECTORS BELIEVES THAT ADOPTION OF THE PLAN OF REORGANIZATION AND
AGREEMENT OF MERGER IS IN THE BEST INTERESTS OF THE BANK AND ITS SHAREHOLDERS
AND URGES YOU TO VOTE IN FAVOR OF THE PLAN OF REORGANIZATION AND AGREEMENT OF
MERGER. THE APPROVAL AND ADOPTION OF THE PLAN OF REORGANIZATION AND AGREEMENT
OF MERGER REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST TWO-
THIRDS (66 2/3%) OF THE OUTSTANDING SHARES OF THE BANK'S COMMON STOCK. IT IS,
THEREFORE, EXTREMELY IMPORTANT FOR YOU TO SIGN, DATE AND RETURN YOUR ENCLOSED
PROXY AS SOON AS POSSIBLE IN THE PRE-ADDRESSED AND STAMPED ENVELOPE SUPPLIED FOR
YOUR CONVENIENCE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
We urge you to carefully review the enclosed Proxy Statement/Prospectus
that describes the Plan of Reorganization and the Agreement of Merger proposal
in detail.
<PAGE>
Again, your Board of Directors strongly recommends that you vote FOR the
proposal. On behalf of the Board of Directors, thank you for your cooperation
and continued support.
Very truly yours,
GEORGE G. ANDREWS, President
<PAGE>
________________________________________________
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON SEPTEMBER _____, 1998
________________________________________________
TO THE SHAREHOLDERS OF CAPITOL CITY BANK AND TRUST
Notice is hereby given that the Special Meeting of Shareholders of Capitol
City Bank and Trust (the "Bank") will be held at ______o'clock ___.m. on
September ____, 1998, at 562 Lee Street, S.W., Atlanta, Georgia 30311, for the
following purposes:
1. To consider and vote upon a Plan of Reorganization and Agreement of
Merger between the Bank, Capitol City Interim, Inc. ("Interim"), and Capitol
City Bancshares, Inc. ("Bancshares"), a Georgia corporation formed to act as a
holding company for the Bank, pursuant to which, among other matters, (i)
Interim, a subsidiary of Bancshares, will be merged with and into the Bank. The
Bank will be the surviving corporation to the merger and will thereafter be
operated as a wholly owned subsidiary of Bancshares, and (ii) each of the
outstanding shares of the Bank's $6.00 par value common stock will be converted
into and exchanged for one (1) share of the $6.00 par value common stock of
Bancshares; all as more fully set forth in the Plan of Reorganization and
Agreement of Merger dated April 14, 1998 annexed to the proxy statement as
Appendix "A" hereto.
2. To transact such other business as may properly come before the Special
Meeting and any adjournment or postponement thereof.
You are urged to mark, sign, date and promptly return your proxy in the
enclosed envelope so that your shares may be voted in accordance with your
wishes and in order that the presence of a quorum may be assured. The prompt
return of your signed proxy, regardless of the number of shares you hold, will
aid the Bank in reducing the expense of additional proxy solicitation. The
giving of such proxy does not affect your right to vote in person if you attend
the meeting and give notice to the Secretary of the Bank.
Only those shareholders of record at the close of business on September
____, 1998 will be entitled to notice of and to vote at the Special Meeting and
any adjournment or postponement thereof.
Dissenting shareholders who satisfy all of the requirements set forth in
the Georgia Business Corporation Code will be entitled to receive payment in
cash for the "fair value" of their shares of common stock of the Bank if the
reorganization is approved. Information describing the rights of dissenting
shareholders is more fully set forth under "RIGHTS OF DISSENTING SHAREHOLDERS"
and Exhibit "B" of the proxy statement.
<PAGE>
AN AFFIRMATIVE VOTE OF THE HOLDERS OF AT LEAST TWO-THIRDS (66-2/3%) OF THE
OUTSTANDING SHARES IS REQUIRED FOR APPROVAL AND ADOPTION OF THE PLAN OF
REORGANIZATION AND AGREEMENT OF MERGER. THEREFORE, WHETHER OR NOT YOU EXPECT TO
ATTEND THE SPECIAL MEETING IN PERSON, YOU ARE URGED TO SIGN, DATE AND PROMPTLY
RETURN THE ENCLOSED PROXY. A SELF-ADDRESSED STAMPED ENVELOPE IS ENCLOSED FOR
YOUR CONVENIENCE.
This _____ day of September, 1998.
By Order of the Board of Directors,
/s/ George G. Andrews
GEORGE G. ANDREWS, President
<PAGE>
[OUTSIDE FRONT COVER PAGE]
PROSPECTUS
CAPITOL CITY BANCSHARES, INC.
532,088 Shares of Common Stock, $6 Par Value
CAPITOL CITY BANK AND TRUST
PROXY STATEMENT
This prospectus of Capitol City Bancshares, Inc. ("Bancshares"), organized
and existing under the laws of the State of Georgia to operate as a bank holding
company, relates to the shares of its common stock, par value $6.00 per share,
which are issuable to shareholders of Capitol City Bank and Trust (the "Bank")
upon consummation of a reorganization (the "Reorganization") described herein,
pursuant to which the Bank will become a wholly owned subsidiary of Bancshares,
and shareholders of the Bank will become shareholders of Bancshares, as more
particularly set forth in the Plan of Reorganization and Agreement of Merger
dated April 14, 1998 by and between Bancshares, the Bank, and Capitol City
Interim, Inc. (the "Agreement"). A copy of the Agreement is attached to this
proxy statement/prospectus as Appendix "A".
At such time as the transactions contemplated by the Agreement are
consummated, (i) Interim will merge with and into the Bank, with the Bank as the
surviving entity to the merger, and (ii) each of the 532,088 shares of common
stock of the Bank, $6.00 par value, will be converted into the right to receive
one (1) share of Bancshares common stock.
This prospectus/proxy statement is also being furnished to the holders of
the shares of common stock of the Bank in connection with the solicitation by
management of the Bank of proxies for use at the special meeting of shareholders
of the Bank to be held on September ____, 1998, at the time and place and for
the purposes set forth in the accompanying notice of special meeting and any
adjournments thereof.
This Proxy Statement/Prospectus does not cover resales of shares of
Bancshares common stock upon consummation of the proposed reorganization, and no
person is authorized to make use of the Proxy Statement/Prospectus in connection
with any such resale.
FOR A DISCUSSION OF RISK FACTORS, SEE THE "RISK FACTORS" SECTION OF THIS
PROXY STATEMENT/PROSPECTUS BEGINNING ON PAGE 8.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION (THE "SEC"), THE GEORGIA DEPARTMENT OF BANKING AND
FINANCE ("DBF"), THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM ("FRB"),
THE GEORGIA SECURITIES COMMISSIONER OR ANY OTHER STATE SECURITIES COMMISSION.
NONE OF THE
-1-
<PAGE>
AFOREMENTIONED HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY
STATEMENT/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 GOVERNMENTAL AGENCY OR INSTITUTION.
The date of this Proxy Statement/Prospectus is September _____, 1998
[INSIDE FRONT AND OUTSIDE BACK COVER PAGES OF PROSPECTUS]
-2-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Heading Page
<S> <C>
AVAILABLE INFORMATION 5
REPORTS TO SECURITY HOLDERS 6
SUMMARY 7
RISK FACTORS 8
INTRODUCTION 9
Date, Place and Time of Special Meeting 10
Purpose of the Special Meeting 10
Record Date; Quorum; Voting Rights 10
Solicitation of Proxies 11
Voting and Revocation of Proxies 11
SELECTED PER SHARE FINANCIAL INFORMATION 11
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT 12
PROPOSED REORGANIZATION 14
Plan of Reorganization and Agreement of Merger 15
Reasons for the Proposed Reorganization 15
Conditions to the Reorganization/Shareholder Approval 16
Effective Date 17
Surrender of Certificates 17
Effect of Reorganization on the Bank's Shareholders 17
Trading and Resale of Bancshares Stock 19
Tax Consequences 19
Accounting Treatment 21
RIGHTS OF DISSENTING SHAREHOLDERS 21
SUMMARY OF OPERATIONS 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF SUMMARY OF OPERATIONS 25
Six Months Ended June 30, 1998 Compared to
Six Months Ended June 30, 1997 25
Twelve Months Ended December 31, 1997 Compared
to Twelve Months Ended December 31, 1996 26
Summary 26
Liquidity and Capital Resources 26
Effects of Inflation 27
Balance Sheets 27
Results of Operations 28
Capability of the Bank's Data Processing
Software to Accommodate the Year 2000 30
Twelve Months Ended December 31, 1996 Compared to
Twelve Months Ended December 31, 1995 30
Liquidity and Capital Resources 30
</TABLE>
-3-
<PAGE>
<TABLE>
<S> <C>
Balance Sheets 31
Results of Operations 31
HISTORY AND BUSINESS OF BANCSHARES 33
Organization 33
Management 33
Remuneration 34
Limitations on Director Liability 34
Indemnification of Directors and Officers 34
Supervision and Regulation of Bancshares 36
Permitted Activities 37
Issuance of Additional Securities 39
HISTORY AND BUSINESS OF THE BANK 39
Business 39
Competition 41
Supervision and Regulation of the Bank 41
Monetary Policies 41
Deposit Insurance 42
Legislation 42
Regulatory Capital 45
Examinations and Audits 47
Real Estate Loans 47
Regulatory Activity 48
Legal Proceedings 48
Directors and Principal Officers 49
Remuneration of Officers and Directors 53
DESCRIPTION OF THE BANK'S COMMON STOCK 54
The Bank's Common Stock 54
Comparative Market Prices 54
Capitalization 55
DESCRIPTION OF BANCSHARES' STOCK 57
Common Stock 57
LEGAL OPINION 58
DIVIDENDS 58
MATERIAL CONTRACTS BETWEEN THE BANK
AND THE HOLDING COMPANY 59
OTHER MATTERS 59
</TABLE>
APPENDIX A PLAN OF REORGANIZATION AND AGREEMENT OF MERGER AMONG CAPITOL CITY
BANK AND TRUST, CAPITOL CITY INTERIM, INC., AND CAPITOL CITY
BANCSHARES, INC.
APPENDIX B OFFICIAL CODE OF GEORGIA ANNOTATED, TITLE 14, CHAPTER 2, ARTICLE
13, CONCERNING DISSENTER'S RIGHTS.
-4-
<PAGE>
AVAILABLE INFORMATION
Bancshares is not presently subject to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). However, upon
consummation of the Reorganization it will be subject to the reporting
requirements of the Exchange Act and, in accordance therewith, will file
reports, proxy statements, and other information with the SEC. Copies of such
reports, proxy statements, and other information can be obtained, at prescribed
rates, from the SEC by addressing written requests for such copies to the Public
Reference Section at the SEC at 450 Fifth Street, N.W., Room 1024, Judiciary
Plaza, Washington, D. C. 20549. In addition, such reports, proxy statements,
and other information can be inspected at the public reference facilities
referred to above and at the regional offices of the SEC at its New York
Regional Office at 7 World Trade Center, Suite 1300, New York, New York 10048
and at its Chicago Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2551. The SEC maintains a Web site that
contains reports, proxy and information statements and other information
regarding reporting companies, including Bancshares at such time as it becomes a
reporting company. The address of such Web site is http://www.sec.gov.
-------------------
This proxy statement/prospectus constitutes a part of the registration
statement on Form S-4 of Bancshares (including any exhibits and amendments
thereto, the "Registration Statement") filed with the SEC under the Securities
Act of 1933, as amended (the "Securities Act"), relating to the securities
offered hereby. This proxy statement/prospectus does not include all of the
information in the Registration Statement, certain portions of which have been
omitted pursuant to rules and regulations of the SEC. For further information
about Bancshares and the Bank and the securities offered hereby, reference is
made to the Registration Statement. The Registration Statement may be inspected
and copied, at prescribed rates, at the SEC's public reference facilities at the
addresses set forth above. Bancshares common stock is not traded on any
national securities exchange.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE INCLUDED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS, AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY BANCSHARES OR THE BANK.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, THE SECURITIES OFFERED HEREBY IN ANY
JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH
AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROXY
STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF BANCSHARES OR THE BANK SINCE THE DATE HEREOF OR THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
-5-
<PAGE>
REPORTS TO SECURITY HOLDERS
The Bank is subject to the reporting requirements of the Exchange Act, and,
in accordance therewith, files reports, proxy statements and other information
with its primary federal regulator, the Federal Deposit Insurance Corporation.
Upon consummation of the proposed Reorganization, Bancshares will be subject to
the reporting requirements of the Exchange Act and will file similar reports,
proxy statements and other information with the SEC.
The Bank has previously mailed to its shareholders an annual report for the
year ended December 31, 1997 containing financial statements which have been
examined and reported upon, with an opinion expressed by, an independent
certified public accountant. The Bank will furnish an additional copy of that
annual report promptly upon the request of any shareholder without charge to the
shareholders. Requests should be directed to George G. Andrews, President of
Capitol City Bank, 562 Lee Street, S.W., Atlanta, GA 30311.
-6-
<PAGE>
SUMMARY
The following is a summary of certain information relating to the special
meeting of shareholders of the Bank, the Reorganization, and the shares of
Bancshares common stock to be issued upon consummation thereof. This summary
does not purport to be complete and is qualified in its entirety by reference to
the more detailed information appearing elsewhere. Shareholders are urged to
read carefully the entire Proxy Statement/Prospectus, including the Appendices.
The Parties
The Bank. The Bank is a state bank chartered and existing under the laws
of the State of Georgia. It opened for business in October, 1994 and presently
serves its customers from three locations in Atlanta, Fulton County, Georgia.
As of June 30, 1998 the Bank had total assets of approximately $43,117,000,
total deposits of approximately $37,099,000, and total shareholders' equity of
approximately $5,782,000. It offers a broad range of banking and banking-
related services.
Bancshares. Bancshares was incorporated under the laws of the State of
Georgia on April 14, 1998 at the instruction of management of the Bank for the
purpose of serving as a bank holding company for the Bank. It has not engaged
in any active business operations to date.
Special Meeting of Shareholders
The special meeting of shareholders of the Bank will be held at _____
o'clock p.m., local time, on September _____, 1998 at the main offices of the
Bank located at 562 Lee Street, S.W., Atlanta, Georgia for the purpose of
considering and voting on approval of the Reorganization and transacting such
other business as may properly come before the meeting or any adjournments
thereof. See: INTRODUCTION. Only holders of record of the Bank's common stock
at the close of business on September ____, 1998 (the "Record Date") will be
entitled to vote at the special meeting of shareholders. Approval of the
Agreement requires the affirmative vote of two-thirds (66.67%) of the shares of
common stock of the Bank entitled to vote at the meeting. As of the Record
Date, there were 532,088 shares of the Bank's common stock outstanding and
entitled to be voted.
The directors and executive officers of the Bank beneficially own, as of
the Record Date, 208,639 shares (or approximately 39.21 per cent of the
outstanding shares) of the Bank's common stock.
The Reorganization
Pursuant to the Reorganization, Capitol City Interim, Inc. ("Interim"), a
wholly owned subsidiary of Bancshares formed solely for the purpose of
effectuating the proposed
-7-
<PAGE>
merger, will be merged with and into the Bank with the Bank as the surviving
corporation. As a result of the merger, each outstanding share of common stock
of the Bank, $6.00 par value, will be converted into one (1) share of the $6.00
par value common stock of Bancshares, so that the resulting equity interests of
the Bank's shareholders in Bancshares will be the same as their present equity
interests in the Bank, assuming no shareholders of the Bank dissent from the
proposed Reorganization. The Bank will become, and will thereafter be operated
as, a wholly owned subsidiary of Bancshares, which in turn will operate as a
bank holding company pursuant to the laws of Georgia and of the United States.
See: PROPOSED REORGANIZATION.
Dissenters' Rights
Holders of common stock of the Bank who dissent from the Reorganization are
entitled to the rights and remedies of dissenting shareholders pursuant to
Section 7-1-537 of the Financial Institutions Code of Georgia, upon compliance
with the provisions of Article 13 of the Georgia Business Corporation Code (the
"Georgia Code"). A dissenting shareholder is entitled to receive cash in an
amount equal to the "fair value" of such holder's shares. A copy of Article 13
of the Georgia Code is set forth in Appendix "B" to this Proxy
Statement/Prospectus and a summary thereof is included under RIGHTS OF
DISSENTING SHAREHOLDERS.
Tax Consequences
Consummation of the Reorganization is conditioned upon, among other things,
the parties to the Reorganization receiving an opinion from its special counsel,
Martin, Snow, Grant & Napier, Macon, Georgia, to the effect that under the
applicable provisions of the Internal Revenue Code of 1986, as amended (the
"Code"), no gain or loss will be recognized for federal income tax purposes by
the Bank, Bancshares, or the shareholders of the Bank who will receive stock of
Bancshares in connection with the proposed Reorganization. Cash received by
shareholders of the Bank exercising their dissenter's rights will be treated as
amounts distributed in redemption of their shares and will be taxable under the
provisions of Section 302 of the Code as either ordinary income or capital gain
or loss depending upon the circumstances of the individual shareholder. No
ruling with respect to the federal income tax effects of the proposed
Reorganization will be requested from the Internal Revenue Service. See:
PROPOSED REORGANIZATION -TAX CONSEQUENCES.
RISK FACTORS
After the completion of the Reorganization, the shareholders of the Bank
will then own all (100%) of the issued and outstanding shares of common stock of
Bancshares in the same proportion as they presently own in the Bank, provided
none of the Bank's shareholders dissent from the Reorganization and elect their
statutory appraisal rights. Should any shares of the Bank be redeemed pursuant
to the exercise by any shareholder
-8-
<PAGE>
of such appraisal rights, the ensuing proportionate ownership interest of the
non-dissenting shareholders in Bancshares would increase. However, the net book
value of each share held by the non-dissenting shareholders in Bancshares could
either decrease or increase, depending upon the determination of the fair value
of the shares redeemed from any dissenting shareholders.
Upon completion of the Reorganization, Bancshares will own all (100%) of
the outstanding shares of common stock of the Bank. Any subsequent indebtedness
incurred by Bancshares may be secured by shares of the Bank presently owned by
the Bank's shareholders. If Bancshares subsequently sustains losses or is
unable to meet the terms of such indebtedness, its creditors will have a claim
or lien on such bank stock superior to that of the shareholders of Bancshares.
In such event, the creditors could take action to sell the common stock of the
Bank owned by Bancshares and the subsequent ownership and management of the Bank
would be uncertain. Bancshares does not have any present agreement,
understanding or intention to incur any such indebtedness.
Bancshares could sustain losses through normal business operations or the
inability of the Bank to pay dividends. Payment of dividends from the Bank to
Bancshares is subject to both state and federal regulatory approval. More
particularly, the Bank's capital adequacy must meet certain standards. As a
condition to approval by the Federal Reserve Board and the Georgia Department of
Banking and Finance to the formation of a holding company, management has agreed
the Bank's capital ratios will be maintained within parameters acceptable to
those entities. The Bank and Bancshares will be obligated to maintain
satisfactory capital ratios. In the event the earnings of the Bank are
insufficient to maintain such ratios, Bancshares will be obligated to obtain
additional capital either through borrowing, forgoing dividends, or both.
Should the Bank's capital ratios significantly fall below the prescribed
level, the Bank would be unable to pay dividends to Bancshares, and Bancshares,
in turn, would be unable to pay dividends to its shareholders. The rights of
shareholders of the Bank and Bancshares are similar but not identical.
Shareholders of the Bank, for instance, have preemptive rights which enable them
to purchase on a pro rata basis additional shares of Bank stock which may be
issued or cash; shareholders of Bancshares have no such preemptive rights. See:
PROPOSED REORGANIZATION - EFFECT OF REORGANIZATION ON THE BANK'S SHAREHOLDERS.
INTRODUCTION
This proxy statement of the Bank, which also constitutes a prospectus of
Bancshares (the "Proxy Statement/Prospectus"), is furnished for the solicitation
by the Board of Directors of the Bank, a state-chartered banking institution, of
proxies to be voted at the Special Meeting of Shareholders of the Bank, to be
held at the Bank's Main Office at 562 Lee Street, S.W., Atlanta, Georgia 30311,
on September _____, 1998, at ________ o'clock p.m., and at any adjournment or
postponement of the Special Meeting. This Proxy Statement/Prospectus also
constitutes a prospectus of Bancshares in offering its shares
-9-
<PAGE>
of common stock to the Bank's shareholders in accordance with the Plan of
Reorganization and Agreement of Merger. The principal executive offices of the
Bank and Bancshares are located at 562 Lee Street, S.W., Atlanta, Georgia 30311.
The telephone number for the Bank and Bancshares is (404) 752-6067. All
inquiries should be directed to George G. Andrews, President and CEO. This
Proxy Statement/Prospectus and the enclosed form of proxy (the "Proxy") are
first being sent to shareholders of the Bank on or about September _____, 1998.
Date, Place and Time of Special Meeting
- - ---------------------------------------
The Special Meeting of Shareholders of Capitol City Bank and Trust will be
held on September _____, 1998 at ___________ o'clock p.m. at the Bank's Main
Office, 562 Lee Street, S.W., Atlanta, Georgia 30311.
Purpose of the Special Meeting
- - ------------------------------
At the Special Meeting, shareholders of the Bank will be requested: (1) to
consider and act upon a proposal to approve and adopt the Plan of Reorganization
and Agreement of Merger dated as of April 14, 1998, providing, among other
things, for the merger of the Bank and Capitol City Interim, Inc., ("Interim"),
a Georgia corporation which is a subsidiary of Bancshares, and for the automatic
conversion of each whole share of common stock of the Bank into the right to
receive one (1) share of common stock of Bancshares and (2) to transact such
other business as may properly come before the Special Meeting and any
adjournment or postponement thereof.
Record Date; Quorum; Voting Rights
- - ----------------------------------
The Board of Directors of the Bank has fixed the close of business on
September ____, 1998, as the record date for the determination of shareholders
of the Bank entitled to notice of and to vote at the Special Meeting (the
"Record Date"). On the Record Date, the Bank had outstanding 532,088 shares of
common stock, par value Six Dollars ($6.00) per share, the only authorized class
of stock (the "Common Stock"), which was held by approximately 1,224
shareholders.
Under Georgia law and the bylaws of the Bank, the presence of a quorum, in
person or by proxy, is required for each matter to be acted upon at the Special
Meeting. The presence, in person or by proxy, of shareholders entitled to cast
at least a majority of the votes which all shareholders are entitled to cast,
shall constitute a quorum for the transaction of business at the Special
Meeting.
Assuming the presence of a quorum, the affirmative vote of at least two-
thirds (66-2/3%) of the outstanding shares of Common Stock is required to
approve and adopt the Plan of Reorganization and Agreement of Merger.
-10-
<PAGE>
On all matters to come before the Special Meeting, including the proposal
to approve and adopt the Plan of Reorganization and Agreement of Merger, each
share of Common Stock is entitled to one (1) vote.
Solicitation of Proxies
- - -----------------------
This Proxy Statement/Prospectus and the enclosed form of Proxy are first
being sent to shareholders of the Bank on or about September _______, 1998.
The cost of preparing, assembling, printing, mailing and soliciting
proxies, and any additional material that the Bank may furnish shareholders in
connection with the Special Meeting, will be borne by Bancshares. In addition
to solicitation by mail, directors, officers and employees of the Bank may
solicit Proxies from the shareholders of the Bank personally or by telephone,
telegram or telecopier. Arrangements will be made with brokerage houses and
other custodians, nominees and fiduciaries to forward proxy solicitation
materials to the beneficial owners of the Common Stock held of record by these
persons, and, upon request therefor, the Bank will reimburse them for their
reasonable forwarding expenses.
Voting and Revocation of Proxies
- - --------------------------------
Shares represented by Proxies that are properly signed, executed and
returned, unless subsequently revoked, will be voted at the Special Meeting in
accordance with the instructions made thereon by the shareholders. If a Proxy
is signed, executed and returned without indicating any voting instructions, the
shares represented by the Proxy will be voted FOR the approval and adoption of
the Plan of Reorganization and Agreement of Merger. Execution and return of the
enclosed proxy will not affect a shareholder's right to attend the Special
Meeting and vote in person, after giving notice to Dr. Kaneta Lott, Secretary
of the Bank.
A shareholder of the Bank who returns a proxy may revoke the proxy prior to
the time it is voted: (1) by giving written notice of revocation to Dr. Kaneta
Lott, Secretary of Capitol City Bank and Trust, 562 Lee Street, S.W., Atlanta,
Georgia 30311; (2) by executing a later-dated proxy and giving written notice
thereof to the Secretary of the Bank; or (3) by voting in person after giving
written notice to the Secretary of the Bank. Attendance by a shareholder at the
Special Meeting will not itself be deemed or constitute a revocation of the
proxy.
SELECTED PER SHARE FINANCIAL INFORMATION
The following table sets forth at the dates and for the years indicated per
share information with respect to book value, net income, and dividends paid on
the Bank's common stock. All figures are at or for the fiscal year ended as
shown, except that the figures for 1998 are for the six months ended June 30,
1998 and the figures for 1994 are
-11-
<PAGE>
for the six months ended December 31, 1994. The Bank commenced operations on
October 3, 1994.
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------
FISCAL YEAR BOOK VALUE NET INCOME DIVIDEND PAID
PER SHARE PER SHARE PER SHARE
- - -----------------------------------------------------------------
<S> <C> <C> <C>
1998
(6 Months) $10.86 $ 0.56 -0-
- - -----------------------------------------------------------------
1997 10.27 0.94 -0-
- - -----------------------------------------------------------------
1996 9.32 0.07 -0-
- - -----------------------------------------------------------------
1995 9.37 (0.40) -0-
- - -----------------------------------------------------------------
1994
(6 Months) 9.48 (0.80) -0-
- - -----------------------------------------------------------------
</TABLE>
After giving effect to the Reorganization, and the one-for-one exchange
ratio provided for therein, pro-forma selected financial information for the
shares of common stock of Bancshares would be the same as for the Bank.
Bancshares has only recently been incorporated and has not transacted any
financial business. See: SUMMARY OF OPERATIONS and MANAGEMENT'S DISCUSSION AND
ANALYSIS OF SUMMARY OF OPERATIONS for more detailed financial information.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Bank knows of no beneficial owner of more than five percent (5%) of its
$6.00 par value common stock, the only class of voting securities of the Bank.
The following table sets forth, as of the most recent practicable date, the
common stock of the Bank beneficially owned by all directors, executive
officers, and significant employees. For purposes of this table, beneficial
ownership has been determined in accordance with Rule 13d-3 of the Securities
and Exchange Commission under the Securities Exchange Act of 1934:
-12-
<PAGE>
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP/1/ CLASS
- - -------------------------------------------------------------------------------
<S> <C> <C>
George G. Andrews 8,000/2/ 1.50%
Dr. Gloria Campbell-D'Hue 10,000/3/ 1.88%
J. Al Cochran 10,000 1.88%
Keith E. Evans 7,500 1.41%
Leon Goodrum 10,150 1.91%
Agnes H. Harper 10,175/4/ 1.91%
Charles W. Harrison 10,600/5/ 1.99%
Robert A. Holmes 6,000 1.12%
Maurice Jones, Sr. 6,714/6/ 1.26%
Moses M. Jones 9,450/7/ 1.78%
Marian S. Jordan 10,250/8/ 1.93%
</TABLE>
___________________
/1/ Beneficial ownership is determined in accordance with Item 403 of
Regulation S-B of the Securities and Exchange Commission, and includes all
shares which the listed individual has the right to acquire within sixty (60)
days pursuant to options or warrants. Bancshares has relied upon information
contained in statements filed with the Federal Deposit Insurance Corporation
under Section 13(d) or 13(g) of the Securities Exchange Act of 1934.
/2/ Includes 4,000 shares owned by Mr. Andrews and 4,000 shares held jointly
with Mr. Andrews' spouse.
/3/ Includes 4,250 shares owned by Dr. D'Hue and 5,750 shares owned by her
minor child.
/4/ Includes 7,800 shares held jointly with Mrs. Harper's spouse and 1,192
shares held by Mrs. Harper's spouse, and 1,183 owned by Mrs. Harper.
/5/ Includes 10,000 shares owned by Mr. Harrison and 600 shares held by Mr.
Harrison's minor children.
/6/ Includes 500 shares owned by Mr. Jones, 5,614 shares held by Mr. Jones's
children, 350 shares held by Mr. Jones's mother, and 250 shares held by Mr.
Jones's mother-in-law.
/7/ Includes 7,600 shares owned by Mr. Jones and 1,850 shares held by Mr.
Jones's minor children.
/8/ Includes 10,000 shares owned by Ms. Jordan and 250 shares held by Ms.
Jordan's minor children.
-13-
<PAGE>
<TABLE>
<S> <C> <C>
Thomas J. Locke, III 10,000/9/ 1.88%
Kaneta R. Lott 10,000/10/ 1.88%
Donald F. Marshall 10,000 1.88%
George C. Miller, Jr. 5,000/11/ .94%
Elvin Mitchell, Sr. 15,400/12/ 2.89%
Sarah S. Sistrunk 10,000/13/ 1.88%
Roy W. Sweat 15,000 2.82%
William Thomas 24,200/14/ 4.55%
Cordy T. Vivian 10,200/15/ 1.92%
All directors and executive officers 208,639 39.21%
as a group (20 persons)
</TABLE>
None of the persons listed in the above table have the right to acquire
beneficial ownership of any shares of the Bank within the next sixty days.
PROPOSED REORGANIZATION
Reference is made to a copy of the Agreement, set forth in full as Exhibit
A hereto, for a complete statement of the terms of the proposed Reorganization.
The statements contained herein with respect to the Reorganization are qualified
in their entirety by reference to Exhibit A.
______________
/9/ Includes 2,400 shares owned by Mr. Locke and 7,600 shares held by Mr.
Locke's minor children.
/10/ Includes 8,000 held jointly with Dr. Lott's spouse and 2,000 shares held
by her minor child.
/11/ Includes 14,250 shares owned by Mr. Mitchell, 1,000 shares owned by Mr.
Mitchell's spouse, and 150 shares owned by Mr. Mitchell's grandchildren.
/12/ Includes 4,500 shares owned by Mr. Miller and 500 shares held by Spectrum
Consulting Associates, Inc., an affiliated corporation.
/13/ Includes 7,500 owned by Ms. Sistrunk and 2,500 shares by Ms. Sistrunk's
minor children.
/14/ Includes 10,200 shares owned by Mr. Thomas and 14,000 shares held by
Thomas Cleaning Service, Inc., an affiliated corporation.
/15/ Includes 9,700 shares owned by Mr. Vivian and 500 shares held by Mr.
Vivian's spouse.
-14-
<PAGE>
Plan of Reorganization and Agreement of Merger
- - ----------------------------------------------
Bancshares has been organized as a business corporation under the laws of
the State of Georgia and presently owns all of the stock of Interim. Interim
was organized solely for the purpose of effectuating the proposed merger, and
has not actively engaged in or transacted any business. The reorganization of
the Bank into a holding company will be accomplished by merging Interim with and
into the Bank, with the Bank as the surviving corporation. Upon the effective
date of the merger, each outstanding share of the $6.00 par value common stock
of the Bank will be converted into and become one share of the $6.00 par value
common stock of Bancshares. The outstanding common stock of Interim owned by
Bancshares will be converted into and become a number of shares of the Bank's
common stock equal to the number of such shares outstanding on the effective
date of the merger. As a result, shareholders of the Bank will become
shareholders of Bancshares instead of the Bank, the Bank will become a wholly-
owned subsidiary of Bancshares, and Interim will cease to exist as a separate
corporation. After the Reorganization, the Bank will continue to operate as a
bank but will function as a wholly-owned subsidiary of Bancshares. The articles
of incorporation, bylaws, corporate identity, existence, and the officers and
directors of the Bank will not be changed as a result of the merger.
Bancshares and Interim were recently organized at the direction of the
management of the Bank in order to facilitate the Reorganization. George G.
Andrews is the only shareholder of Bancshares. Under an agreement between
Bancshares and Mr. Andrews, the shares of common stock of Bancshares owned by
Mr. Andrews will, upon consummation of the Reorganization, be canceled and the
capital paid into Bancshares or such shares will be returned to him. All of the
present directors of the Bank are directors of Bancshares.
Reasons for the Proposed Reorganization
- - ---------------------------------------
The board of directors of the Bank believes the Reorganization is in the
best interests of the Bank's shareholders since the resulting holding company
will have greater flexibility in certain aspects of its operations than does the
Bank. A bank is generally not permitted to purchase its own shares or lend
money secured by its own stock. Bancshares will be able, within certain limits,
to purchase and redeem its own stock, thereby increasing the market in which
shareholders of the company may sell their stock. The Bank, as a subsidiary of
Bancshares, will be able within certain limits to make loans secured by the
stock of Bancshares. Bancshares will also be able to implement employee benefit
plans involving stock ownership.
The holding company structure will also permit greater flexibility and
diversification into banking-related business activities. For example, holding
companies may, with the prior approval of the appropriate regulatory agencies,
act as insurance agent or broker with respect to any insurance that is directly
related to an extension of credit by a bank, underwrite credit life insurance
and credit accident and health insurance that is directly related to an
extension of credit by subsidiaries of Bancshares, and own and operate small
-15-
<PAGE>
loan companies, while banks in Georgia, if permitted to engage in such
activities, are severally restricted in so doing. The Board of Directors
believes the Reorganization will, therefore, allow the Bank to become more
responsive to its customer's broadening and changing financial needs.
Bancshares will be legally permitted to borrow funds to make a capital
contribution to the Bank. Any indebtedness of Bancshares can be paid from
dividends paid by the Bank to Bancshares, and Bancshares will be able to
eliminate the dividend in computing its taxable income if a consolidated tax
return is filed by Bancshares and the Bank. The Bank and Bancshares can also
enter into tax sharing agreements and file a consolidated tax return and the
Bank can make payments to Bancshares in lieu of taxes to reduce the
indebtedness.
Conditions to the Reorganization/Shareholder Approval
- - -----------------------------------------------------
Consummation of the Reorganization, which has been approved unanimously by
the Board of Directors of the Bank and Bancshares, is conditioned upon the
affirmative vote of the holders of at least two-thirds (354,726) of the
outstanding shares of the Bank's common stock entitled to vote at the special
meeting. On September ____, 1998 the record date for the determination of
shareholders entitled to notice of and to vote at the special meeting, the
outstanding voting securities of the Bank consisted of 532,088 shares of $6.00
par value common stock, with the registered holders thereof being entitled to
one vote per share. Consummation of the Reorganization is further conditioned
upon the receipt of certain required regulatory approvals, including the Georgia
Department of Banking and Finance, the Federal Reserve Bank Board, and the
Federal Deposit Insurance Corporation. Applications for approval of the
Reorganization have been filed with these regulatory authorities. All
applications have been approved.
The approval of the DBF and of the FRB reflects only the regulator's view
that the transaction does not contravene the competitive standards of law and is
consistent with regulatory concerns relating to bank management and of the
safety and soundness of the subject banking organizations. Such approval is not
to be interpreted as an opinion by the regulators that the Reorganization is
favorable to the shareholders from a financial point of view or that these
agencies have considered the adequacy of the terms of the exchange. THE
REGULATOR'S APPROVAL IS NOT AN ENDORSEMENT OR RECOMMENDATION OF THE
REORGANIZATION OR OF THE MERGER.
The Reorganization will not be completed until a favorable tax opinion has
been received from the Bank's special counsel, Martin, Snow, Grant & Napier. As
a condition to the issuance of a favorable tax opinion, special counsel has
required Bancshares to make a representation that payments to dissenting
shareholders and expenses incident to the Reorganization will not exceed 10% of
the fair market value of the net assets of the
-16-
<PAGE>
Bank as determined immediately prior to the Reorganization. If payments to
dissenters and organizational expenses exceed 10% of the fair market value of
the Bank's net assets, the Reorganization will not be consummated. All of the
foregoing conditions may not be waived, and must be fully satisfied before the
Reorganization will be completed.
Effective Date
- - --------------
The Reorganization and the Merger will be effective at the close of
business on the date on which the certificate of merger is issued by the
Secretary of State of Georgia. The certificate of merger will not be issued
until the holders of at least two-thirds of the issued and outstanding shares of
common stock of the Bank approve and adopt the Plan of Reorganization and
Agreement of Merger and the expiration of any waiting periods associated with
any regulatory approval.
Surrender of Certificates
- - -------------------------
Upon consummation of the proposed merger, each share of Bank common stock
issued and outstanding on the effective date shall, as of the effective date, by
virtue of the merger and without any action on the part of the holders thereof,
be converted into one share of common stock of Bancshares, resulting in the
receipt in the aggregate of not more than 532,088 shares of Bancshares common
stock by the shareholders of the Bank, or such additional shares as may be
issued by Bancshares to reflect any additional shares which might be issued by
the Bank subsequent to April 14, 1998. As soon as practicable after
consummation of the proposed merger, each holder as of the effective date of any
of the shares of Bank common stock owned by him or her shall be entitled, upon
presentation and surrender to Bancshares of the certificates representing such
shares, to receive in exchange a stock certificate which will evidence the
shares of Bancshares common stock to which he or she is entitled under the terms
of the merger. Until so surrendered, each outstanding certificate which before
the merger represented stock of the Bank will be deemed evidence of the
shareholder's right to receive certificates evidencing his or her ownership in
Bancshares, and will not evidence any shares of stock of the Bank, all of which
shall be owned after the merger by Bancshares. Until certificates owned by
holders of common stock of Capitol City Bank and Trust immediately prior to the
merger are surrendered, the holder of any such certificates will not have the
right to receive cash or stock dividends paid with respect to the shares of
Bancshares to which the holder is entitled as a result of the merger, but when
such certificates are surrendered, Bancshares will issue to the holder stock
certificates representing the holder's ownership of shares for Bancshares to
which he or she is entitled under the terms of the merger.
Effect of Reorganization on the Bank's Shareholders
- - ---------------------------------------------------
If the proposed Reorganization is consummated, the holders of 532,088
shares of the $6.00 par value common stock of the Bank will become holders of
the same number of shares of the $6.00 par value common stock of Bancshares,
unless the Bank should issue additional shares of its common stock subsequent to
April 14, 1998, in which event
-17-
<PAGE>
Bancshares will issue additional shares in accordance with the Agreement.
Assuming none of the Bank's shareholders dissent and elect to exercise their
statutory appraisal rights, the stock interest of each of the Bank's existing
shareholders in Bancshares, including directors and officers and beneficial
owners of more than 5% of any class of the Bank's common stock, will remain the
same as their present interest in the Bank. Should any share of the Bank be
redeemed pursuant to the exercise by any shareholder of such appraisal rights,
the ensuing interest of the "non-dissenting" shareholders in Bancshares would
increase proportionately, though the net book value of each share held by the
non-dissenting shareholders in Bancshares could either decrease or increase
depending upon the determination of the "fair value" of the shares redeemed from
any dissenting shareholders.
After the proposed Reorganization, the rights and privileges of such
shareholders will be governed by the provisions of the Georgia Business
Corporation Code rather than the Financial Institutions Code of Georgia. As
shareholders of Bancshares, such persons will have rights generally comparable
to those which they presently have as shareholders of the Bank. Shareholders of
the Bank have pre-emptive rights which enable them to acquire in proportion to
their present share ownership any additional shares of capital stock which may
in the future be sold or issued for cash by the Bank; shareholders of Bancshares
will not have such pre-emptive rights.
The authorized capital stock of the Bank consists of 1,500,000 authorized
shares of $6.00 par value common stock, 532,088 of which are presently issued
and outstanding. The authorized common stock of Bancshares consists of 5,000,000
shares of $6.00 par value common stock, and after the consummation of the
Reorganization, assuming that no shareholders exercise their right to dissent
and that no additional shares of the Bank are issued subsequent to April 14,
1998, 532,088 shares will then be outstanding and 4,467,912 shares will be
available for issuance by the Board of Directors without shareholder approval.
The affirmative vote of two-thirds of the shareholders of the Bank is
required to approve a merger. The Georgia Business Corporation Code provides
that only a majority vote of the shareholders of a business corporation, such as
Bancshares, is required to approve any share exchange, merger, consolidation or
sale, lease, transfer, exchange or other disposition of all or substantially all
of the assets of the corporation or of any of its affiliates to another
corporation, person or entity. Stock of the Bank, subject to certain
exceptions, may be issued only for cash consideration; stock of the holding
company may be issued for consideration consisting of any tangible or intangible
property or benefit to the holding company, including cash, promissory notes,
services performed, contracts for services to be performed, or other securities
of the corporation.
Directors of the Bank and of Bancshares owe a duty of loyalty to the
corporations which they serve, and must discharge their duties as a director in
good faith and in a manner they believe to be in the best interests of the
corporation and with the care an ordinarily prudent person in a like position
would exercise under similar circumstances.
-18-
<PAGE>
The articles of incorporation of Bancshares eliminate the personal liability of
directors of Bancshares to the corporation and its shareholders for monetary
damages for breach of the duty of care or other duty imposed upon them as
directors; provided, however, that no provision of the articles of incorporation
of Bancshares eliminates or limits the liability of any director (i) for any
appropriation, in violation of his duties, of any business opportunity of the
corporation; (ii) for acts or omissions which involve intentional misconduct or
a knowing violation of law; (iii) for voting for, or assenting to, the
declaration of any improper dividend, or for any other circumstances enumerated
in O.C.G.A. (S)14-2-832; or (iv) for any transaction from which the director
derived an improper personal benefit.
Trading And Resale of Bancshares Stock
- - --------------------------------------
For substantially all of the shareholders of the Bank who will receive
Bancshares common stock as a result of the Reorganization, there will be no
restrictions on resale of such stock under the Federal Securities Act of 1933,
as amended. Those officers, directors, and shareholders of the Bank who may be
deemed affiliates of the Bank following the Reorganization have been advised of
the need to comply with the requirements of SEC Rule 145(d) which regulates the
resale of shares received by them in connection with the Reorganization.
Officers, directors, and shareholders of the Bank who may also be deemed
affiliates of Bancshares following the merger have been advised of the need to
comply with SEC Rule 144 which permits sales under circumstances without the
need for an effective registration statement. Those persons who may be deemed
affiliates of Bancshares following the merger have further been advised that in
the event Bancshares should cease to be a registered company with the Securities
and Exchange Commission the provisions of SEC Rule 144 will not be available,
and have further been advised of the circumstances under which sales of
Bancshares stock may occur without the need for an effective registration
statement.
Tax Consequences
- - ----------------
The Bank has requested a tax opinion from its special counsel, Martin,
Snow, Grant & Napier, to the effect that:
(1) The merger of Interim into the Bank and the issuance of shares of
common stock of Bancshares in connection therewith, as described herein, will
constitute a tax-free reorganization under Section 368(a)(1)(A) and (a)(2)(E) of
the Code;
(2) No gain or loss will be recognized by the holders of the Bank's common
stock upon the exchange of such stock for Bancshares' common stock as the result
of the Reorganization;
(3) The tax basis of the common stock of Bancshares received by the
shareholders of the Bank pursuant to the Reorganization will be the same as the
tax basis of the shares of common stock of the Bank exchanged therefor;
-19-
<PAGE>
(4) The holding period, for purposes of the Internal Revenue Code, of the
shares of common stock of Bancshares received by the shareholders of the Bank
will include the holding period of the shares of common stock of the Bank
exchanged therefor, provided the stock of the Bank is held as a capital asset on
the date of the consummation of the Reorganization;
(5) No gain or loss will be recognized by the Bank upon the receipt by the
Bank of the assets of Interim in exchange for the common stock of the Bank; and
(6) No gain or loss will be recognized by Bancshares upon the receipt of
common stock of the Bank in exchange for the common stock of Interim.
Any opinion as to the federal income tax consequences of the Reorganization
will be conditioned on the assumption that the Bank upon consummation of the
Reorganization, will: (i) hold at least 90% of the fair market value of the net
assets and (ii) at least 70% of the fair market value of the gross assets held
by the Bank immediately prior to the Reorganization. All amounts paid by the
Bank for any shareholders will be considered assets held by the Bank immediately
prior to the Reorganization. The Reorganization will not be completed if
payments to dissenting shareholders and expenses of the Reorganization exceed
10% of the fair market value of the net assets of the Bank.
In general, cash received by holders of Bank's common stock exercising the
rights of dissent will be treated as amounts distributed in redemption of their
shares, and will be taxable under the provisions of Section 302 of the Code.
However, it is possible that, as a result of the applicable rules attributing
stock ownership among related individuals and entities in which they have an
interest (such as partnerships, trusts, estates, and corporations), the Section
302 rules may not apply, and the distribution will be treated as either a
dividend or return of capital under Section 301 of the Code. Moreover, even if
the distribution is treated as being subject to Section 302, any gain over the
basis of the redeemed stock may be taxable as either ordinary income or capital
gain, depending upon the circumstances of the individual shareholder.
Receipt of a favorable tax opinion from the Bank's special counsel, in form
and substance satisfactory to the Board of Directors of the Bank, is a condition
to the consummation of the Reorganization. No ruling will be requested from the
Internal Revenue Service.
SHAREHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS TO MAKE A
PERSONAL EVALUATION OF THE FEDERAL INCOME TAX CONSEQUENCES, AND AS TO ANY STATE
OR LOCAL TAX CONSEQUENCES INCIDENT TO THE REORGANIZATION.
-20-
<PAGE>
Accounting Treatment
- - --------------------
The proposed transaction will be treated for accounting purposes as a
pooling of interests.
THE MANAGEMENT OF CAPITOL CITY BANK AND TRUST RECOMMENDS THAT THE BANK'S
SHAREHOLDERS VOTE "FOR" THE PROPOSAL TO RATIFY, CONFIRM AND APPROVE THE
REORGANIZATION.
RIGHTS OF DISSENTING SHAREHOLDERS
Any holder of record of common stock of the Bank who objects to the
proposed merger and fully complies with all of the provisions of Section 1320 et
--
seq. of the Georgia Business Corporation Code, shall be entitled to demand and
- - ---
receive payment of an amount equal to the "fair value" of all, but not less than
all, of his shares of common stock of the Bank, provided the merger is
consummated.
Any shareholder of the Bank who desires to dissent from the proposed
Reorganization and to receive payment for the "fair value" of his common stock
shall do the following: (1) deliver to the Bank prior to the special meeting of
shareholders at which the vote will be taken on the merger, or at the special
meeting but before the vote is taken, a written notice of his or her intent to
demand payment for his or her shares if the proposed merger is effectuated; and
(2) abstain from voting or vote against the merger.
A vote against the proposed merger will not in itself constitute the
separate written notice of the shareholder's intention to demand payment for his
or her shares required by O.C.G.A. (S)14-2-1321(a). Any notice required to be
given to the Bank must be forwarded to Capitol City Bank and Trust, 562 Lee
Street, S.W., Atlanta, Georgia 30311, Attention: George G. Andrews.
If the merger is approved at the special meeting of shareholders, the Bank
will, no later than ten (10) days after the merger is effectuated, deliver to
each shareholder who shall have complied with conditions (1) and (2) above
written notice of approval of the proposed merger at such address as the
shareholder has furnished the Bank in writing, or, if none, at the shareholder's
address as it appears on the records of the Bank. The notice by the Bank to the
dissenting shareholder will be accompanied by a copy of Article 13 of the
Georgia Business Corporation Code and will advise the dissenting shareholder
where the demand for payment must be sent and where and when certificates for
certificated shares must be deposited; will inform holders of uncertificated
shares to what extent transfer of the shares will be restricted after the
payment demand is received; and will set a date by which the Bank must receive
the payment demand, which date may not be fewer than thirty (30) nor more than
sixty (60) days after the date the notice to the shareholder is delivered.
WITHIN THE TIME PROVIDED BY SUCH NOTICE, THE DISSENTING SHAREHOLDER MUST DEMAND
PAYMENT AND DEPOSIT HIS OR HER
-21-
<PAGE>
CERTIFICATES WITH THE BANK IN ACCORDANCE WITH THE TERMS OF THE NOTICE. ANY
SHAREHOLDER WHO FAILS TO DEMAND PAYMENT WITHIN THE TIME AND IN THE MANNER
PROVIDED WILL NOT BE ENTITLED TO BE PAID FOR HIS OR HER SHARES.
If all of the preceding conditions above are fully satisfied, the Bank will
be required within ten (10) days of the later of the date the proposed merger is
effectuated or receipt of a payment demand to offer to pay each dissenter who
has complied with all of the conditions set forth herein the amount the Bank
estimates to be the fair value of his or her shares, plus accrued interest. The
offer of payment will be accompanied by a balance sheet of the Bank as of the
end of a fiscal year ending not more than sixteen (16) months before the date of
payment, an income statement for that year, a statement of the date of payment,
a statement of changes in shareholders' equity for that year, and the latest
available interim financial statements, if any; a statement of the corporation's
estimate of the fair value of the shares; an explanation of how the interest was
calculated; a statement of the dissenter's right to demand payment under
O.C.G.A. (S)14-2-1327; and a copy of Article 13 of the Georgia Business
Corporation Code. If the Bank does not complete the merger within sixty (60)
days after the date set for demanding payment and depositing share certificates,
the Bank must return the deposited certificates and, if the Bank then completes
the proposed merger, it must send a new notice to those shareholders who
perfected their dissenter's rights under O.C.G.A. (S)14-2-1322.
Any dissenting shareholder who is dissatisfied with the Bank's offer of
payment may demand payment of his or her estimate of the fair value of his or
her shares, together with interest due, if he or she notifies the corporation in
writing of that estimate and if either (1) the dissenter believes the amount
offered by the Bank is less than the fair value of his or her shares or that the
interest due is incorrectly calculated, or (2) the Bank, having failed to
effectuate the proposed merger, does not return the deposited certificates
within sixty (60) days after the date set for demanding payment. ANY
SHAREHOLDER WHO FAILS TO NOTIFY THE CORPORATION OF HIS OR HER DEMAND IN WRITING
WITHIN THIRTY (30) DAYS AFTER THE BANK OFFERED PAYMENT FOR HIS OR HER SHARES
WAIVES HIS OR HER RIGHT TO DEMAND PAYMENT FOR HIS OR HER ESTIMATED VALUE OF THE
SHARES.
If the shareholder's demand for payment remains unsettled, the Bank will
commence legal proceedings within sixty (60) days after receiving the payment
demand in the Superior Court of Fulton County to determine the fair value of the
shares and accrued interest; if it fails to take such action within that period,
it must pay to each dissenter whose demand remains unsettled the amount
demanded. All dissenters whose demands remain unsettled will be made parties to
the proceeding. The court will assess all costs of the proceeding, including
the reasonable compensation and expenses of appraisers appointed by the court,
but not including fees and expenses of attorneys and experts for the parties,
against the Bank, except that the court may assess the cost against all or some
of the dissenters in amounts the court finds equitable to the extent the court
-22-
<PAGE>
finds the dissenters acted arbitrarily, vexatiously, or not in good faith in
demanding payment. The court may also assess fees and expenses of attorneys and
experts for the respective parties, in amounts the court finds equitable,
against the Bank and in favor of any or all dissenters if the court finds the
corporation did not substantially comply with the requirements of Georgia law
relating to dissenters' rights, or against either the Bank or a dissenter, in
favor of any other party, if the court finds the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith with
respect to the rights provided by Article 13 of the Georgia Business Corporation
Code. No action by any dissenter to enforce dissenter's rights may be brought
more than three (3) years after consummation of the proposed merger.
The foregoing does not purport to be a complete statement of the provisions
of Article 13 of the Georgia Business Corporation Code and is qualified in its
entirety by reference to said Article, which is reproduced in full as Exhibit B
to the proxy statement.
SUMMARY OF OPERATIONS
The following summary of operations is based on audited financial
information for the years ended December 31, 1994, 1995, 1996, and 1997. The
information presented for the year ended December 31, 1994 reflects the
operations of the Bank since it opened for business on October 3, 1994. The
figures for the period ended June 30, 1997 and 1998 are unaudited, but reflect
all adjustments which are , in the opinion of management, necessary to a fair
statement of the results for the periods covered herein.
-23-
<PAGE>
SUMMARY OF OPERATIONS
(Audited, except for six months ended June 30, 1998 and 1997)
(In Thousands except for Per Share Data)
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
------------------- -----------------
June 30 (unaudited), Year Ended December 31(Audited) December 31, 1994
-------------------- ------------------------------------- -----------------
1998 1997 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $ 942 $ 739 $1,610 $1,138 $ 496 $ 19
Interest on Investment 464 297 692 520 293 195
Securities
Interest on Federal Funds 93 49 96 141 99 5
Sold
Interest on Balances Due -0- -0- -0- -0- -0- -0-
from Banks ------ ------ ------ ------ ------- -------
Total Interest Income $1,499 $1,085 $2,398 $1,799 $ 888 $ 219
------ ------ ------ ------ ------- -------
INTEREST EXPENSE
Interest on Deposits $ 560 $ 334 $ 783 $ 553 $ 206 $ 9
Other Borrowings -0- -0- -0- -0- -0- 24
------ ------ ------ ------ ------- -------
Total Interest Expense $ 560 $ 334 $ 783 $ 553 $ 206 $ 33
------ ------ ------ ------ ------- -------
Net Interest Income $ 939 $ 751 $1,615 $1,246 $ 682 $ 186
Provisions for Loan Losses 65 $ 100 161 412 100 12
------ ------ ------ ------ ------- -------
Net Interest Income After
Provisions for Loan Losses $ 874 $ 651 $1,454 $ 834 $ 582 $ 174
------ ------ ------ ------ ------- -------
OTHER INCOME
Service Charges on Deposit $ 460 $ 404 $ 822 $ 661 $ 349 $ 14
Accounts
Securities Gains (Losses) -0- 5 5 (1) 16 -0-
Other Noninterest Income $ 101 $ 64 135 47 37 18
------ ------ ------ ------ ------- -------
Total Other Income $ 561 $ 473 $ 962 $ 707 $ 402 $ 32
------ ------ ------ ------ ------- -------
OTHER EXPENSES
Salary and Employee Benefits $ 525 $ 409 $ 879 $ 636 $ 509 $ 247
Occupancy Expenses of Bank
Premises 106 100 310 301 264 42
Other Operating Expenses $ 395 $ 366 655 569 422 131
------ ------ ------ ------ ------- -------
Total Operating Expenses $1,026 $ 875 $1,844 $1,506 $ 1,195 $ 420
------ ------ ------ ------ ------- -------
Income (Loss) Before Income $ 409 $ 249 $ 572 $ 35 $ (211) $ (214)
Taxes
Federal Income Tax Expense
(Net of Income Tax Benefits) 111 $ -0- 70 -0- -0- -0-
------ ------ ------ ------ ------- -------
Net Income $ 298 $ 249 $ 502 $ 35 $ (211) $ (214)
Earnings Per Share -
Net Income $ 0.56 $ 0.47 $ 0.94 $ 0.07 $ (0.40) $ (0.80)
</TABLE>
-24-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF SUMMARY OF OPERATIONS
Six Months Ended June 30, 1998 Compared to Six Months Ended June 30, 1997:
- - --------------------------------------------------------------------------
The six months ended June 30, 1998 reflected continuing improvement in the
Bank's financial performance. Income before payment of income taxes increased
by 64.26% over that same period of time for 1997, from $249,000 as of June 30,
1997 to $409,000 as of June 30, 1998. The Bank made provision for payment of
income taxes for the first time in its history, of $111,000, but net income
after a provision for income tax expense nevertheless increased from $249,000 as
of June 30, 1997 to $298,000 as of June 30, 1998, an increase of 19.68%.
Although total operating expenses increased 17.25%, from $875,000 as of June 30,
1997 to $1,026,000 as of June 30, 1998, non-interest income was $561,000 as of
June 30, 1998, an increase from $473,000 as of June 30, 1997, and net interest
income after provisions for loan losses increased from $651,000 as of June 30,
1997 to $874,000 as of June 30, 1998, an increase of 34.25%. Most of the
increase in other expenses was related to an increase in salary and employee
benefits of 28.36%, from $409,000 as of June 30, 1997 to $525,000 as of June 30,
1998, attributable to the increase in personnel of the Bank to accommodate the
Bank's growth. Other operating expenses increased 17.25%, from $366,000 as of
June 30, 1997 to $395,000 as of June 30, 1998.
The significant increase in net interest income after provisions for loan
losses was primarily attributable to a significant increase in interest income
and a decrease in provisions for loan losses. Total interest income increased
by 38.15% as of June 30, 1998 over that same period in 1997, from $1,085,000 to
$1,499,000. Much of that increase was attributable to a 27.4% increase in
interest and fees on loans, resulting in the increasing loan portfolio of the
Bank, although interest on investment securities also increased from $297,000 as
of June 30, 1997 to $464,000 as of June 30, 1998, a 56.237% increase. Provisions
for loan losses were $65,000 as of June 30, 1998, as compared with $100,000 as
of June 30, 1997, a decrease of 35% which reflected a strengthening of the
Bank's loan portfolio. Increases in the Bank's total deposits resulted in an
increase of total interest expense of 25.03%, from $334,000 as of June 30, 1997
to $560,000 as of June 30, 1998.
In the opinion of management, the Bank has satisfactorily resolved the Year
2000 problems associated with data processing generally. The Bank expended
approximately $160,000 in addressing the Year 2000 concerns, almost all of which
was used to purchase new data processing equipment.
During the first six months of 1998 the Bank also successfully renegotiated
the lease of its branch at Hartsfield Atlanta International Airport. As
renegotiated, the lease extends until 2000.
-25-
<PAGE>
Twelve Months Ended December 31, 1997 Compared to Twelve Months Ended December
- - ------------------------------------------------------------------------------
31, 1996:
- - ---------
Summary
- - -------
The year ended December 31, 1997 marked the Bank's third full year of
operations and the Bank's most profitable year since the inception of the Bank.
The Bank opened for operations October 3, 1994 and during the year ended
December 31, 1997 the Bank became cumulatively profitable.
Liquidity and Capital Resources
- - -------------------------------
Liquidity management involves the matching of the cash flow requirements of
customers who may be either depositors desiring to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their credit
needs and the ability of the Bank to meet those needs. The Bank seeks to meet
liquidity requirements primarily through management of Federal funds sold,
securities available-for-sale, monthly amortizing loans, and the repayment of
maturing single payment loans. The Bank also maintains relationships with
correspondent banks which could provide funds on short notice, if needed.
The liquidity and capital resources of the Bank are monitored on a periodic
basis by state and Federal regulatory authorities. At December 31, 1997 the
Bank's liquidity ratio was considered satisfactory by management. Management
reviews liquidity on a periodic basis to monitor and adjust liquidity as
necessary. Management has the ability to adjust liquidity by selling securities
available for sale, selling participations in loans generated by the Bank and
accessing available funds through various borrowing arrangements. At December
31, 1997 the Bank's short-term investments were adequate to cover any reasonably
anticipated immediate need for funds. The Bank was not aware of any events or
trends likely to result in a material change in their liquidity.
At December 31, 1997 the Bank's capital to asset ratios were considered
adequate based on guidelines established by the regulatory authorities. During
1997, the Bank increased its capital by retaining net earnings of approximately
$502,000. The unrealized gains on securities available-for-sale increased by
$3,000. At December 31, 1997 total capital of the Bank amounted to
approximately $5,464,000 and is considered well-capitalized based on regulatory
requirements.
At December 31, 1997 management was not aware of any known trends, events,
uncertainties or recommendations by regulatory authorities that will have or
that are reasonably likely to have a material effect on the Bank's capital
resources or operations.
-26-
<PAGE>
Effects of Inflation
- - --------------------
The impact of inflation on banks differs from its impact on non-financial
institutions. Banks, as financial intermediaries, have assets which are
primarily monetary in nature and which tend to fluctuate in concert with
inflation. A bank can reduce the impact of inflation if it can manage its rate
sensitivity gap. This gap represents the difference between rate sensitive
assets and rate sensitive liabilities. The Bank, through its asset-liability
committee, attempts to structure the assets and liabilities and manage the rate
sensitivity gap, thereby seeking to minimize the potential effects of inflation.
For information on the management of the Bank's interest rate sensitive assets
and liabilities, see the "Asset/Liability Management" section.
Balance Sheets
- - --------------
Total assets increased approximately $8.5 million or 41.07% from 1996 to
1997 compared to an increase of $9.3 million for the year ended December 31,
1996. The increase in assets consists primarily of an increase in securities of
$5.6 million and an increase in loans of $3.4 million. These increases are
consistent with management's expectations and the growth rates expected of a de
novo bank.
The most significant increase by category of loans was an increase in
commercial loans of $4,202,000. The loans represent primarily loans to small
businesses in the metropolitan area owned and operated by minority groups.
These loans are typically secured by corporate real estate, corporate assets,
and often personal assets of the owners.
The increase in assets was funded by an increase in deposits of
approximately $7.9 million or 35.36% as compared to a $9.3 million increase in
1996. The net increase was made up of an increase in noninterest-bearing demand
deposits of $2.6 million, an increase in savings of $560,000, an increase in
time deposits of $6.5 million, and a decrease in interest-bearing demand of $1.8
million.
The most significant increase in deposits was the increase in time deposits
of $100,000 and greater. These deposits are typically higher yielding and
interest rate sensitive. However, a portion of these deposits are considered
stable deposits due to the nature of the deposit relationship being with
minority business owners and individuals.
Average total assets increased $6.1 million from 1996 to 1997 compared to
$12.0 million in 1996. The change consists of an increase in average securities
of $4.6 million, average loans of $4.1 million, and a decrease in average
Federal funds sold of $1.5 million. Average interest-earning assets increased
$7.3 million from 1996 to 1997 as compared to $9.6 million in 1996. Average
total deposits increased approximately $6.0 million. The increase is the result
of an increase in average noninterest-bearing demand deposits of $1.9 million, a
decrease in average interest-bearing demand and savings deposits of $166,000,
and an increase in time deposits of $4.2 million. Average interest-
-27-
<PAGE>
bearing liabilities increased during 1997 by $4.1 million from $13.8 million to
$17.9 million, as compared to an increase of $9.1 million in 1996.
Results of Operations
- - ---------------------
The Bank's results of operations are determined by its ability to
effectively manage interest income and expense, to minimize loan and securities
losses, to generate noninterest income, and to control noninterest expense.
Since interest rates are determined by market forces and economic conditions
beyond the control of the Bank, the ability to generate net interest income is
dependent upon the Bank's ability to obtain an adequate spread between the rate
earned on interest-earning assets and the rate paid on interest-bearing
liabilities. Thus, the key performance measure for net interest income is the
interest margin or net yield, which is net interest income divided by average
earning assets. Interest-earning assets consisted of loans, securities, and
Federal funds sold. Interest-bearing liabilities consisted solely of interest-
bearing deposits.
The net yield on interest-earning assets decreased by 39 basis points in
1997 as compared to 1996. The average yield on interest-earning assets
decreased 30 basis points to 8.96% during 1997 from 9.26% during 1996. The
decrease in the net yield on interest-earning assets is due to several
components of net interest income. At December 31, 1997 average loans as a
percent of total average earning assets was 53% as compared to 51% in 1996,
yielding approximately the same rate as in 1996. The average yield on interest-
bearing liabilities increased 38 basis points from 4.00% in 1996 to 4.38% in
1997. Due to the steady yield on average loans, a decrease in yield of 206
basis points on average securities of $10.8 million combined with the increase
in rates paid on deposits, the net yield decreased for the year. The increase
in the rate paid on interest-bearing liabilities offsets a decrease in the
average rate paid on liabilities in 1996 of 36 basis points. The rate paid on
interest-bearing liabilities is most affected by the increase in volume of time
deposits, particularly time deposits of $100,000 and greater. These increases
resulted in an overall decrease in the net interest spread from 5.26% to 4.58%
for 1997. However, due to the increase in volume, net interest income increased
from $1.2 million in 1996 to $1.6 million in 1997.
The allowance for loan losses represents an allowance for potential losses
in the loan portfolio. The adequacy of the allowance is evaluated periodically
by management based on a review of all significant loans, nonaccrual loans, past
due loans, and other loans which management believes require attention.
The provision for loan losses is a charge to operations which management
determines is necessary to adequately fund the allowance for loan losses. It is
based on a number of factors including the growth of the loan portfolio, net
charge-offs incurred, peer group averages, and management's review and
evaluation of potential losses in the loan portfolio. The provision for loan
losses decreased in 1997 from $412,000 to $161,000.
-28-
<PAGE>
Actual loan charge-offs decreased significantly from $447,000 during 1996
to $206,000 during 1997, while recoveries on loans previously charged off
increased from $88,500 to $164,000 resulting in net charge-offs of $42,000 and
$359,000 for the years ended December 31, 1997 and 1996, respectively. During
1996, the Bank experienced significant loan losses which were attributable to
weaknesses in the Bank's overall lending environment, as disclosed in the 1996
annual report. These weaknesses were identified in the fourth quarter of 1996
and appropriately corrected shortly thereafter. The favorable improvement in
net charge-offs of $317,000 represents a net charge-off to average loans ratio
of .30% as compared to 3.57% in 1996.
The Bank's allowance for loan loss was $272,000 at December 31, 1997
compared to $152,000 at December 31, 1996. The allowance as a percentage of
total loans increased from 1.21% in 1996 to 1.71% in 1997. The increase in the
ratio of the allowance to total loans is due to the significant recoveries
during 1997 plus the provisions for loan losses which was partly attributable to
the increase in loans. Based on management's evaluations, the allowance is
adequate to absorb possible losses on existing loans that may become
uncollectible.
Other operating income increased $255,000 or 36.08% in 1997 compared to an
increase of $305,000 in 1996. These increases consist primarily of increases in
service charges on deposit accounts of $160,000 and $312,000, respectively. The
increase in service charges on deposit accounts continues to result from the
growth in the number of deposit accounts. Service charges on deposit accounts
include monthly service charges on transaction accounts, insufficient funds
charges, and other miscellaneous maintenance fees. Approximately 75% of the
service charge income is generated from insufficient funds charges.
Other expenses increased $338,000 or 22.44% during 1997 compared to
$312,000 in 1996. The change is due primarily to an increase in salaries and
employee benefits of $243,000 which resulted from the average number of
employees increasing from 24 during 1996 to 32 during 1997. Other operating
expenses increased $85,000 in 1997 as compared to 1996. This change is due to
overall growth with increases in expenses such as supplies, forms, postage,
telephone, courier service, and data processing. The increase in salaries and
employee benefits and other operating expenses was $127,000 and $148,000,
respectively, for the year ended December 31, 1996.
Noninterest expense increased from approximately $1.2 million in 1995 to
approximately $1.5 million in 1996 or approximately $312,000. Salaries and
employee benefits and other operating expenses represent the largest portions of
these changes with increases of approximately $127,000 and $130,000,
respectively, from 1995 to 1996. The change in salaries and employee benefits
was due to the addition of eight full-time employees in 1996. Other operating
expenses increased overall due to the significant growth in loans and
transaction accounts. Direct expenses related strictly to growth include
processing fees, supplies expense, postage, telephone, check expense, and credit
analysis expense. Other individually significant increases in 1996 include
increases of
-29-
<PAGE>
$34,000 and $35,000 in correspondent bank charges and collection expenses,
respectively. Equipment and occupancy expense increased approximately $37,000
in 1996 over 1995. This was due to increased depreciation and maintenance
expenses required for the upkeep of premises and equipment at three locations
and increased computer expenses.
The Bank entered into a sublease agreement during 1996 for the lease of a
branch facility at Hartsfield Atlanta International Airport. As a condition of
the lease, the sublessor agreed to contribute approximately $110,000 to the Bank
to defray the first year costs associated with staffing the branch location.
These benefits are being recognized over a one-year period and are included in
the statement of operations as a reduction of salaries and benefits. The
benefit recognized in 1996 was approximately $65,000. The primary changes to
the original agreement include reductions in monthly rental and other expenses.
The Bank continues to occupy this location and has not experienced any
disruptions in the operations of the branch facility.
During 1997 the Bank utilized its remaining net operating loss
carryforwards and recognized an income tax expense of $70,000. The effective
tax rate of 12% is due to the utilization of the loss carryforward and expected
to increase to approximately 34% in the near future.
Capability of the Bank's Data Processing Software to Accommodate the Year 2000
- - ------------------------------------------------------------------------------
Like many financial institutions, the Bank relies upon computers for the
daily conduct of their business and for data processing generally. There is
concern among industry experts that commencing on January 1, 2000 computers will
be unable to "read" the new year and there may be widespread computer
malfunctions.
Management as of December 31, 1997 determined that its data processing
system was not year 2000 compliant. Management continued its process of
evaluating available options, which included converting the entire data
processing system or making significant modifications to its data processing
system. As of December 31, 1997 the additional costs to be incurred were
unknown but expected to be significant.
Twelve Months Ended December 31, 1996 Compared to Twelve Months Ended December
- - ------------------------------------------------------------------------------
31, 1995:
- - ---------
Liquidity and Capital Resources
- - -------------------------------
At December 31, 1996 the Bank's short-term investments were adequate to
cover any reasonably anticipated immediate need for funds. The Bank was not
aware of any events or trends likely to result in a material change in their
liquidity.
At December 31, 1996 the Bank's capital to asset ratios were considered
adequate based on guidelines established by the regulatory authorities. At
December 31, 1996, total
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<PAGE>
capital of the Bank amounted to approximately $4,959,000. At December 31, 1996,
the Bank exceeded the minimum requirements to be considered well capitalized in
all categories.
At December 31, 1996, management was not aware of any known trends, events,
uncertainties or recommendations by regulatory authorities that will have or
that are reasonably likely to have a material effect on the Bank's capital
resources or operations.
Balance Sheets
- - --------------
The Bank's assets increased by $9.3 million from $18.0 million at December
31, 1995 to $27.3 million at December 31, 1996. The change consisted primarily
of an increase in investment securities of $2.1 million, an increase in Federal
funds sold of $526,000 and an increase in loans of $5.2 million. These
significant changes are attributable to 1996 being the Bank's second full year
of operations and the growth associated with a de novo bank.
The increases in assets were funded primarily by an increase in deposits of
$9.3 million from 1995 to 1996. Interest-bearing demand and savings increased
by approximately $2.3 million and $856,000 in 1996, respectively. Time deposits
increased by approximately $3.6 million from 1995 to 1996. The total increase
in deposits represents a 71.2% increase from 1995.
The increase in average total interest-earning assets for the year ended
December 31, 1996 was $9.6 million which includes increases in average loans of
$6.0 million, Federal funds sold of $1.6 million and securities of $2.0 million.
The increases in average interest-earning assets were funded by an increase in
average total interest-bearing deposits of $9.1 million. The largest increase
in interest-bearing deposits was an increase of $5.4 million in time deposits,
with increases of $3.7 million and $2.8 million increases in interest-bearing
demand and savings and noninterest-bearing demand, respectively.
Results of Operations
- - ---------------------
The net yield on average interest-earning assets decreased by 38 basis
points to 5.74% in 1996 as compared to 6.12% in 1995. The yield on average
interest-earning assets increased in 1996 to 8.59% from 8.21% in 1995, while the
interest paid on average interest-bearing liabilities decreased in 1996 to 4.00%
from 4.36% in 1995. The change in yields, coupled with an increase in average
interest-earning assets, resulted in net interest income of $1.2 million in 1996
as compared to $682,000 in 1995. The improvement in yields and net interest
income is attributable to the growth experienced by the Bank. During 1996, the
Bank experienced a decline in the net yield, even though the change in yield on
interest-earning assets and rate paid on interest-bearing liabilities were
favorable. This is due to the significant growth in interest-earning assets
compared to the growth in net interest income. During this same period, the
Bank increased its net interest
-31-
<PAGE>
spread by 74 basis points which is directly related to the changes in yield on
interest-earning assets and rate paid on interest-bearing liabilities.
The allowance for loan losses represents an allowance for potential losses
in the loan portfolio. The adequacy of the allowance for loan losses is
evaluated periodically based on a review of all significant loans, with a
particular emphasis on nonaccruing, past due and other loans that management
believes require attention.
The provision for loan loss increased from $100,000 in 1995 to $412,000 in
1996. This provision is a charge to operations which management determined is
necessary to adequately fund the allowance for loan losses. It is based on the
growth of the loan portfolio, the amount of net losses incurred, peer group
averages and management's evaluation of potential loan losses in the loan
portfolio.
During 1996, the Bank experienced significant loan losses of $447,000 net
of $88,500 of recoveries of loans previously changed off, or net charge-offs of
$358,500. This represents an increase of $345,000 over net charge-offs for the
year ended December 31, 1995. Approximately 75% of these charge-offs were
underwritten and managed by one individual who is no longer with the Bank. The
weaknesses in the lending administration were identified and procedures were put
in place to minimize the likelihood of a similar occurrence. In addition, these
losses were partially attributable to the Bank's efforts to maintain costs and
expenses by attempting to manage the growth with minimal staffing levels.
The Bank's reserve for loan loss amounted to $152,000 at December 31, 1996
or 1.21% of total loans. This is compared to $98,000 at December 31, 1995 or
1.35% of total loans. Based on management's evaluations, the reserve is
adequate to absorb possible losses on existing loans that may become
uncollectible.
Other operating income increased by approximately $305,000 in 1996 from
1995. This change is primarily attributable to an increase in service charges on
deposit accounts of approximately $312,000 in 1996. This is consistent with the
significant increase in transaction accounts during 1996 which includes monthly
service charges, overdraft charges and other miscellaneous service charges. The
single largest contributor to the increase in 1996 was an increase of $217,000
in insufficient fund fees, or $480,000 for the year ended December 31, 1996.
Losses on security transactions were $1,100 for 1996 compared to gains of
$16,000 for 1995.
Noninterest expense increased from approximately $1.2 million in 1995 to
approximately $1.5 million in 1996 or approximately $312,000. Salaries and
employee benefits and other operating expenses represent the largest portions of
these changes with increases of approximately $127,000 and $130,000,
respectively, from 1995 to 1996. The change in salaries and employee benefits
was due to the addition of eight full-time employees in 1996. Other operating
expenses increased overall due to the significant growth in loans and
transaction accounts. Direct expenses related strictly to growth include
-32-
<PAGE>
processing fees, supplies expense, postage, telephone, check expense, and credit
analysis expense. Other individually significant increases in 1996 include
increases of $34,000 and $35,000 in correspondent bank charges and collection
expenses, respectively. Equipment and occupancy expense increased approximately
$37,000 in 1996 over 1995. This was due to increased depreciation and
maintenance expenses required for the upkeep of premises and equipment at three
locations and increased computer expenses.
The Bank entered into a sublease agreement during 1996 for the lease of a
branch facility at Hartsfield Atlanta International Airport. As a condition of
the lease, the sublessor agreed to contribute approximately $110,000 to the Bank
to defray the first year costs associated with staffing the branch location.
These benefits are being recognized over a one-year period and are included in
the statement of operations as a reduction of salaries and benefits. The
benefit recognized in 1996 was approximately $65,000.
HISTORY AND BUSINESS OF BANCSHARES
Organization
- - ------------
Bancshares was organized at the instruction of management of the Bank. It
was incorporated on April 14, 1998 by the filing of articles of incorporation
with the Georgia Secretary of State. An organizational meeting of the initial
board of directors of Bancshares was conducted on April 14, 1998. Bancshares
has not transacted any financial business since its incorporation and will not
transact any such business until the proposed Reorganization is accomplished by
and through the merger of Interim with and into the Bank. All of the issued and
outstanding shares of common stock of Bancshares are presently held by Mr.
George G. Andrews, President and CEO of the Bank, in order to insure adequate
capital and pursuant to a shareholder agreement which obligates Mr. Andrews to
surrender and cancel such shares upon consummation of the proposed
Reorganization.
Upon consummation of the Reorganization, Bancshares will be subject to
regulation by the Securities and Exchange Commission with respect to its
securities and reporting to its shareholders. As long as Bancshares is a
reporting company, it will be required to file with the Securities and Exchange
Commission certain annual, quarterly, and current reports under Section 13 of
the Securities Exchange Act of 1934.
After the Reorganization is completed, Bancshares will operate as a bank
holding company under the laws of the United States and the State of Georgia,
and it will operate out of the facilities of the Bank.
Management
- - ----------
The Board of Directors of Bancshares consists of those persons who are
members of the Board of Directors of the Bank. See: HISTORY AND DESCRIPTION OF
THE
-33-
<PAGE>
BANK - DIRECTORS AND PRINCIPAL OFFICERS. In addition, those persons serving as
officers of the Bank will serve in similar positions for Bancshares as follows:
Name Age Position
---- --- --------
George G. Andrews 46 President, CEO and
Treasurer
Kaneta R. Lott 47 Secretary
Leon Goodrum 56 Chairman of the Board
Remuneration
- - ------------
Because Bancshares was not in existence in 1997, it paid no remuneration to
its directors and officers for that year. Further, Bancshares has paid no
remuneration to its officers to date during 1998. In the future, Bancshares may
pay each of its directors for attendance at meetings of the Board of Directors
and may elect at a future date to compensate its officers for services rendered
by them to Bancshares.
Limitations on Director Liability
- - ---------------------------------
The articles of incorporation of Bancshares limit the liabilities of the
directors of Bancshares to it or its shareholders. The articles do not
eliminate the liability of a director for any appropriation, in violation of his
duties, of any business opportunity of Bancshares or the subsidiaries, acts or
omissions not taken in good faith or which involved intentional misconduct or a
knowing violation of law, the types of liabilities set forth in Official Code of
Georgia Annotated Sections 14-2-832 (unlawful distributions), or any transaction
from which the director derived an improper personal benefit.
Indemnification of Officers and Directors
- - -----------------------------------------
Article 8, Part 5 of the Georgia Business Corporation Code provides for
indemnification of directors and officers of corporations. Under the provisions
of O.C.G.A. (S)14-2-852, a director of Bancshares, to the extent successful in
the defense of any proceeding or claim to which he is a party because he is a
director of Bancshares, is entitled as a matter of right to indemnification
against reasonable expenses, including attorneys' fees, incurred by him in
connection therewith, unless the articles of incorporation of Bancshares should
subsequently be amended to eliminate such rights. Bancshares is further
authorized to indemnify any person who is made a party to a proceeding because
he or she is a director against any liability incurred including the obligation
to pay any judgment rendered against him or her if the director acted in a
manner he or she believed in good faith to be in, or not opposed to, the best
interests of 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
authority of Bancshares to indemnify a director is not
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applicable in connection with any proceeding brought by or in the right of the
corporation, or in connection with any other proceeding in which he or she is
adjudged liable on the basis that personal benefit was improperly received by
him. Indemnification in any action brought by or in the right of the
corporation is limited in any event to reasonable expenses incurred in
connection with the proceeding, and does not include the obligation to pay any
judgment, settlement, penalty or fine.
A determination that a director is entitled to indemnification must be made
by the board of directors by majority vote of a quorum consisting of directors
not at the time parties to the proceedings; if a quorum cannot be obtained then
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 proceedings; by special
legal counsel; or by the shareholders of the corporation, excluding shares owned
by or voted under the control of directors who are at the time parties to the
proceeding. Unless the articles of incorporation of Bancshares are subsequently
amended to provide otherwise, a director of Bancshares who is a party to a legal
proceeding in that capacity may apply to the court for indemnification or
advances for expenses if it determines (1) the director is entitled to mandatory
indemnification under O.C.G.A. (S)14-2-852; (2) the director is fairly and
reasonably entitled in view of all relevant circumstances to indemnification,
even if he or she has not met the standard conduct set forth in O.C.G.A. (S)14-
2-851(a) or was adjudged liable as described in O.C.G.A. (S)14-2-851(d), in
which latter event, however, his or her indemnification is limited to reasonable
expenses incurred, unless otherwise provided by articles of incorporation or
bylaws or shareholder resolutions; or (3) in the case of advances for expenses,
the director is entitled pursuant to the provision of any articles of
incorporation, bylaws, resolutions or agreement to payment or reimbursement of
his reasonable expenses incurred as a party to a proceeding in advance of final
disposition of the proceedings. The articles of incorporation of Bancshares
also eliminate, as permitted by law, the personal liability of directors of the
company from monetary damages for breach of duty of care or other duty as a
director, excepting only any liability for misappropriation of any business
opportunity of the corporation, intentional misconduct, and other specified
conduct.
An officer of Bancshares who is not a director is entitled to mandatory
indemnification under O.C.G.A. (S)14-2-852 and is entitled to apply for court
ordered indemnification in each case to the same extent as is a director of
Bancshares. Bancshares may also indemnify and advance expenses to an officer,
employee or agent who is not a director to the extent, consistent with public
policy, that may be provided by its articles of incorporation, bylaws, general
or specific action of its board of directors, or contract.
Bancshares' bylaws provide for indemnification of officers and directors
substantially similar to that provided by Article 8, Part 5 of the Georgia
Business Corporations Code.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of
Bancshares pursuant to the
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foregoing provisions, or otherwise, Bancshares has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable.
Supervision and Regulation of Bancshares
- - ----------------------------------------
Bancshares will be a registered bank holding company subject to regulation
by the Board of Governors of the Federal Reserve System under the Bank Holding
Company Act of 1956, as amended, (the "Act"). As a bank holding company,
Bancshares will be required to file with the Board of Governors an annual report
of its operations at the end of each fiscal year and such additional information
as the Board of Governors may require pursuant to the Act. The Board may also
make examinations of Bancshares and each of its subsidiaries.
The Act requires every bank holding company to obtain the prior approval of
the Board of Governors (i) before it may acquire direct or indirect ownership or
control of more than 5% of the voting shares of any bank which is not controlled
by it; (ii) before it or any of its subsidiaries, other than a bank, may acquire
all or substantially all the assets of a bank; and (iii) before it may merge or
consolidate with any other bank holding company. A bank holding company is, with
certain exceptions, prohibited from engaging, acquiring, or retaining direct or
indirect control of voting shares of any company engaged in non-banking
activities except for those activities found by the Board of Governors to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto.
The laws of Georgia require annual registration with the Department of
Banking and Finance by all Georgia bank holding companies. Such registration
includes information with respect to the financial condition, operations,
management, and inter-company relationships of the bank holding company and its
subsidiaries in related matters as the Department of Banking and Finance deems
necessary or appropriate to carry out the purposes of the law. The Department
of Banking and Finance may also require such other information as is necessary
to keep itself informed as to whether the provisions of Georgia law and the
regulations and orders issued thereunder by the Department have been complied
with, and the Department may make examinations of each bank holding company and
each subsidiary (other than a national bank) thereof.
Under Section 106 of the 1970 amendments to The Bank Holding Company Act
and the FRB's regulations, a bank holding company and its subsidiaries are
prohibited from engaging in certain tie-in arrangements in connection with any
extension of credit or provision of credit or provision of any property or
services. These provisions state generally that a bank may not extend credit,
lease, sell property or furnish any service to a customer on the condition that
the customer provide additional credit or service to the bank, to its bank
holding company or to any other subsidiary of its bank holding company or on the
condition that the customer not obtain other credit or service from a competitor
of the bank, its bank holding company or any subsidiary of its bank holding
company.
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Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of credit to
the bank holding company or any of its subsidiaries, on investments in the stock
or other securities of the bank holding company and on taking of such stock or
securities as collateral for loans to any borrower.
Permitted Activities
- - --------------------
The FRB permits bank holding companies to engage in activities so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. While the types of permissible activities are subject to change by the
FRB, the following list comprises the principal activities that presently may be
conducted by a bank holding company:
1. Making, acquiring or servicing loans and other extensions of credit
for its own account or for the account of others, such as would be made by the
following types of companies: consumer finance, credit card, mortgage, and/or
commercial finance and factoring companies;
2. Operating as an industrial bank, Morris Plan or industrial loan
company in the manner authorized by state law so long as the institution does
not both accept demand deposits and make commercial loans;
3. Operating as a trust company in the manner authorized by federal or
state law so long as the institution does not make certain types of loans or
investments or accept deposits, except as may be permitted by the Federal
Reserve Board;
4. Subject to certain limitations, acting as an investment or financial
advisor to investment companies and other persons;
5. Leasing personal and real property or acting as agent, broker, or
advisor in leasing property, provided that it is reasonably anticipated that the
transaction will compensate the lessor for not less than the lessor's full
investment in the property;
6. Making equity and debt investments in corporations or projects
designed primarily to promote community welfare;
7. Providing to others financially oriented data processing or
bookkeeping services;
8. Subject to certain limitations, acting as an insurance agent or broker
in relation to insurance for itself and its subsidiaries or for insurance
directly related to extensions of credit by the bank holding company system;
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9. Subject to certain limitations, acting as underwriter for credit life
insurance and credit accident and health insurance that is directly related to
extensions of credit by the bank holding company system;
10. Providing courier services of a limited character;
11. Subject to certain limitations, providing management consulting advice
to non-affiliated banks and nonbank depository institutions;
12. Selling money orders having a face value of One Thousand Dollars
($1,000) or less, travelers' checks and United States savings bonds;
13. Performing appraisals of real estate;
14. Subject to certain conditions, acting as intermediary for the
financing of commercial or industrial income-producing real estate by arranging
for the transfer of the title, control and risk of such a real estate project to
one or more investors;
15. Providing securities brokerage services, related securities credit
activities pursuant to Federal Reserve Board Regulation T and incidental
activities such as offering custodial services, individual retirement accounts
and cash management services, if the securities brokerage services are
restricted to buying and selling securities solely as agent for the account of
customers and do not include securities underwriting or dealing or investment
advice or research services;
16. Underwriting and dealing in obligations of the United States, general
obligations of states and their political subdivisions and other obligations
such as bankers' acceptances and certificates of deposit;
17. Subject to certain limitations, providing by any means, general
information and statistical forecasting with respect to foreign exchange
markets; advisory services designed to assist customers in monitoring,
evaluating and managing their foreign exchange exposures; and certain
transactional services with respect to foreign exchange;
18. Subject to certain limitations, acting as a futures commission
merchant in the execution and clearance on major commodity exchanges of futures
contracts and options on futures contracts for bullion, foreign exchange,
government securities, certificates of deposit and other money market
instruments;
19. Subject to certain limitations, providing commodity trading and
futures commission merchant advice;
20. Providing consumer financial counseling that involves counseling,
educational courses and distribution of instructional materials to individuals
on consumer-oriented financial management matters, including debt consolidation,
mortgage applications,
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bankruptcy, budget management, real estate tax shelters, tax planning,
retirement and estate planning, insurance and general investment management, so
long as this activity does not include the sale of specific products or
investments;
21. Providing tax planning and preparation advice such as strategies
designed to minimize tax liabilities and includes, for individuals, analysis of
the tax implications of retirement plans, estate planning and family trusts. For
corporations, tax planning includes the analysis of the tax implications of
mergers and acquisitions, portfolio mix, specific investments, previous tax
payments and year-end tax planning. Tax preparation involves the preparation of
tax forms and advice concerning liability based on records and receipts supplied
by the client;
22. Providing check guaranty services to subscribing merchants;
23. Subject to certain limitations, operating a collection agency and
credit bureau;
24. Acquiring and operating thrift institutions, including savings and
loan associations, building and loan associations and FDIC-insured savings
banks;
25. Operating a credit bureau, subject to certain limitations.
Issuance of Additional Securities
- - ---------------------------------
Because the articles of incorporation of Bancshares authorize the issuance
of a number of shares of its common stock substantially in excess of the number
of shares that will be issued in connection with the Reorganization, the Board
of Directors of Bancshares will have the flexibility to raise additional capital
and to make acquisitions through the issuance of Bancshares common stock without
further approval by the holding company's shareholders. Bancshares'
shareholders will not have preemptive rights to subscribe for additional shares.
Therefore, such issuance could result in a dilution of voting rights and book
value per share as to the common stock of Bancshares. The Board of Directors of
Bancshares has no present plans for issuing additional shares of Bancshares
Common Stock.
HISTORY AND BUSINESS OF THE BANK
Business
- - --------
The Bank is a state banking institution chartered under the laws of the
State of Georgia on June 30, 1994. Since opening on October 3, 1994, the Bank
has continued a general banking business and presently serves its customers from
three locations: the main office located at 562 Lee Street, S.W., Atlanta,
Georgia 30310; a full service branch located at 2358 Cascade Road, Atlanta,
Georgia 30311; and a third location at Hartsfield International Airport,
Atlanta, Georgia.
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<PAGE>
The Bank operates a full-service banking business and engages in a broad
range of commercial banking activities, including accepting customary types of
demand and timed deposits, making individual, consumer, commercial, and
installment loans, money transfers, safe deposit services, and making
investments in U. S. government and municipal services. The Bank also offers
trust services.
The data processing work of the Bank is processed with Provesa of Thomson,
Georgia. The Bank does not presently issue credit cards. The Bank offers its
customers a variety of checking and savings accounts. The installment loan
department makes both direct consumer loans and also purchases retail
installment contracts from sellers of consumer goods.
The Bank serves the residents of Atlanta and Fulton County which have a
population of approximately 450,000 and 1,250,000, respectively. Atlanta and
Fulton County have a diverse commerce, including manufacturing, financial and
service sector economies. Atlanta also serves as the capital of the State of
Georgia, with a significant number of residents employed in government.
As of December 31, 1997, the Bank had correspondent relationships with
SunTrust Bank of Atlanta, Georgia and First Union Bank of Georgia. The
correspondent bank provides certain services to the Bank, such as investing its
excess funds, processing checks and other items, buying and selling federal
funds, handling money fund transfers and exchanges, shipping coins and currency,
providing security and safekeeping of funds and other valuable items, handling
loan participation and furnishing management investment advice on the Bank's
securities portfolio.
The Bank's main offices are located at 562 Lee Street, S.W., Atlanta,
Georgia 30310. The main office, which is owned by the Bank, consists of
approximately 7,000 square feet, four drive-in windows and adjacent parking lot.
Banking operations are also conducted from a branch located at 2358 Cascade
Road, Atlanta, Georgia 30311. This branch is owned by the Bank and has been in
continuous operation since it opened in October 3, 1994. The branch is a single
story building with approximately 3,000 square feet, one drive-in window and an
adjacent parking lot. The Bank also maintains a branch at Hartsfield
International Airport. The Hartsfield branch has two teller windows and a
customer service desk. The branch is approximately 450 square feet, and is open
seven days a week.
As of December 31, 1997, the Bank had 30 full-time employees and 5 part-
time employees. In the opinion of management, the Bank enjoys an excellent
relationship with its employees. The Bank is not a party to any collective
bargaining agreement.
As of June 30, 1998 the Bank had total deposits of $37,099,000; total
assets of $43,117,000; net loans of $18,793,000; and equity capital of
$5,782,000.
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Competition
- - -----------
The banking business in Atlanta and Fulton County is highly competitive.
The Bank competes with numerous other financial institutions in the market it
represents. In Atlanta, there are branches of NationsBank, Sun Trust, Wachovia,
and First Union. In addition to these banks (and branches of regional banks),
there are many finance companies, credit union offices, and other non-
traditional providers of service that compete in the Bank's market.
Supervision and Regulation of the Bank
- - --------------------------------------
The Bank operates as a banking institution incorporated under the laws of
the State of Georgia and subject to examination by the Georgia Department of
Banking and Finance (the "Department"). The Department regulates all areas of
the Bank's commercial banking operations, including reserves, loans, mergers,
issuance of securities, payment of dividends, interest rates, establishment of
branches, and other aspects of its operations. The Bank must also comply with
the state usury laws which limit the rates of interest which may be charged on
certain types of loans.
In addition to state banking laws and regulations applicable to the Bank as
a state banking institution, the Bank is also insured and regulated by the
Federal Deposit Insurance Corporation ("FDIC"). The major functions of the FDIC
with respect to insured banks include paying off depositors to the extent
provided by law in the event a bank is closed without adequate provisions having
been made to pay the claims of depositors, acting as the receiver of state banks
placed in receivership when appointed receiver by state authorities, and
preventing the continuance or development of unsound and unsafe banking
practices. In addition, the FDIC is authorized to examine insured banks which
are not members of the Federal Reserve System to determine the condition of such
banks for insurance purposes. The FDIC is also authorized to approve mergers,
consolidations and assumption of deposit liability transactions between insured
banks and non-insured banks or institutions, and to prevent capital or surplus
diminution in such transactions whether resulting, continued, or assumed bank is
an insured non-member state bank. Also, the FDIC closely examines non-member
banks for compliance with certain federal statutes such as the Community
Reinvestment Act and the Truth-and-Lending Act.
Monetary Policies
- - -----------------
The results of operation of the Bank are affected by the credit policies of
monetary authorities, particularly the Board of Governors of the Federal Reserve
System, even though the Bank is not a member of the Federal Reserve. The
instruments of monetary policy employed by the Federal Reserve include open
market operations in U. S. government securities, changes in discount rates on
member bank borrowings, and changes in reserve requirements against member bank
deposits. In view of changing conditions in the national economy and in the
money markets, as well as the effect of action by monetary and fiscal
authorities, including the Federal Reserve System, no
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prediction can be made as to possible future changes in interest rates, deposit
levels, loan demand, or the business and earnings of the Bank.
Deposit Insurance
- - -----------------
The Bank's deposits are insured by the FDIC pursuant to the system of
federal deposit insurance initially established by the Banking Act of 1933. The
Monetary Control Act of 1980 increased the coverage of FDIC insurance from Forty
Thousand Dollars ($40,000) to One Hundred Thousand Dollars ($100,000) per
deposit account. The Bank pays insurance premiums into the Bank Insurance Fund
("BIF") according to rates established by the FDIC. The FDIC Improvement Act of
1991 ("FDICIA"), enacted in part to prevent the insolvency of the deposit
insurance funds, authorized the FDIC to raise insurance premium assessments in
order to achieve and maintain an adequate level of funds. The depletion of the
deposit insurance funds was due, in part, to the failure of a large number of
financial institutions in the 1980's, and the requisite increased deposit
account coverage.
Due to the health of the banking industry, the FDIC established a new rate
schedule in 1996. The new rate schedule substantially reduces the cost of
deposit insurance for BIF insured institutions.
Although the FDIC reduced the assessment rate, the FDIC has discretion to
increase the assessment in the future in response to changes in the economic
climate of the banking industry. As a result, the future cost of deposit
insurance for the Bank is, in large part, dependent upon the extent of future
bank failures and the amount of insurance coverage provided by the FDIC for each
deposit account, neither of which are within the Bank's control. Moreover,
because the current insurance premium assessment system differentiates between
higher and lower risk institutions, with lower premiums assessed against
institutions in a lower risk category, the Bank's future cost of deposit
insurance will depend upon its risk-rating. The Bank is currently in the FDIC's
lowest risk category.
Legislation
- - -----------
Federal law, including the Change in Bank Control Act of 1978 ("CBCA"),
prohibits acquisitions of control of a bank without prior notice to certain
federal bank regulators. "Control" is defined for this purpose as the power,
directly or indirectly, to direct the management or policies of the bank or to
vote twenty-five percent (25%) or more of any class of voting securities of a
bank.
Under the Federal Deposit Insurance Act ("FDIA"), the FRB possesses the
power to prohibit institutions, such as the Bank, from engaging in any activity
that would be an unsafe and unsound banking practice and in violation of the
law. Moreover, the Financial Institutions Regulatory and Interest Rate Control
Act of 1978 ("FIRA") significantly expanded the circumstances under which
officers or directors of a bank may be removed by the bank's federal supervisory
agency, restricted lending by a bank to its executive officers,
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directors, principal shareholders or related interests thereof and restricts
management personnel of a bank from serving as directors or in other management
positions with certain depository institutions whose assets exceed a specified
amount or which have an office within a specified geographic area, and restricts
management personnel from borrowing from another institution that has a
correspondent relationship with their bank. Additionally, FIRA requires that no
person may acquire control of a bank unless the appropriate federal supervisory
agency has been given sixty (60) days prior written notice and within that time
has not disapproved the acquisition or extended the period for disapproval.
Control for purposes of FIRA means the power, directly or indirectly, to
direct the management or policies or to vote twenty-five percent (25%) or more
of any class of outstanding stock of a financial institution or its respective
holding company. A person or group holding revocable proxies to vote twenty-
five percent (25%) or more of the outstanding stock of a financial institution
or bank holding company, such as the Holding Company, would presumably be deemed
to control the institution for purposes of FIRA.
The Garn-St. Germain Depository Institutions Act of 1982 ("Garn-St.
Germain"), removed certain restrictions on a bank's lending powers and
liberalizes its depository capabilities. Garn-St. Germain also strengthened
FIRA (see above) by eliminating the statutory limits on lending by a bank to its
executive officers, directors, principal shareholders or related interests
thereof and by relaxing certain reporting requirements. Garn-St. Germain,
however, also tightened FIRA provisions respecting management interlocks and
correspondent bank relationships by management personnel.
Under the Community Reinvestment Act of 1977, as amended, ("CRA"), the FRB
is required to assess the record of all financial institutions regulated by it
to determine if these institutions are meeting the credit needs of the community
(including low and moderate-income neighborhoods) which they serve and to take
this record into account in its evaluation of any application made by any such
institutions for, among other things, approval of a branch or other deposit
facility, office relocation, a merger or an acquisition of bank shares. The
Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA",
see below) amended the CRA to require, among other things, that the FRB make
publicly available the evaluation of a bank's record of meeting the credit needs
of its entire community, including low- and moderate-income neighborhoods. This
evaluation will include a descriptive rating ("outstanding," "satisfactory,"
"needs to improve," or "substantial noncompliance") and a statement describing
the basis for the rating. These ratings are publicly disclosed.
In April, 1995, regulators revised CRA with an emphasis on performance over
process and documentation. Under the revised rules, the five-point rating scale
is still utilized; however, the twelve (12) assessment factors have been
replaced with a three-prong test. A bank's compliance is determined by a three-
prong test whereby examiners assign a numerical score for a bank's performance
in each of three areas: lending, service and investment. The area of lending is
weighted to increase its
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importance in the application of the test. The rule became effective July 1,
1995. When rating a bank in the area of lending, regulators examine the number
and amount of loan originations, the location of where the loans were made, and
the income levels of the borrowers. Although banks, under the revised rules,
are not required to make loans in every area, if there are apparent tracts in
which there is little lending, examiners will focus their investigations in that
area.
The service prong evaluates how a bank delivers its products to the
community through branching. As with lending, banks are not required to branch
in every area, although conspicuous gaps will be investigated.
The third prong, investment in community, examines how the bank meets the
investment needs in the community within which it operates. Assessment of
investment is accomplished using a "performance context" pursuant to which
regulators meet with civic, community and bank officials in order to determine
the credit needs of the community.
Expanded Home Mortgage Disclosure Act reporting requirements were also
approved for large banks and thrifts which require reporting of census tract
data on mortgages made outside of the delineated communities. In addition,
effective March 1, 1997, institutions with assets above Two Hundred Fifty
Million Dollars ($250,000,000) will be required to report their aggregate small
business loans made by geographic region.
Independent banks with total assets of less than Two Hundred Fifty Million
Dollars ($250,000,000) and bank subsidiaries with total assets of less than Two
Hundred Fifty Million Dollars ($250,000,000) that have holding companies with
total assets of less than One Billion Dollars ($1,000,000,000) will be subjected
to less stringent CRA examinations.
Under the new regulation, banks will enjoy a reduction in compliance
burden. Specifically, banks are not required to keep extensive documentation to
prove that directors have participated in drafting and review of CRA policies.
A formal CRA statement does not have to be prepared. The efforts banks make to
market in low- and moderate-income communities do not have to be documented, nor
will banks have to justify the basis for their community delineation or the
methods utilized to determine the credit needs of the community.
Under the Bank Secrecy Act ("BSA"), banks and other financial institutions
are required to report to the Internal Revenue Service currency transactions of
more than Ten Thousand Dollars ($10,000) or multiple transactions of which the
Bank is aware in any one day that aggregate in excess of Ten Thousand Dollars
($10,000). Civil and criminal penalties are provided under the BSA for failure
to file a required report, for failure to supply information required by the BSA
or for filing a false or fraudulent report.
An omnibus federal banking bill, known as the Competitive Equality Banking
Act ("CEBA"), was signed into law on August 10, 1987. Included in the
legislation were
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measures: (1) imposing certain restrictions on transactions between banks and
their affiliates; (2) expanding the powers available to federal bank regulators
in assisting failed and failing banks; (3) limiting the amount of time banks may
hold certain deposits prior to making such funds available for withdrawal and
any interest thereon; and (4) requiring that any adjustable rate mortgage loan
and secured by a lien on a one- to four-family dwelling include a limitation on
the maximum rate at which interest may accrue on the principal balance during
the term of such loan. This legislation has not had a material adverse effect
on the Bank's anticipated operations or its competitive position.
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") was primarily enacted to improve the supervision of savings
associations by strengthening capital, accounting and other supervisory
standards. In addition, FIRREA reorganized the FDIC by creating two deposit
insurance funds to be administered by the FDIC: the Savings Association
Insurance Fund and the Bank Insurance Fund.
FIRREA reformed real estate appraisal proceedings and the existing
supervisory/ enforcement powers and penalty provisions in connection with the
regulation of the Bank. Under FIRREA, civil monetary penalties are classified
into three levels, with amounts increasing with the severity of the violation.
The first tier provides for civil penalties of up to Five Thousand Dollars
($5,000) per day for any violation of law or regulation. A civil penalty of up
to Twenty-five Thousand Dollars ($25,000) per day may be assessed if more than a
minimal loss or a pattern of misconduct is involved. Finally, a civil penalty
of up to One Million Dollars ($1,000,000) per day may be assessed for knowingly
or recklessly causing a substantial loss to an institution or taking action that
results in a substantial pecuniary gain or other benefit. Criminal penalties
are increased to One Million Dollars ($1,000,000) per violation, and up to Five
Million Dollars ($5,000,000) for continuing violations or for the actual amount
of gain or loss. These monetary penalties may be combined with prison sentences
for up to five (5) years. Management is of the opinion that these additional
reforms have not materially impacted the results of operations of the Bank.
Regulatory Capital
- - ------------------
The FDIC and other federal bank regulatory agencies have issued risk-based
capital guidelines which supplement leverage capital requirements. As of
December 31, 1992, the guidelines require all state banks and bank holding
companies to maintain a minimum risk-based capital ratio of eight percent (8%),
of which at least four percent (4%) must be in the form of common stockholders'
equity. Assets are assigned to categories with higher levels of capital
required for the categories perceived as representing greater risk. The
required capital ratios represent equity, and to the extent permitted, non-
equity capital as a percentage of total risk-weighted assets. The risk-based
capital rules are designed to make regulatory capital requirements more
sensitive to differences in risk profiles among banks and bank holding companies
and to minimize disincentives for holding liquid assets. The risk-based capital
rules have not had a material effect on the Bank's business and capital plans.
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On December 19, 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") became law. Under FDICIA, institutions must be
classified, based on their risk-based capital ratios, into one of five defined
categories, as illustrated below (well capitalized, adequately capitalized,
undercapitalized, significantly undercapitalized and critically
undercapitalized).
<TABLE>
<CAPTION>
Under a
Total Tier 1 Tier 1 Capital Order
Risk- Risk- Leverage Ratio or Directive
Based Ratio Based Ratio
<S> <C> <C> <C> <C>
CAPITAL
CATEGORY
Well Capitalized (Greater than or Equal to) 10.0 (Greater than or Equal to) 6.0 (Greater than or Equal to) 5.0 NO
Adequately *
Capitalized (Greater than or Equal to) 8.0 (Greater than or Equal to) 4.0 (Greater than or Equal to) 4.0
Undercapitalized (Greater than or Equal to) 8.0 (Greater than or Equal to) 4.0 (Greater than or Equal to) 4.0 *
Significantly
Undercapitalized (Greater than or Equal to) 6.0 (Greater than or Equal to) 3.0 (Greater than or Equal to) 3.0
Critically
Undercapitalized (Greater than or Equal to) 2.0
</TABLE>
*3.0 for those banks having the highest available regulatory rating.
In the event an institution's capital deteriorates to the undercapitalized
category or below, FDICIA prescribes an increasing amount of regulatory
intervention, including: (1) the institution of a capital restoration plan and
a guarantee of the plan by a parent institution; and (2) the placement of a hold
on increases in assets, number of branches or lines of business. If capital has
reached the significantly or critically undercapitalized levels, further
material restrictions can be imposed, including restrictions on interest payable
on accounts, dismissal of management and (in critically undercapitalized
situations) appointment of a receiver. For well capitalized institutions,
FDICIA provides authority for regulatory intervention where the institution is
deemed to be engaging in unsafe or unsound practices or receives a less than
satisfactory examination report rating for asset quality, management, earnings
or liquidity. All but well capitalized institutions are prohibited from
accepting brokered deposits without prior regulatory approval.
Under FDICIA, financial institutions are subject to increased regulatory
scrutiny and must comply with certain operational, managerial and compensation
standards to be developed by Federal Reserve Board regulations. FDICIA also
requires the regulators to issue new rules establishing certain minimum
standards to which an institution must adhere including standards requiring a
minimum ratio of classified assets to capital,
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minimum earnings necessary to absorb losses and minimum ratio of market value to
book value for publicly held institutions. Additional regulations are required
to be developed relating to internal controls, loan documentation, credit
underwriting, interest rate exposure, asset growth and excessive compensation,
fees and benefits.
Examinations and Audits
- - -----------------------
Annual full-scope, on site examinations are required for all FDIC-insured
institutions except institutions with assets under Two Hundred Fifty Million
Dollars ($250,000,000) which are well capitalized, well-managed and not subject
to a recent change in control, in which case the examination period is every
eighteen (18) months. Banks with total assets of Five Hundred Million Dollars
($500,000,000) or more as of the beginning of a fiscal year, are required to
submit to their supervising federal and state banking agencies a publicly
available annual audit report. The independent accountants of such bank shall
attest to the accuracy of management's report. The accountants shall also
monitor management's compliance with governing laws and regulations. In
addition, banks with assets of Five Hundred Million Dollars ($500,000,000) or
more as of the beginning of a fiscal year are also required to select an
independent audit committee composed of outside directors who are independent of
management, to review with management and the independent accountants the
reports that must be submitted to the bank regulatory agencies. If the
independent accountants resign or are dismissed, written notification thereof
must be given to the bank's supervising government banking agencies.
Real Estate Loans
- - -----------------
FDICIA also requires that banking agencies reintroduce loan-to-value
("LTV") ratio regulations which were previously repealed by the 1982 Act. LTV's
will limit the amount of money a financial institution may lend to a borrower,
when the loan is secured by real estate, to no more than a percentage to be set
by regulation of the value of the real estate.
A separate subtitle within FDICIA, called the "Bank Enterprise Act of
1991", requires "Truth-In-Savings" on consumer deposit accounts so that
consumers can make meaningful comparisons between the competing claims of banks
with regard to deposit accounts and products. Under this provision, the Bank
will be required to provide information to depositors concerning the terms of
their deposit accounts, and in particular, to disclose the annual percentage
yield. There are operational costs involved in complying with the Truth-In-
Savings law.
For a discussion of the Interstate Banking and Branching Act, see section
entitled "PROPOSED REORGANIZATION - Reasons for the Proposed Organization -
Interstate Banking and Branching."
-47-
<PAGE>
Regulatory Activity
- - -------------------
Congress is currently considering legislative reforms to modernize the
financial services industry, including repealing the Glass Steagall Act which
prohibits commercial banks from engaging in the securities industry.
Consequently, equity underwriting activities of banks may increase in the near
future. However, neither the Bank nor Bancshares currently anticipates entering
into these activities.
From time to time, various types of federal and state legislation have been
proposed that could result in additional regulation of, and restrictions on, the
business of Bancshares and the Bank. It cannot be predicted whether such
legislation will be adopted or, if adopted, how such legislation would affect
the business of Bancshares and the Bank. As a consequence of the extensive
regulation of commercial banking activities in the United States, Bancshares'
and the Bank's business is particularly susceptible to being affected by federal
legislation and regulations that may increase the costs of doing business.
Except as specifically described above, Management believes that the affect of
the provisions of the aforementioned legislation on the liquidity, capital
resources, and results of operations of Bancshares will be immaterial.
Management is not aware of any other current specific recommendations by
regulatory authorities or proposed legislation, which if they were implemented,
would have a material adverse effect upon the liquidity, capital resources, or
results of operations, although the general cost of compliance with numerous and
multiple federal and state laws and regulations does have, and in the future may
have, a negative impact on Bancshares' results of operations.
Further, the business of Bancshares is also affected by the state of the
financial services industry in general. As a result of legal and industry
changes, Management predicts that the industry will continue to experience an
increase in consolidations and mergers as the financial services industry
strives for greater cost efficiencies and market share. Management also expects
increased diversification of financial products and services offered by the Bank
and its competitors.
Management believes that such consolidations and mergers, and
diversification of products and services may enhance its competitive position as
a community bank.
Legal Proceedings
- - -----------------
The nature of the Bank's business generates a certain amount of litigation
involving matters arising in the ordinary course of business. In the opinion of
management of the Bank, however, there are no proceedings pending to which the
Bank is a party or to which its property is subject, which, if determined
adversely to the Bank, would be material in relation to the Bank's undivided
profits or financial condition, nor are there any proceedings pending other than
ordinary routine litigation incident to the business of the Bank. In addition,
no material proceedings are pending or are known to be threatened or
contemplated against the Bank by government authorities or others.
-48-
<PAGE>
Directors and Principal Officers.
- - ---------------------------------
The following table lists the name and ages of all directors, and executive
officers of the Bank, indicates all positions and offices with the Bank held by
each such person, states the term of office as a director or principal officer
and the period during which such person has served, and briefly describes the
business experience of each director or executive officer. None of the listed
executive officers have signed employment contracts with the Bank which ensure
their continued employment by the Bank, and all are terminable at the will of
the Board of Directors. There are no arrangements or understandings between
such persons and any other person pursuant to which that person was elected as a
director or executive officer.
NAME OF DIRECTOR YEAR INFORMATION ABOUT
OR PRINCIPAL OFFICER AGE ELECTED DIRECTORS OR PRINCIPAL
- - -------------------- --- ------- -----------------------
OFFICERS
--------
George G. Andrews 46 1994 President, Chief Executive
Officer and Director; formerly
with Trust Company Bank
Dr. Gloria Campbell-D'Hue 50 1994 Director; Physician
J. Al Cochran 67 1994 Director, General Counsel;
Attorney-at-Law
Keith E. Evans 42 1995 Director; Physical Therapist,
Atlanta Human
Performance Center
Leon Goodrum 56 1994 Chairman; Operator,
McDonald's Restaurant
Agnes H. Harper 52 1995 Director; Retired Life
Insurance Agent
Charles W. Harrison 66 1994 Director; Insurance
Executive, Harrison
Insurance Agency
Robert A. Holmes 54 1995 Director; University
Administrator, Clark Atlanta
University
Maurice Jones, Sr. 46 1995 Director; retired, formerly
of Kimberly-Clark
-49-
<PAGE>
Moses M. Jones 47 1995 Director; Physician
Marian S. Jordan 52 1995 Director; Teacher, Owner,
Parents' Choice Day Care
Thomas J. Locke, III 42 1995 Director; Physician
Kaneta R. Lott 47 1994 Director; Dentist, Children's
Dentistry, P.C.
Donald F. Marshall 60 1994 Director; Dentist
George C. Miller, Jr. 49 1995 Director; President,
Spectrum Consulting
Associates, Inc.
Elvin R. Mitchell, Sr. 84 1995 Director; Contractor, E. R.
Mitchell Construction
Company
Sarah S. Sistrunk 49 1995 Director; Physician
Roy W. Sweat 70 1995 Director; Chiropractor
William Thomas 54 1995 Director; President, Thomas
Cleaning Service, Inc.
Cordy T. Vivian 73 1995 Director; President, Basic,
Inc. (relations)
J. Al Cochran serves as a director of Independent State Bank of Powder
Springs, Georgia, a company with a class of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934.
Other than Mr. Cochran, no other director or executive officer was a
director of any company with a class of securities registered pursuant to
Section 12 of the Securities Exchange Act of 1934, or which was subject to the
requirement of Section 15(d) of that act, or of any company registered as an
investment company under the Investment Company Act of 1940.
The Bank has had and expects to have in the future transactions in the
ordinary course of its business with directors, principal officers, principal
shareholders, certain relatives of such persons, and their associates, including
corporations, partnerships, and other organizations in which such directors and
executive officers have an interest, on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with unrelated parties. Such transactions have not involved more
than the normal risk of collectibility or presented other unfavorable features.
-50-
<PAGE>
As of June 30, 1998, the Bank had outstanding loans to certain of its directors,
executive officers and certain relatives of such persons and their associates
which aggregated approximately $1,700,000.00. This represented approximately
29.50% of the Bank's June 30, 1998 equity capital accounts. Otherwise, there
have been no transactions between directors and executive officers of the Bank
and the Bank, or a series of similar transactions, since the beginning of the
Bank's last fiscal year, or any currently proposed transaction, or series of
similar transactions, in which the amount involved exceeds $60,000.00.
The Board of Directors has established a number of committees to assist it
in the discharge of its duties. The executive committee makes and reviews
policies and decisions in connection with personnel, compensation, nominations
of directors and strategic matters. It also entertains shareholder nominees for
directors. It is composed of directors Andrews, Cochran, D'Hue, Goodrum,
Harrison, Lott, Marshall, Thomas & Miller. It met six (6) times in 1997.
The audit committee recommends the engagement of the Bank's independent
certified auditors, serves as liaison with those independent auditors on behalf
of the Bank, and is responsible for reviewing the audit reports of the Bank's
independent auditors. The audit committee consists of directors Evans, Harper,
Jordan, Harrison and Sistrunk. The audit committee met twelve (12) times in
1997.
The loan committee, which consists of directors Andrews, Cochran, Goodrum,
Lott, Marshall, Miller and Thomas, exercises primary responsibility for the
monitoring of the Bank's lending functions and must approve any loan in excess
of the lending officer's designated lending limits. It met ten (10) times in
1997.
Other committees are the assets/liability committee, the investment
committee, the liquidity committee, the human resources committee, the real
property committee, and the marketing committee.
The Board of Directors of the Bank holds regularly scheduled meetings
monthly, and special meetings are called from time to time as needed. Twelve
regular meetings and no special meetings of the Bank's Board of Directors were
held in 1997. All directors attended at least 75% of the aggregate number of
the meetings of the Board of Directors and committees of which they are members
during 1997, except as follows: Keith Evans attended 58.3% of all such meetings;
Maurice Jones, Sr. attended 41.67% of all such meetings; Sarah S. Sistrunk
attended 50% of all meetings; and Cordy T. Vivian attended 66.67% of all such
meetings. The absences of directors Jones and Sistrunk were excused on most
occasions for medical reasons.
There are no family relationships among directors, executive officers, or
persons nominated or chosen by the Bank to become directors or executive
officers. The directors are not compensated for attending the monthly board
meetings of the Bank and various other committee meetings.
-51-
<PAGE>
During the previous five years, no director or executive officer was the
subject of a legal proceeding (as defined below) that is material to an
evaluation of the ability or integrity of any director or executive officer. A
"legal proceeding" includes: (a) any bankruptcy petition filed by or against any
business of which such person was a general partner or executive prior to that
time; (b) any conviction in a criminal proceeding or subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses); (c)
any order, judgment, or decree of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; and
(d) any finding by a court of competent jurisdiction (in a civil action), the
Securities and Exchange Commission or the Commodity Futures Trading Commission
of a violation of a federal or state securities or commodities law (such finding
having not been reversed, suspended or vacated).
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Company under Rule 16a-3(d) during 1997 and Form 5 and
amendments thereto furnished to the Company during 1997, no person who, at any
time during 1997, was a director, officer or beneficial owner of more than 10%
of any class of equity securities of the Bank failed to file on a timely basis
any reports required by Section 16(a) during the 1997 fiscal year or previously.
-52-
<PAGE>
Remuneration of Officers and Directors
- - --------------------------------------
The following table sets forth the aggregate annual compensation for the
Bank's Chief Executive Officer for the fiscal year ended December 31, 1997. No
individual earned in excess of $100,000 during 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
AWARDS PAYOUTS
(a) (b) (c) (d) (e) (f) (g) (h) (i)
NAME AND
PRINCIPAL OTHER ANNUAL RESTRICTED OPTION LTIP OTHER
POSITION YEAR SALARY BONUS COMPENSATION STOCK AWARDS SARs PAYOUTS COMPENSATION
<S> <C> <C> <C> <C> <C> <C> <C> <C>
George G. 1997 $81,900 $1,500 $1,800/15/ -- -- -- --
Andrews
CEO, President 1996 $78,000 -- -- -- -- -- --
Director 1995 $75,000 -- -- -- -- -- --
</TABLE>
_______________________
/15/
Representing membership dues paid on Mr. Andrews' behalf.
-53-
<PAGE>
No individual during 1997 for whom compensation information is disclosed in
the above summary compensation table received any option or stock appreciation
rights, exercised any option or stock appreciation rights, had outstanding as of
December 31, 1997 any unexercised options or stock appreciation rights, or
received any award under a long term incentive plan.
The directors of the Bank receive no compensation for each meeting of the
Board of Directors of the Bank attended. No director of the Bank was otherwise
compensated during the Bank's last fiscal year for services as a director except
as described herein.
The Bank is not aware of any compensatory plan or arrangement with respect
to any individual named in the summary compensation table for the latest fiscal
year which will result from the resignation, retirement or other termination of
such individual's employment with the Bank or from a change in control of the
Bank or a change in the individual's responsibilities following a change in
control.
DESCRIPTION OF THE BANK'S COMMON STOCK
The Bank's Common Stock
- - -----------------------
Under the Bank's articles of incorporation, it is authorized to issue up to
1,500,000 shares of $6.00 par value common stock, of which 532,088 are issued
and outstanding. All shares of common stock are entitled to share equally in
dividends from funds legally available therefor, when, as, and if declared by
the board of directors. Dividends paid may not exceed 50% of the net profits of
the Bank after taxes for the previous fiscal year without prior approval of the
Georgia Department of Banking and Finance. Upon liquidation or dissolution of
the Bank, whether voluntary or involuntary, the shareholders of the Bank will be
entitled to share equally in the assets of the Bank available for distribution
to shareholders. Each holder of common stock is entitled to one vote for each
share on all matters submitted to the shareholders. The shareholders of the Bank
have pre-emptive rights, and there are no cumulative voting rights, redemption
rights, sinking fund provisions, or rights of conversion in existence with
respect to the Bank's common stock. All outstanding shares of the Bank's common
stock are fully paid and non-assessable. Any merger or consolidation of the Bank
must be approved by the affirmative vote of the holders of two-thirds of the
issued and outstanding shares of common stock of the Bank.
Comparative Market Prices
- - -------------------------
The common stock of the Bank is not traded in the over-the-counter market
or on any stock exchange, nor is the Bank's common stock actively traded. There
is thus no established trading market for the Bank's common stock. The Bank has
maintained records of share prices based on actual transactions when such
information has been disclosed by persons either purchasing or selling the
Bank's common stock. These records reflect prices for transactions in the Bank's
common stock to the best knowledge of management.
-54-
<PAGE>
The following table reflects the high and low trades of shares of the Bank
for each quarterly period during the last two years based on such limited
available information.
<TABLE>
<CAPTION>
YEAR HIGH SELLING LOW SELLING
PRICE PRICE
<S> <C> <C>
1998
First Quarter $12.50 $10.00
Second Quarter $12.50 $10.00
1997
First Quarter $12.00 $10.00
Second Quarter $12.00 $10.00
Third Quarter $12.00 $10.00
Fourth Quarter $12.00 $10.00
1996
First Quarter $12.00 $10.00
Second Quarter $12.00 $10.00
Third Quarter $12.00 $10.00
Fourth Quarter $12.00 $10.00
</TABLE>
As of December 31, 1997, the Bank had approximately 1,224 shareholders of record
of the Bank's common stock.
Capitalization
- - --------------
Set forth below is the capitalization of the Bank at June 30, 1998,
and of Bancshares, as adjusted to reflect the consummation of the merger.
-55-
<PAGE>
<TABLE>
<CAPTION>
CAPITOL CITY BANK
PRIOR TO MERGER AND TRUST CAPITOL CITY BANCSHARES
<S> <C> <C>
Number of Shares
Authorized or to be
Authorized, Common Stock,
par value $6.00 for Bank
and for Holding Company 1,500,000 5,000,000
Number of Shares
Outstanding: Common Stock 532,088 50/1/
Capital Accounts:
Common Stock $3,193,000 $ 300.00
Capital Surplus 2,128,000 -0-
Undivided Profits 411,000 -0-
Unrealized Gains (Losses)
on Available-for-Sale
Securities 50,000 -0-
---------- ----------
Total Stockholders' Equity $5,782,000 $ 300.00
AFTER MERGER
Number of Shares
Outstanding: Common Stock
par value $6.00 for Bank
and for Holding Company 532,088 532,088
Capital Accounts:
Common Stock $3,193,000 $3,193,000
Capital Surplus 2,128,000 2,589,000
Undivided Profits Earnings 411,000 -0-
</TABLE>
_________________________
/1/
Represents fifty (50) shares issued to the incorporator of Bancshares for
Six Dollars ($6.00) per share. At the Effective Date of the Merger, these shares
will be repurchased and retired by Bancshares at the same purchase price.
-56-
<PAGE>
<TABLE>
<S> <C> <C>
Unrealized Gains (Losses)
on Available-for-Sale
Securities 50,000 -0-
---------- ----------
Total Stockholders' Equity $5,782,000 $5,782,000
</TABLE>
DESCRIPTION OF BANCSHARES' STOCK
Common Stock
- - ------------
Bancshares is authorized by its articles of incorporation to issue
5,000,000 shares of $6.00 par value common stock. Assuming no shareholder of the
Bank exercises his or her right of dissent, and no additional shares of the Bank
are issued between April 14, 1998 and consummation of the Reorganization, there
will be 532,088 shares of $6.00 par value common stock of Bancshares issued and
outstanding, all of which will be held by the holders of the common stock of the
Bank immediately prior to the Reorganization. All shares of common stock of
Bancshares are entitled to share equally in dividends from funds legally
available therefor, when, as and if declared by the Board of Directors and upon
the liquidation or dissolution of Bancshares, whether voluntary or involuntary,
to share equally in the assets of Bancshares available for distribution to
shareholders.
Shareholders of the Bank have pre-emptive rights which entitle them to
acquire in proportion to their present share ownership any additional shares of
common stock of the Bank which may in the future be sold or issued for cash by
the Bank. The shareholders of Bancshares will not have such pre-emptive rights.
Neither the articles of incorporation of Bancshares nor its bylaws includes
any provision intended to or that would have the effect of delaying, deferring,
preventing or making more difficult a change in control of Bancshares and that
would operate only with respect to an extraordinary corporate transaction
involving Bancshares or the Bank, such as a merger, reorganization, tender
offer, sale or transfer of substantially all of its assets, or liquidation.
There has been no classification of the Board of Directors, each member of which
is elected annually at the annual meeting of shareholders. There are no
redemption rights, sinking fund provisions, or rights of conversion in existence
with respect to Bancshares common stock. The shares of Bancshares common stock
do not have cumulative voting rights which means that the holders of more than
50% of the shares voting for the election of directors can elect all (100%) of
the directors if they choose to do so, and in such event, the remaining minority
owners of the voting shares for the election of directors will not be able to
elect any person to the Board of Directors. All outstanding shares of Bancshares
common stock are fully paid and non-assessable.
There are no other classes of shares of Bancshares.
-57-
<PAGE>
LEGAL OPINION
The legality of the shares of common stock of Bancshares to be issued in
the Reorganization will be passed upon by Martin, Snow, Grant & Napier, special
counsel to the Bank, 240 Third Street, P.O. Box 1606, Macon, Georgia 31202-1606.
No attorney or employee of that firm owns any shares of the Bank's common stock
or is to receive in connection with the offering a substantial direct or
indirect interest in Bancshares or the Bank.
DIVIDENDS
Holders of common stock of the Bank are entitled to such dividends as may
be declared from time to time by the Board of Directors out of funds legally
available therefor. Dividends paid may not exceed 50% of net profits of the Bank
after taxes for the previous fiscal year without prior approval of the Georgia
Department of Banking and Finance. The Bank does not pay cumulative dividends on
its common stock. The Bank has not paid any dividends on its common stock since
inception.
The Bank is also allowed to declare and pay dividends in authorized but
unissued shares of its stock, provided there is transferred to capital stock an
amount equal to the aggregate par value of the shares distributed and provided
further that after payment of the dividend, the Bank continues to maintain
required levels of paid-in capital and appropriated retained earnings. The Bank
has not declared a stock dividend since inception.
Bancshares has only recently been organized and has not transacted any
financial business and therefore has not declared or paid any dividends. Under
the Georgia Business Corporation Code, it may from time to time make
distributions, including the payment of dividends, to its shareholders in money,
indebtedness, or other property (except its own shares) unless, after giving
effect to such distribution, the company would not be able to pay its debts as
they become due in the usual course of business, or the corporation's total
assets would be less than the sum of its total liabilities plus the amount that
would be needed, if the corporation were to be dissolved at the time of
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution. A corporation may also distribute its shares pro rata and without
consideration to its shareholders or to the shareholders of one or more classes
or series, which constitutes a share dividend.
The Board of Directors of both Bancshares and the Bank hope future
operations of the Bank will result in a payment of dividends to shareholders.
However, neither the Bank nor Bancshares can assure the future payment of
dividends, either in cash or in stock, as the payment of such dividends will
depend on the Bank's net earnings and capital ratio which are more fully
discussed under "CERTAIN RISK FACTORS".
-58-
<PAGE>
MATERIAL CONTRACTS BETWEEN THE
BANK AND BANCSHARES
Bancshares, Interim and the Bank are party to a Plan of Reorganization and
Agreement of Merger, a copy of which is attached as Appendix "A", and all
directors of the Bank are directors of Bancshares. The officers and directors of
the Bank also serve as officers and directors of Bancshares. Otherwise, there
are no past, present or proposed material contracts, arrangements,
understandings, relationships, negotiations or transactions between Bancshares
and the Bank.
OTHER MATTERS
The management of the Bank knows of no other matters which may be brought
before the meeting. However, if any matter other than the proposed
Reorganization or matters incident thereto should properly come before the
meeting, the persons named in the enclosed proxy will vote such proxy in
accordance with their judgment on such matters.
GEORGE G. ANDREWS
President
Atlanta, Georgia
September _____, 1998
-59-
<PAGE>
APPENDIX "A"
PLAN OF REORGANIZATION
AND
AGREEMENT OF MERGER
<PAGE>
PLAN OF REORGANIZATION
This Plan of Reorganization, hereinafter called the Plan, made and entered
into this 14th day of April, 1998 by and among CAPITOL CITY BANCSHARES, INC., a
Georgia corporation (hereinafter referred to as "Holding Company"), CAPITOL CITY
BANK AND TRUST, Atlanta, Georgia, a bank organized under the laws of the state
of Georgia (hereinafter referred to as the "Bank"); and CAPITOL CITY INTERIM,
INC., a Georgia corporation (hereinafter referred to as "Interim").
W I T N E S S E T H:
-------------------
WHEREAS, Holding Company owns all the outstanding common shares of Interim;
and
WHEREAS, the Board of Directors of Holding Company, the Bank and Interim
have determined it is desirable to effect a Plan of Reorganization meeting the
requirements of Sec. 368(a) of the Internal Revenue Code of 1954, as amended,
whereby Interim shall be merged with and into the Bank pursuant to Section 14-2-
1101, et seq. of the Georgia Business Corporation Code, Sec. 7-1-530, et seq. of
-- --- -- ---
the Financial Institutions Code of Georgia, and the Agreement of Merger, a copy
of which is attached hereto as Exhibit "A". All of the outstanding common shares
of the Bank will be converted into and exchanged for Holding Company common
shares, and all of the issued and outstanding common shares of Interim will be
converted into common shares of the surviving corporation to the Merger.
NOW, THEREFORE, in order to consummate the transaction set forth above and
in consideration of the mutual promises herein made and the mutual benefits to
be derived
<PAGE>
from this Plan, the Company, the Bank and Interim do represent, warrant and
agree as follows:
1. Representations and Warranties of the Bank. The Bank represents and
------------------------------------------
warrants as follows:
(a) The Bank is a state bank duly organized, validly existing, and in
good standing under the laws of the state of Georgia and has the power to own
its properties and to carry on its business as and where now conducted.
(b) The Bank has complete and unrestricted power to enter into and
consummate the transaction contemplated under this Plan.
(c) The aggregate number of shares that the Bank has issued and
outstanding is 532,088 with $6.00 par value per share.
(d) To the knowledge of the officers of the Bank, the Bank has filed
with the Internal Revenue Service all tax returns required by law, all taxes due
to the Internal Revenue Service or properly accruable have been paid or
adequately taken into account in determining the consolidated net worth of the
Bank, and neither the execution and delivery of nor compliance with the terms
and provisions of this Plan on the part of the Bank conflicts with or results in
a breach of any of the terms of any judgment or ruling of any court or
governmental authority or breaches any contract entered into by the Bank.
(e) The execution of this Plan has been duly authorized and approved
by the Board of Directors of the Bank.
(f) No representation or warranty by the Bank in this Plan, nor any
written statement, certificate or document furnished or to be furnished by or on
behalf of the Bank pursuant to this Plan knowingly contains or shall knowingly
contain any untrue statement
<PAGE>
of a material fact or knowingly omits or shall omit a material fact necessary to
make any statement contained herein not misleading.
2. Representations and Warranties of Holding Company and Interim.
-------------------------------------------------------------
Holding Company and Interim represent and warrant as follows:
(a) Holding Company and Interim are corporations duly organized,
validly existing, and in good standing under the laws of the state of Georgia.
(b) The aggregate number of shares that Interim is authorized to issue
is 532,088 common shares with no par value per share, of which 532,088 shares
are validly issued and outstanding, fully paid and nonassessable and owned by
Holding Company.
(c) Holding Company has been organized with George G. Andrews as the
initial shareholder owning 50 common shares with a par value of $6.00 for a
total capitalization of $300.00. The Shareholder Agreement, copy of which is
attached hereto as Exhibit "B", executed by the initial shareholder upon
organization of Holding Company restricts the transferability of the shares and
requires him to redeem his shares immediately following the effective date of
the Merger and reorganization for the par value of the stock. Interim has been
organized with capitalization of $300.00 which is held in the corporation as
cash. Immediately following the effective date of the Merger, the surviving
corporation, the Bank, will pay a special dividend in the amount of $300.00
payable to its then sole stockholder, Capitol City Bancshares, Inc. This
$300.00 will be used to redeem the shares of the initial shareholder of Holding
Company pursuant to the Shareholder Agreement. Following this redemption, the
only shares of the common stock of Holding Company issued and outstanding will
be the shares exchanged for the original shares of the Bank.
<PAGE>
(d) Holding Company's common shares to be delivered pursuant to this
Plan and the Agreement of Merger will be voting shares and, when so delivered,
will have been duly and validly authorized and issued by Holding Company, will
be fully paid and nonassessable, and will be registered pursuant to the
Securities Act of 1933.
(e) To the knowledge of the officers of Holding Company and Interim,
neither the execution and delivery of this Plan, nor compliance with the terms
and conditions of this Plan, on the part of Holding Company or Interim breaches
any laws or regulations of the state of Georgia or the United States; breaches
any of the terms or conditions of any judgment or ruling of any court or
governmental authority; or constitutes a breach or default under the terms of
any contract to which Holding Company or Interim is a party.
(f) The execution of this Plan has been duly authorized by the Board
of Directors of Holding Company and Interim.
(g) No representation or warranty by Holding Company or Interim in
this Plan nor any statement, certificate, or document furnished or to be
furnished by or on behalf of Holding Company or Interim pursuant to this Plan
knowingly contains or shall knowingly contain any untrue statement of a material
fact or knowingly omits or shall omit a material fact necessary to make any
statement contained herein not misleading.
3. Particular Covenants of the Parties.
-----------------------------------
(a) Interim shall call a special meeting of its shareholders as soon
as practicable after the execution of this Plan, for the purpose of approving
this Plan and Agreement of Merger.
<PAGE>
(b) The Bank shall call a special meeting of its shareholders for the
purpose of authorizing, approving and adopting this Plan of Reorganization and
the Agreement of Merger as soon as practicable after the execution of this Plan
and Agreement of Merger.
(c) In the event the Bank should issue any additional shares of its
$6.00 par value common stock subsequent to the execution of this Plan of
Reorganization and the related Agreement of Merger and prior to the effective
date of the merger, Interim shall issue to Holding Company an additional share
of its common stock for each such share of common stock of the Bank subsequently
issued, and Holding Company agrees to furnish, in connection with the proposed
merger, additional shares of its $6.00 par value common stock necessary to
convert each such new Bank share into one (1) share of Holding Company common
stock.
4. Tax Consequences. The parties anticipate the transaction will be a
----------------
tax free reorganization and the reorganization will not be consummated until an
opinion has been received from the special counsel of the Bank, Messrs. Martin,
Snow, Grant & Napier, to the effect that:
(a) The exchange of all the outstanding shares of the Bank for shares
of Holding Company and the conversion of Interim shares into the Bank shares
pursuant to the transaction contemplated by this Plan and the Agreement of
Merger will qualify as a reorganization within the meaning of Section
368(a)(1)(A) and 368(a)(2)(E) of the Internal Revenue Code.
<PAGE>
(b) No gain or loss will be recognized by Holding Company, Interim or
the Bank, or their respective shareholders as a result of the transactions
contemplated under this Plan.
(c) The tax basis of the common stock of Holding Company received by
the shareholders of the Bank pursuant to the Plan of Reorganization and
Agreement of Merger will be the same as the tax basis of the shares of common
stock of the Bank exchanged therefor.
(d) The holding period of the shares of common stock of the Company
received by the shareholders of the Bank will include the holding period of the
shares of common stock of the Bank exchanged therefor; provided the stock of the
Bank is held as a capital asset on the date this Plan and Agreement of Merger is
consummated.
(e) For the purpose of filing a consolidated tax return, Holding
Company will be treated as the new parent corporation of a continuing affiliated
group having the same taxable year as the full taxable year of the Bank.
5. Terms of Merger.
---------------
(a) The Merger of Interim into the Bank shall be in accordance with
the Agreement of Merger attached hereto as Exhibit "A".
(b) Immediately prior to the effective date of the Merger, Holding
Company will issue 532,088 shares of its common stock or such other number as
may be required for the exchange and conversion herein provided to Interim as a
contribution to capital, and the shareholders of the Bank shall thereafter be
entitled to receive upon the effective date of the Merger 532,088 shares or such
other number as may be required for the exchange and conversion hereinafter
provided. In return, Interim shall simultaneously
<PAGE>
deliver to Holding Company, (1) a written representation and warranty by Interim
that the Plan of Reorganization and Agreement of Merger has been duly approved
and adopted by the shareholders of the Bank and Interim, and that all conditions
precedent to the Merger of Interim into the Bank in accordance with the
Agreement of Merger have been fully satisfied, except for the filing of the
Agreement of Merger with the Secretary of State of Georgia, and that the
Agreement of Merger has not been and will not be terminated or abandoned, and
(2) a joint written undertaking by Interim and the Bank to file the Agreement of
Merger and Articles of Merger forthwith with the Secretary of State of Georgia.
(c) The 532,088 shares of Holding Company contemplated to be delivered
to Interim for distribution to the shareholders of the Bank, shall be reduced by
the number of shares whose holders elect to dissent from the Merger and demand
payment for fair value of their shares in accordance with Article 13 of the
Georgia Business Corporation Code, and shall be increased by the number of
shares issued by the Bank subsequent to execution of this agreement but prior to
the merger.
(d) The 50 Holding Company common shares outstanding on the date
hereof, shall, as soon as possible after the effective date of the Merger, be
surrendered and retired, and the certificates representing such shares shall be
canceled pursuant to the Shareholder Agreement, a copy of which is attached
hereto as Exhibit "B".
6. Effective Date. Interim and the Bank will effect the Merger provided
--------------
for in the Agreement of Merger by executing and filing Articles of Merger with
the Department of Banking and Finance in the manner provided for by the laws of
the state of Georgia. The
<PAGE>
effective date for the purpose of this Plan of Reorganization shall be the date
a Certificate of Merger is issued by the Secretary of State of Georgia.
7. Termination and Abandonment. Anything to the contrary herein
---------------------------
notwithstanding, this Plan of Reorganization and Agreement of Merger may be
terminated and the transaction provided for thereby may be abandoned at any time
before and after approval thereof by the stockholders of the parties, but not
later than the effective date, by the vote of the majority of any of the Boards
of Directors of Holding Company, Interim and the Bank.
IN WITNESS WHEREOF, the parties have hereunto set their hand and affixed
their seal by and through their duly authorized corporate officers the day and
year first above written.
CAPITOL CITY BANCSHARES, INC.
BY: /s/ George G. Andrews
President
ATTEST: /s/ Kaneta R. Lott
Secretary
CAPITOL CITY INTERIM, INC.
BY: /s/ George G. Andrews
President
ATTEST: /s/ Kaneta R. Lott
Secretary
CAPITOL CITY BANK AND TRUST
BY: /s/ George G. Andrews
President
ATTEST: /s/ Kaneta R. Lott
Secretary
<PAGE>
EXHIBIT "A"
-----------
AGREEMENT OF MERGER
This Agreement of Merger entered into this 14th day of April, 1998,
hereinafter called "The Agreement", pursuant to (S)14-2-1101, et seq. of the
-- ---
Georgia Business Corporation Code and (S)7-1-530, et seq. of the Financial
-- ---
Institutions Code of Georgia, by and between Capitol City Bank and Trust,
Atlanta, Georgia, a banking corporation organized under the laws of the State of
Georgia (hereinafter referred to as the "Bank"); and Capitol City Interim, Inc.,
a corporation duly organized and existing under the laws of the state of Georgia
(hereinafter referred to as "Interim"), such corporations being hereinafter
referred to jointly as the "Constituent Companies".
W I T N E S S E T H:
-------------------
WHEREAS, the aggregate number of shares of common stock with $6.00 par
value per share of Bank outstanding is 532,088shares; and
WHEREAS, the aggregate number of shares Interim is authorized to issue is
532,088 common shares with no par value, of which 532,088 shares are outstanding
to Capitol City Bankshares, Inc., a Georgia corporation (hereinafter referred to
as "Bancshares"); and
WHEREAS, the Board of Directors of the Bank and Interim deem it advisable
for the general welfare of both corporations and the shareholders of each
thereof that such corporations merge under and pursuant to the provisions of
(S)14-2-1101, et seq. of the Georgia Business Corporation Code and (S)7-1-463,
-- ---
et seq. of the Financial Institutions
- - -- ---
<PAGE>
Code of Georgia, and the board of directors of each of such corporations has, by
resolution duly adopted and approved this Agreement; and
WHEREAS, the board of directors of the Bank has directed that this
Agreement be submitted to a vote of its shareholders at a specially called
meeting to be held at such time as designated by the board of directors, and the
board of directors of Interim has recommended the merger to shareholders and
directed that this Agreement be submitted to a vote of Interim shareholders at a
special meeting of such shareholders to be held at such time as directed by the
board of directors of Interim, for the purpose of approving this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual agreements
contained herein, the parties hereto agree, that in accordance with the
provisions of the Financial Institutions Code of Georgia and the Georgia
Business Corporation Code, Interim shall be merged into the Bank, which shall be
the surviving corporation (hereinafter referred to as the "Surviving Company"),
and that the terms and conditions of such Merger, the mode of carrying it into
effect, the manner of converting and exchanging the shares of the Constituent
Companies into shares of the surviving company or shares of Bancshares, and
other details and provisions deemed necessary or proper are and shall be as
herein set forth.
1. Merger. Upon the merger becoming effective in accordance with the
------
laws of the State of Georgia;
(a) Interim shall be merged into the Bank, which shall be the
surviving corporation and its name shall continue to be "Capitol City Bank and
Trust." The
<PAGE>
Constituent Companies shall be a single corporation and the separate existence
of Interim shall cease, except to the extent provided by the laws of the State
of Georgia.
(b) On the effective date of the merger, for all purposes of the laws
of the State of Georgia, the separate existence of Interim shall cease and
Interim shall be merged into the Bank which shall possess all the rights,
privileges, powers, and franchises both of a public and a private nature, and
shall be subject to all the restrictions, disabilities, and duties of each of
the Constituent Companies so merged; and all the rights, privileges, powers and
franchises of each of the Constituent Companies, in all property, real and
personal, and mixed, and all debts due to any of such Constituent Companies on
whatever account, as well for share subscriptions as for all other things and
actions or belonging to each of such Constituent Companies, shall be vested in
the surviving company; and all property, rights, privileges, powers and
franchises and all and every other interest shall be thereafter as effectually
the property of the surviving company as they were of the respective Constituent
Companies, and the title to any real estate vested by deed or otherwise, under
the laws of this state and any of such Constituent Companies, shall not revert
or be in any way impaired by reason of the merger, but all rights of creditors
and all liens upon any property of any of such Constituent Companies shall be
preserved unimpaired, and all debts, liabilities, and duties of the respective
Constituent Companies shall thenceforth attach to such surviving company, and
may be enforced against it to the same extent as if such debts, liabilities, and
duties had been incurred or contracted by it.
(c) The articles of incorporation, capital structure and bylaws of the
Bank in existence on the effective date of the merger shall not be altered or
amended by the merger and shall continue in effect as that of the Bank as the
surviving company.
<PAGE>
(d) The directors and officers of the Bank immediately prior to the
merger becoming effective shall be and constitute the directors and officers of
the surviving company. If on the effective date of the merger a vacancy shall
exist on the board of directors of in any of the offices of the surviving
company, such vacancy may thereafter be filled in the manner provided by the
articles of incorporation and the bylaws of the surviving company and the laws
of the state of Georgia.
2. Articles of Incorporation and Certificate of Incorporation. The
----------------------------------------------------------
articles of incorporation and certificate of incorporation of the surviving
company shall be the articles of incorporation and certificate of incorporation
of the Bank as in effect on the effective date of the merger and shall
constitute the composite articles of incorporation and certificate of
incorporation of the surviving company.
3. Conversion of Shares. The manner of converting and exchanging the
--------------------
shares of the Constituent Companies into the shares of the surviving company or
of Bancshares, as the case may be, shall be as follows:
(a) Each of the 532,088 shares with no par value of Interim to be
issued and outstanding on the effective date of the merger and owned by
Bancshares, or such greater number as may be issued to correspond with any
additional shares of Bank stock issued subsequent to the execution of this
agreement and prior to the merger shall, by virtue of the merger and without any
action on the part of the holder thereof, be converted, upon the merger becoming
effective, into one common share of the surviving company. Immediately after the
merger, Bancshares shall own all of the 532,088 shares of $6.00 par value stock
of the surviving company, the Bank, or such greater number of shares as may then
be issued and outstanding.
<PAGE>
(b) In consideration for the merger of Interim with and into the
Bank, each share of the 532,088shares of Capitol City Bank and Trust $6.00 par
value common stock or such greater amount as may be issued and outstanding on
the effective date shall as of the effective date, by virtue of the merger and
without any action on the part of the holders thereof, be converted into and
exchanged for one (1) share of Bancshares's $6.00 par value Common Stock,
resulting in the receipt in the aggregate of not more than 532,088shares of
Bancshares Common Stock by the shareholders of the Bank or such greater number
as may be required to implement the terms of the merger. As soon as practicable
after the effective date of the merger, each holder as of the effective date of
any of the shares of the Bank's common stock owned by him or her shall be
entitled, upon presentation and surrender to Bancshares of the certificates
representing such shares, to receive in exchange therefore a stock certificate
to evidence the whole or fractional shares of Bancshares common stock to which
he or she is entitled to by virtue of the merger. Until so surrendered, each
outstanding certificate which prior to the merger date represented stock of the
Bank shall be deemed for all corporate purposes to evidence the holder's
entitlement to certificates evidencing his or her ownership in Bancshares, and
shall not evidence any shares of stock of the Bank, all of which shall, upon the
effective date of the merger, be owned by Bancshares. Unless and until each such
certificate owned by holders of common stock of the Bank immediately prior to
the effective date of the merger is surrendered, the holder of any such
certificate shall not have any right to receive any cash or stock dividends paid
with respect to the shares of Bancshares to which the holder is entitled to as a
result of the merger, but upon surrender of such certificates, Bancshares
<PAGE>
shall issue to the holder stock certificates evidencing the holder's ownership
of shares of company stock to which he or she is entitled under the terms of the
merger.
4. Further Instruments. If at any time the surviving company shall
-------------------
consider or be advised that any further assignment or assurance in law is
necessary or desirable to vest in surviving company the title to any property or
rights of Interim, the proper officers and directors of Interim shall, and will,
execute and make all such proper assignments and assurances in law and do all
things necessary or proper to vest such property or rights in the surviving
company, and otherwise to carry out the purposes of this agreement.
5. Shareholder Approval. Adoption of this Agreement by each party
--------------------
thereto shall require the affirmative vote of at least:
(a) The majority vote of the directors of each corporation which is a
party hereto; and
(b) The holders of at least two-thirds of the outstanding voting
shares of each corporate party's common stock entitled to vote at any special
meeting called by such corporation for purposes of approving the plan of
reorganization and this agreement of merger. The notices to shareholders of the
meeting shall include a copy or summary of this agreement and a full statement
of the rights and remedies of dissenting shareholders, the method of exercising
them, the limitations on such rights and remedies and all other information
required by law.
(c) Any modification of this agreement after it has been adopted
shall be made by the same vote as that required for adoption.
6. Dissenting Shareholders of the Bank or Interim. Any shareholder of
-----------------------------------------------
the Bank or Interim may object to the merger and demand payment to him or her of
the fair
<PAGE>
value of his or her shares of the Bank or Interim. Any holder of record
intending to exercise his right to dissent shall file with the respective
corporation, before the meeting of shareholders at which the proposed plan of
merger is submitted to a vote, or at such meeting but before the vote, a written
notice of his or her intent to demand payment for his or her shares if the
proposed merger is effectuated. The shareholder must also refrain from voting
in favor of the proposed merger.
No later than ten days after the proposed merger is effectuated, the
Bank will deliver to each shareholder who shall have perfected his or her rights
as a dissenter written notice advising of the approval of the proposed merger
and enclosing a copy of Article 13 of the Georgia Business Corporation Code.
The notice will further advise the dissenting shareholder where the demand for
payment must be sent and where and when certificates must be deposited, inform
holders to what extent transfer of the shares will be restricted after the
payment demand is received, and will set a date by which the corporation must
receive the payment demand, which date may not be fewer than thirty (30) nor
more than sixty (60) days after the date the notice to the shareholder is
delivered. Within the time provided by such notice, the dissenting shareholder
must demand payment and deposit his certificates with the Bank in accordance
with the terms of the notice.
If all of the preceding conditions are fully satisfied, the Bank will
be required within ten (10) days of the later of the date the proposed merger is
effectuated or receipt of a payment demand to offer to pay each dissenter who
has complied with all of the conditions set forth the amount the Bank estimates
to be the fair value of his or her shares, plus accrued interest. The offer of
payment will be accompanied by certain recent financial statements of the Bank
and will advise the dissenter of his or her right to demand payment
<PAGE>
under O.C.G.A. (S)14-2-1327, and will include a copy of Article 13 of the
Georgia Business Corporation Code. If the merger is not completed within sixty
(60) days after the date set for demanding payment and depositing share
certificates, the deposited certificates must be returned, and if the proposed
merger is later effectuated, the applicable corporation must send a new notice
to those shareholders who perfected their dissenter's rights under O.C.G.A.
(S)14-2-1322.
Any dissenting shareholder who is dissatisfied with the Bank's offer
of payment may demand payment of his or her estimate of the fair value of his or
her shares, together with interest due, if the shareholder believes the amount
offered by the corporation is less than the fair value of his or her shares or
that the interest due is incorrectly calculated, or if the corporation, having
failed to effectuate the proposed merger, does not return the deposited
certificates within sixty (60) days after the date set for demanding payment.
Any shareholder who fails to notify the corporation of his demand in writing
within thirty (30) days after the Bank made or offered payment for his or her
shares will not be entitled to receive payment for his or her estimated value of
the shares.
If the shareholder's demand for payment remains unsettled, the
corporation will commence legal proceedings within sixty (60) days after
receiving the payment demand in the Superior Court of Fulton County to determine
the fair value of the shares and accrued interest. If it fails to take that
action, it must pay to each dissenter whose demand remains unsettled the amount
demanded. All dissenters whose demand remains unsettled will be made parties to
the proceedings.
<PAGE>
The provisions of Article 13 of the Georgia Business Corporation Code
shall prevail to the extent of any inconsistency between the provisions of this
agreement of merger and the provisions of the Georgia Business Corporation Code.
7. Payments to Dissenters. With respect to payments to the holders of
----------------------
any shares which may be voted in dissent to this agreement of merger and related
plan of reorganization, Bancshares may, at its election, provide the Bank with
the monetary consideration in an amount sufficient to redeem any and all
dissenting shares, or any portion thereof.
8. Conditions Precedent to the Merger. This merger is subject to, and
----------------------------------
consummation of the merger herein provided for, is conditioned upon receiving
all consents and approvals required by law, including but not limited to the
following:
(a) Approval by the Georgia Department of Banking as required by the
Georgia Financial Institution Code.
(b) Approval by the Federal Deposit Insurance Corporation as required
by the Federal Deposit Insurance Act.
(c) Registration by the Company as a bank holding company with the
Georgia Department of Banking and Finance.
(d) Prior approval of the Federal Reserve Board for Bancshares to
become a holding company pursuant to the Bank Holding Company Act of 1956, as
amended.
(e) The securities issued by the Company in exchange for the common
stock of the Bank are in compliance with Federal Securities Law.
<PAGE>
(f) Receipt by the Bank from Messrs. Martin, Snow, Grant & Napier,
its special counsel, that the transaction will be a tax free reorganization
pursuant to (S)368 of the Internal Revenue Code of 1986 and that no gain or loss
will be recognized for federal income tax purposes by the Bank, Bancshares or
the shareholders of the Bank who receive stock of Bancshares in connection with
the merger provided for herein.
(g) Compliance by Bancshares with the Blue Sky Laws of the various
states wherein the shareholders of the Bank reside on the effective date of the
merger.
9. Abandonment of Merger Plan. This plan of reorganization and agreement
--------------------------
of merger may be terminated and abandoned before it becomes effective by a
resolution passed by a majority of the board of directors of any of the parties
to this agreement. In the event of termination and abandonment of this
agreement of merger by the board of directors of any of the parties, this
agreement of merger shall become wholly void and of no effect and there shall be
no liability on the part of either of the parties, their respective boards of
directors, officers, employees or shareholders.
10. Expenses of the Merger. All of the expenses of the merger, including
----------------------
filing fees, printing costs, mailing costs, accountant's fees and legal fees
shall be borne by Bancshares. In the event the merger is abandoned for any
reason, the expenses shall be paid by Bancshares.
11. Effective Date. This merger agreement shall become effective at the
--------------
close of business on the day on which a certificate of merger is issued by the
Secretary of State of Georgia.
<PAGE>
IN WITNESS WHEREOF, the parties have hereunto set their hands and affixed
their seals by and through their duly authorized corporate officers the day and
year first above written.
CAPITOL CITY INTERIM, INC.
BY: /s/ George G. Andrews
President
ATTEST: /s/ Kaneta R. Lott
Secretary
(Affix Corporate Seal)
CAPITOL CITY BANK AND TRUST
BY: /s/ George G. Andrews
President
ATTEST: /s/ Kaneta R. Lott
Secretary
(Affix Corporate Seal)
<PAGE>
EXHIBIT "B"
-----------
SHAREHOLDER AGREEMENT
THIS AGREEMENT entered into this 14th day of April, 1998, by and between
George Andrews, (hereinafter referred to as "Shareholder") and Capitol City
Bancshares, Inc., a Georgia corporation (hereinafter referred to as
"Bancshares").
W I T N E S S E T H:
-------------------
WHEREAS, on April 14, 1998 the Board of Directors of Capitol City Bank and
Trust, Atlanta, Georgia, a state bank organized under the laws of the State of
Georgia (hereinafter referred to as the "Bank"), adopted a Plan of
Reorganization and Agreement of Merger and Bancshares was organized for the
purpose of being a party to said merger; and
WHEREAS, the Shareholder is presently the holder of all of the issued and
outstanding shares of Bancshares, but Bancshares contemplates that additional
shares will be outstanding to the public after consummation of the Plan of
Reorganization and Merger herein referred to; and
WHEREAS, in the event the Plan of Reorganization and Merger is concluded,
the Shareholder believes it to be in the best interest of Bancshares to provide
for restrictions on the transferability and require compulsory redemption of the
initial fifty (50) shares issued to Shareholder in the organization of
Bancshares.
NOW, THEREFORE, in consideration of Bancshares issuing to the Shareholder
50 shares of its Common Stock and in consideration of the mutual promises
contained herein, the parties agree as follows:
1. Bancshares has issued to Shareholder fifty (50) of its Common Shares
at a price of $6.00 per share.
<PAGE>
2. The Shareholder agrees that the fifty (50) initial shares issued to
him shall not be sold, assigned, transferred, pledged, encumbered, or in any
other way disposed of; and any sale, assignment, transfer, pledge, encumbrance,
or other disposition whatsoever of the initial shares shall be void; and no
transfer of any right, title or interest therein, shall be valid or binding,
except in compliance with the terms, covenants and conditions of this agreement.
3. After consummation of the Plan of Reorganization and Merger by and
among Bancshares, Capitol City Interim, Inc. ("Interim") and the Bank, the
Shareholder agrees to surrender upon demand by Bancshares the initial fifty (50)
shares of Bancshares to Bancshares for redemption, at a price of $6.00 per
share, the same price for which they were issued. Bancshares agrees to redeem
the initial fifty (50) shares at a price of $6.00 per share after consummation
of the Reorganization and Merger. Upon redemption, the initial fifty (50)
shares shall be canceled.
4. In the event the Plan of Reorganization and Agreement of Merger by and
among Bancshares, Interim, and the Bank is not consummated, the Shareholder
agrees Bancshares shall be liquidated and dissolved pursuant to the laws of the
State of Georgia.
5. The Shareholder agrees to vote his shares in favor of the Plan of
Reorganization and Agreement of Merger by and between Bancshares, Interim and
the Bank, and to vote his shares in whatever manner is required and to take
whatever action is necessary to conclude the Plan of Reorganization and Merger.
6. Upon written notice given by regular mail to the Shareholder at his
last known address by Bancshares of its intent to redeem the shares subject to
the terms of this Agreement, the shares subject hereto shall automatically be
canceled and the Shareholder
<PAGE>
shall have no further rights as Shareholder by and through the shares subject to
the terms of this Agreement. Upon presentation of the stock certificates to
Bancshares, the redemption price shall be paid in cash to the Shareholder.
7. The certificate issued to the Shareholder as the initial shares of
Bancshares, in addition to any legend required thereon, shall be endorsed on the
face as follows:
"The shares represented by this certificate are subject to an
agreement, dated April 14, 1998, which restricts the
transferability of the shares and requires redemption of the
shares at a fixed price. A copy of said agreement is on file at
the office of the corporation."
8. Bancshares is authorized to enter into this agreement by virtue of a
resolution adopted by the board of directors at its organizational meeting and
the Shareholder consents by execution of this Agreement.
9. This Agreement shall be binding upon and shall operate for the benefit
of the Shareholder and his respective executors, administrators, successors and
assigns.
/s/ George G. Andrews
GEORGE ANDREWS (Shareholder)
CAPITOL CITY BANCSHARES, INC. (Seal)
BY: /s/ George G. Andrews
President
ATTEST: /s/ Kaneta R. Lott
Secretary
<PAGE>
APPENDIX "B"
GEORGIA BUSINESS CORPORATION CODE
ARTICLE 13 - DISSENTERS' RIGHTS
<PAGE>
APPENDIX B
TITLE 14, CHAPTER 2, ARTICLE 13 OF THE
GEORGIA BUSINESS CORPORATION CODE
RELATING TO RIGHTS OF DISSENTING SHAREHOLDERS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
(S) 14-2-1301. DEFINITIONS.
As used in this article, the term:
a. "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
b. "Corporate Action" means the transaction or other action by the
corporation that creates dissenters' rights under the Code Section 14-2-
1302.
c. "Corporation" means the issuer of shares held by a dissenter before the
corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
d. "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that
right when and in the manner required by Code Sections 14-2-1320 through
14-2-1327.
e. "Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action
to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action.
f. "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable
under all the circumstances.
g. "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on
file with a corporation.
h. "Shareholder" means the record shareholder or the beneficial
shareholder.
<PAGE>
(S) 14-2-1302. RIGHT TO DISSENT.
a. A record shareholder of the corporation is entitled to dissent from, and
obtain payment of the fair value of his shares in the event of, any of
the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(A) If approval of the shareholders of the corporation is
required for the merger by Code Section 14-2-1103 or the
articles of incorporation and the shareholder is entitled to
vote on the merger; or
(B) If the corporation is a subsidiary that is merged with its
parent under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if
the shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of
the property of the corporation if a shareholder vote is required
on the sale or exchange pursuant to Code Section 14-2-1202, but
not including a sale pursuant to court order or a sale for cash
pursuant to a plan by which all or substantially all of the net
proceeds of the sale will be distributed to the shareholders
within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares
because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of
redemption, including a provision respecting a sinking fund
for the redemption or repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by
dilution through issuance of shares or other securities with
similar voting rights;
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to
be acquired for cash under Code Section 14-2-604; or
<PAGE>
(F) Cancels, redeems, or repurchases all or part of the
shares of the class; or
(5) Any corporate action taken pursuant to a shareholder vote to
the extent that Article 9 of this chapter, the articles of
incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
(b) A shareholder entitled to dissent and obtain payment for his
shares under this article may not challenge the corporate action
creating his entitlement unless the corporate action fails to
comply with the procedural requirements of this chapter or the
articles of incorporation or bylaws of the corporation or the
vote required to obtain approval of the corporation action was
obtained by fraudulent and deceptive means, regardless of whether
the shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall
be no right of dissent in favor of the holder of shares of any
class or series which, at the record date fixed to determine the
shareholders entitled to receive notice of and to vote at a
meeting at which a plan of merger or share exchange or a sale or
exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national
securities exchange or held of record by more than 2,000
shareholders, unless:
(1) In the case of a plan of merger or share exchange, the
holders of shares of the class or series are required under
the plan of merger or share exchange to accept for their
shares anything except shares of the surviving corporation
or another publicly held corporation which at the effective
date of the merger or share exchange are either listed on a
national securities exchange or held of record by more than
2,000 shareholders, except for scrip or cash payments in
lieu of fractional shares; or
(2) The articles of incorporation or a resolution of the board
of directors approving the transaction provides otherwise.
(S) 14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf he
asserts dissenters' rights. The rights of a partial dissenter under this Code
section are determined as if the shares as to which he dissents and his other
shares were registered in the names of different shareholders.
PART 2. PROCEDURE FOR EXERCISE OF DISSENTERS' RIGHTS
<PAGE>
(S) 14-2-1320. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting,
the meeting notice must state that shareholders are or may be entitled
to assert dissenters' rights under this article and be accompanied by
a copy of this article.
(b) If corporate action creating dissenter's rights under Code Section 14-
2-1302 is taken without a vote of shareholders, the corporation shall
notify in writing all shareholders entitled to assert dissenters'
rights that the action was taken and send them the dissenter's notice
described in Code Section 14-2-1322 no later than ten days after the
corporate action was taken.
(S) 14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a
record shareholder who wishes to assert dissenters' rights:
(1) must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the
proposed action is effectuated; and
(2) must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of
subsection (a) of this Code section is not entitled to payment for his
shares under this article.
(S) 14-2-1322. DISSENTERS' NOTICE.
(a) If proposed corporate action created dissenters' rights under Code
Section 14-2-1302 is authorized at a shareholders' meeting, the
corporation shall deliver a written dissenters' notice to all
shareholders who satisfied the requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after the
corporate action was taken and must;
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
<PAGE>
(2) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment
demand is received;
(3) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60
days after the date the notice required in subsection (a) of
this Code section is delivered; and
(4) Be accompanied by a copy of this article.
(S) 14-2-1323. DUTY TO DEMAND PAYMENT.
(a) A record shareholder sent a dissenters' notice described in Code
Section 14-2-1322 must demand payment and deposit his certificates in
accordance with the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares under
subsection (a) of this Code section retains all other rights of a
shareholder until these rights are canceled or modified by the taking
of the proposed corporate action.
(c) A record shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his shares under this article.
(S) 14-2-1324. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares
from the date the demand for their payment is received until the
proposed corporate action is taken or the restrictions released under
Code Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until
these rights are canceled or modified by the taking of the proposed
corporate action.
(S) 14-2-1325. OFFER OF PAYMENT.
(a) Except as provided in Code Section 14-2-1327, within ten days of the
later of the date the proposed corporate action is taken or receipt of
a payment demand, the corporation shall by notice to each dissenter
who complied with Code Section 14-2-1323 offer to pay to such
dissenter the amount the corporation estimates to be the fair value of
his or her shares, plus accrued interest.
(b) The offer of payment must be accompanied by:
<PAGE>
(1) The corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of
payment, an income statement for that year, a statement of
changes in shareholders' equity for that year, and the
latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value
of the shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under
Code Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written
notice to the corporation within 30 days after the corporation's
offer or is deemed to have accepted such offer by failure to
respond within said 30 days, payment for his or her shares shall
be made within 60 days after the making of the offer or the
taking of the proposed corporate action, whichever is later.
(S) 14-2-1326. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60
days after the date set for demanding payment and depositing
share certificates, the corporation shall return the deposited
certificates and release the transfer restrictions imposed on
uncertified shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must
send a new dissenters' notice under Code Section 14-2-1322 and
repeat the payment demand procedure.
(S) 14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his own
estimate of the fair value of his shares and amount of interest
due, and demand payment of his estimate of the fair value of his
shares and interest due, if:
(1) The dissenter believes that the amount offered under Code
Section 14-2-1325 is less than the fair value of his shares
or that the interest due is incorrectly calculated; or
<PAGE>
(2) The corporation, having failed to take the proposed action,
does not return the deposited certificates or release the
transfer restrictions imposed on uncertificated shares
within 60 days after the date set for demanding payment.
(b) A dissenter waives his or her right to demand payment under this
Code Section and is deemed to have accepted the corporation's
offer unless he or she notifies the corporation of his or her
demand in writing under subsection (a) of this Code section
within 30 days after the corporation offered payment for his or
her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set
forth in subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under
subsection (b) of Code Section 14-2-1325, and the
corporation shall provide the information to the shareholder
within ten days after receipt of a written demand for the
information; and
(2) The shareholder may at any time, subject to the limitations
period of Code Section 14-2-1332, notify the corporation of
his own estimate of the fair value of his shares and the
amount of interest due and demand payment of his estimate of
the fair value of his shares and interest due.
PART 3. JUDICIAL APPRAISAL OF SHARES.
(S) 14-2-1330. COURT ACTION.
(a) If a demand for payment under Code Section 14-2-1327 remains
unsettled, the corporation shall commence a proceeding within 60
days after receiving the payment demand and petition the court to
determine the fair value of the shares and accrued interest. If
the corporation does not commence the proceeding within the 60-
day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a
nonjury equitable valuation proceeding, in the superior court of
the county where a corporation's registered office is located. If
the surviving corporation is a foreign corporation without a
registered office in this state, it shall commence the proceeding
in the county in this state where the registered office of the
<PAGE>
domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding,
which shall have the effect of an action quasi in rem against their
shares. The corporation shall serve a copy of the petition in the
proceeding upon each dissenting shareholder who is a resident of this
state in the manner provided by law for the service of a summons and
complaint, and upon each nonresident dissenting shareholder either by
registered or certified mail or by publication, or in any other manner
permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this Code section is plenary and exclusive.
The court may appoint one or more persons as appraisers to receive
evidence and recommend decision on the question of fair value. The
appraisers have the powers described in the order appointing them or
in any amendment to it. Except as otherwise provided in this chapter,
Chapter 11 of Title 9, known as the "Georgia Civil Practice Act,"
applies to any proceeding with respect to dissenters' rights under
this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his
shares, plus interest to the date of judgment.
(S) 14-2-1331. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Code Section 14-
2-1330 shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the
court, but not including fees and expenses of attorneys and experts
for the respective parties. The court shall assess the costs against
the corporation, except that the court may assess the costs against
all or some of the dissenters, in amounts the court finds equitable,
to the extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under Code
Section 14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and
experts for the respective parties, in amounts the court finds
equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with
the requirements of Code Sections 14-2-1320 through 14-2-1327; or
<PAGE>
(2) Against either the corporation or a dissenter, in favor of
any other party, if the court finds that the party against
whom the fees and expenses are assessed acted arbitrarily,
vexatiously, or not in good faith with respect to the rights
provided by this article.
(c) If the court finds that the services of attorneys for any dissenter
were of substantial benefit to other dissenters similarly situated,
and that the fees for those services should not be assessed against
the corporation, the court may award to these attorneys reasonable
fees to be paid out of the amounts awarded the dissenters who were
benefitted.
(S) 14-2-1332. LIMITATION OF ACTIONS.
No action by any dissenter to enforce dissenters' rights shall be brought
more than three years after the corporate action was taken, regardless of
whether notice of the corporate action and of the right to dissent was given by
the corporation in compliance with the provisions of Code Section 14-2-1320 and
Code Section 14-2-1322.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
--------------------------------------
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 8, Part 5 of the Georgia Business Corporation Code provides for
indemnification of directors and officers of corporations. Under the provisions
of O.C.G.A. (S) 14-2-852, a director of Bancshares, wholly successful on the
merits or otherwise, in the defense of any proceeding or claim to which the
director is a party because he or she is a director of Bancshares, is entitled
as a matter of right to indemnification against reasonable expense, including
attorneys' fees, incurred by him in connection with the proceedings. Bancshares
is further authorized to indemnify any person who is made a director to a
proceeding because he or she is a director against any liability incurred if
that person acted in a manner he or she believed in good faith to be in, or not
opposed to, the best interests of 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 authority of Bancshares to indemnify a director is
not applicable in connection with any proceeding brought by or in the right of
the corporation except for reasonable expenses incurred in connection with the
proceeding if it is determined the director has met the relevant standard of
conduct, or in connection with any other proceeding in which he or she is
adjudged liable on the basis that personal benefit was improperly received by
him whether or not involving an action in his or her official capacity.
A determination that a director is entitled to indemnification shall be
made if there are two or more disinterested directors by the Board of Directors
by a majority vote of all the disinterested directors constituting a quorum or
by a majority of the members of a committee of two or more disinterested
directors appointed by such a vote; by special legal counsel, if there are fewer
than two disinterested directors selected by the Board of Directors; or by the
shareholders of the corporation, excluding shares owned by or voted under the
control of directors who do not qualify as a disinterested director. A director
of a corporation who is a party to a legal proceeding may apply to the court for
indemnification or advances for expenses. The court may order indemnification
or advances for expenses if it determines (1) the director is entitled to
mandatory indemnification; or (2) the director is fairly and reasonably entitled
to indemnification even if the director has not met the relevant standard of
conduct set forth in subsections O.C.G.A. (S) 14-2-851(a) and (b), has failed to
comply with O.C.G.A. (S)14-2-853, or was adjudged liable in a proceeding
brought by or in the right of the corporation or in any proceeding alleging that
personal benefit was improperly received by him or her, in which latter event,
however, his or her indemnification is limited to reasonable expenses incurred
in connection with the proceeding. If the court determines that the director is
entitled to indemnification or advance for expenses under this part, it may also
order the corporation to pay the director's reasonable expenses to obtain court
indemnification or advance for expenses. The articles of incorporation of
Bancshares also eliminate, as permitted by law, the personal liability of
directors of Bancshares from monetary damages for breach of duty of care or
other duty as a director,
<PAGE>
excepting only any liability for misappropriation of any business opportunity of
the corporation, intentional misconduct, and other specified conduct.
An officer of Bancshares who is not a director is entitled to mandatory
indemnification and is entitled to apply for court ordered indemnification in
each case to the same extent as is a director of Bancshares. Bancshares may
also indemnify and advance expenses to an officer, employee or agent who is not
a director to the extent, consistent with public policy, that may be provided by
its articles of incorporation, bylaws, general or specific action of its Board
of Directors, or contract.
Bancshares bylaws provide for indemnification of officers and directors
substantially similar to that provided by Article 8, Part 5 of the Georgia
Business Corporations Code. Insofar as indemnification for liabilities arising
under the Securities Act of 1933 (the "Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, 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 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 of 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.
The Registrant's articles of incorporation provide that no director of
Bancshares shall be personally liable to the Registrant or its shareholders for
monetary damages for a breach of the duty of care or any other duty as a
director, except in the case of: (i) wrongful appropriation of any business
opportunity of the Registrant; (ii) actual omissions not in good faith or
involving intentional misconduct or knowing violation of law; (iii) liability
for unlawful distribution; or (iv) any transaction from which the director
derived an improper personal benefit.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The following exhibits are filed as a part of this Registration Statement:
2. (a) Plan of Reorganization and Agreement of Merger, dated April 14,
1998 between Capitol City Bancshares, Inc., Capitol City Bank and Trust, and
Capital City Interim, Inc. which Agreement is included as Appendix "A" to the
proxy statement included in this Registration Statement.
3. (a) Articles of Incorporation of Registrant.
<PAGE>
(b) Bylaws of Registrant.
5. Opinion and consent of Martin, Snow, Grant & Napier as to the legality
of the securities registered hereby.
8. Opinion and consent of Martin, Snow, Grant & Napier as to the federal
income tax consequences of the transaction to the shareholders of Capitol City
Bancshares, Inc.
24. The consents of Martin, Snow, Grant & Napier are contained in the
opinions of such firm filed or to be filed as Exhibits "5" and "8".
99.1 Form of Proxy.
ITEM 22. Undertakings. The undersigned Registrant hereby undertakes as
------------
follows:
(1) The undersigned Registrant hereby undertakes to respond to requests
for information that is incorporated by reference into the Prospectus pursuant
to Items 4, 10(b), 11, or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(2) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
SIGNATURES
----------
Pursuant to the requirements of the Securities Act of 1933, Capitol City
Bancshares, Inc. has duly 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 the ____ day of September, 1998.
CAPITOL CITY BANCSHARES, INC.
By: /s/ George G. Andrews
---------------------------------------
GEORGE G. ANDREWS, President
<PAGE>
POWER OF ATTORNEY
-----------------
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints George G. Andrews and Leon Goodrum, jointly and
severally, his or her attorneys-in-fact, with power of substitution for him or
her in any and all capacities, to sign any amendment to this Registration
Statement, and to file the same, with Exhibits thereto, and other documents in
connection therewith, with the Securities and Exchange Commission, hereby
ratifying and affirming all that said attorneys-in-fact, or his substitute or
substitutes, may 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 indicated on the 22nd day of September, 1998.
/s/ George G. Andrews Director, President, Chief Executive
- - -------------------------------- Officer, and Treasurer (Principal
GEORGE G. ANDREWS executive, financial and
accounting officer)
/s/ Dr. Gloria Campbell-D'Hue Director
- - --------------------------------
DR. GLORIA CAMPBELL-D'HUE
/s/ J. Al Cochran Director
- - --------------------------------
J. AL COCHRAN
/s/ Keith E. Evans Director
- - --------------------------------
KEITH E. EVANS
/s/ Leon Goodrum Chairman
- - --------------------------------
LEON GOODRUM
/s/ Agnes H. Harper Director
- - --------------------------------
AGNES H. HARPER
/s/ Charles W. Harrison Director
- - --------------------------------
CHARLES W. HARRISON
/s/ Robert A. Holmes Director
- - --------------------------------
ROBERT A. HOLMES
Director
- - --------------------------------
MAURICE JONES, SR.
Director
- - --------------------------------
MOSES M. JONES
<PAGE>
/s/ Marian S. Jordan Director
- - -------------------------------
MARIAN S. JORDAN
Director
- - -------------------------------
THOMAS J. LOCKE, III
/s/ Kaneta R. Lott Director
- - -------------------------------
KANETA R. LOTT
Director
- - -------------------------------
DONALD F. MARSHALL
/s/ George C. Miller, Jr. Director
- - -------------------------------
GEORGE C. MILLER, JR.
Director
- - -------------------------------
ELVIN R. MITCHELL, SR.
/s/ Sarah S. Sistrunk Director
- - -------------------------------
SARAH S. SISTRUNK
/s/ Roy W. Sweat Director
- - -------------------------------
ROY W. SWEAT
/s/ William Thomas Director
- - -------------------------------
WILLIAM THOMAS
/s/ Cordy T. Vivian Director
- - -------------------------------
CORDY T. VIVIAN
<PAGE>
EXHIBIT INDEX
-------------
Exhibit
- - -------
2.(a) Plan of Reorganization and Agreement
of Merger, dated April 14, 1998, by
and between Capitol City Bancshares, Inc.,
`Capitol City Bank and Trust, and Capitol
City Interim, Inc., which Agreement is
included as Appendix "A" to the Proxy Statement
included in this Registration Statement.
3.(a) Articles of Incorporation of Registrant
3.(b) Bylaws of Registrant.
5. Opinion and consent of Martin, Snow, Grant
& Napier as to the legality of the
Securities registered hereby.
8. Opinion and consent of Martin, Snow, Grant
& Napier as to the federal income tax
Consequences of the transaction to the
Shareholders of Capitol City Bancshares, Inc.
24. The consents of Martin, Snow, Grant & Napier
are contained in the opinions of such firm
filed or to be filed as Exhibits "5" and "8".
99.1 Form of Proxy.
<PAGE>
EXHIBIT 3.(A)
ARTICLES OF INCORPORATION OF REGISTRANT
<PAGE>
ARTICLES OF INCORPORATION
OF
CAPITOL CITY BANCSHARES, INC.
1.
The name of the corporation shall be Capitol City Bancshares, Inc.
2.
The purpose of the corporation is to become a bank holding company pursuant
to the Georgia Bank Holding Company Act (Ga. Laws 1976, P. 168, et seq.) and to
-- ---
purchase, own, and hold the stock of banking corporations and other corporations
permitted by the laws of the State of Georgia and the laws of the United States.
The corporation shall not acquire the stock of any bank until such time as the
acquisition has been approved by all applicable bank regulatory agencies.
3.
The corporation shall have the authority to issue 5,000,000 common shares
with a par value of $6.00 per share.
4.
The street address and county of the initial registered office of the
corporation shall be 562 Lee Street, S.W., Atlanta, Fulton County, Georgia
30311. The initial registered agent at such address will be George C. Andrews.
5.
The Directors of the corporation are hereby released, discharged, remised
and forgiven for any personal liability of monetary damages for breach of duty
of care or other duty as a director to the corporation and its shareholders.
All liability of directors to the
<PAGE>
corporation and its shareholders is hereby eliminated as completely and fully as
permitted by O.C.G.A. (S)14-2-202(b)(4). The elimination of personal liability
shall not be applied to:
(a) Any appropriation, in violation of his or her duties, of any business
opportunity of the corporation;
(b) Acts or omissions which involve intentional misconduct or knowing
violation of the law;
(c) Any transaction from which the director receives an improper personal
benefit;
(d) Any type of liability set forth in O.C.G.A. (S) 14-2-832.
6.
The sole incorporator is Robert A. Weber, Jr., whose address is 240 Third
Street, P. O. Box 1606, Macon, Georgia 31202-1606.
7.
The mailing address of the initial principal office of the corporation is
562 Lee Street, S.W., Atlanta, Georgia 30311.
IN WITNESS WHEREOF, the incorporator has set his hand and affixed his seal
to these Articles of Incorporation.
/s/ Robert A. Weber, Jr.
___________________________________
ROBERT A. WEBER, JR., Incorporator
<PAGE>
EXHIBIT 3.(B)
BYLAWS OF REGISTRANT
<PAGE>
BYLAWS
OF
CAPITOL CITY BANCSHARES, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE ONE - OFFICES
Section 1.1 Registered Office
Section 2.1 Other Offices
ARTICLE TWO - SHAREHOLDERS' MEETING
Section 2.1 Place of Meetings
Section 2.2 Annual Meetings
Section 2.3 Substitute Annual Meetings
Section 2.4 Special Meetings
Section 2.5 Notice of Meetings
Section 2.6 Quorum
Section 2.7 Voting of Shares
Section 2.8 Proxies
Section 2.9 Presiding Officer
Section 2.10 Adjournments
ARTICLE THREE - THE BOARD OF DIRECTORS
Section 3.1 General Powers
Section 3.2 Requirements
Section 3.3 Number, Election and Term of Office
Section 3.4 Removal
Section 3.5 Compensation
Section 3.6 Committees of the Board of Directors
Section 3.7 Honorary and Advisory Director
ARTICLE FOUR - MEETINGS OF THE BOARD OF DIRECTORS
Section 4.1 Regular Meetings
Section 4.2 Special Meetings
Section 4.3 Place of Meetings
Section 4.4 Notice of Meetings
Section 4.5 Quorum
Section 4.6 Vote Required for Action
Section 4.7 Action by Directors Without a Meeting
Section 4.8 Secretary to Board
</TABLE>
<PAGE>
<TABLE>
<S> <C>
ARTICLE FIVE - NOTICE AND WAIVER
Section 5.1 Procedure
Section 5.2 Waiver
ARTICLE SIX - OFFICERS
Section 6.1 Number
Section 6.2 Election and Term
Section 6.3 Compensation
Section 6.4 Removal
Section 6.5 Chairman of the Board
Section 6.6 President
Section 6.7 Officer in Place of President
Section 6.8 Secretary
ARTICLE SEVEN - DIVIDENDS
Section 7.1 Time and Conditions of Declaration
Section 7.2 Share Dividends - Treasury Shares
Section 7.3 Share Dividends - Unissued Shares
Section 7.4 Share Splits
ARTICLE EIGHT - SHARES
Section 8.1 Authorization and Issuance of Shares
Section 8.2 Share Certificates
Section 8.3 Rights of Corporation with Respect to
Registered Owners
Section 8.4 Transfer of Shares
Section 8.5 Duty of Corporation to Register Transfer
Section 8.6 Lost, Stolen or Destroyed
Certificates
Section 8.7 Fixing of Record Date
Section 8.8 Record Date if None Fixed
ARTICLE NINE - INDEMNIFICATION
Section 9.1 Indemnification
Section 9.2 Payment of Expenses in Advance
Section 9.3 Insurance
Section 9.4 Rights Not Exclusive
ARTICLE TEN - MISCELLANEOUS
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Article 10.1 Inspection of Books and Records
Article 10.2 Fiscal Year
Article 10.3 Seal
ARTICLE ELEVEN - AMENDMENTS
Article 11.1 Power to Amend Bylaws
Article 11.2 Conditions
</TABLE>
<PAGE>
ARTICLE ONE
OFFICES
1.1 REGISTERED OFFICE. The corporation shall maintain its registered office in
-----------------
Fulton County, Georgia.
1.2 OTHER OFFICES. In addition to its registered office, the corporation also
-------------
may have offices at such other place or places as the board of directors may
from time to time select, or as the business of the corporation may require or
make desirable, subject to the bank holding company laws of this state.
ARTICLE TWO
SHAREHOLDERS' MEETINGS
2.1 PLACE OF MEETINGS. Meetings of the shareholders of the corporation may be
-----------------
held at any place within (or without) the state of Georgia, as set forth in the
notice thereof.
2.2 ANNUAL MEETINGS. The annual meeting of shareholders of the corporation
---------------
shall be held annually on the fourth Tuesday of June, unless that day is a legal
holiday, and in that event on the next succeeding business day, for the purpose
of electing directors and transacting any and all business that may properly
come before the meeting.
2.3 SUBSTITUTE ANNUAL MEETINGS. If the annual meeting is not held on the day
--------------------------
designated in Section 2.2, any business, including the election of directors,
which might properly have been acted upon at that meeting, may be transacted at
any subsequent shareholders' meeting held pursuant to these bylaws or held
pursuant to a court order requiring a substitute annual meeting.
2.4 SPECIAL MEETINGS. Special meetings of shareholders or a special meeting in
----------------
lieu of the annual meeting of shareholders shall be called by the corporation
upon the written request of the holders of 25% or more of all the shares of
capital stock of the corporation entitled to vote in an election of directors.
Special meetings of the shareholders may be called at any time by the president,
chairman of the board, or the board of directors.
2.5 NOTICE OF MEETINGS. Unless waived as contemplated in Section 5.2, or by
------------------
attendance at the meeting, either in person or by proxy, for any purpose other
than to object to the transaction of business, a written or printed notice of
each shareholders' meeting stating the place, day and hour of the meeting shall
be delivered not less than ten (10) days, nor more than fifty (50) days before
the date thereof, either personally, by mail, or by telegram, charges prepaid by
or at the direction of the president, the secretary, or the officer or persons
calling the meeting, to each shareholder of record entitled to vote at such
meeting. In the case of an annual or substitute annual meeting, the notice of
the meeting need not state the purpose or purposes of the meeting unless the
purpose or purposes constitute a matter which the Georgia Business Corporation
Code requires to be stated in
<PAGE>
the notice of the meeting. In the case of a special meeting, the notice of the
meeting shall state the general nature of the business to be transacted.
2.6 QUORUM. At all meetings of the shareholders, the presence in person or by
------
proxy of the holders of more than one-half of the shares outstanding and
entitled to vote shall constitute a quorum. If a quorum is present, a majority
of the shares represented at the meeting and entitled to vote on the subject
matter shall determine any matter coming before the meeting unless a different
vote is required by the Georgia Business Corporation Code, by the Articles of
Incorporation of the corporation or by these bylaws. The shareholders at a
meeting at which a quorum is once present may continue to transact business at
the meeting or by any adjournment thereof, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum. If a meeting cannot be
organized for lack of a quorum, those shareholders present may adjourn the
meeting to such time and place as they may determine. In the case of a meeting
for the election of directors which is twice adjourned for lack of a quorum,
those present at the second of such adjourned meetings, of which notice has been
given in writing to shareholders, shall constitute a quorum for the election of
directors.
2.7 VOTING OF SHARES. Each outstanding share having voting rights shall be
----------------
entitled to one vote on each matter submitted to a vote at a meeting of
shareholders. Voting on all matters shall be by voice vote or by show of hands
unless any qualified voter, prior to the voting on may matter, demands vote by
ballot, in which case each ballot shall state the name of the shareholder voting
and the number of shares voted by him, and if such ballot be cast by proxy, it
shall also state the name of such proxy.
2.8 PROXIES. A shareholder entitled to vote pursuant to Section 2.7 may vote
-------
in person or by proxy executed in writing by the shareholder or by his attorney
in fact. A proxy shall not be valid after eleven (11) months from the date of
its execution unless a longer period is expressly stated therein. If the
validity of any proxy is questioned, it must be submitted to the secretary of
the shareholders' meeting for examination or to a proxy officer or committee
appointed by the person presiding at the meeting. The secretary of the meeting
or, if appointed, the proxy officer or committee, shall determine the validity
or invalidity of any proxy submitted and referenced by the secretary in the
minutes of the meeting to the regularity of a proxy shall be received as prima
facie evidence of the facts stated for the purpose of establishing the presence
of a quorum at such meeting and for all other purposes.
2.9 PRESIDING OFFICER. The chairman of the board of directors or, in the
-----------------
absence of a chairman of the board of directors, the president, shall serve as
chairman of every shareholders' meeting unless some other person is elected to
serve as chairman by a majority vote of the shares represented at the meeting.
The chairman may appoint such persons as he deems required to assist with the
meeting.
2.10 ADJOURNMENTS. Any meeting of the shareholders, whether or not a quorum is
------------
present, may be adjourned by the holders of a majority of the voting shares
represented
<PAGE>
at the meeting to reconvene at a specific time and place. Except as otherwise
provided by Section 2.6, it shall not be necessary to give any notice of the
reconvened meeting or of the business to be transacted, if the time and place of
the reconvened meeting are announced at the meeting which was adjourned. At any
such reconvened meeting, any business may be transacted which could have been
transacted at the meeting which was adjourned.
ARTICLE THREE
THE BOARD OF DIRECTORS
3.1 GENERAL POWERS. The business and affairs of the corporation shall be
--------------
managed by the board of directors. In addition to the powers and authority
expressly conferred upon it by these bylaws, the board of directors may exercise
all such powers of the corporation and do all such lawful acts and things as are
not by these bylaws directed or required to be exercised or done by the
shareholders.
3.2 REQUIREMENTS. Each director of the corporation shall be a natural person
------------
of the age of 18 years or more.
3.3 NUMBER OF DIRECTORS AND TERM OF OFFICE. The Board of Directors of the
--------------------------------------
corporation shall consist of not less than five (5), nor more than twenty-five
(25) persons, with the exact number within such minimum and maximum lists to be
fixed and determined from time to time by resolution of the Board of Directors,
or by resolution of the shareholders at any annual or special meeting of
shareholders. The directors shall be elected by the affirmative vote of a
majority of the shares represented at the annual meeting of shareholders. Each
director, except in the disqualification, or removal, shall serve until the next
succeeding annual meeting and thereafter until his successor shall have been
elected and qualified.
3.4 REMOVAL. The entire Board of Directors or any individual director may be
-------
removed from office with or without cause by the affirmative vote of the holders
of a majority of the shares entitled to vote at an election of directors. In
addition, the Board of Directors may remove a director from office if such
director is adjudicated an incompetent by a court, if he is convicted of a
felony, or if he fails to attend regular meetings of the Board of Directors for
three (3) consecutive meetings without having been excused by the Board of
Directors.
3.5 COMPENSATION. Directors may receive such compensation for their services
------------
as directors as may from time to time be fixed by vote of the board of
directors. A director may also serve the corporation in a capacity other than
that of director and receive compensation, as determined by the board of
directors, for services rendered in such other capacity.
3.6 COMMITTEES OF THE BOARD OF DIRECTORS. The board of directors, by
------------------------------------
resolution adopted by a majority of the full board of directors, may designate
from among its members an executive committee and one or more other committees,
each consisting of three or more directors. Each committee shall have the
authority of the board of directors in regard
<PAGE>
to the business of the corporation to the extent set forth in the resolution
establishing such committee.
3.7 HONORARY AND ADVISORY DIRECTORS. 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 appointed as Honorary Director, Director Emeritus, or member of an
advisory board may be compensated as provided in Section 3.5, 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 4.5 and shall not have any
responsibility or be subject to any liability imposed upon a director, or
otherwise be deemed a director.
ARTICLE FOUR
MEETINGS OF THE BOARD OF DIRECTORS
4.1 REGULAR MEETINGS. An annual organizational meeting of the board of
----------------
directors shall be held on the day of and after the annual meeting of the
shareholders of the corporation. In the event the annual shareholders' meeting
is not held as provided by Sections 2.3 or 2.4, such organizational meeting
shall be held as herein provided for regular meetings. In addition, regular
meetings of the board of directors shall be held on any day fixed by the board
of every month during the calendar year, except during the month in which the
organizational meeting of the board of directors is held; provided, however,
that the board of directors and the president are authorized to cancel any such
regular meetings, excluding the organizational meeting.
4.2 SPECIAL MEETINGS. Special meetings of the board of directors may be called
----------------
by or at the request of the president, chairman of the board, or by any two
directors in office at that time.
4.3 PLACE OF MEETINGS. Directors may hold their meetings at any place within
-----------------
(or without) the state of Georgia as the board of directors may from time to
time establish for regular meetings, or as set forth in the notice of special
meetings, or in the event of a meeting held pursuant to waiver of notice, as set
forth in the waiver.
4.4 NOTICE OF MEETINGS. No notice shall be required for any regularly
------------------
scheduled meeting of the directors of the corporation. Unless waived as
contemplated in Section 5.2, the president or secretary of the corporation, or
any director thereof shall give notice to each director of such special meeting
stating the time, place and purposes of the meeting. Such notice shall be given
by mailing notice of the meeting at least five (5) days before the date of the
meeting, or by telephone, telegram, or personal delivery at least three (3) days
before the date of the meeting. Notice shall be deemed to have been given by
telegram or cablegram at the time notice is filed with the transmitting agency.
Attendance by a director at a meeting shall constitute a waiver of notice of
such meeting, except where a director attends a meeting for the express purpose
of objecting to the transaction of business because the meeting is now lawfully
called.
<PAGE>
4.5 QUORUM. At meetings of the board of directors, more than one-half of the
------
directors then in office shall be necessary to constitute a quorum for the
transaction of business.
4.6 VOTE REQUIRED FOR ACTION. Except as otherwise provided in these bylaws, by
------------------------
the corporation's Articles of Incorporation, or by law, the act of a majority of
the directors present at a meeting at which a quorum is present at the time
shall be the act of the board of directors.
4.7 ACTION BY DIRECTORS WITHOUT A MEETING. Any action which may be taken at
-------------------------------------
any meeting of the board of directors, or at any meeting of a committee of
directors may be taken without a meeting if a written consent thereto shall be
signed by all directors or all the members of the committee, as the case may be,
and if such written consent is filed with the minutes of the proceedings of the
board or the committee. Such consent shall have the same force and effect as a
unanimous vote of the board of directors or the committee.
4.8 SECRETARY TO BOARD. The board of directors may appoint a secretary, who
------------------
need not be a member of the board, whose duty it shall be to keep an accurate
record of all meetings of said board.
ARTICLE FIVE
NOTICE AND WAIVER
5.1 PROCEDURE. Whenever these bylaws require notice to be given to any
---------
shareholder or director, the notice shall be given as prescribed in Sections 2.5
and 4.4, whichever is applicable. Whenever notice is given to a shareholder or
director by mail, the notice shall be sent first class mail by depositing the
same in a post office or letter box in a postage prepaid, sealed envelope,
addressed to the shareholder or director at his last known address, and such
notice shall be deemed to have been given at the time the same is deposited in
the United States mail.
5.2 WAIVER. Whenever any notice is required to be given to any shareholder or
------
director by law, by the Articles of Incorporation, or these bylaws, a waiver
thereof in writing, signed by the director or shareholder entitled to such
notice, or by the proxy of such shareholder, whether before or after the meeting
to which the waiver pertains, shall be deemed equivalent thereto; provided,
however, that no such waiver shall apply by its terms to more than one required
notice.
ARTICLE SIX
OFFICERS
6.1 NUMBER. The officers of the corporation shall consist of a president,
------
secretary and a treasurer. In addition, the board of directors may from time to
time elect or provide for the appointment of such other officers or assistant
officers as it deems necessary for the efficient management of the corporation,
or as shall otherwise be required by law or regulation. Any two or more offices
may be held by the same person, except the offices
<PAGE>
of president and secretary. The board of directors shall have the power to
establish and specify the duties for all officers of the corporation.
6.2 ELECTION AND TERM. All officers shall be elected by the board of directors
-----------------
and shall serve at the will of the board of directors and until their successors
have been elected and have qualified, or until their earlier death, resignation,
removal, retirement or disqualification.
6.3 COMPENSATION. The compensation of all officers of the corporation shall be
------------
fixed by the board of directors, or by the executive committee of the board of
directors, if such committee is designated as provided in Section 3.6.
Compensation of all employees who are not officers shall be set by the president
subject to review by the board, at its election.
6.4 REMOVAL. Any officer or agent elected by the board of directors may be
-------
removed by the board of directors with or without any cause whenever in its
judgment the best interests of the corporation will be served thereby without
prejudice to any contract right to such officer.
6.5 CHAIRMAN OF THE BOARD. The board of directors, in its discretion, may
---------------------
elect a chairman of the board of directors who shall preside and act as chairman
at all meetings of the shareholders of the board of directors and who shall
perform such other duties as the board of directors may from time to time
direct.
6.6 VICE-CHAIRMAN OF THE BOARD. The board of directors, in its discretion, may
---------------------------
elect a vice-chairman of the board of directors who shall preside and act as
chairman at all meetings of the shareholders of the board of directors in the
absence of the chairman and who shall perform such other duties as the board of
directors may from time to time direct.
6.7 PRESIDENT. The president shall be the chief executive officer of the
---------
corporation and shall have general control and supervision over the business and
affairs of the corporation. He shall see that all orders and resolutions of the
board of directors are carried into effect. In the absence of a chairman of the
board of directors, the president shall preside and act as chairman of all
meetings of the shareholders and the board of directors. He shall also perform
such other duties as may be delegated to him from time to time by the board of
directors.
6.8 OFFICER IN PLACE OF PRESIDENT. The board of directors may designate an
-----------------------------
officer who shall, in the absence or disability of the president, or at the
direction of the president perform the duties and exercise the powers of the
president.
6.9 SECRETARY. The secretary shall keep accurate records of the acts and
---------
proceedings of all meetings of shareholders, directors and committees of
directors. He shall have authority to give all notices required by law of these
bylaws. He shall be custodian of the corporate books, records, contracts and
other documents. The secretary may affix the
<PAGE>
corporation's seal to any lawfully executed documents requiring it and shall
sign such instruments as may require his signature.
ARTICLE SEVEN
DIVIDENDS
7.1 TIME AND CONDITIONS OF DECLARATION. Dividends upon the outstanding shares
----------------------------------
of the corporation may be declared by the board of directors at any regular or
special meeting and paid in cash or property only out of the unreserved and
unrestricted earned surplus of the corporation or out of the unreserved and
unrestricted net earnings of the current fiscal year, computed to the date of
declaration of the dividend, or the next preceding fiscal year.
7.2 SHARE DIVIDENDS - TREASURY SHARES. Dividends may be declared by the board
---------------------------------
of directors and paid in the shares of the corporation out of any treasury
shares that have been reacquired out of the capital funds of the corporation.
7.3 SHARE DIVIDENDS - UNISSUED SHARES. Dividends may be declared by the board
---------------------------------
of directors and paid in the authorized but unissued shares of the corporation
out of any retained earnings of the corporation; provided that such shares shall
be issued at not less than the par value thereof, there shall be transferred to
capital stock at the time such dividend is paid an amount of retained earnings
at least equal to the aggregate par value of the shares to be issued as a
dividend.
7.4 SHARE SPLITS. A split or division of the issued shares of any class into a
------------
greater number of shares of the same class without increasing the capital stock
of the corporation shall not be construed to be a share dividend within the
meaning of this article.
ARTICLE EIGHT
SHARES
8.1 AUTHORIZATION AND ISSUANCE OF SHARES. The par value and the maximum number
------------------------------------
of shares of any class of the corporation which may be issued and outstanding
shall be set forth from time to time in the Articles of Incorporation of the
corporation. The board of directors may increase or decrease the number of
issued and outstanding shares of the corporation within the maximum number of
shares authorized by the Articles of Incorporation and the minimum
capitalization requirements of the Articles of Incorporation or Georgia law.
8.2 SHARE CERTIFICATES. The interest of each shareholder in the corporation
------------------
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 in accordance with Georgia law. Share certificates shall be
consecutively numbered, shall be in registered
<PAGE>
form, and shall indicate the date of issue and all such information shall be
entered on the corporation's books. Each certificate shall be signed by the
president or a vice president and the secretary or an assistant secretary and
shall be sealed with the seal of the corporation or a facsimile thereof;
provided, however, that where such certificate is signed by a transfer agent, or
registered by a registrar other than the corporation itself, or any employee of
the corporation, the signatures of such officers may be facsimiles. In case any
officer or officers who shall have signed or whose facsimile signature shall
have been placed upon a share certificate shall have ceased for any reason to be
such officer or officers of the corporation before such certificate is issued,
such certificate may be issued by the corporation whose facsimile signatures
shall have been used thereon had not ceased to be such officer or officers.
8.3 RIGHTS OF CORPORATION WITH RESPECT TO REGISTERED OWNERS. Prior to due
-------------------------------------------------------
presentation for transfer of registration of its shares, the corporation may
treat the registered owner of the shares as the person exclusively entitled to
vote such shares, to receive any dividend or other distribution with respect to
such shares, and for all other purposes; and the corporation shall not be bound
to recognize any equitable or other claim to or interest in such shares on the
part of any other person, whether or not it shall have express or other notice
thereof, except as otherwise provided by law.
8.4 TRANSFER OF SHARES. Transfer of shares shall be made upon the stock
------------------
transfer books of the corporation only upon direction of the person named in the
share certificate representing the shares to be transferred, or by an attorney
of such person lawfully constituted in writing; and before a new certificate is
issued, the old certificate shall be surrendered for cancellation or, in the
case of a certificate alleged to have been lost, stolen, or destroyed, the
provisions of Section 8.6 of these bylaws shall have been satisfied.
8.5 DUTY OF CORPORATION TO REGISTER TRANSFER. Notwithstanding any of the
----------------------------------------
provisions of Section 8.4 of these bylaws, the corporation is under a duty to
register the transfers of its shares only if:
(a) The share certificate is endorsed by the appropriate person or persons;
and
(b) Reasonable assurance is given that these endorsements are genuine and
effective; and
(c) The corporation has no duty to inquire into adverse claims or has
discharged any such duty; and
(d) Any applicable law relating to the collection of taxes has been complied
with; and
(e) The transfer is in fact rightful or is a bona fide purchaser.
<PAGE>
8.6 LOST, STOLEN, OR DESTROYED CERTIFICATES. Any person claiming a share
---------------------------------------
certificate 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
shall, if the board of directors so requires, give the corporation a bond of
indemnity in form and amount, and with one or more sureties satisfactory to the
board of directors, as the board of directors may require, whereupon an
appropriate new certificate may be issued in lieu of the one alleged to have
been lost, stolen, or destroyed.
8.7 FIXING OF RECORD DATE. 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, such date to be not
more than 50 days (and, in the case of a shareholder's meeting, not less than 10
days) prior to the date on which the particular action, requiring such
determination of shareholders, is to be taken.
8.8 RECORD DATE IF NONE FIXED. If no record date is fixed as provided in
-------------------------
Section 8.7 of these bylaws, then the record date for any determination of
shareholders which may be proper or required by law shall be the date on which
notice is mailed in the case of a shareholders' meeting, or the date on which
the board of directors adopts a resolution declaring a dividend in the case of
payment of a dividend.
ARTICLE NINE
INDEMNIFICATION
9.1 INDEMNIFICATION. Any person, his heirs, executors, or administrators, may
---------------
be indemnified or reimbursed by the corporation for reasonable expense actually
incurred in connection with any action, suit or proceeding, civil or criminal,
to which he shall be made a party by reason of the fact that he is or was a
director, trustee, officer, employee, or agent of the corporation, or that he is
or was serving, at the request of the corporation, trust or other organization
or enterprise; provided, however, that no person shall be so indemnified or
reimbursed in relation to any matter in such action, suit or proceeding as to
which he shall finally be adjudged to have been guilty of or liable for gross
negligence, willful misconduct or criminal acts in the performance of his duties
to the corporation, or to such other firm, corporation, trust, organization, or
enterprise; and provided further, that no person shall be so indemnified or
reimbursed in relation to any matter in such action, suit, or proceeding which
has been in the subject of a compromise settlement, except with the approval of
(i) a court of competent jurisdiction, (ii) the holders of record of a majority
of the outstanding shares of capital stock of the corporation, or (iii) a
majority of the members of the board of directors then holding office, excluding
the votes of any directors who are parties to the same or substantially the same
action, suit or proceeding.
<PAGE>
9.2 PAYMENT OF EXPENSES IN ADVANCE. Expenses incurred in defending any action,
------------------------------
suit or proceeding referred to above may be paid by the corporation in advance
of the final disposition of such action, suit or proceeding as authorized by the
board of directors in the specific case upon receipt of an undertaking by or on
behalf of any person who is or was a director, trustee, officer, employee or
agent to repay such amount unless it shall ultimately be determined that he is
entitled to be indemnified by the corporation as provided above.
9.3 INSURANCE. The corporation, upon the affirmative vote of a majority of its
---------
board of directors, may purchase and maintain insurance on behalf of any person
who is or was a director, trustee, officer, employee or agent of the corporation
or is or was serving, at the request of the corporation, as a director, trustee,
officer, employee, or agent of another firm, corporation, trust, or other
organization or enterprise against liability asserted against him and incurred
by him in such capacity or arising out of his status as such, whether or not the
corporation would have the power to indemnify him against such liability under
the foregoing provisions of these bylaws.
9.4 RIGHTS NOT EXCLUSIVE. The foregoing rights of indemnification or
--------------------
reimbursement shall not be exclusive of other rights to which the persons
referred to above, or their heirs, executors, or administrators, may be entitled
as a matter of law, and the corporation may indemnify such persons to the extent
permitted by the Georgia Business Corporation Code, as such laws may be amended
from time to time.
ARTICLE TEN
MISCELLANEOUS
10.1 INSPECTION OF BOOKS AND RECORDS. The board of directors shall have power
-------------------------------
to determine which accounts, books and records of the corporation shall be open
to the inspection of shareholders, except such accounts, books and records that
are specifically open to inspection by law, and the board of directors shall
have power to fix reasonable rules and regulations not in conflict with the
applicable law for the inspection of accounts, books and records which by law or
by determination of the board of directors shall be open to inspection.
10.2 FISCAL YEAR. The fiscal year of the corporation shall be set by resolution
-----------
of the board of directors.
10.3 SEAL. The following is the impression of the seal adopted by the board of
----
directors.
ARTICLE ELEVEN
AMENDMENTS
11.1 POWER TO AMEND BYLAWS. The board of directors shall have power to alter,
---------------------
amend or repeal these bylaws or adopt new bylaws. Notice of any change in the
bylaws during the year shall be given to the stockholders at the annual meeting
and shall be proposed
<PAGE>
for ratification by a majority vote of the shareholders represented at the
meeting in person or by proxy. If the shareholders fail to ratify the change in
the bylaws, such change shall not be effective after the shareholders' meeting
at which it is proposed for ratification. Any bylaws adopted by the board of
directors may be altered, amended, or repealed, and new bylaws adopted by the
shareholders. The shareholders may prescribe that any bylaw or bylaws adopted
by them shall not be altered, amended or repealed by the board of directors.
11.2 CONDITIONS. Action taken 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.
The foregoing bylaws were adopted by the board of directors of the corporation
at its organizational meeting held as shown in the minutes to which these bylaws
are annexed, in witness of which the undersigned directors have hereunto
subscribed their signatures.
__________________________________________
__________________________________________
__________________________________________
__________________________________________
__________________________________________
__________________________________________
__________________________________________
__________________________________________
__________________________________________
__________________________________________
<PAGE>
__________________________________________
__________________________________________
<PAGE>
EXHIBIT 5
OPINION AND CONSENT OF
MARTIN, SNOW, GRANT & NAPIER
AS TO THE LEGALITY OF THE SECURITIES
REGISTERED HEREBY
<PAGE>
WRITER'S DIRECT DIAL: (912) 749-1716
September ______, 1998
Board of Directors
Capitol City Bancshares, Inc.
562 Lee Street, S.W.
Atlanta, Georgia 30311
RE: REGISTRATION STATEMENT ON SEC FORM S-4 RELATING
TO THE ISSUANCE OF 532,088 SHARES OF THE $6.00 PAR
VALUE COMMON STOCK OF CAPITOL CITY BANCSHARES, INC.
Gentlemen:
This opinion is rendered in connection with the SEC Form S-4 Registration
Statement (the "Registration Statement") which is being filed by Capitol City
Bancshares, Inc. ("Bancshares") with the Securities and Exchange Commission
under the Securities Act of 1933, as amended, with respect to the proposed
issuance of 532,088 shares of the $6.00 par value common stock of Bancshares in
connection with the proposed merger of Capitol City Bank and Trust with and into
a wholly-owned subsidiary of Bancshares pursuant to a certain Plan of
Reorganization and Agreement of Merger, as amended, dated April 14, 1998 and
filed as Exhibit "A" to the Proxy Statement of Bancshares which is included in
the Registration Statement.
We are of the opinion that:
1. A maximum of 532,088 shares of $6.00 par value common stock, when
issued in connection with the acquisition of Capitol City Bank and
Trust in accordance with the terms and conditions set forth in the
Plan of Reorganization and Agreement of Merger, will, when issued, be
validly issued, fully paid and non-assessable; and
2. No personal liability for the liabilities of Bancshares attaches to
the ownership of the shares of its $6.00 par value common stock under
the laws of the State of Georgia.
<PAGE>
Board of Directors
September ____, 1998
Page Two
CONSENT
-------
We hereby consent to the use of this opinion as an Exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Opinion" in the Proxy Statement of Capitol City Bancshares, Inc., included in
the Registration Statement.
Yours very truly,
MARTIN, SNOW, GRANT & NAPIER
By:_______________________________
JOHN T. McGOLDRICK, JR.
JTMJR:saj
<PAGE>
EXHIBIT 8
OPINION AND CONSENT OF
MARTIN, SNOW, GRANT & NAPIER
AS TO THE FEDERAL INCOME TAX CONSEQUENCES
OF THE TRANSACTION TO THE SHAREHOLDERS
OF CAPITOL CITY BANCSHARES, INC.
<PAGE>
WRITER'S DIRECT DIAL: (912) 749-1716
September ______, 1998
Board of Directors
Capitol City Bancshares, Inc.
562 Lee Street, S.W.
Atlanta, Georgia 30311
Gentlemen:
On April 14, 1998, Capitol City Bank and Trust, Capitol City Bancshares,
Inc., and Capitol City Interim, Inc. entered into a Plan of Reorganization and
Agreement of Merger. Capitol City Bancshares, Inc. ("Bancshares") is a Georgia
corporation which under the Reorganization will become a bank holding company.
Capitol City Interim, Inc. ("Interim") is a Georgia corporation which is a
wholly-owned subsidiary of Bancshares. Capitol City Bank and Trust ("Bank") is a
state chartered bank operating under the laws of Georgia. Under the terms of the
Reorganization, Interim will be merged with and into the Bank with the Bank as
the surviving corporation. As a result, the shares of common stock of Interim
will be converted into all (100%) of the issued and outstanding shares of common
stock of the Bank, and in turn, the shares of the Bank's common stock owned by
Bank's shareholders will be converted into shares of common stock of Bancshares.
After the Reorganization, Bancshares will own all (100%) of the issued and
outstanding common stock of the Bank, and the Bank's former shareholders will
own all (100%) of the issued and outstanding common stock of Bancshares.
The federal income tax consequences of the Reorganization, as described
below, are contingent upon and made with the understanding that the Bank upon
consummation of the Reorganization will: (i) hold at least 90% of the fair
market value of the net assets and (ii) at least 70% of the fair market value of
the gross assets held by the Bank immediately prior to the Reorganization.
Further, all amounts paid by the Bank for any Reorganization expense and any
payments made to dissenting shareholders will be considered assets held by the
Bank immediately prior to the Reorganization.
<PAGE>
Board of Directors
September _____, 1998
Page 2
Subject to the conditions described above, our opinion as to the federal
income tax consequences of the Plan of Reorganization and Agreement of Merger is
as follows:
(a) The merger of Interim into the Bank and the issuance of shares of
common stock of Bancshares in connection therewith, as described
above, will constitute a tax-free reorganization under Section
368(a)(1)(A) and (a)(2)(E) of the Internal Revenue Code of 1954, as
amended (the "Code").
(b) No gain or loss will be recognized by the holders of the Bank's common
stock upon the exchange of such stock for Bancshares common stock as
the result of the Reorganization.
(c) The tax basis of the common stock of Bancshares received by the
shareholders of the Bank pursuant to the Reorganization will be the
same as the tax basis of the shares of common stock of the Bank
exchanged therefor.
(d) The holding period of the shares of common stock of Bancshares
received by the shareholders of the Bank will include the holding
period of the shares of common stock of the Bank exchanged therefor,
provided that the stock of the Bank is held as a capital asset on the
date of the consummation of the Reorganization.
(e) No gain or loss will be recognized by the Bank upon the receipt of the
Bank of the assets of Interim in exchange for the common stock of the
Bank.
(f) No gain or loss will be recognized in Bancshares upon the receipt of
the common stock of the Bank in exchange for the common stock of
Interim.
In general, cash received by the holders of the Bank's common stock
exercising their rights of dissent will be treated as amounts distributed in
redemption of their shares and will be taxable under the provisions of Section
302 of the Code. However, it is possible that, as a result of the applicable
rules attributing stock ownership among related individuals and entities in
which they have an interest (partnerships, trusts, estates, corporations), the
Section 302 results may not apply, and the distribution will be treated either
as a dividend or a return of capital under Section 301 of the Code. Moreover,
even if the distribution is treated as being subject to Section 302, any gain
<PAGE>
Board of Directors
September ____, 1998
Page 3
over the basis of the redeemed stock may be taxable as either ordinary income or
capital gain, depending upon the circumstances of the individual shareholder.
It is our recommendation that each of the Bank's shareholders consult their
own tax advisors in order to make a personal evaluation of the federal income
tax consequences as to any state or local tax consequences of the
Reorganization.
CONSENT
-------
As special counsel to Bancshares, we hereby consent to the use of this
opinion as to the tax effects of the Reorganization as an exhibit to the
Registration Statement to be filed on Form S-4 with the Securities and Exchange
Commission under the Securities Act of 1933 relating to the shares of Bancshares
to be issued in the merger and to the reference in the Proxy
Statement/Prospectus contained therein under the captions "Summary" and "Federal
Income Tax Consequences".
Yours very truly,
MARTIN, SNOW, GRANT & NAPIER
BY:_______________________________
JOHN T. McGOLDRICK, JR.
JTMJR:saj
<PAGE>
EXHIBIT 99.1
FORM OF PROXY
<PAGE>
CAPITOL CITY BANK AND TRUST
ATLANTA, GEORGIA
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby appoints George G. Andrews and Leon Goodrum as
proxies, each with the power to appoint his or her substitute, and hereby
authorizes them, or either of them, to represent and vote as designated below,
all the shares of common stock of Capitol City Bank and Trust ("Bank") held of
record by the undersigned on September _______, 1998, at the special meeting of
shareholders and any adjournments thereof, to be held on September ____, 1998 at
______ o'clock ___.m., local time, at the main offices of the Bank, located at
562 Lee Street, S.W., Atlanta, Georgia.
1. (FOR ______) (AGAINST ______) (ABSTAIN _____) approval and adoption of
the Plan of Reorganization and Agreement of Merger, dated April 14, 1998, by
and between the Bank; Capitol City Bancshares, Inc., a Georgia corporation
formed to act as a holding company for the Bank; and Capitol City Interim,
Inc., a wholly owned subsidiary of Capitol City Bancshares, Inc., all as
more fully set forth in the accompanying Proxy Statement and the Plan of
Reorganization and Agreement of Merger, as amended, annexed to the Proxy
Statement as Appendix "A".
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
The shares represented by this proxy will be voted in accordance with your
instructions. IF NO CHOICE IS SPECIFIED BY YOU THIS PROXY WILL BE VOTED FOR
PROPOSAL 1.
An affirmative vote by the holders of at least two-thirds (2/3) of the
issued and outstanding shares of common stock of the Bank is required for
approval of Proposal 1.
Please sign below, date and return promptly in the enclosed stamped, self-
addressed envelope. When shares are held by joint tenants, both should sign.
When signing as attorney, executor, administrator, trustee or guardian, please
give full title as such. If a corporation, please sign in full corporate name
by president or other authorized person.
________________________________
DATE:_______________________, 1998 SIGNATURE
________________________________
SIGNATURE IF HELD JOINTLY
