<PAGE>
As filed with the Securities and Exchange Commission on March 18, 1999
Registration No. 333-___________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM SB-2
---------------------------------------------
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------------------------
FIRST DEPOSIT BANCSHARES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Georgia 6035 58-2443683
(State or other jurisdiction (Primary standard industrial (I.R.S. employer
of incorporation or organization) classification code number) identification number)
</TABLE>
8458 Campbellton Street
Douglasville, Georgia 30134-1803
(770) 942-5108
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices and principal place of
business)
---------------------------------------------
J. David Higgins
President and Chief Executive Officer
8458 Campbellton Street
Douglasville, Georgia 30134-1803
(770) 942-5108
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
Copies to:
Steven S. Dunlevie, Esq.
Elizabeth O. Derrick, Esq.
Womble Carlyle Sandridge & Rice, PLLC
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this registration statement becomes effective.
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
=================================================================================================
<S> <C> <C> <C> <C>
Title of Each Class Proposed Maximum Proposed Maximum Amount of
of Securities Amount to Offering Price Aggregate Registration
to be Registered be Registered Per Share Offering Price(1) Fee
=================================================================================================
Common stock, no par value 1,666,350 $10.00 $16,663,500 $4,633
=================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee in
accordance with Rule 457 and includes shares that will be purchased by the
employee stock ownership plan of Douglas Federal Bank.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE>
PROSPECTUS
[LOGO]
First Deposit Bancshares, Douglas Federal Bank, a Federal Savings Bank,
Inc. (Proposed Holding is converting from the mutual form of
Company for Douglas organization to the stock form of organization.
Federal Bank, a Federal As part of the conversion, we will become a
Savings Bank) wholly-owned subsidiary of First Deposit, a
corporation we recently formed to serve as our
holding company. As a part of this process, we
are offering shares of common stock of First
Deposit to the public.
1,449,000 Shares of Common
Stock $10.00 Per Share
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
THE OFFERING
Proposed Trading Symbol:
OTC Bulletin Board -- FDBI
<TABLE>
<CAPTION>
Minimum Midpoint Maximum
----------- ----------- -----------
<S> <C> <C> <C>
Number of shares:......................... 1,071,000 1,260,000 1,449,000
Gross offering proceeds:.................. $10,710,000 $12,600,000 $14,490,000
Estimated underwriting commissions and
other offering expenses:................. $ 655,000 $ 684,000 $ 713,000
Estimated net proceeds:................... $10,055,000 $11,916,000 $13,777,000
Estimated net proceeds per share:......... $ 9.39 $ 9.46 $ 9.51
</TABLE>
With the approval of the Office of Thrift Supervision, First Deposit may
increase the maximum number of shares by up to 15.0% to 1,666,350 shares.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please refer to Risk Factors beginning on page 11 of this document for a
discussion of certain risks that you should consider before purchasing the
common stock.
These securities are not deposits or accounts and are not, and will not be,
insured or guaranteed by the Federal Deposit Insurance Corporation or any other
federal or state governmental agency. The purchase of common stock involves
investment risk, including the possible loss of principal.
Neither the Securities and Exchange Commission, the Office of Thrift
Supervision, nor any state securities commission has approved or disapproved of
these securities, or determined if this prospectus is truthful or complete. Any
representation to the contrary is a criminal offense.
First Deposit must sell at least 1,071,000 shares of common stock if any are
sold. Trident Securities is required to use only their best efforts in assisting
First Deposit to sell the number of shares offered. Trident Securities intends
to make a market in the common stock.
The offering expires at 12:00 Noon, Eastern Time, on , 1999. We may
terminate the offering after the subscription period at any time without
notice. We will place funds for stock purchases in a segregated savings account
at Douglas Federal until completion or termination of the offering. We will pay
interest at our regular passbook rate on funds received for the period the
funds are held until the completion or termination of the offering.
For information on how to subscribe, call the stock information center at
(770) .
TRIDENT SECURITIES
May , 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Summary.................................................................. 1
Risk Factors............................................................. 11
Selected Consolidated Financial Information and Other Data............... 18
Proposed Management Purchases............................................ 20
Use of Proceeds.......................................................... 21
Dividend Policy.......................................................... 24
Market for the Common Stock.............................................. 25
Capitalization........................................................... 26
Regulatory Capital Compliance............................................ 28
Pro Forma Data........................................................... 30
The Conversion........................................................... 33
First Deposit............................................................ 52
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 53
Business of Douglas Federal.............................................. 65
Management of First Deposit.............................................. 86
Management of Douglas Federal............................................ 87
Federal and State Taxation............................................... 97
Regulation and Supervision............................................... 99
Restrictions on Acquiring Douglas Federal or First Deposit............... 109
Description of the Capital Stock of First Deposit........................ 117
Description of the Capital Stock of Douglas Federal...................... 119
Transfer Agent and Registrar............................................. 120
Experts.................................................................. 120
Legal and Tax Opinions................................................... 120
Where You Can Find More Information...................................... 120
Index to Financial Statements............................................ F-1
</TABLE>
<PAGE>
Map of Georgia Showing the County Borders
of Douglas and Paulding Highlighted as
the Market Area of Douglas Federal Bank and
Shown in Relation to Atlanta, Georgia
<PAGE>
SUMMARY
Because this is a summary, it does not contain all the information about
the conversion and us. You should read the entire prospectus carefully before
you decide to invest. For assistance, please contact the stock information
center at (770) _________.
The Companies
<TABLE>
<CAPTION>
<S> <C>
First Deposit Bancshares, Inc. We formed First Deposit to be the holding
8458 Campbellton Street company for Douglas Federal. To date, First
Douglasville, Georgia 30134-1803 Deposit has only conducted organizational
(770) 942-5108 activities. After the conversion, it will own
all of our capital stock and will direct, plan
and coordinate our business activities. After
the conversion, First Deposit may become
an operating company or acquire or organize
other operating subsidiaries, including other
financial institutions, although it currently
has no specific plans or agreements to do so.
Douglas Federal Bank, a Federal Savings Our business strategy is to operate as a
Bank community-oriented savings bank dedicated
8458 Campbellton Street to financing home ownership and providing
Douglasville, Georgia 30134-1803 quality customer services. We also intend to
(770) 942-5108 further expand our consumer and commercial
loan and deposit products. We also plan
to continue our real estate development
activities through our subsidiary, Pinehurst
Properties, LLC. We operate out of two
offices in western Georgia located in or
around the towns of Douglasville and Lithia
Springs, both located in Douglas County.
We consider Douglas and Paulding Counties
as our primary market area for making loans
and attracting deposits.
Our principal business is attracting deposits
from the general public and using those
funds to originate residential mortgage
loans. At December 31, 1998, we had total
assets of approximately $100.9 million,
deposits of approximately $85.7 million and
total retained earnings of approximately $9.7
million.
</TABLE>
1
<PAGE>
For a discussion of our business
strategy and recent results of
operations, see "Management's Discussion
and Analysis of Financial Condition and
Results of Operations." For a discussion
of our business activities, see
"Business of Douglas Federal."
The Conversion
What is the Conversion (page __) The conversion is a change in our
legal form of organization. As a
mutual savings bank, we currently
have no stock or shareholders.
Instead, our depositors and borrowers
elect our directors and vote on other
important matters. Through the
conversion we will become a stock
savings bank and will be owned and
controlled by our sole shareholder,
First Deposit. The right to vote for
matters affecting First Deposit will
belong to its shareholders.
We are conducting the conversion
under the terms of our plan of
conversion. The Office of Thrift
Supervision has approved the
conversion with the condition that
our members approve the plan of
conversion. We have called a special
meeting for June 17, 1999, for our
members to vote on the plan of
conversion.
Purposes for the Conversion (page __) By converting to the stock form of
organization, we will be structured
in the form that commercial banks,
most business entities and a large
number of savings institutions use.
The conversion will be important to
our future growth and performance by:
. providing us with a larger capital
base from which we can operate;
2
<PAGE>
<TABLE>
<S> <C>
. enhancing our ability to attract
and retain qualified management
through stock-based compensation
plans;
. enhancing our ability to diversify
into other financial services related
activities; and
. expanding our ability to serve the
public.
Presently, we do not have any
specific plans or arrangements for
diversification or expansion.
Benefits of the Conversion to We intend to adopt the following
Management (page __) benefit plans and employment
agreements:
. Employee Stock Ownership Plan. Our
employee stock ownership plan intends
to purchase 8.0% of the shares issued
in the conversion. This would range
from 85,680 shares, assuming
1,071,000 shares are issued in the
conversion, to 115,920 shares,
assuming 1,449,000 shares are issued
in the conversion. We will allocate
these shares to employees over a
period of years in proportion to
their compensation.
. Stock Option Plan. Under the
stock option plan, First Deposit may
award stock options to key employees
and directors. The number of options
available under this plan will be
equal to 10.0% of the number of
shares sold in the conversion. This
would range from 107,100 shares,
assuming 1,071,000 shares are issued
in the conversion, to 144,900 shares,
assuming 1,449,000 shares are issued
in the conversion. This plan will
require shareholder approval.
</TABLE>
3
<PAGE>
. Restricted Stock Program. Under
the restricted stock program, First
Deposit may award shares of
restricted stock to key employees
and directors at no cost to the
recipient. The number of shares
available under this program will
equal 4.0% of the number of shares
sold in the conversion. This would
range from 42,840 shares, assuming
1,071,000 shares are issued in the
conversion, to 57,960 shares,
assuming 1,449,000 shares are
issued in the conversion. This
program will require shareholder
approval.
. Employment Agreements. We intend
to enter into employment agreements
with our Chief Executive Officer,
President and Senior Vice President
and Controller. These agreements
will provide for severance benefits
if the executive is terminated
following a change in control of
Douglas Federal or First Deposit.
The following table summarizes the
total number and dollar value of the
shares of common stock, assuming
1,449,000 shares are issued in the
conversion, which the employee stock
ownership plan would acquire and the
total value of all shares available
for award under the stock option
plan and the restricted stock
program. The table assumes the
value of the shares is $10.00 per
share. The table does not include a
value for the options because their
value would be equal to the fair
market value of the common stock on
the day that the options are
granted. As a result, financial
gains can be realized on an option
only if the market price of common
stock increases above the price at
which the options are granted.
4
<PAGE>
<TABLE>
<CAPTION>
Percentage
Number Estimated of Shares
of Value Issued
Shares of Shares in the Conversion
------ --------- -----------------
<S> <C> <C> <C>
Employee stock
ownership plan...... 115,920 $1,159,200 8.0%
Restricted
stock program....... 57,960 579,600 4.0
Stock options....... 144,900 - 10.0
------- ---------- ----
Total......... 318,780 $1,738,800 22.0%
======= ========== ====
For a discussion of certain risks
associated with these plans and
agreements, see "Risk Factors -
Adoption of stock benefit plans will
increase future compensation expense
and may lower our net income" and "
- Employment agreements with our
executive officers may discourage
acquisitions of control."
The Offering
<S> <C>
Subscription Offering (page __) We have granted subscription rights
in the following order of priority to:
Important: Subscription rights are
not transferable, and persons with 1. Persons with $50 or more on
subscription rights may not deposit with us on December 31, 1997.
subscribe for shares for the benefit
of any other person. If you 2. Our employee stock ownership plan.
violate this prohibition, you may
lose your right to purchase shares 3. Persons with $50 or more on
and may face criminal prosecution deposit with us on March 31, 1999.
and/or other sanctions.
4. Our depositors on May 1, 1999 and
our borrowers on June 1, 1990 whose
loans continue to be outstanding on
May 1, 1999.
To ensure that we properly identify
your subscription rights, you must
list all of your deposit accounts and
loans as of the eligibility dates on
the stock order form. If you fail
</TABLE>
5
<PAGE>
to do so, your subscription may be
reduced or rejected if the offering
is oversubscribed.
The subscription offering will end at
12:00 Noon, Eastern Time, on June
__, 1999. If the offering is
oversubscribed, First Deposit will
allocate the shares in order of the
priorities described above under a
formula outlined in the plan of
conversion.
Community Offering (page __) First Deposit may offer shares not
sold in the subscription offering to
the general public in a community
offering, with preference given to
residents of Douglas and Paulding
Counties, Georgia. If, after
filling those community orders,
shares are available, First Deposit
may offer shares to the general
public. First Deposit may begin the
community offering during the
subscription offering.
First Deposit may reject orders
received in the community offering
either in whole or in part. If your
order is rejected in part, you
cannot cancel the remainder of your
order.
Purchase Price (page __) The purchase price is $10.00 per
share. You will not pay a
commission to buy any shares in the
subscription offering or community
offering.
Number of Shares to be Sold (page __) First Deposit will sell between
1,071,000 and 1,449,000 shares of
its common stock in this offering.
With regulatory approval,First
Deposit may increase the number of
shares to 1,666,350 without giving
you further notice.
The amount of common stock that First
Deposit will offer in the conversion
is based on an independent appraisal
of the estimated market value of
First Deposit and Douglas Federal as
if the conversion had occurred on
the date of the appraisal. Ferguson
& Company, the independent
appraiser, has
6
<PAGE>
estimated that, in its opinion, as of
February 22, 1999, the estimated
market value ranged between
$10,710,000 and $14,490,000, with a
midpoint of $12,600,000. The
appraisal was based in part on our
financial condition and operations
and the effect on us of the
additional capital raised by the
sale of common stock in this
offering. The independent appraisal
will be updated before the
conversion is completed.
Purchase Limitations (page __) The minimum purchase is 25 shares.
The maximum purchase in the
subscription offering by any person
or group of persons through a single
deposit account is $375,000 of
common stock, which equals 37,500
shares. The maximum purchase by any
person in the community offering is
$375,000 of common stock, which
equals 37,500 shares.
The maximum purchase in the
subscription offering and community
offering combined by any person,
related persons or persons acting
together is $750,000 of common
stock, which equals 75,000 shares.
In any event, the maximum purchase
in the subscription offering and the
community offering combined for any
person together with any associate
or group of persons acting in
concert shall not exceed 5.0% of the
stock sold in the conversion.
How to Purchase Common Stock (page_) If you want to subscribe for shares,
you must complete a stock order form
and send or deliver it to either branch of
Douglas Federal, together with full
payment to us in the postage-paid envelope
provided. You must sign the certification
Important: After we receive your that is part of the stock order form. We
order, you cannot cancel or change must receive your stock order form before
it without our consent. If First the end of the subscription offering.
Deposit intends to sell fewer than
1,071,000 shares or more than
1,666,350 shares, all subscribers
will be notified and given the
opportunity to change or cancel
their orders. If you do not
respond to this notice, First
Deposit will return your funds
promptly with interest.
7
<PAGE>
You may pay for shares in any of the
following ways:
. In cash if delivered in person.
. By check or money order made
payable to First Deposit.
. By withdrawal from an account
with Douglas Federal. There will
be no penalty for withdrawing
funds from such account to
purchase the common stock.
To use individual retirement
account funds for purchasing
the common stock, please
contact a stock broker and the
stock information center to
arrange for the purchase. We
may not hold stock in our
individual retirement accounts.
We will pay interest on your
subscription funds at the rate we
pay on regular passbook accounts
from the date we receive your funds
until the conversion is completed or
terminated. All funds authorized
for withdrawal from deposit accounts
with us will earn interest at the
regular passbook rate until the
conversion is completed.
Use of Proceeds (page __) First Deposit will pay Douglas Federal
50.0% of the net offering proceeds for
all of our common stock. We will use
these funds to originate and purchase
loans and purchase investments similar
to the kinds we currently hold.
First Deposit will also loan an
amount equal to 8.0% of the gross
proceeds of the offering to our
employee stock ownership plan to
fund its purchase of common stock.
8
<PAGE>
First Deposit will keep the remainder
of the net proceeds for general
corporate purposes. These purposes
may include, for example, paying
cash dividends or buying back shares
of common stock.
Douglas Federal and First Deposit may
also use the proceeds of the
offering to expand and diversify our
businesses, although we have no
specific plans to do so at this time.
Purchasers by Directors and Executive Our directors and executive officers
Officers (page __) intend to subscribe for up to
395,000 shares. This number equals
approximately 27.0% of the 1,449,000
shares that would be issued at the
maximum of the offering range. If
fewer shares are issued in the
conversion, then directors and
executive officers may own a greater
percentage of First Deposit.
Directors and executive officers
will pay the same $10.00 per share
as everyone else who purchases
shares in the conversion.
Market for Common Stock (page __) First Deposit has never issued
capital stock and, consequently,
there is no established market for
its common stock. First Deposit
anticipates that the common stock
will be quoted on the OTC Bulletin
Board operated by the National
Association of Securities Dealers,
Inc. under the symbol "FDBI."
Trident Securities intends to be a
market maker in the common stock.
First Deposit cannot assure you that
there will be an active trading
market for the common stock. See
"Risk Factors - Limited market for
the common stock may lower the
market price."
Dividends (page __) First Deposit intends to pay a
quarterly cash dividend the amount
of which its Board of Directors will
determine in the first quarter
following conversion. For a
discussion of First Deposit's
anticipated dividend policy,
including our ability to pay
dividends, see "Dividend Policy."
9
<PAGE>
Forward Looking Statements Some statements in this document are
forward-looking and are identified
by the use of forward-looking words
or phrases such as "intended," "will
be positioned," "expects," is or are
"expected," "anticipates," and
"anticipated" and other words and
phrases of similar meaning. These
forward-looking statements are based
on our current expectations. To the
extent any of the information
contained in this document
constitutes a forward-looking
statement, the risk factors
described beginning on page 11 of
this prospectus are cautionary
statements identifying important
factors that could cause actual
results to differ materially from
those in the forward-looking
statement.
10
<PAGE>
RISK FACTORS
In addition to the other information in this document, you should consider
carefully the following risk factors in deciding whether to invest in the common
stock.
Our profitability may suffer if interest rates increase
An increase in market interest rates could adversely affect our earnings.
We have become subject to the increasing risk that interest rates may rise due
to the substantial levels of fixed rate loans that we have originated to satisfy
the high customer demand for such products in our market area. Significant
increases in market interest rates also may adversely affect the fair market
value of our securities and other interest-earning assets. Generally, the value
of fixed-rate instruments fluctuates inversely with changes in interest rates.
As a result, increases in interest rates could result in decreases in the market
value of interest-earning assets which could adversely affect our results of
operations if sold or, in the case of interest-earning assets classified as
available-for-sale, our retained earnings, if retained. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
We make loans that have more risk than residential mortgage loans
Non-residential real estate loans, construction and development loans, land
and land development loans and consumer loans generally involve a higher degree
of credit risk than residential mortgage lending. At December 31, 1998, these
loans totaled $11.4 million or 13.6% of our total loans. Of this amount, $6.0
million or 7.1% consisted of construction and development loans, $3.1 million or
3.7% consisted of non-residential real estate loans, $416,000 or less than 0.5%
consisted of land and land development loans, and $1.9 million or 2.3% consisted
of consumer loans. At December 31, 1998, our ten largest lending relationships
ranged in size from approximately $205,000 to approximately $1.5 million.
Losses incurred on loans to a small number of borrowers could have a material
adverse impact on our income and financial condition. In addition, unlike
residential mortgage loans, commercial loans and commercial real estate loans
depend on the cash flow from the property or the business to service the debt.
General economic conditions may significantly affect cash flow. Consumer
lending is riskier than residential mortgage lending because consumer loans are
either unsecured or secured by assets that depreciate in value. See "Business
of Douglas Federal."
Our real estate development activities involve increased risk
We engage in residential real estate development activities which involve a
higher degree of risk than traditional residential mortgage lending. Our
inability to successfully develop, subdivide and sell the lots which comprise
these real estate developments, or a downturn in the residential real estate
market generally, would adversely affect our earnings. In addition, we make
construction loans to certain builders who purchase the lots in these
developments,
11
<PAGE>
increasing our involvement in, and the risks associated with, our
real estate development activities. See "Business of Douglas Federal -
Subsidiary."
Our return on equity will be below historical levels after the conversion
Following the conversion, our return on equity is expected to be below our
historical return on equity. Return on average equity is net income divided by
average equity. Many investors use this ratio to compare the performance of a
financial institution to its peers. As a result of the conversion, our equity
will increase substantially. Our expenses also will increase due to added
expense associated with our employee stock ownership plan and, later on, our
restricted stock program, as well as with the costs of being a public company.
Because of the increases in our equity and expenses, until we are able to
increase our balance sheet by adding loans and deposits, thereby increasing net
interest income, we expect our return on equity to decrease as compared to our
performance in previous years. Industry competition for interest-bearing assets,
such as loans and securities, will significantly affect our ability to deploy
this new capital. It will take time for us to deploy our new capital prudently.
See "Pro Forma Data."
Management has discretion in investing the proceeds of this offering
Management has not attempted to allocate the net proceeds First Deposit
will receive through the offering to any particular uses other than the general
uses described above. Investing the net proceeds could be a lengthy process.
Management's failure to deploy the net proceeds effectively in long-term
investments providing for higher yields than will be received on short-term
investments could adversely affect First Deposit's future profitability and
return on equity. See "Use of Proceeds" for additional information. Management,
in consultation with our Board of Directors, will have exclusive control over
how to invest the net proceeds. Management intends initially to invest the
proceeds in new loans, U.S. Treasury and agency obligations, and short-term
investments management believes bear relatively low risk. One of management's
primary goals, however, is to seek opportunities to expand our market share
through expansion of products and services, and possibly through the pursuit of
acquisition opportunities.
Our growth and profitability are dependent on the economic conditions of our
market area
Our market area consists of Douglas and Paulding Counties, Georgia. Both
of our offices are located in Douglas County. We estimate that more than 90.0%
of deposits and loans come from our market area. Despite recent development,
the economy in Douglas and Paulding Counties continues to be heavily dependent
on the economy of the Atlanta, Georgia metropolitan area. A decline in the
local economy and the Atlanta, Georgia economy could result in an increase in
the level of defaults of existing loans and could suppress the demand for new
loans. Similarly, a decline in the local community could result in a decline in
deposits. The absence of a robust economy could limit our potential for growth
in our primary market area.
12
<PAGE>
Our loans and deposits are concentrated in Douglas and Paulding Counties
The majority of our real estate loans are secured by properties in Douglas
and Paulding Counties, located in western Georgia. A concentration of loans
secured by properties in any single area presents the risk that any adverse
change in the local economic or employment conditions may result in increased
loan delinquencies and loan losses.
Strong competition within Douglas and Paulding Counties has hurt our net
interest income
We face intense competition both in making loans and attracting deposits.
This competition has made it more difficult for us to make new loans and has
forced us to offer amongst the highest deposit rates in our market area. This
competition for loans and deposits has contributed to a narrow interest rate
spread, which has hurt net interest income. We expect that the competition for
loans and deposits will continue to be intense.
We compete with commercial banks, credit unions, finance companies, mutual
funds, insurance companies, mortgage companies and brokerage and investment
banking firms. In our market area, we compete primarily with national, regional
and local financial institutions, most of whom have a state-wide or regional
presence. Most of these competitors have substantially greater resources and
lending limits than we have and may offer certain services that we do not or
cannot provide.
Our Charter and Bylaws contain anti-takeover provisions that could discourage
acquisitions of control
Provisions of First Deposit's Articles of Incorporation and Bylaws, Douglas
Federal's Charter and Bylaws, the Georgia Business Corporations Act, and certain
federal regulations may make it difficult and expensive to pursue a tender
offer, change in control or takeover attempt that our Board of Directors
opposes. As a result, you may not have an opportunity to participate in such a
transaction. Such provisions will also make removing our current Board of
Directors or management more difficult. In addition, these provisions may
reduce the trading price of First Deposit's stock. See "Restrictions on
Acquiring Douglas Federal or First Deposit."
Employment agreements with our executive officers may discourage acquisitions of
control
We intend to enter into employment agreements with our Chief Executive
Officer, President, and Senior Vice President and Controller which provide for
benefits and cash payments in the event of their involuntary or, in certain
circumstances, voluntary termination following a change in control of First
Deposit or Douglas Federal. These provisions may have the effect of increasing
the cost of acquiring Douglas Federal or First Deposit and would therefore
discourage future attempts to take us over. See "Management of Douglas Federal
- - Employment Agreements."
Possible voting control by our directors and officers may make takeover attempts
difficult to achieve
The proposed purchases of common stock by our directors and officers, the
employee stock ownership plan and the restricted stock program, if implemented,
could make it difficult to obtain majority support for shareholder proposals
that management opposes. In addition, voting
13
<PAGE>
those shares may enable management to block transactions requiring approval of
shareholders holding 80.0% of the common stock.
Our directors and executive officers expect to purchase between
approximately 34.0% and 27.0% of the common stock to be issued in the
conversion, based upon the minimum and maximum range of the offering. In
addition, as a result of shares that may be attributable to our officers and
directors through the employee stock ownership plan, the restricted stock
program and the stock option plan, our officers and directors could potentially
control approximately 49.0% of the common stock, assuming that 1,449,000 shares
are sold in the offering. See "Management of Douglas Federal - Benefit Plans -
Employee Stock Ownership Plan," "- Restricted Stock Program," "Description of
the Capital Stock of Douglas Federal" and "Restrictions on Acquiring Douglas
Federal or First Deposit."
Adoption of stock benefit plans will increase future compensation expense and
may lower our net income
We anticipate that our employee stock ownership plan will purchase 8.0% of
the common stock issued in the conversion with funds borrowed from First
Deposit. The cost of acquiring the employee stock ownership plan shares will be
between $856,800 and $1,159,200. We will record annual employee stock ownership
plan expenses in an amount equal to the fair market value of shares committed to
be released to employees. If shares of common stock appreciate in value over
time, compensation expense relating to the employee stock ownership plan may
increase. In addition, First Deposit may implement a restricted stock program,
under which it may award officers and directors of Douglas Federal or First
Deposit restricted stock up to an aggregate of 4.0% of the shares issued in the
conversion at no cost to them. Assuming the shares awarded under the restricted
stock program cost $10.00 per share, the reduction to shareholders' equity of
funding the restricted stock program would be between $428,400 and $579,600.
Issuance of shares for stock benefit plans may lower your ownership interest
If we complete the conversion and the shareholders of First Deposit
subsequently approve a restricted stock program and a stock option plan, we may
issue common stock to our officers and directors through these plans. Our
issuance of the shares for the restricted stock program from our authorized but
unissued stock could dilute your ownership percentage by up to 4.0% and reduce
the trading price of the stock.
Following the conversion, First Deposit also intends to implement the stock
option plan. The stock option plan will provide directors and selected employees
with stock options to purchase authorized but unissued shares in an amount equal
to 10.0% of the common stock issued in the conversion. If all of the stock
options First Deposit intends to grant were to be exercised using authorized but
unissued common stock and if First Deposit funded the stock option plan with
authorized but unissued shares, such exercise would dilute the voting interests
of existing shareholders by approximately 10.0%. See "Pro Forma Data,"
"Management of
14
<PAGE>
Douglas Federal - Benefit Plans - Stock Option Plan," and " - Restricted Stock
Program." These plans will also involve additional expense.
The appraisal does not determine future prices of common stock
An independent appraisal will determine the final aggregate purchase price
of the common stock in the conversion. The appraisal is not a recommendation of
any kind as to the advisability of purchasing shares of common stock. The
valuation is based on estimates and projections of a number of matters, all of
which may change from time to time. If you purchase common stock in the
offering for $10.00 per share, you may not be able to sell it later at or above
that price. See "The Conversion - Stock Pricing" and " - Number of Shares to
be Issued."
Net earnings per share may decrease if we increase the number of shares issued
The number of shares to be issued in the conversion may increase as a
result of an increase in the estimated price range of up to 15.0% to reflect
changes in market and financial conditions following the commencement of the
subscription and community offerings. In the event that the estimated price
range so increases, we expect that First Deposit will sell up to 1,666,350
shares of common stock at $10.00 per share for an aggregate purchase price of up
to $16,663,500. An increase in the number of shares issued will decrease your
estimated net earnings per share and shareholders' equity per share and will
increase First Deposit's estimated consolidated shareholders' equity and net
earnings. Such an increase will also increase the purchase price as a
percentage of estimated equity per share and net earnings per share.
We may hold your subscription for an extended period of time if the conversion
is delayed
Orders submitted in the subscription offering and community offering are
irrevocable. We expect to complete the conversion within the time periods
indicated in this prospectus. Nevertheless, it is possible that several factors,
including, but not limited to, a delay in receiving regulatory approval of the
final updated appraisal prepared by Ferguson & Company, a delay in processing
orders in the event the offering is oversubscribed or a delay caused by actions
taken in connection with the conversion could significantly delay the completion
of the conversion. You will have no access to subscription funds or shares of
common stock until the conversion is completed or terminated. In the event the
conversion is terminated, we will refund your subscription funds together with
interest at the rate equal to our interest rate we pay on regular passbook
accounts, or we will terminate your withdrawal authorization. See "The
Conversion."
Limited market for the common stock may lower the market price
First Deposit has never issued capital stock, and there is no established
market for the common stock at this time. First Deposit anticipates that its
common stock will be quoted on the OTC Bulletin Board operated by the National
Association of Securities Dealers, Inc. under the symbol "FDBI" upon completion
of the conversion. A public trading market having the desirable characteristics
of depth, liquidity and orderliness depends upon the existence of willing
15
<PAGE>
buyers and sellers at any given time, the presence of which is dependent upon
individual decisions of buyers and sellers over which we have no control. The
trading markets for securities quoted on the OTC Bulletin Board typically lack
the depth, liquidity and orderliness necessary to maintain an active market in
the trading of such securities. An active and liquid trading market for the
common stock may not develop or, if developed, may not continue. The absence or
discontinuance of a market for the common stock may adversely impact both the
price and liquidity of the common stock. Trident Securities advised First
Deposit that it will act as a market maker for the common stock, but it is under
no obligation to do so. See "Market for the Common Stock."
Stock market volatility may cause fluctuation in the trading price of the common
stock
Publicly-traded stocks, including stocks of financial institutions, have
recently experienced substantial market price volatility. These market
fluctuations may be unrelated to the operating performance of particular
companies whose shares are traded. In several cases, common stock issued by
recently converted financial institutions has traded at a price below that which
such shares were sold in the initial offerings of those institutions. The
purchase price of the common stock in the offering is based on the independent
appraisal by Ferguson & Company. After First Deposit's shares begin trading, the
marketplace will determine their trading price. The marketplace may be
influenced by many factors, including prevailing interest rates, investor
perceptions of First Deposit and general industry and economic conditions. Due
to possible continued market volatility and other factors, First Deposit's
common stock may trade at or below the $10.00 per share initial offering price.
Trident Securities has not given an opinion or recommendation that the common
stock is a good investment
We have engaged Trident Securities to consult with and advise us with
respect to the conversion and to assist, on a best-efforts basis, in connection
with the solicitation of subscriptions and purchase orders for shares of common
stock in the offering. Trident Securities has not prepared or delivered any
opinion or recommendation with respect to the suitability of the common stock or
the appropriateness of the amount of common stock to be issued in the
conversion.
We may be unable to upgrade our technology to match our competition
Our industry is experiencing rapid changes in technology. Technology-
driven products and services are frequently introduced. In addition to
improving customer services, using technology effectively increases efficiency
and enables financial institutions to reduce costs. Our future success will
thus depend partly on our ability to address our customers' needs by using
technology. Many of our competitors have far greater resources to invest in
technology than we have. We may not be able to develop new technology-driven
products and services effectively or be successful in marketing these products
to our customers.
16
<PAGE>
Year 2000 data processing problems could interrupt and hurt our operations
Our operations are dependent on computers and computer systems, whether
maintained internally or by a third party. Systems not properly recognizing the
correct year could produce faulty data or cause a system to fail. Such failures
may include, among other things, the inability to process and underwrite loan
applications, to credit deposits and debit withdrawals from customer accounts,
to credit loan payments or track delinquencies, to reconcile and record daily
activity properly or to engage in similar normal banking activities.
Additionally, if our commercial customers are not Year 2000 compliant and suffer
adverse effects on their operations as a result, their ability to meet their
obligations to us may be adversely affected. We and our customers or our third
party providers may not be successful in making all necessary changes to avoid
computer system failures related to the year 2000. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Year 2000
Issues."
Banking reform legislation may reduce our powers
The U.S. Congress is considering legislation intended to modernize the
financial services industry. Under the proposed legislation, newly-formed
unitary savings and loan holding companies would not be permitted to exercise
the broad powers currently available to these companies. Douglas Federal is a
federal savings bank and First Deposit, upon completion of the conversion, will
be a unitary savings and loan holding company. Federal legislation may be
enacted that affects our federal savings bank charter or First Deposit's status
as a unitary savings and loan holding company. Accordingly, we cannot predict
what effect, if any, banking reform legislation would have on our activities and
operations.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL INFORMATION
AND OTHER DATA
We are providing the following financial information to aid you in your
analysis of financial aspects of the offering. The following summary of
consolidated financial information is derived from our audited consolidated
financial statements at the dates and for each of the fiscal years shown below.
The following information is only a summary and you should read it in
conjunction with our financial statements and the notes to our financial
statements, which you can find beginning on page F-1 of this prospectus.
Selected Financial Condition Data:
<TABLE>
<CAPTION>
At December 31,
--------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
(In thousands)
Total assets.......................................... $100,892 $91,600 $78,900
Loans receivable, net................................. 83,189 74,049 68,609
Loans held for sale, at lower of cost or fair value... 188 381 306
Cash and cash equivalents............................. 7,557 5,663 2,207
Securities:
Available for sale.............................. 3,707 2,666 713
Held to maturity................................ 1,042 4,374 4,505
Deposits.............................................. 85,686 75,877 69,454
Federal Home Loan Bank advances....................... 5,000 6,000 750
Total retained earnings............................... 9,662 8,910 8,203
</TABLE>
(1) Consists of retained income, substantially restricted, and net unrealized
gains or losses on securities available for sale.
Selected Operating Data:
<TABLE>
<CAPTION>
Year ended
December 31,
--------------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
(In thousands)
Total interest income.................................... $7,162 $6,687 $6,011
Total interest expense................................... 4,226 3,783 3,276
------ ------ ------
Net interest income...................................... 2,936 2,904 2,735
Provision for loan losses................................ 108 60 110
------ ------ ------
Net interest income after provision for loan losses...... 2,828 2,844 2,625
Other income............................................. 764 412 660
Operating expenses....................................... 2,408 2,221 2,412(1)
Income before income taxes............................... 1,184 1,035 873
Income taxes............................................. 405 386 315
------ ------ ------
Net income............................................... $ 779 $ 649 $ 558
====== ====== ======
</TABLE>
(1) Includes a one-time assessment of $396,910 in 1996 to recapitalize the
Savings Association Insurance Fund.
18
<PAGE>
Selected Financial Ratios:
<TABLE>
<CAPTION>
At or for the Year Ended December 31,
----------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Performance Ratios:
Return on average assets(1).......................... 0.81% 0.75% 0.74%
Return on average retained earnings(2)............... 8.43 7.54 7.03
Interest rate spread(3).............................. 2.67 2.86 3.27
Net interest margin(4)............................... 3.21 3.41 3.54
Ratio of average interest-earning assets to
average interest-bearing liabilities................ 111.79 112.44 109.00
Ratio of operating expenses to average
total assets........................................ 2.52 2.55 3.13
Asset Quality Ratios:
Nonperforming assets to total assets at end
of period........................................... 1.20 1.57 1.37
Nonperforming loans to total loans at end
of period........................................... 1.16 1.43 1.05
Allowance for loan losses to net loans at
end of period....................................... 1.18 1.15 1.12
Allowance for loan losses to
nonperforming loans at end of period................ 101.73 80.04 96.69
Net recoveries (charge-offs) to average
loans outstanding................................... 0.03 0.03 (.14)
Capital Ratios:
Retained earnings to total assets at end of
period.............................................. 9.58 9.73 10.40
Average retained earnings to average
assets.............................................. 9.66 9.91 10.58
At December 31,
----------------------------------
1998 1997 1996
------ ------ ------
Selected Other Data:
Loans outstanding.................................. 1,729 1,714 1,793
Deposit accounts................................... 8,598 8,507 8,317
Offices open....................................... 2 2 2
</TABLE>
_______________
(1) Net income divided by average total assets.
(2) Net income divided by average retained earnings.
(3) Combined weighted average interest rate earned less combined weighted
average interest rate cost.
(4) Net interest income divided by average interest-earning assets.
19
<PAGE>
PROPOSED MANAGEMENT PURCHASES
The following table indicates the approximate purchases of common stock by
each director and executive officer and their associates. The table does not
include purchases of common stock by the employee stock ownership plan. The
table assumes that 1,449,000 shares of the common stock, the maximum of the
estimated valuation range, will be sold at $10.00 per share and that sufficient
shares will be available to satisfy subscriptions in all categories.
<TABLE>
<CAPTION>
Aggregate
Purchase
Percent Price of
Total of Total Proposed
Name and Position with First Deposit Shares Outstanding Purchases
- ---------------------------------------------- ------- ------------ ----------
<S> <C> <C> <C>
Danny A. Belyeu, Chairman of the Board
(2)(3)......................................... 75,000 5.0% $ 750,000
Alpha A. Fowler, Jr., Vice Chairman of the
Board (2)...................................... 37,500 2.5 375,000
J. David Higgins, President, Chief Executive
Officer and Treasurer (2)...................... 50,000 4.7 500,000
John L. King, Senior Vice President and
Chief Financial Officer........................ 25,000 1.7 250,000
Patricia Owen, Vice President and Secretary..... 10,000 * 100,000
Michael Coggin, Vice President (1).............. 25,000 1.7 250,000
Mac C. Abercrombie, Jr., Director(2)............ 40,000 2.8 400,000
Carlton H. Boyd, Director....................... 20,000 1.4 200,000
Joseph H. Fowler, Director (2).................. 37,500 2.5 375,000
John B. Zellars, Director(2)(3)................. 75,000 5.0 750,000
------- ---- ----------
All directors and executive officers, as a
group (10 persons) and their associates........395,000 27.5% $3,950,000
======= ==== ==========
</TABLE>
* Less than 1.0%
(1) Mr. Coggin is the Vice President of Douglas Federal but is not an officer
of First Deposit.
(2) Under the plan of conversion, the number of shares of common stock which
may be purchased by any person together with any associate or group of
persons acting in concert with such person shall not exceed 5.0%.
Therefore, Messrs. Zellars' and Belyeu's subscriptions will not exceed
5.0% of the total shares issued and Messrs. A. Fowler and J. Fowler's
aggregate subscriptions will not exceed 5.0% of the total shares issued.
(3) Includes the person named and his associates.
20
<PAGE>
USE OF PROCEEDS
The following table presents the estimated net proceeds of the offering,
the amount to be retained by First Deposit, the amount to be contributed to us,
and the amount of First Deposit's loan to the employee stock ownership plan.
See "Pro Forma Data" for the assumptions used to arrive at these amounts. The
Office of Thrift Supervision must approve the issuance of up to 1,666,350 shares
in the conversion.
<TABLE>
<CAPTION>
1,071,000 1,260,000 1,449,000 1,666,350
Shares at Shares at Shares at Shares at
$10.00 $10.00 $10.00 $10.00
Per Share Per Share Per Share Per Share
---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C>
Gross proceeds...................................... $ 10,710 $ 12,600 $ 14,490 $ 16,664
Less: estimated underwriting commissions and other
offering expenses................................... (655) (684) (713) (746)
---------- ---------- ---------- ----------
Net proceeds........................................ $ 10,055 $ 11,916 $ 13,777 $ 15,918
========== ========== ========== ==========
Amount to be retained by First Deposit.............. $ 5,028 $ 5,958 $ 6,889 $ 7,959
Amount to be contributed to Douglas Federal......... $ 5,027 $ 5,958 $ 6,888 $ 7,959
Amount of loan by First Deposit to employee stock
ownership plan...................................... $ 857 $ 1,008 $ 1,159 $ 1,333
</TABLE>
First Deposit has received conditional Office of Thrift Supervision
approval to purchase all of our capital stock to be used in the conversion in
exchange for 50.0% of the net proceeds of the stock offering. The portion of
net proceeds we receive from First Deposit will be added to our general funds to
permit us to expand our lending and investment activities and to enhance
customer services. We currently intend to utilize the net proceeds we receive
for general corporate purposes, including investment in loans and securities, as
well as the possible construction of a new main office and the possible
expansion of our facilities and operations through marketing, business
development, or the acquisition or establishment of branch offices. We have no
current arrangements, understandings or agreements regarding any of these
possible transactions. We anticipate that we will initially invest the net
proceeds we receive in overnight funds and short-term investments with
maturities of up to three years. To the extent that the stock-based benefit
programs that we intend to adopt after the conversion are not funded with First
Deposit's authorized but unissued common stock, First Deposit may use net
proceeds from conversion to fund the purchase of stock on the open market to be
awarded under these stock benefit programs. We have not yet determined the
approximate amount of net proceeds to be used for any of the purposes mentioned
above. See "Management of Douglas Federal - Benefit Plans - Stock Option Plan"
and " - Restricted Stock Program."
Our capital position substantially exceeds all regulatory requirements.
Our primary purpose in converting is not to raise capital. Rather, one of the
principal purposes for the conversion is to change our structure to the stock
form used in the United States by all commercial banks, most major business
corporations and most savings institutions.
21
<PAGE>
First Deposit intends to loan the employee stock ownership plan the amount
necessary to purchase 8.0% of the shares sold in the conversion. Accordingly,
the employee stock ownership plan purchases would range between 85,680 shares at
the minimum of the offering range and 115,920 shares at the maximum of the
offering range. At the midpoint of the offering range, the employee stock
ownership plan would purchase 100,800 shares. It is anticipated that the
employee stock ownership plan loan will have a 10-year term with interest
payable at the prime rate as published in The Wall Street Journal on the closing
date of the conversion. The loan will be repaid principally from our
contributions to the employee stock ownership plan and from any dividends paid
on shares of common stock held by the employee stock ownership plan.
Ultimately, First Deposit may also use the net proceeds it retains to
support the future expansion of operations through branch acquisitions, the
establishment of branch offices, the acquisition of savings associations and
commercial banks or their assets or diversification into other banking related
businesses. We have no current arrangements, understandings or agreements
regarding any such transactions. First Deposit may also use a portion of the
net proceeds it retains to engage in real estate development activities in its
market area. Upon the conversion, First Deposit will be a unitary savings and
loan holding company and will not be restricted in the types of business
activities in which it may engage. See "Regulation and Supervision - Holding
Company Regulations" for a description of certain regulations applicable to
First Deposit. First Deposit may also determine to pay dividends, repurchase
common stock and fund the restricted stock program. See "Dividend Policy" and
"Regulation and Supervision."
In addition, under current policies, the Office of Thrift Supervision may
allow repurchases in the first year following conversion and in amounts greater
than 5.0% in the second and third years following conversion if there are valid
and compelling business reasons for such repurchases.
Based upon facts and circumstances following the conversion and in
compliance with applicable regulatory requirements, First Deposit's Board of
Directors may repurchase stock in the future. Such facts and circumstances may
include but not be limited to:
. economic factors such as the price at which the common stock is trading in
the market, the volume of trading, the attractiveness of other investment
alternatives in terms of the rate of return and risk involved in the
investment, the ability to increase the book value and/or earnings per
share of the remaining outstanding shares, and the opportunity to improve
First Deposit's return on equity;
. the avoidance of dilution to shareholders by not having to issue
additional shares to cover the exercise of stock options or to fund
employee stock benefit plans; and
. any other circumstances in which repurchases would be in our best interest
or the best interest of our shareholders.
In the event First Deposit repurchases stock, such repurchases may be made
at market prices which may be in excess of the purchase price in the conversion
and in excess of the per share book value. To the extent that First Deposit
repurchases stock at market prices in excess of the per share book value, such
repurchases may have a dilutive effect upon the interests of existing
shareholders. Any stock repurchases will be subject to the Board of Directors'
determination that we will be capitalized in excess of all applicable regulatory
requirements after any such repurchases and that such capital will be
22
<PAGE>
adequate, taking into account, among other things, the level of non-performing
and other risk assets, our current and projected results of operations and
assets/liability structure, the economic environment, tax and other
considerations. See "The Conversion - Restrictions on Purchase or Transfer of
Shares after Conversion."
23
<PAGE>
DIVIDEND POLICY
The payment of cash dividends on the common stock will be subject to the
requirements of applicable law. In addition, the Board of Directors will
determine whether to pay dividends. The Board will take into account, among
other things, First Deposit's net income, capital and financial condition,
industry trends and general economic conditions. First Deposit intends to
establish a quarterly cash dividend in the first quarter following the
conversion. First Deposit will determine the amount of such dividend at a later
time. In addition, from time to time, in an effort to manage capital to a
reasonable level, the Board may pay periodic special cash dividends. Periodic
special cash dividends, if paid, may be paid in addition to, or in lieu of,
regular cash dividends. Regular cash dividends or periodic special cash
dividends may not be paid or, if paid, may not continue to be paid.
Douglas Federal will not be permitted to pay dividends to First Deposit on
our capital stock if our shareholders' equity would be reduced below the amount
required for the liquidation account. See "The Conversion - Liquidation Rights."
For information concerning applicable federal regulations in determining the
amount of proceeds which First Deposit may retain and regarding a savings
institution's ability to make capital distributions, including payment of
dividends to its holding company, see "Federal and State Taxation - Federal
Taxation - Distributions" and "Regulation and Supervision - Federal Savings
Institution Regulation - Limitation on Capital Distributions."
First Deposit and Douglas Federal have committed to the Office of Thrift
Supervision that during the one year period following the conversion, First
Deposit will not take any action to declare an extraordinary dividend to
shareholders that would be treated by recipients as a tax-free return of capital
for federal income tax purposes.
First Deposit's payment of dividends to its shareholders is not controlled
by federal regulatory restrictions. The source of dividends will depend on the
net proceeds First Deposit retains and earnings on such proceeds and may be
dependent, in part, upon dividends from us. First Deposit is subject, however,
to the requirements of Georgia law. Georgia law generally permits a Georgia
corporation to make distributions to its shareholders unless, after giving
effect to the distribution, the corporation 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 dissolve at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution.
24
<PAGE>
MARKET FOR THE COMMON STOCK
First Deposit has never issued capital stock to the public. Consequently,
there is no established market for the common stock. We anticipate that the
common stock will be quoted on the OTC Bulletin Board operated by the National
Association of Securities Dealers, Inc. under the symbol "FDBI." Trident
Securities has advised us that it will act as a market maker for the common
stock, and we expect to identify additional market makers. Making a market
includes maintaining bid and ask quotations and being able, as principal, to
effect transactions in reasonable quantities at those quoted prices, subject to
various securities laws and other regulatory requirements. It is impossible to
ascertain whether other broker-dealers will make a market in the common stock.
The development of a liquid public market depends on the existence of willing
buyers and sellers. The presence of willing buyers and sellers is not within
our control nor assured by inclusion of the common stock in the OTC Bulletin
Board. The number of active buyers and sellers of the common stock at any
particular time may be limited. You could have difficulty disposing of your
shares and should view the common stock as a long-term investment. We cannot
assure you that an active and liquid trading market for the common stock will
develop, or, if developed, will continue. You may not be able to sell your
shares at or above the $10.00 purchase price.
25
<PAGE>
CAPITALIZATION
The following table sets forth our historical capitalization, including
deposits, at December 31, 1998, and our estimated consolidated capitalization
assuming the sale of the common stock in the offering based upon the assumptions
in the section entitled "Pro Forma Data" and below. We may not consummate the
conversion without a resolicitation of subscribers and other purchasers if the
aggregate purchase price of the common stock sold in the conversion is more than
1,666,350 shares or less than 1,071,000 shares. The issuance of 1,666,350
shares would require the approval of the Office of Thrift Supervision. A change
in the number of shares to be issued in the conversion may materially affect
First Deposit's estimated capitalization. See "Pro Forma Data" and the "The
Conversion - Stock Pricing" and " - Number of Shares to be Issued."
<TABLE>
<CAPTION>
Pro Forma Consolidated Capitalization of
First Deposit Based on the Sale of
-----------------------------------------------------
Capitalization 1,071,000 Shares 1,260,000 1,449,000 1,666,350
of Douglas at $10.00 Shares Shares Shares
Federal Per Share at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share
--------------- ----------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
(In thousands)
Deposits(1)................................... $85,686 $85,686 $85,686 $85,686 $85,686
Federal Home Loan Board advances.............. 5,000 5,000 5,000 5,000 5,000
------- ------- ------- ------- -------
Total deposits and borrowed funds.......... $90,686 $90,686 $90,686 $90,686 $90,686
======= ======= ======= ======= =======
Capital stock
Preferred stock, no par value per share:
authorized - 10,000,000 shares;
assumed outstanding - none............ $ - $ - $ - $ - $ -
Common stock, no par value per
share:
authorized -10,000,000 shares; shares
to be outstanding - as shown.............. - $10,055 $11,916 $13,777 $15,918
Paid-in capital(2)............................ -
Less: common stock acquired by employee
stock ownership plan(3)...................... - (857) (1,008) (1,159) (1,333)
common stock acquired by restricted
stock program(4).......................... - (428) (504) (580) (667)
Retained earnings(5).......................... 9,692 9,692 9,692 9,692 9,692
Accumulated other comprehensive
income........................................ (30) (30) (30) (30) (30)
------- ------- ------- ------- -------
Total shareholders' equity................... $ 9,662 $18,432 $20,066 $21,700 $23,580
======= ======= ======= ======= =======
</TABLE>
(1) Withdrawals from savings accounts for the purchase of stock have not been
reflected in these adjustments. Any withdrawals will reduce estimated
capitalization by the amount of such withdrawals.
(2) Based upon the estimated net proceeds from the state of capital stock.
Estimated offering expenses are $655,000; $684,000; $713,000; and $746,000
at the minimum, midpoint, maximum and maximum, as adjusted, of the estimated
valuation range. Does not reflect additional shares of common stock that
possibly could be purchased by participants in the stock option plan, if
implemented, under which directors, executive officers and other employees
could be granted options to purchase an aggregate of up to 10.0% of the
shares of common stock issued in the conversion at exercise prices equal to
the market price of the common stock on the date of grant. Implementation of
the stock option plan within one year after the conversion will require
regulatory and shareholder approval. See "Management of Douglas Federal -
Benefit Plans - Stock Option Plan" and "Risk Factors - Issuance of shares
for stock benefit plans may lower your ownership interest."
(3) Assumes 8.0% of the shares of common stock to be sold in the offering are
purchased by the employee stock ownership plan and that the funds used to
purchase such shares are borrowed from First Deposit. See "Pro Forma Data"
for additional details.
26
<PAGE>
(4) Assumes that a number of shares equal to 4.0% of the number of shares sold
in the offering will be acquired in the open market at the purchase price
per share $10.00 for the restricted stock program following implementation
of such program. If the restricted stock program were funded by authorized
but unissued shares, your interests would be diluted by approximately 4.0%.
Implementation of the restricted stock program within one year of the
conversion would require regulatory and shareholder approval at a meeting of
our shareholders to be held no earlier than six months after the conversion.
See "Management of Douglas Federal - Benefit Plans - Restricted Stock
Program."
(5) Our retained earnings are substantially restricted. All of our capital
distributions must comply with regulatory restrictions tied to our
regulatory capital level. In addition, after the conversion, we will be
prohibited from paying any dividend that would reduce our regulatory capital
below the amount in the liquidation account to be provided for the benefit
of our eligible account holders and supplemental eligible account holders at
the time of the conversion and adjusted downward after the conversion. See
"Regulation and Supervision - Federal Savings Institution Regulation -
Limitations on Capital Distributions" and "The Conversion - Liquidation
Rights."
27
<PAGE>
REGULATORY CAPITAL COMPLIANCE
At December 31, 1998, we exceeded all regulatory capital requirements. The
following is a summary of our compliance with the Office of Thrift
Supervision capital standards as of December 31, 1998, on a historical and
estimated basis assuming that the indicated number of shares were sold as of
December 31, 1998 and that we receive 50.0% of the net proceeds. For purposes of
the table below, the amount the employee stock ownership plan expects to borrow
and the cost of the shares the restricted stock program expects to acquire are
deducted from our estimated regulatory capital.
28
<PAGE>
<TABLE>
<CAPTION>
Our Pro Forma Capital as of December 31, 1998 Based on the Sale of (3):
-----------------------------------------------------------------------------------
1,071,000 Shares 1,260,000 Shares 1,449,000 Shares 1,666,350 Shares
Our Historical Capital at $10.00 at $10.00 at $10.00 at $10.00
at December 31, 1998(6) Per Share Per Share Per Share Per Share(1)
--------------------- -------------------- ------------------- ------------------- --------------------
% of % of % of % of % of
Adjusted Adjusted Adjusted Adjusted Adjusted
Total Total Total Total Total
Amount ----- Amount ----- Amount ----- Amount ----- Amount -----
------ Shares(2) -------- Shares(2) -------- Shares(2) -------- Shares(2) -------- Shares(2)
--------- ---------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Capital under generally
accepted accounting $9,662 9.58% $13,404 12.81% $14,108 13.39% $14,812 13.97% $15,621 14.62%
principles ====== ======= ======= ======= =======
Tangible Capital:
Capital Level $7,804 7.88% $11,546 11.23% $12,250 11.84% $12,954 12.43% $13,763 13.11%
Requirement(4) 1,485 1.50 1,542 1.50 1,552 1.50 1,563 1.50 1,575 1.50
------ ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess $6,319 6.38% $10,005 9.73% $10,698 10.34% $11,391 10.93% $12,188 11.61%
====== ===== ======= ===== ======= ===== ======= ===== =======
Core Capital:
Capital Level(5)(7) $7,804 7.88% $11,546 11.23% $12,250 11.84% $12,954 12.43% $13,763 13.11%
Requirement(4) 2,971 3.00 3,083 3.00 3,104 3.00 3,125 3.00 3,150 3.00
------ ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess $4,833 4.88% $ 8,463 8.23% $ 9,146 8.84% $ 9,828 9.43% $10,613 10.11%
====== ===== ======= ===== ======= ===== ======= ===== ======= =====
Risk-Based Capital(6):
Capital Level(5)(7) $8,513 15.08% $12,255 20.92% $12,959 21.97% $13,663 23.01% $14,472 24.19%
Requirement(4) 4,515 8.00 4,686 8.00 4,718 8.00 4,750 8.00 4,787 8.00
------ ----- ------- ----- ------- ----- ------- ----- ------- -----
Excess $3,998 7.08% $ 7,569 12.92% $ 8,241 13.97% $ 8,913 15.01% $ 9,685 16.19%
====== ===== ======= ===== ======= ===== ======= ===== ======= =====
</TABLE>
(1) Adjusted to give effect to an increase in the number of shares which could
occur due to an increase in the number of shares sold to 1,666,350 as a
result of regulatory considerations as changes in market or general
financial or economic conditions following the commencement of the
subscription and community offerings.
(2) Tangible capital levels are shown as a percentage of total adjusted assets
of $99.0 million. Core capital levels are shown as a percentage of total
adjusted assets of $99.0 million. Risk-based capital levels are calculated
on the basis of a percentage of risk-weighted assets of $56.4 million.
(3) Pro forma capital levels assume our receipt of 50.0% of the net proceeds
from the shares of common stock sold at the minimum, midpoint and maximum
of the estimated price range. These levels also assume funding by us of
the restricted stock program equal to 4.0% of the common stock issued and
repayment of First Deposit's loan to the employee stock ownership plan to
enable the employee stock ownership plan to purchase 8.0% of the common
stock issued valued at the minimum, midpoint and maximum of the estimated
price range. See "Management of Douglas Federal - Benefit Plans" for a
discussion of the restricted stock program and employee stock ownership
plan.
(4) The current Office of Thrift Supervision core capital requirement for
savings associations is 3.0% of total adjusted assets. The Office of
Thrift Supervision has proposed core capital requirements which would
require a core capital ratio of 3.0% of total adjusted assets for thrifts
that receive the highest supervisory rating for safety and soundness and
that are not experiencing or anticipating significant growth, and a 4.0% to
5.0% core capital ratio requirement for all other thrifts. See "Regulation
and Supervision - Federal Savings Institution Regulations - Capital
Requirements." First Deposit will not be subject to regulatory capital
requirements.
(5) Assumes net proceeds are invested in assets that carry a risk-weighting of
57.0%, the average risk-weighting of our assets as of December 31, 1998.
(6) Historical risk-based capital is comprised of tangible capital of $7.8
million plus our general valuation allowance of $709,000 at December 31,
1998.
(7) The difference between capital under generally accepted accounting
principles and risk-based capital is attributable to our investment in
Pinehurst Properties, LLC. See "Business of Douglas Federal -
Subsidiary."
29
<PAGE>
PRO FORMA DATA
We cannot determine the actual net proceeds from the sale of the common
stock until the conversion is completed. However, we currently estimate
investable net proceeds to be between $8,770,000 and $13,918,000 at the minimum
and maximum, as adjusted, of the estimated valuation range. Our estimate of the
investible net proceeds are based on the assumptions that:
. First Deposit will sell 100% of the shares of common stock in the
subscription and community offerings;
. First Deposit will sell 8.0% of the shares to the employee stock
ownership plan and 395,000 shares will be sold to our directors and
officers, our associates and to our employees, for which commissions
will not be paid; and
. other conversion expenses, not including the fixed management fee and
sales commissions by Trident Securities will be approximately
$427,500, regardless of the number of shares sold.
The following table sets forth our historical net earnings and
shareholders' equity before the conversion and our estimated consolidated net
income and shareholders' equity following the conversion. These estimates
assume:
. that the common stock to be issued in the conversion was sold at
January 1, 1998;
. that the estimated net proceeds were invested at 4.6%, which was
approximately equal to the one-year U.S. Treasury bill rate at
December 31, 1998;
. that First Deposit will be taxed at an effective state and federal
income tax rate of 34.0%; and
. assumes a number of shares of common stock equal to 4.0% of the common
stock to be sold in the conversion will be purchased by the restricted
stock program in the open market following the conversion.
Because we rely on the assumptions outlined above, shareholders' equity and
related data presented below do not represent the fair market value of the
common stock, the current value of assets or liabilities, or the amounts, if
any, that would be available for distribution to the shareholders in the event
of liquidation. In addition, the estimated income and related data are not
indicative of our actual results of operations for any current or future period.
The data presented below may be materially affected by a change in the number of
shares to be issued in the conversion and other factors. See "The Conversion -
Stock Pricing" and " - Number of Shares to Be Issued."
30
<PAGE>
<TABLE>
<CAPTION>
At or for the Year Ended December 31, 1998
--------------------------------------------------
1,071,000 1,260,000 1,449,000 1,666,350
Shares Shares Shares Shares
at $10.00 at $10.00 at $10.00 at $10.00
Per Share Per Share Per Share Per Share
---------- ---------- ---------- ----------
(In thousands, except share amounts)
<S> <C> <C> <C> <C>
Gross offering proceeds $ 10,710 $ 12,600 $ 14,490 $ 16,664
Less estimated offering expenses (655) (684) ( 713) (746)
---------- ---------- ---------- ----------
Estimated net offering proceeds 10,055 11,916 13,777 15,918
Less: Common stock acquired by employee stock
ownership plan (857) (1,008) (1,159) (1,333)
Common stock to be acquired by restricted stock
program (428) (504) (580) (667)
---------- ---------- ---------- ----------
Estimated net proceeds as adjusted $ 8,770 $ 10,404 $ 12,038 $ 13,918
========== ========== ========== ==========
Consolidated net income:
Historical earnings 780 780 780 780
Pro forma earnings on investable net proceeds 266 316 365 423
Less: Pro forma employee stock ownership plan
adjustment(1) (57) (67) (77) (88)
Pro forma restricted stock program adjustment(2) (56) (66) (76) (88)
---------- ---------- ---------- ----------
Pro forma net earnings $ 933 $ 963 $ 992 $ 1,027
========== ========== ========== ==========
Net earnings per share:
Historical earnings income 0.81 0.69 0.60 0.52
Pro forma earnings on investable net proceeds 0.28 0.28 0.28 0.29
Less: Pro forma employee stock ownership plan
adjustment(1) (0.06) (0.06) (0.06) (0.06)
Pro forma restricted stock program adjustment(2) (0.06) (0.06) (0.06) (0.06)
---------- ---------- ---------- ----------
Pro forma net earnings per share $ 0.97 $ 0.85 $ 0.76 $ 0.69
========== ========== ========== ==========
Number of shares outstanding for earnings per share
calculations(1) 959,616 1,128,960 1,298,304 1,493,050
Shareholders' equity (book value (3)):
Historical 9,662 9,662 9,662 9,662
Estimated net proceeds(2)(4) 10,055 11,916 13,777 15,918
Less: Common stock acquired by employee stock
ownership plan(1) (857) (1,008) (1,159) (1,333)
Common stock acquired by restricted stock
program(2) (428) (504) (580) (667)
---------- ---------- ---------- ----------
Pro forma shareholders' equity per share $ 18,431 $ 20,066 $ 21,701 $ 23,580
========== ========== ========== ==========
Shareholders' equity per share (3):
Historical 9.02 7.67 6.67 5.80
Estimated net proceeds(2)(4) 9.39 9.46 9.51 9.55
Less: Common stock acquired by employee stock
ownership plan(1) (0.80) (0.80) (0.80) (0.80)
Common stock acquired by restricted stock
program(2) (0.40) (0.40) (0.40) (0.40)
---------- ---------- ---------- ----------
Pro forma shareholders' equity per share $ 17.21 $ 15.93 $ 14.98 $ 14.15
========== ========== ========== ==========
Offering price as a percentage of pro forma shareholders'
equity per share 58.1% 62.8% 66.8% 70.7%
Ratio of offering price to pro forma net income per share 10.3 11.8 13.2 14.5
Number of shares outstanding for shareholders' equity per
share calculations 1,071,000 1,260,000 1,449,000 1,666,350
</TABLE>
31
<PAGE>
_________________________
(1) The approximate amount the employee stock ownership plan expects to borrow
is not reflected as a liability but is reflected as a reduction of capital.
Although repayment of such debt will be secured solely by the shares
purchased by the employee stock ownership plan, we expect to make
discretionary contributions to the employee stock ownership plan in an
amount at least equal to the principal and interest payment on the employee
stock ownership plan debt. Pro forma net income has been adjusted to give
effect to such contributions, based upon a fully amortizing debt with a
ten-year term. Because First Deposit will be providing the employee stock
ownership plan loan, only principal payments on the employee stock
ownership plan loan are reflected as employee compensation and benefits
expense. The purchase price of $10.00 was utilized to calculate the
employee stock ownership plan expense. The expense was reduced by
estimated income tax benefits at 34.0%. The table assumes that 10.0% of
the employee stock ownership plan shares purchased in the conversion were
committed to be released. See "Management of Douglas Federal - Benefit
Plans - Employee Stock Ownership Plan."
(2) The dollar amount of the common stock to be purchased by the restricted
stock program is based upon the purchase price in the conversion and
represents unearned compensation and is reflected as a reduction of
capital. Such amount does not reflect possible increases or decreases in
the value of such stock relative to the purchase price of $10.00 in the
conversion. As we accrue compensation expense to reflect the vesting of
such shares under the restricted stock program, the charge against capital
will be reduced accordingly. Assumes the restricted stock program expense
was 20.0% of the amount purchased less the income tax benefit at 34.0%.
Implementation of the restricted stock program within one year of the
conversion would require shareholder approval at a meeting of our
shareholders. If the shares to be purchased by the restricted stock
program were newly issued shares purchased from First Deposit by the
restricted stock program at the purchase price rather than shares purchased
in the open market, at the minimum, midpoint, maximum and 15.0% above the
maximum of the estimated valuation range, pro forma shareholders' equity
per share would have been $16.93, $15.70, $14.78 and $13.99, respectively,
and pro forma net income per share would have been $.94, $.83, $.74 and
$.67, respectively. If the restricted stock program acquires authorized
but unissued shares from First Deposit, your ownership interests in First
Deposit will be diluted by approximately 4.0%. See "Management of Douglas
Federal - Benefit Programs - Restricted Stock Program" and "Risk Factors
- Issuance of shares for stock benefit plans may lower your ownership
interest."
(3) Consolidated shareholders' equity represents the excess of the carrying
value of our assets over our liabilities. The amounts shown do not reflect
the federal income tax consequences of the potential restoration to income
of the bad debt reserves for income tax purposes, which would be required
in the event of liquidation or in certain other remote circumstances. The
amounts shown also do not reflect the amounts we are required to distribute
in the event of liquidation to eligible depositors from the liquidation
account which we will establish upon the consummation of the conversion.
Pro forma shareholders' equity information is not intended to represent the
fair market value of the common stock, the current value of our assets or
liabilities or the amounts, if any, that would be available for
distribution to shareholders in the event of liquidation. Such pro forma
data may be materially affected by a change in the number of shares to be
sold in the conversion and by other factors. The historical and pro forma
per share amounts have been calculated by dividing historical and pro forma
amounts by the indicated number of shares.
(4) No effect has been given to shares that may be issued upon the exercise of
options that may be granted under a stock option plan.
32
<PAGE>
THE CONVERSION
Our Board of Directors and the Office of Thrift Supervision have approved
the plan of conversion. Our members who are entitled to vote on the conversion
must also approve the plan of conversion. Approval by the Office of Thrift
Supervision does not constitute its recommendation or endorsement of the plan of
conversion.
General
On February 9, 1999, our Board of Directors adopted the plan of conversion.
The plan of conversion provides that we will be converted from a federally-
chartered mutual savings bank to a federally-chartered capital stock savings
bank. First Deposit, which has been incorporated under Georgia law, will hold
all of our outstanding capital stock. The Office of Thrift Supervision has
approved the plan, subject to, among other things, the approval of the plan by
our members. We have called a special meeting of our members for this purpose
to be held on June 17, 1999.
The plan of conversion also provides that First Deposit will offer shares
of common stock for sale in the subscription offering to our eligible account
holders, the employee stock ownership plan, supplemental eligible account
holders and other members. Concurrently, and subject to the prior rights of
holders of subscription rights, First Deposit may offer shares not subscribed
for in the subscription offering in a community offering with preference given
to natural persons residing in Douglas County, Georgia. We have the right to
accept or reject, in whole or in part, any orders to purchase shares of the
common stock received in the community offering. See " - Community Offering."
First Deposit has applied for and expects to receive approval from the
Office of Thrift Supervision to become a thrift holding company and to acquire
all of our common stock to be issued in the conversion. First Deposit plans to
purchase our issued and outstanding capital stock in exchange for 50.0% of the
net proceeds of the subscription and community offerings. First Deposit will
retain the remaining net proceeds of such offerings. The conversion will occur
only if at least 1,071,000 shares of common stock of First Deposit are sold.
The aggregate price of the shares of common stock to be sold in connection
with the conversion is estimated to be between $10,710,000 and $14,490,000.
This range was determined based upon an independent appraisal prepared by
Ferguson & Company, a consulting firm experienced in the valuation and appraisal
of savings institutions, of the estimated value of Douglas Federal and First
Deposit. All shares of common stock to be sold in connection with the
conversion will be sold at the same price. Ferguson & Company will affirm, or,
if necessary, update the independent appraisal at the completion of the
subscription and community offerings. See " - Stock Pricing" for additional
information as to the determination of the estimated market value of First
Deposit's common stock.
The following is a brief summary of the material aspects of the conversion.
You should review the entire plan of conversion before purchasing shares of
common stock. A copy of the plan of conversion is available for you to review
at all of our offices. A copy of the plan of conversion is also available at
the Southeast Regional office in Atlanta, Georgia and the Washington, D.C.
office of the Office of Thrift Supervision.
33
<PAGE>
Purposes of the Conversion
As a federally-chartered mutual savings bank, we do not have shareholders
and have no authority to issue capital stock. By converting to the capital
stock form of organization, we will be structured in the form used by commercial
banks, other business entities and a growing number of savings institutions. The
conversion will enhance our ability to access capital markets, expand our
current operations, acquire other financial institutions or branch offices,
provide affordable home financing opportunities to the communities we serve or
diversify into other financial services to the extent allowable by applicable
laws and regulations.
The holding company form of organization will provide additional
flexibility to diversify our business activities through existing or newly
formed subsidiaries, or through acquisitions of or mergers with both mutual and
stock institutions, as well as other companies. Although there are no current
arrangements, understandings or agreements regarding any such opportunities,
First Deposit will be in a position after the conversion, subject to regulatory
limitations and First Deposit's financial position, to take advantage of any
such opportunities that may arise.
The potential impact of the conversion upon our capital base is
significant. The conversion will increase our capital position to a level at
which we will be better positioned to take advantage of business opportunities.
At December 31, 1998, we had total equity, determined in accordance with
generally accepted accounting principles, of $9.6 million, or 9.6% of total
assets. Our regulatory tangible capital at that date was approximately 7.88% of
assets. An institution with a ratio of tangible capital to total assets of
greater than or equal to 5.0% is considered to be "well-capitalized" under
Office of Thrift Supervision regulations. Assuming that First Deposit uses
50.0% of the net proceeds from the sale of 1,260,000 shares of its common stock
to purchase our stock, our capital will increase to $14.1 million or a ratio of
capital to adjusted assets, on a pro forma basis, of 13.39% after the
conversion. We expect that the investment of the net proceeds from the sale of
the common stock will provide us with additional income to increase our capital
position further.
After completion of the conversion, the unissued common and preferred stock
authorized by First Deposit's Articles of Incorporation will permit First
Deposit to raise additional equity capital through further sales of securities
and to issue securities in connection with possible acquisitions. At the present
time, First Deposit has no plans with respect to possible acquisitions or for
additional offerings of securities, other than the possible issuance of
additional shares upon exercise of stock options under its stock option plan or
the possible issuance of authorized but unissued shares to its restricted stock
program for stock awards. Following the conversion, First Deposit plans to use
stock-related incentive plans to attract and retain executive and other
personnel for Douglas Federal and First Deposit. See "Management of Douglas
Federal - Benefit Plans."
Effects of Conversion
General. Each depositor in a mutual savings institution has both a deposit
account in the institution and a pro rata ownership interest in the net worth of
the institution based upon the balance in his or her account. A depositor may
only receive this ownership interest in the event of a liquidation of the
institution or in the event the institution declares a capital distribution to
depositors. However, this ownership interest is tied to the depositor's account
and has no tangible market value separate from such
34
<PAGE>
deposit account. Any depositor who opens a deposit account obtains a pro rata
ownership interest in the net worth of the institution without any additional
payment beyond the amount of the deposit. A depositor who reduces or closes his
or her account receives a portion or all of the balance in the account but
nothing for his or her ownership interest in the net worth of the institution,
which is lost to the extent that the balance in the account is reduced.
Consequently, mutual savings institution depositors normally have no way to
realize the value of their ownership interest, which has realizable value only
in the unlikely event that the mutual savings institution is liquidated or in
the event the institution declares a capital distribution to depositors. In
such event, the depositors of record at that time, as owners, would share pro
rata in any residual surplus and reserves after other claims, including claims
of depositors to the amounts of their deposits, are paid.
When a mutual savings institution converts to stock form, permanent
nonwithdrawable capital stock is created to represent the ownership of the
institution's net worth. The common stock is separate and apart from deposit
accounts and cannot be and is not insured by the Federal Deposit Insurance
Corporation or any other governmental agency. Certificates are issued to
evidence ownership of the capital stock. The stock certificates are transferable
and, therefore, the stock may be sold or traded if a purchaser is available with
no effect on any account the seller may hold in the institution.
Continuity. While the conversion is being accomplished, our normal
business of accepting deposits and making loans will continue without
interruption. We will continue to be regulated by the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation. After the
conversion, our present management and staff will continue to provide services
for depositors and borrowers under current policies. The directors serving us
at the time of conversion will serve as our directors after the conversion. The
directors of First Deposit will consist initially of individuals currently
serving on our Board of Directors. All of our officers at the time of
conversion will retain their positions immediately after conversion.
Effect on Deposit Accounts. Under the plan of conversion, each of our
depositors at the time of conversion will automatically continue as a depositor
after the conversion, and each such deposit account will remain the same with
respect to deposit balance, interest rate and other terms. The Federal Deposit
Insurance Corporation will insure each such account to the same extent as before
the conversion. Depositors will continue to hold their existing certificates,
passbooks and other evidences of their accounts.
Effect on Loans. The conversion will not affect our outstanding loans, and
the amount, interest rate, maturity and security for each loan will remain as
they were contractually fixed before the conversion.
Effect on Voting Rights of Members. At present, all of our depositors and
certain borrowers are members of, and have voting rights in, us as to all
matters requiring membership action. Upon conversion, depositors and borrowers
will cease to be our members and will no longer be entitled to vote at our
meetings. Upon conversion, all of our voting rights will be vested in First
Deposit as our sole shareholder. Exclusive voting rights with respect to First
Deposit will be vested in the holders of First Deposit's common stock. Our
depositors and borrowers will not have voting rights after the conversion except
to the extent that they become shareholders of First Deposit through the
purchase of First Deposit's common stock.
35
<PAGE>
Tax Effects. We have received an opinion from Womble Carlyle Sandridge &
Rice, PLLC with regard to federal income taxation and an opinion from Mauldin &
Jenkins, LLC with regard to Georgia income taxation to the effect that the
conversion will not be a taxable transaction to Douglas Federal, our eligible
account holders, our supplemental eligible account holders or First Deposit,
except as discussed below. See " - Tax Aspects."
Effect on Liquidation Rights. If a mutual savings institution were to
liquidate, all claims of creditors, including those of depositors, to the extent
of deposit balances, would be paid first. Thereafter, if there were any assets
remaining, depositors would be entitled to such remaining assets on a pro rata
basis, based upon the deposit balances in their deposit accounts immediately
before liquidation. In the unlikely event that we were to liquidate after
conversion, we would also pay all claims of creditors, including those of
depositors, to the extent of their deposit balances, first, followed by
distribution of the "liquidation account" to certain depositors, with any assets
remaining thereafter distributed to First Deposit as the holder of our capital
stock. Under the rules and regulations of the Office of Thrift Supervision, a
post-conversion merger, consolidation, sale of bulk assets or similar
combination or transaction with another insured savings institution would not be
considered a liquidation and, in such a transaction, the liquidation account
would be assumed by the surviving institution.
Stock Pricing
The plan of conversion provides that the aggregate purchase price of the
common stock must be consistent with the estimated consolidated pro forma market
value of Douglas Federal and First Deposit, as determined on the basis of an
independent valuation. We have retained Ferguson & Company to make such
valuation. For its services in making such appraisal, Ferguson & Company will
receive a fee of up to $25,000, excluding out-of-pocket expenses. We have
agreed to indemnify Ferguson & Company and its employees and affiliates against
certain losses (including any losses in connection with claims under the federal
securities laws) arising out of its services as appraiser, except where Ferguson
& Company's liability results from its negligence, willful misconduct or bad
faith.
In preparing its appraisal, Ferguson & Company relied on the information in
this prospectus, including our consolidated financial statements. Ferguson &
Company also considered the following factors, among others:
. our present and projected operating results and financial condition
and the economic and demographic conditions in our market area;
. historical, financial and other information;
. a comparative evaluation of our operating and financial statistics
with those of other similarly situated savings institutions located in
Georgia and other regions of the United States;
. the aggregate size of the offering of common stock;
. the effect of the conversion on the net worth and earnings potential
of Douglas Federal and First Deposit; and
. the trading market for securities of comparable institutions and
general securities market conditions.
36
<PAGE>
On the basis of the foregoing, Ferguson & Company has advised us that, in
its opinion, dated February 22, 1999, our estimated pro forma market value
ranged from a minimum of $10,710,000 to a maximum of $14,490,000 with a midpoint
of $12,600,000. First Deposit expects to sell between 1,071,000 and 1,449,000
shares of its common stock. We have reviewed the appraisal of Ferguson & Company
and in determining the reasonableness and adequacy of such appraisal consistent
with the regulations and policies of our federal regulators, have reviewed the
methodology and reasonableness of the assumptions utilized by Ferguson & Company
in the preparation of the appraisal. We may amend the estimated price range with
the approval of the Office of Thrift Supervision, if subsequent developments in
our financial condition or market conditions generally necessitate an amendment.
The $10.00 per share price for the common stock was based on the consideration
of a number of factors, including the potential after market liquidity of the
stock and other marketing considerations.
You should not construe the appraisal as a recommendation of any kind
regarding the advisability of purchasing common stock in the offering. Ferguson
& Company did not independently verify our consolidated financial statements and
other information we provided. Ferguson & Company did not independently value
our assets or liabilities. The appraisal considers us as a going concern and
should not be considered as an indication of our liquidation value. Moreover,
the appraisal is based necessarily upon estimates and projections of a number of
matters, all of which may change. You may not be able to sell common stock at
prices at or above the purchase price following the offering. See "Risk Factors
- - Limited market for the common stock may lower the market price."
Following commencement of the subscription offering, the maximum of the
estimated price range may be increased up to 15.0% and the number of shares of
common stock to be sold in the conversion may be increased to 1,666,350 shares
due to regulatory considerations, changes in the market and general financial
and economic conditions, without the resolicitation of subscribers. See
" - Limitations on Stock Purchases" as to the method of distribution and
allocation of additional shares that First Deposit may issue in the event of an
increase in the estimated price range to fill unfilled orders in the
subscription offering.
If the pro forma market value of the common stock is either more than 15.0%
above the maximum of the estimated price range or less than the minimum of the
estimated price range, we may terminate the plan of conversion and return all
funds promptly with interest at our regular passbook rate of interest on
payments made by check or money order. We also may extend or hold a new
subscription offering and/or community offering, establish a new estimated price
range, begin a resolicitation of subscribers or take such other actions as
permitted by the Office of Thrift Supervision in order to complete the
conversion. In the event we commence a resolicitation, we will promptly return
all funds to investors as described above unless we receive an affirmative
response within a reasonable period of time. A resolicitation, if any,
following the conclusion of the subscription offering would not exceed 45 days
unless further extended by the Office of Thrift Supervision for periods of up to
90 days not to extend beyond June 17, 2001.
No sale of shares of common stock may be consummated unless, before such
consummation, Ferguson & Company confirms to us and the Office of Thrift
Supervision that, to the best of its knowledge, nothing of a material nature has
occurred which, taking into account all relevant factors, would cause Ferguson &
Company to conclude that the aggregate value of the common stock at the purchase
price is incompatible with its estimate of the pro forma market value of the
common stock. Any change which would result in an aggregate purchase price
which is below $10,710,000 or more than 15.0% above $14,490,000 must be approved
by the Office of Thrift Supervision. If such confirmation is
37
<PAGE>
not received, we may extend the conversion, extend, reopen or begin a new
subscription offering or community offering, establish a new estimated price
range and begin a resolicitation of all subscribers with the approval of the
Office of Thrift Supervision or take such other actions as permitted by the
Office of Thrift Supervision in order to complete the conversion, or terminate
the plan and cancel the subscription and community offerings.
Copies of Ferguson & Company's appraisal report, including any amendments,
is available for your review at our main office.
Number of Shares to be Issued
Depending upon market or financial conditions following the commencement of
the subscription offering, the total number of shares to be issued in the
conversion may be increased or decreased without a resolicitation of
subscribers, provided that the product of the total number of shares times the
price per share is not below the minimum of the estimated price range or more
than 15.0% above the maximum of the estimated price range. Based on a fixed
purchase price of $10.00 per share and Ferguson & Company's estimate of the pro
forma market value of First Deposit and Douglas Federal ranging from a minimum
of $10,710,000 to a maximum, as increased by 15.0%, of $16,663,500, the number
of shares of common stock expected to be sold in the conversion is between a
minimum of 1,071,000 shares and a maximum, as adjusted by 15.0%, of 1,666,350
shares. The actual number of shares sold between this range will depend on a
number of factors and will be determined by First Deposit, subject to Office of
Thrift Supervision approval, if necessary.
In the event market or financial conditions change and cause the aggregate
purchase price of the shares to be below the minimum of the estimated price
range or more than 15.0% above the maximum of the estimated price range, and if
we do not terminate the plan of conversion after consultation with the Office of
Thrift Supervision, we will resolicit subscribers. We will permit subscribers
to continue their orders, in which case they must affirmatively reconfirm their
subscriptions before the expiration of the resolicitation offering or we will
promptly refund their subscription funds. The Office of Thrift Supervision must
approve any change in the estimated price range. A resolicitation, if any,
following the conclusion of the subscription offering would not exceed 45 days
unless further extended by the Office of Thrift Supervision for periods up to 90
days not to extend beyond June 17, 2001. If such resolicitation is not
effected, we will return all funds promptly with interest at our regular
passbook rate of interest on payments made by check or money order.
If First Deposit increases the number of shares issued due to an increase
of up to 15.0% in the estimated price range to reflect changes in market or
financial condition, those subscribing for the maximum number of shares will not
be given the opportunity to subscribe for an adjusted maximum number of shares,
except for the employee stock ownership plan, which may subscribe for such
adjusted amount. See " - Limitations on Stock Purchases."
An increase in the number of shares First Deposit issued as a result of an
increase in the estimated market value of Douglas Federal and First Deposit
would decrease both a subscriber's ownership interest and First Deposit's pro
forma net earnings and shareholders' equity on a per share basis while
increasing pro forma net earnings and shareholders' equity on an aggregate
basis. A decrease in the number of shares to be issued in the conversion would
increase both a subscriber's ownership interest and First Deposit's pro forma
net earnings and shareholders' equity on a per share basis while
38
<PAGE>
decreasing pro forma net earnings and shareholder's equity on an aggregate
basis. For a presentation of the effects of such changes, see "Pro Forma Data."
Subscription Rights and Subscription Offering
Subscription Rights. In accordance with the plan of conversion, rights to
subscribe for the purchase of common stock have been granted under the plan of
conversion to the following persons in the following order of descending
priority:
. eligible account holders, who are holders of deposit accounts with a
balance of $50 or more on December 31, 1997;
. the employee stock ownership plan;
. supplemental eligible account holders, who are holders of deposit
accounts with a balance of $50 or more on March 31, 1999; and
. our members, consisting of our depositors on May 1, 1999, the voting
record date for the special members meeting, and borrowers with loans
outstanding on January 1, 1990, which continue to be outstanding on
May 1, 1999, other than eligible account holders and supplemental
eligible account holders.
All subscriptions received will be subject to the availability of common stock
after satisfaction of subscriptions of all persons having prior rights in the
subscription offering and to the maximum and minimum purchase limitations
contained in the plan of conversion and as described below under " - Limitations
on Stock Purchases."
Deposit accounts which will provide subscription rights to holders thereof
consist of any "qualifying deposit," as defined by the plan of conversion.
Under the plan, the aggregate balance as of the applicable date for determining
subscription rights of all deposit accounts with us shall be deemed a qualifying
deposit, provided such aggregate balance is at least $50.
Priority 1: Eligible Account Holders. Each eligible account holder will
receive, without payment, nontransferable subscription rights to subscribe for
common stock up to the greater of:
. the maximum amount permitted to be purchased in the community
offering, which is presently $375,000 for any individual or
individuals through a single account, and $750,000 when combined with
associates of, and persons acting in concert with, such individual; or
. one-tenth of one percent (.10%) of the total offering of shares of
common stock, in each case subject to the overall purchase limitation
described above; or
. fifteen times the product, rounded down to the next whole number,
obtained by multiplying the total number of shares of common stock to
be issued by a fraction of which the numerator is the amount of the
eligible account holder's qualifying deposit and the denominator is
the total amount of qualifying deposits of all eligible account
holders, in each case on December 31, 1997. These rights may not
exceed the overall purchase
39
<PAGE>
limitation of $750,000 and does not include an increase in the shares
issued due to an increase in the estimated price range of up to 15.0%.
See " - Limitations on Stock Purchases."
If eligible account holders exercise subscription rights for a number of
shares of common stock in excess of the total number of such shares eligible for
subscription, the shares of common stock will be allocated among the subscribing
eligible account holders so as to permit each subscribing eligible account
holder, to the extent possible, to purchase a number of shares sufficient to
make his or her total allocation of common stock equal to the lesser of 100
shares or the number of shares subscribed for by the eligible account holder.
Any shares remaining after such allocation will be allocated among the
subscribing eligible account holders whose subscriptions remain unsatisfied in
the proportion that the amount of the qualifying deposit of each eligible
account holder whose subscription remains unsatisfied bears to the total amount
of the qualifying deposits of all eligible account holders whose subscriptions
remain unsatisfied. If the amount so allocated exceeds the amount subscribed
for by any one or more eligible account holders, the excess shall be reallocated
(one or more times as necessary) among those eligible account holders whose
subscriptions are still not fully satisfied on the same principle until all
available shares have been allocated or all subscriptions satisfied.
To ensure proper allocation of stock, each eligible account holder must
list on his or her subscription order form all accounts in which he or she has
an ownership interest. Failure to list an account could result in less shares
being allocated than if all accounts had been disclosed. The subscription
rights of eligible account holders who are also our directors or officers or
their associates will be subordinated to the subscription rights of other
eligible account holders to the extent attributable to increased deposits in the
twelve months preceding December 31, 1997.
Priority 2: Employee Stock Ownership Plan. To the extent that there are
sufficient shares remaining after satisfaction of the subscriptions by eligible
account holders, the employee stock ownership plan will receive, without payment
therefor, nontransferable subscription rights to purchase, in the aggregate, up
to 10.0% of the common stock issued, including any increase in the number of
shares of common stock issued as a result of an increase of up to 15.0% in the
maximum of the estimated price range. The employee stock ownership plan intends
to purchase 8.0% of the shares to be issued in the offering, or 85,680 shares
and 115,920 shares, based on the minimum and maximum of the estimated price
range, respectively. Subscriptions by the employee stock ownership plan will
not be aggregated with shares of common stock purchased directly by or which are
otherwise attributable to any other participants in the subscription offering,
including subscriptions of any of our directors, officers, employees or their
associates. See "Management of Douglas Federal - Benefit Plans - Employee
Stock Benefit Plan."
Priority 3: Supplemental Eligible Account Holders. To the extent that
there are sufficient shares remaining after satisfaction of subscriptions by the
eligible account holders and the employee stock ownership plan, each
supplemental eligible account holder will receive, without payment,
nontransferable subscription rights to subscribe for in the subscription
offering an amount equal to the greater of the maximum amount permitted to be
purchased in the community offering, which is presently the greater of
. $375,000 for any individual or individuals through a single account
and $750,000 when combined with associates of and persons acting in
concert with such individual;
40
<PAGE>
. one-tenth of one percent (.10%) of the total offering of common stock;
or
. 15 times the product, rounded down to the next whole number, obtained
by multiplying the total number of shares of common stock to be issued
by a fraction of which the numerator is the amount of the supplemental
eligible account holder's qualifying deposit and the denominator is
the total amount of qualifying deposits of all supplemental eligible
account holders, in each case on March 31, 1999, subject to the
overall purchase limitation of $750,000 and not including an increase
in the shares issued due to an increase in the estimated price range
of up to 15.0%.
See " - Limitations on Stock Purchases."
In the event that supplemental eligible account holders exercise
subscription rights for a number of shares of common stock in excess of the
total number of such shares eligible for subscription, the remaining shares of
common stock shall be allocated among the subscribing supplemental eligible
account holders so as to permit each subscribing supplemental eligible account
holder, to the extent possible, to purchase a number of shares sufficient to
make his or her total allocation of common stock equal to the lesser of 100
shares or the number of shares subscribed for by the supplemental eligible
account holder. Any shares remaining after such allocation will be allocated
among the subscribing supplemental eligible account holders whose subscriptions
remain unsatisfied in the proportion that the amount of the qualifying deposit
of each supplemental eligible account holder whose subscription remains
unsatisfied bears to the total amount of the qualifying deposits of all
supplemental eligible account holders whose subscriptions remain unsatisfied.
If the amount so allocated exceeds the amount subscribed for by any one or more
remaining supplemental eligible account holders, the excess shall be
reallocated, one or more times as necessary, among those supplemental eligible
account holders whose subscriptions are still not fully satisfied on the same
principle until all available shares have been allocated or all subscriptions
satisfied.
To ensure proper allocation of stock, each supplemental eligible account
holder must list on his or her subscription order form all accounts in which he
or she has an ownership interest. Failure to list an account could result in
less shares being allocated than if all accounts had been disclosed. The
subscription rights received by eligible account holders will be applied in
partial satisfaction to the subscription rights to be received as a supplemental
eligible account holder.
Priority 4: Other Members. To the extent that there are sufficient shares
remaining after satisfaction of subscriptions by the eligible account holders,
the employee stock ownership plan and the supplemental eligible account holders,
each of our other members not considered an eligible account holder or a
supplemental eligible account holder will receive, without payment therefor,
nontransferable subscription rights to subscribe for common stock in the
subscription offering up to the greater of:
. the maximum amount permitted to be purchased in the community
offering, which is presently $375,000 for any individual or
individuals through a single account and $750,000 when combined with
associates of, and persons acting in concert with, such individual; or
. one-tenth of one percent (.10%) of the total offering of common stock,
in each case subject to the overall purchase limitation described
above and not including an increase in shares issued due to an
increase in the estimated price range of up to 15.0%.
41
<PAGE>
In the event that other members subscribe for a number of shares of common
stock which is in excess of the total number of shares of common stock eligible
for subscription, the remaining shares of common stock will be allocated among
the subscribing other members so as to permit each subscribing other member, to
the extent possible, to purchase a number of shares sufficient to make his or
her total allocation of common stock equal to the lesser of 100 shares or the
number of shares subscribed for by the other member. Any shares remaining after
such allocation will be allocated among the subscribing other members whose
subscriptions remain unsatisfied pro rata in the same proportion that the number
of votes a subscribing other member is entitled to on May 1, 1999 bears to the
total votes on such date of all subscribing other members whose subscriptions
remain unsatisfied. If the amount so allocated exceeds the amount subscribed
for by any one or more remaining other members, the excess shall be reallocated,
one or more times as necessary, among those remaining other members whose
subscriptions are still not fully satisfied on the same principle until all
available shares have been allocated or all subscriptions satisfied.
Expiration Date for the Subscription Offering. The subscription offering
will expire at 12:00 noon, June __, 1999, unless we extend it for up to 45 days
or such additional periods with the approval of the Office of Thrift
Supervision. Subscription rights which have not been exercised before the
expiration date will become void.
We may not execute orders until all shares of common stock have been
subscribed for or otherwise sold. If all shares have not been subscribed for or
sold within 45 days after the expiration date, unless such period is extended
with the consent of the Office of Thrift Supervision, we will return to you
promptly, with interest, all funds we receive from you in the subscription
offering and we will cancel all withdrawal authorizations. If an extension
beyond the 45 day period following the expiration date is granted, we will
notify you of the extension of time and of your right to modify or rescind your
subscriptions and have your funds returned promptly with interest, and of the
time period within which you must affirmatively notify us of your intention to
confirm, modify or rescind your subscription. If we do not receive an
affirmative response to any resolicitation from you, we will rescind such order
and will return your subscription funds with interest at our regular passbook
rate. Such extensions may not go beyond June 17, 2001.
Community Offering
We may offer shares to certain members of the general public in a community
offering, which may begin at any time during or after the subscription offering.
A preference will be given in the community offering to natural persons residing
in Douglas and Paulding Counties, Georgia. First Deposit may accept or reject
any such orders, in whole or in part, in its sole discretion. Individuals
subscribing for common stock in the community offering may subscribe for up to
$375,000 worth of common stock, or up to $750,000 worth of common stock when
combined with associates of, and persons acting in concert with, such
individual, subject to the maximum purchase limitation and exclusive of shares
issued due to an increase in the estimated price range by up to 15.0%. See
" - Limitations on Stock Purchases." The opportunity to subscribe for shares of
common stock in the community offering is subject to our right to accept or
reject any such orders in whole or in part either at the time of receipt of an
order or as soon as practicable following the expiration date.
Subject to the foregoing, if the amount of common stock remaining is
insufficient to fill the orders of subscribers after completion of the
subscription offering, the remaining shares will be allocated among such
subscribers in a manner which permits each such person, to the extent possible,
to purchase
42
<PAGE>
the number of shares necessary to make his or her total allocation of common
stock equal to the lesser of 100 shares or the number of shares subscribed for
by such person, with preference being given to natural persons residing in
Douglas and Paulding Counties, Georgia. Thereafter, unallocated shares will be
allocated among such Douglas County and Paulding County residents whose
subscriptions remain unsatisfied on a 100 shares per order basis until all such
orders have been filled or the remaining shares have been allocated.
To the extent there are any shares remaining after all subscriptions by
Douglas County and Paulding County residents have been filled, any remaining
shares will be allocated among members of the general public using the foregoing
allocation method. The Boards of Directors of Douglas Federal and First Deposit
will establish all other terms and conditions of the offering.
Persons in Nonqualified States or Foreign Countries
We will make reasonable efforts to comply with the securities laws of all
states in the United States in which persons entitled to subscribe for stock
pursuant to the plan of conversion reside. However, the plan of conversion
provides that we are not required to offer subscription rights to any person who
resides in a foreign country or who resides in a state of the United States with
respect to which all of the following apply:
. a small number of persons otherwise eligible to subscribe for shares
of common stock reside in such state;
. we determine that compliance with the securities laws of such state
would be impracticable or unduly burdensome for reasons of cost or
otherwise; and
. the granting of subscription rights or the offer or sale of shares of
common stock to such persons would require Douglas Federal or First
Deposit or our respective officers, directors or trustees to register
as a broker, dealer, salesman or selling agent under the securities
laws of such state, or to otherwise qualify the common stock for sale
in such state.
Where the number of persons eligible to subscribe for common stock in one
state is small, we will base our decision as to whether or not to offer the
common stock in such state on a number of factors, including the size of
accounts held by account holders in the state, the cost of registering or
qualifying the common stock or the need to register First Deposit, its officers,
directors or employees as brokers, dealers or salesmen.
Marketing Arrangements
We have engaged Trident Securities as a consultant and financial advisor in
connection with the offering of the common stock and Trident Securities has
agreed to use its best efforts to solicit subscriptions and purchase orders for
shares of common stock in the offering. Based upon our negotiations concerning
the fee structure, Trident Securities will receive a management fee of $40,000,
and a commission equal to 1.65% of the aggregate dollar amount of common stock
sold in the subscription and community offerings, exclusive of any shares of
common stock sold to our directors and officers and to the employee stock
ownership plan. We will also reimburse Trident Securities for its reasonable
out-of-pocket expenses incurred in its capacity as consultant and financial
advisor, excluding
43
<PAGE>
legal fees, in an amount not to exceed $10,000. In the event the offering is
consummated or Trident Securities ceases, under certain circumstances after the
subscription solicitation activities are commenced, to provide assistance to
First Deposit, we will reimburse Trident Securities for its reasonable out-of-
pocket expenses as described above. We have agreed to indemnify Trident
Securities for its reasonable costs and expenses in connection with certain
claims or liabilities, including certain liabilities under the Securities Act of
1933. Trident Securities has received advances towards its fees totaling
$10,000.
Our directors and executive officers may participate in the solicitation of
offers to purchase common stock. We will direct prospective purchasers'
questions to executive officers or registered representatives. Our employees
may also participate in the offering in ministerial capacities or provide
clerical work in effecting a sales transaction. We have instructed employees
who are not executive officers not to solicit offers to purchase common stock or
provide advice regarding the purchase of common stock. We will rely on Rule
3a4-1 under the Securities Exchange Act of 1934 and sales of common stock will
be conducted within the requirements of Rule 3a4-1, so as to permit officers,
directors and employees to participate in the sale of common stock. We will not
compensate our officers, directors or employees in connection with their
participation by the payment of commissions or other remuneration based either
directly or indirectly on the transactions in the common stock.
Procedure for Purchasing Shares
To ensure that each purchaser receives a prospectus at least 48 hours
before the expiration date in accordance with Rule 15c2-8 of the Securities
Exchange Act of 1934, we will mail no prospectus any later than five days before
such date nor hand deliver any prospectus later than two days before such date.
Your execution of the stock order form will confirm receipt or delivery in
accordance with Rule 15c2-8. Each order form will be preceded by or accompanied
by a prospectus.
To purchase shares in the offering, we must physically receive an executed
stock order form and certification form with the required payment for each share
subscribed for, or with appropriate authorization for withdrawal from our
deposit account, which may be given by completing the appropriate blanks in the
stock order form, at any of our offices by 12:00 noon, Eastern Time, on the
expiration date, which date will not be less than 20 days after the order form
is mailed.
We are not required to accept stock order forms we do not receive by such
time or which are executed defectively or which we receive without full payment
or appropriate withdrawal instructions, except in the case of institutional
investors in the community offering. In addition, we are not obligated to
accept orders submitted on photocopied or facsimiled stock order forms. Once
received, you may not modify, amend or rescind an executed stock order form
without our consent unless the conversion has not been completed within 45 days
after the end of the subscription offering, unless such period has been
extended.
To ensure that your subscription rights are properly identified, you must
list all qualifying deposit accounts and loans, as of the respective qualifying
dates on the stock order form. If you do not list all your qualifying deposit
accounts and loans, your order may be reduced or rejected.
In order to ensure that eligible account holders, supplemental eligible
account holders and other members are properly identified as to their stock
purchase priorities, depositors as of December 31, 1997
44
<PAGE>
and/or as of March 31, 1999 and/or May 1, 1999 must list all accounts on the
stock order form giving all names in each account and the account number.
Payment for subscriptions may be made:
. in cash if delivered in person at any of our branch offices;
. by check or money order; or
. by authorization of withdrawal from deposit accounts maintained
with us, including a certificate of deposit.
We will not accept wire transfers in any account for stock purchases. Third-
party checks will not be accepted. We will pay interest on payments made by
cash, check or money order at our regular passbook rate of interest from the
date payment is received until the completion or termination of the conversion.
If you make payment by authorization of withdrawal from deposit accounts, the
funds authorized to be withdrawn from a deposit account will continue to accrue
interest at the contractual rates until completion or termination of the
conversion. We will place a hold on such funds to make them unavailable to the
depositor until completion or termination of the conversion.
If a subscriber authorizes us to withdraw the amount of the purchase price
from his or her deposit account, we will do so as of the effective date of the
conversion. We will waive any applicable penalties for early withdrawal from
certificate accounts. If the remaining balance in a certificate account is
reduced below the applicable minimum balance requirement at the time that the
funds actually are transferred under the authorization, the certificate will be
canceled at the time of the withdrawal, without penalty, and the remaining
balance will earn interest at our regular passbook rate.
If the employee stock ownership plan subscribes for shares during the
subscription offering, the employee stock ownership plan will not be required to
pay for the shares subscribed for at the time it subscribes, but rather, may pay
for such shares of common stock subscribed for at the purchase price upon
consummation of the subscription offering, if all shares are sold, or upon
consummation of the community offering if shares remain to be sold in such
offering.
Owners of self-directed individual retirement accounts and qualified plans
may use the assets of their individual retirement accounts and qualified plans
to purchase shares of common stock in the subscription offering and/or community
offering, provided that such individual retirement account funds are first
transferred to an independent trustee. Persons with self-directed individual
retirement accounts and qualified retirement plans maintained with us must have
their accounts transferred to an unaffiliated institution or broker to purchase
shares of common stock in the subscription offering and/or community offering.
In addition, federal regulations require that our officers and directors who use
self-directed individual retirement accounts funds and qualified retirement
plans to purchase shares of common stock in the subscription offering and/or
community offering, make such purchases for the exclusive benefit of the
individual retirement accounts and qualified plans.
Certificates representing shares of common stock purchased will be mailed
to purchasers at the address specified in properly completed stock order forms,
as soon as practicable following consummation of the sale of all shares of
common stock. Any certificates returned as undeliverable will be disposed of in
accordance with applicable law.
45
<PAGE>
Restrictions on Transfer of Subscription Rights and Shares
Before the completion of the conversion, applicable regulations prohibit
any person with subscription rights, including the eligible account holders, the
employee stock ownership plan, the supplemental eligible account holders and
other members, from transferring or entering into any agreement or understanding
to transfer the legal or beneficial ownership of the subscription rights issued
under the plan of conversion or the shares of common stock to be issued upon
their exercise. Only the person to whom they are granted may exercise such
rights and may do so only for his or her account. Each person exercising such
subscription rights will be required to certify that he or she is purchasing
shares solely for his or her own account and that he or she has no agreement or
understanding regarding the sale or transfer of such shares. The regulations
also prohibit any person from offering or making an announcement of an offer or
intent to make an offer to purchase such subscription rights or shares of common
stock before the completion of the conversion.
We will pursue any and all legal and equitable remedies in the event we
become aware of the transfer of subscription rights and will not honor orders we
know to involve the transfer of subscription rights.
Limitations on Stock Purchases
The plan of conversion includes the following limitations on the number of
shares of common stock which may be purchased during the conversion:
. The minimum number of shares of common stock that any person may
purchase is 25.
. The maximum purchase in the subscription offering by any person or
group of persons through a single deposit account is $375,000 of
common stock, which equals 37,500 shares. The maximum purchase by any
person in the community offering is $375,000 of common stock, which
equals 37,500 shares.
. The maximum purchase in the subscription offering and community
offering combined by any person, related persons or persons acting
together is $750,000 of common stock, which equals 75,000 shares.
. The maximum purchase in the subscription offering and the community
offering combined for any person together with any associate or group
of persons acting in concert shall not exceed 5.0% of the stock sold
in the conversion.
. Those limitations applicable to eligible account holders, supplemental
eligible account holders and other members contained in
" - Subscription Rights and Subscription Offering."
. The employee stock ownership plan is permitted to purchase in the
aggregate up to 10.0% of the shares of common stock issued, including
shares issued in the event of an increase in the estimated price range
of 15.0%, and intends to purchase 8.0% of the shares of common stock
issued;
46
<PAGE>
. We will fill orders of persons purchasing shares of common stock in
the community offering up to a maximum of 2.0% of the total number of
shares of common stock offered. Thereafter, we will allocate the
remaining shares on an equal number of shares basis until all orders
have been filled.
. Our directors and officers and their associates may purchase, in all
categories of the conversion, an aggregate of no more than 34.0% of
the common stock offered. Any shares the employee stock ownership plan
purchases will not be included in calculating the number of shares
which such persons may purchase.
Subject to any required regulatory approval and the requirements of
applicable laws and regulations, but without further approval of our members, we
may increase both the individual amount permitted to be subscribed for and the
overall maximum purchase limitation in our sole discretion. If such amount is
increased after commencement of the subscription offering, subscribers will be
given the opportunity to increase their subscriptions up to the then applicable
limit, subject to the rights and preferences of any person who has priority
subscription rights. In addition, our Board of Directors may, in their sole
discretion and without further approval of our members, increase the maximum
purchase limitation referred to above up to 9.99% of the common stock offered,
provided that orders for shares exceeding 5.0% of the shares being offering in
the subscription and community offerings shall not exceed, in the aggregate,
10.0% of the shares being offered in the subscription and community offerings,
except that the employee stock ownership plan may purchase in the aggregate up
to 10.0% of the shares of common stock offered.
Our Board of Directors may decrease the overall maximum purchase
limitation, in their sole discretion, without the further approval of our
members or resolicitation of subscribers. In the event that we decrease either
the individual purchase limitation or the number of shares of common stock to be
offered, we will decrease the orders of any person who subscribed for the
maximum number of shares of common stock by the minimum amount necessary so that
such person shall be in compliance with the then maximum number of shares for
which such person is permitted to subscribe.
The term "associate" of a person is defined to mean:
. any corporation or organization, other than us or Pinehurst
Properties, LLC, of which such person is a director, officer, partner
or 10.0% shareholder, either directly or indirectly;
. any trust or other estate in which such person has a substantial
beneficial interest or serves as a trustee or in a similar fiduciary
capacity; provided, however, such term shall not include the employee
stock ownership plan in which such person has a substantial beneficial
interest or serves as a trustee or in a similar fiduciary capacity; or
. any relative or spouse of such person, or any relative of such spouse,
who either has the same home as such person or who is one of our
directors or officers.
Our directors and those of First Deposit are not treated as associates of
each other solely because of their Board membership.
47
<PAGE>
Liquidation Rights
In the unlikely event of our complete liquidation in our present mutual
form, each depositor would receive his or her pro rata share of any of our
assets remaining after we pay the claims of all creditors, including the claims
of all depositors to the withdrawal value of their accounts. Each depositor's
pro rata share of such remaining assets would be in the same proportion as the
value of his deposit account was to the total value of all of our deposit
accounts at the time of liquidation. After the conversion, each depositor, in
the event of a complete liquidation, would have a claim as a creditor of the
same general priority as the claims of all of our other general creditors.
However, except as described below, his or her claim would be solely in the
amount of the balance in his or her deposit account plus accrued interest. He
or she would not have an interest in the value of our assets above that amount.
The plan of conversion provides for the establishment, upon the completion
of the conversion, of a special "liquidation account" for the benefit of
eligible account holders and supplemental eligible account holders in an amount
equal to our net worth as shown on our latest statement of financial condition
contained in this prospectus. Each eligible account holder and supplemental
eligible account holder, if he or she were to continue to maintain his or her
deposit account with us, would be entitled, upon our complete liquidation after
the conversion, to a liquidation distribution before our payment of any
liquidation distribution to our shareholders. Each eligible account holder and
supplemental eligible account holder would have an initial interest in such
liquidation account for each deposit account, including regular accounts,
transaction accounts such as NOW accounts, money market deposit accounts, and
certificates of deposit, with a balance of $50 or more held with us on the
eligibility record date and the supplemental eligibility record date,
respectively. Each eligible account holder and supplemental eligible account
holder will, with respect to each deposit account held, have a related inchoate
interest in a portion of the liquidation account balance, which interest we will
refer to as the subaccount balance. We will determine the initial subaccount
balance for each eligible account holder or supplemental eligible account holder
by multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of the qualifying deposit in the deposit
account on December 31, 1997 or March 31, 1999, as applicable, and the
denominator is the total amount of all qualifying deposits held by eligible
account holders or supplemental eligible account holders on such dates. Such
initial subaccount balance will not increase, but may decrease as provided
below. For deposit accounts in existence at both dates separate subaccounts
shall be determined on the basis of the qualifying deposits in such deposit
accounts on such respective record dates.
The operation and maintenance of the liquidation account will not operate
to restrict the use or application of any of our net worth accounts. However,
we will not voluntarily reduce our net worth accounts below the required dollar
amount of the liquidation account.
If, however, on any annual closing date after the eligibility record date
or supplemental eligibility record date, the qualifying deposit balance of an
eligible account holder or supplemental eligible account holder is less than the
lesser of:
. the deposit balance in such deposit account at the close of business
on any other annual closing date after the eligibility record date or
supplemental eligibility record date, or
. the amount of the qualifying deposit in such deposit account on the
dates referenced above;
48
<PAGE>
we will reduce the subaccount balance in an amount proportionate to the
reduction in such deposit account. In the event that such a downward adjustment
is followed by an increase in the related qualifying deposit, the subaccount
balance will nevertheless not increase. Any assets remaining after the above
liquidation rights of eligible account holders and supplemental eligible account
holders are satisfied would be distributed to First Deposit as our sole
shareholder.
Tax Aspects
We will not seek a private ruling from the Internal Revenue Service with
respect to the proposed conversion. Instead, we have received an opinion of our
special counsel, Womble Carlyle Sandridge & Rice, PLLC, to the effect that for
federal income tax purposes, among other matters:
. our change in form from mutual to stock ownership will constitute a
reorganization under section 368(a)(1)(F) of the Internal Revenue Code
and neither Douglas Federal nor First Deposit will recognize any
taxable gain or loss as a result of the conversion;
. neither Douglas Federal nor First Deposit will recognize gain or loss
upon First Deposit's purchase of our capital stock or to First Deposit
upon the purchase of its common stock in the conversion;
. neither eligible account holders nor supplemental eligible account
holders will recognize any gain or loss with respect to their deposit
accounts held with us due to the conversion, or due to acquiring their
interests in the liquidation account;
. the tax basis of the depositors' accounts with us immediately after
the conversion will be the same as the basis of their deposit accounts
immediately before the conversion;
. the tax basis of each eligible account holder's and supplemental
eligible account holder's interest in the liquidation account will be
zero;
. neither eligible account holders nor supplemental eligible account
holders will recognize taxable gain or loss upon acquiring
nontransferable subscription rights to purchase shares of the common
stock, provided that the amount to be paid for the common stock is
equal to the fair market value of such stock; and
. the tax basis to the shareholders of the common stock of First Deposit
purchased in the subscription offering or community offering will be
the amount paid for the common stock and the holding period for the
shares of common stock purchased by such persons will begin on the
date on which their subscription rights are exercised.
Mauldin & Jenkins, LLC has opined that the conversion will not be a taxable
transaction to Douglas Federal, First Deposit, eligible account holders or
supplemental eligible account holders for Georgia income tax purposes. Portions
of both the federal and the state income tax opinions are based upon the
assumption that the subscription rights issued in connection with the conversion
will have no value.
Unlike private rulings, an opinion of counsel or an opinion of an
independent accountant is not binding on the Internal Revenue Service and the
Internal Revenue Service could disagree with
49
<PAGE>
conclusions reached in the opinions. In the event of a disagreement, the
Internal Revenue Service may prevail in a judicial or administrative proceeding.
Ferguson & Company has opined that the subscription rights do not have any
value, based on the fact that such rights are acquired by the recipients without
cost, are nontransferable and of short duration, and afford the recipients the
right only to purchase the common stock at a price equal to its estimated fair
market value, which will be the same price as the purchase price for the shares
of common stock sold in the community offering. Such valuation is not binding
on the Internal Revenue Service. If the subscription rights granted to eligible
account holders or supplemental eligible account holders are deemed to have an
ascertainable value, receipt of such rights could be taxable to those eligible
account holders or supplemental eligible account holders who receive and/or
exercise the subscription rights in an amount equal to such value and we could
recognize gain on such distribution. Eligible account holders and supplemental
eligible account holders are encouraged to consult with their own tax advisor as
to the tax consequences in the event that such subscription rights are deemed to
have an ascertainable value.
Interpretation and Amendment of the Plan of Conversion
To the extent permitted by law, all interpretations of the plan of
conversion by our Board of Directors will be final. The plan of conversion
provides that our Board of Directors shall have the discretion to interpret and
apply the provisions of the plan of conversion to particular circumstances and
that such interpretation or application shall be final. This includes any and
all interpretations, applications and determinations made by the Boards of
Directors on the basis of such information and assistance as was then reasonably
available for such purpose.
The plan of conversion provides that, if necessary or desirable, two-thirds
of our Board of Directors may substantively amend the plan of conversion at any
time before solicitation of proxies from our members to vote on the plan of
conversion. After submission of the proxy materials to our members, two-thirds
of our Board of Directors may amend the plan of conversion with the concurrence
of the Office of Thrift Supervision or resubmission to our members. Our Board
of Directors may amend the plan of conversion at any time after the approval of
members upon the order of or with the approval of the Office of Thrift
Supervision and no resolicitation of proxies and no further approval of the
members will be necessary unless the Office of Thrift Supervision requires
otherwise. By adopting the plan of conversion, members will be deemed to have
authorized amendment of the plan of conversion under the circumstances described
above.
Restrictions on Purchase or Transfer of Shares After Conversion
All shares of common stock purchased in connection with the conversion by
our directors or officers or their associates will be restricted. Such shares
may not be disposed of for a period of one year following the conversion, except
in the event of the death of the original purchaser or in the event of an
exchange of securities in a merger or acquisition approved by the applicable
regulatory authorities. Transfers that could result in a change of control of
Douglas Federal or First Deposit or result in the ownership by any person of
more than 10.0% of any class of First Deposit's securities may be subject to the
prior approval of the Office of Thrift Supervision.
Each certificate for restricted shares will bear a legend giving notice of
this restriction on transfer, and we will issue instructions to our transfer
agent to the effect that any transfer within such time period of any certificate
or record ownership of such shares other than as provided above is a violation
of the
50
<PAGE>
restriction. Any shares of common stock issued at a later date as a stock
dividend, stock split, or otherwise, with respect to such restricted stock will
be subject to the same restrictions. The insider trading rules promulgated under
to the Securities Exchange Act of 1934 apply to our officers and directors.
Purchases of outstanding shares of common stock of First Deposit by
directors, officers and their associates during the three-year period following
conversion may be made only through a broker or dealer registered with the
Securities and Exchange Commission, except with the prior written approval of
the Office of Thrift Supervision. This restriction does not apply, however, to
negotiated transactions involving more than 1.0% of First Deposit's outstanding
common stock or to the purchase of stock pursuant to any stock option plan to be
established after the conversion.
Unless approved by the Office of Thrift Supervision, First Deposit will be
prohibited from repurchasing any shares of the common stock for three years
after the conversion except:
. for an offer to all of First Deposit's shareholders on a pro rata
basis; or
. for the repurchase of qualifying shares of a director.
Notwithstanding the foregoing, beginning one year following completion of the
conversion First Deposit may repurchase its common stock so long as:
. the repurchases within the following two years are part of an open-
market program not involving greater than 5.0% of First Deposit's
outstanding capital stock during a twelve-month period;
. the repurchases do not cause First Deposit to become undercapitalized;
and
. First Deposit provides to the Regional Director of the Office of
Thrift Supervision no later than 10 days before the commencement of a
repurchase program written notice containing a full description of the
program to be undertaken and such program is not disapproved by the
Regional Director.
In addition, under current Office of Thrift Supervision policies, repurchases
may be allowed in the first year following conversion and in amounts greater
than 5.0% in the second and third years following conversion, provided there are
valid and compelling business reasons for such repurchases and the Office of
Thrift Supervision approves such repurchases.
51
<PAGE>
FIRST DEPOSIT
First Deposit is a Georgia corporation recently organized at the direction
of our Board of Directors for the purpose of acquiring all of our capital stock
to be issued in the conversion. First Deposit expects to receive approval from
the Office of Thrift Supervision to become a savings and loan holding company.
Upon completion of the conversion, First Deposit will be regulated by the Office
of Thrift Supervision. See "The Conversion" and "Regulation and Supervision -
Holding Company Regulation." After the conversion, First Deposit will have no
significant assets other than all of the shares of our capital stock acquired in
the conversion and an amount equal to 50.0% of the net proceeds of the
conversion, including the loan to the employee stock ownership plan. First
Deposit will have no significant liabilities. First Deposit intends to use a
portion of the net proceeds it retains to loan to the employee stock ownership
plan funds to enable the employee stock ownership plan to purchase 8.0% of the
stock issued in connection with the conversion.
First Deposit's management is described under "Management of First
Deposit." Initially, First Deposit will neither own nor lease any property, but
will instead use our premises, equipment and furniture. At the present time,
First Deposit does not intend to employ any persons other than certain officers
who are currently our officers, but will utilize our support staff from time to
time. First Deposit will hire additional employees as appropriate to the extent
it expands its business in the future.
Management believes that the holding company structure will provide
additional flexibility to diversify our business activities through existing or
newly formed subsidiaries, or through acquisitions of or mergers with other
financial institutions and financial services related companies. Although there
are no current arrangements, understandings or agreements regarding any such
opportunities, we will be in a position after the conversion, subject to
regulatory limitations and our financial position, to take advantage of any such
acquisition and expansion opportunities that may arise. First Deposit
anticipates that it will fund its initial activities with the proceeds it
retains, income from the investment of such proceeds, and dividends from Douglas
Federal.
First Deposit's executive office is located at our main office, 8458
Campbellton Street, Douglasville, Georgia 30134-1803. Our telephone number is
(770) 942-5108.
52
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
Our results of operations are dependent primarily on net interest income,
which is the difference between the income earned on our loan and investment
portfolios and our cost of funds, consisting of the interest paid on deposits
and borrowings. Results of operations are also affected by our provision for
loan losses and fees and other service charges. Our noninterest expense
principally consists of compensation and employee benefits, occupancy and
equipment expense, federal deposit insurance premiums, data processing,
advertising and business promotion and other expenses. Results of operations
are also significantly affected by general economic and competitive conditions,
particularly changes in interest rates, government policies and actions of
regulatory authorities. Future changes in applicable law, regulations or
government policies may materially impact us. See "Business of Douglas Federal
- - Lending Activities" and "-Securities Investment Activities."
Traditionally, our primary goal has been to control growth and improve our
profitability, market share, asset quality and our capital position by investing
in:
. primarily one- to four-family loans secured by properties located in
our primary market area;
. commercial real estate and construction and development loans secured
by properties located in our primary market area, to the extent that
such loans meet our general underwriting criteria;
. consumer loans; and
. funds not utilized for loan investments in short-term U.S. Treasury
and agency obligations, including mortgage-backed and mortgage-related
securities; and building capital while controlling operating expenses.
Forward-Looking Statements
This prospectus contains certain forward-looking statements which are based
on certain assumptions and describe future plans, strategies and our
expectations. These forward-looking statements are generally identified by use
of the words "believe," "expect," "intend," "anticipate," "estimate," "project,"
or similar expressions. Our ability to predict results or the actual effect of
future plans or strategies is inherently uncertain. Factors which could have a
material adverse effect on our operations include, but are not limited to,
changes in interest rates, general economic conditions, legislation and
regulation, monetary and fiscal policies of the U.S. Government, including
policies of the U.S. Treasury and the Federal Reserve Board, the quality or
composition of our loan or investment portfolios, demand for loan products,
deposit flows, competition, demand for financial services in our market area and
accounting principles and guidelines. You should consider these risks and
uncertainties in evaluating forward-looking statements and should not place
undue reliance on such statements. We will not publicly release the result of
any revisions which may be made to any forward-looking statements to reflect
events or circumstances after the date of such statements or to reflect the
occurrence of anticipated or unanticipated events.
53
<PAGE>
Management Strategy
In the future, we intend to seek growth opportunities and means of
lessening our exposure to interest rate risk while avoiding investments we
believe bear risks inconsistent with our investment policies. We intend to grow
by expanding the products and services we offer, as necessary, in order to
improve our market share in our primary market area as well as seeking
opportunities to expand our market share and product line through acquisitions,
although we have no specific acquisition plans. We will seek to expand consumer
loans, including home equity loan originations. Finally, depending upon market
conditions, management may implement leverage strategies to enhance income.
Such strategies would be to increase borrowings and invest the borrowed funds in
secured investments to enhance income from the spread between the cost of the
borrowed funds and the investment yield. However, we intend to continue to
offer the products and services and continue to invest in those investments in
which we have historically invested.
Management of Interest Rate Risk and Market Risk Analysis
Qualitative Analysis
The principal objective of our interest rate risk management function is to
evaluate the interest rate risk included in certain balance sheet accounts,
determine the appropriate level of risk given our business strategy, operating
environment, capital and liquidity requirements and performance objectives and
manage the risk consistent with our Board of Directors' approved guidelines.
Through such management, we seek to reduce the vulnerability of our operations
to changes in interest rates, while not subjecting us to undue credit or
investment risk. We monitor our interest rate risk as such risk relates to our
operating strategies. Our Board of Directors has established an investment
committee, responsible for reviewing our asset/liability policies and interest
rate risk position, which meets on a regular basis, and reports trends and
interest rate risk position to our Board of Directors on a quarterly basis. The
extent of the movement of interest rates is an uncertainty that could have a
negative impact on our earnings. See "Risk Factors-Our profitability may be
affected by interest rate increases."
In recent years, we have become subject to the increasing risk that
interest rates may rise due to the substantial levels of fixed-rate loans we
have been originating to satisfy the high customer demand for such products in
our primary market area. To mitigate such risks, we intend to:
. invest in short-term U.S. Treasury and agency obligations;
. seek opportunities to increase our investment in adjustable rate
mortgage-backed securities; and
. sell a significant portion of our fixed-rate loans in the secondary
market.
Depending upon the magnitude of any change in interest rates, we may not be
able to react quickly enough to reinvest such funds. We therefore may
experience a decrease in earnings following a significant increase in interest
rates. We may also increase non-deposit borrowings which would further enable
us to invest in higher yielding instruments in an increasing interest rate
environment.
54
<PAGE>
Quantitative Analysis
Net Portfolio Value. As part of our interest rate risk analysis, we use an
interest rate sensitivity model which generates estimates of the change in our
net portfolio value or NPV over a range of interest rate scenarios and which is
prepared by our regulators on a quarterly basis. NPV is the present value of
expected cash flows from assets, liabilities, and off-balance sheet contracts.
The NPV ratio, under any interest rate scenario, is defined as the NPV in that
scenario divided by the market value of assets in the same scenario. Our
regulators produce this analysis using their own model, based upon data
submitted on our quarterly regulatory reports, including estimated loan
prepayment rates, reinvestment rates and deposit decay rates. See "Regulation
and Supervision - Federal Savings Institution Regulation." The following table
sets forth our NPV as of December 31, 1998 as calculated by our regulators.
<TABLE>
<CAPTION>
NPV as % of
Portfolio Value
Net Portfolio Value of Assets
-------------------------------------------------- ------------------------------------
NPV
Amount $ Change % Change Ratio Change(1)
----------- ------------ ------------ ------------ --------------
(Dollars in thousands)
Change in Interest
Rates in Basis
Points (Rate Stock)
- -----------
<S> <C> <C> <C> <C> <C>
+400 $ 4,674 $(7,513) (62)% 4.92% (683)
+300 6,660 (5,527) (45) 6.85 (491)
+200 8,693 (3,495) (29) 8.73 (302)
+100 10,634 (1,553) (13) 10.45 (131)
Static 12,187 - - 11.76 -
- -100 13,087 899 7 12.48 72
- -200 13,774 1,587 13 13.01 125
- -300 14,657 2,469 20 13.68 192
- -400 15,459 3,272 27 14.28 252
- -----------
(1) Expressed in basis points.
</TABLE>
Shortcomings are inherent in the methodology used in the above interest
rate risk measurements. Modeling changes in NPV require making certain
assumptions which may or may not reflect the manner in which the actual yields
and costs respond to changes in market interest rates. In this regard, the NPV
model presented assumes that the composition of our interest sensitive assets
and liabilities existing at the beginning of a period remains constant over the
period being measured and also assumes that a particular change in interest
rates is reflected uniformly across the yield curve regardless of the duration
to maturity or repricing of specific assets and liabilities. Accordingly, the
NPV measurements and net interest income models provide only an indication of
our interest rate risk exposure at a particular point in time. These
measurements are not intended to and do not provide a precise forecast of the
effect of changes in market interest rates on our net interest income and will
differ from actual results.
Based on our NPV ratio provided by our regulators and recent industry
statistics, an increase in interest rates would expose us to above average
interest rate risk. See "Regulation and Supervision."
Analysis of Net Interest Income
Net interest income represents the difference between income on interest-
earning assets and expense on interest-bearing liabilities. Net interest income
depends upon the relative amounts of interest-earning assets and interest-
bearing liabilities and the interest rate earned or paid on them.
55
<PAGE>
Average Balance Sheets. The following tables set forth certain information
relating to us at December 31, 1998, and for the years ended December 31, 1998
and 1997. The average yields and costs are derived by dividing income or
expense by the average balance of interest-earning assets or interest-bearing
liabilities, respectively, for the periods shown except where noted otherwise
and reflect annualized yields and costs. Average balances are derived from
month-end balances for 1997 and derived from average daily balances for 1998.
Management does not believe that the use of average monthly balances instead of
average daily balances has caused any material differences in the information
presented. The yields and costs include fees which are considered adjustments
to yields. Loan interest and yield data does not include any accrued interest
from non-accruing loans.
<TABLE>
<CAPTION>
For the Years Ended December 31,
-----------------------------------------------------------
1998 1997
---------------------------- -----------------------------
Average Average
Average Yield/ Average Yield/
Balance Interest Cost Balance Interest Cost
-------- -------- -------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Assets:
Interest-earning assets:
Mortgage loans, net................ $79,751 $6,473 8.12% $73,765 $6,084 8.25%
Consumer loans..................... 1,098 97 8.83 1,113 97 8.72
Overnight and short-term
deposits........................... 4,724 230 4.87 4,239 160 3.77
Investment securities(1)........... 5,837 362 6.20 6,104 346 5.67
------- ------ ------- ------
Total interest-earning assets.... 91,410 7,162 7.84 $85,221 $6,687 7.85
------ ------
Non-interest earning assets........ 4,225 1,733
Total assets..................... $95,635 $86,954
======= =======
Liabilities and
Equity:
Interest-bearing liabilities:
Transaction accounts............... $11,204 $ 388 3.46% $10,220 $ 271 2.65%
Savings accounts................... 16,177 696 4.30 13,928 576 4.14
Certificates of deposit............ 49,078 2,837 5.78 47,060 2,698 5.73
------- ------ ---- ------- ------ ----
Total deposits................... 76,459 3,921 5.13 71,208 3,545 4.98
FHLB advances...................... 5,307 305 5.75 4,583 238 5.19
------- ------ ---- ------- ------ ----
Total interest-bearing
liabilities................... 81,766 4,226 5.17 75,791 $3,783 4.99
------- ------
Other liabilities.................. 4,633 2,543
------- -------
Total liabilities................ 86,399 78,334
Equity capital..................... 9,236 8,620
------- -------
Total liabilities and
retained earnings............... $95,635 $86,954
======= =======
Net interest income/Net
interest rate spread (2)........... $ 2,936 2.67% $2,904 2.86%
======= ==== ====== ====
Net earnings assets/Net
interest margin (3)................ 9,644 3.21% 9,430 3.41%
======= ==== ======= ====
Ratio of interest-earning assets to
interest-bearing liabilities....... 111.79% 112.44%
======= ======
</TABLE>
_______________
(1) Includes investment securities available-for-sale, investment securities
held-to-maturity, stock in Freddie Mac, Fannie Mae, and Federal Home Loan
Bank Atlanta.
(2) Net interest rate spread represents the difference between the weighted
average yield on interest-earning assets and the weighted average cost of
interest-bearing liabilities.
56
<PAGE>
(3) Net interest margin represents net interest income as a percentage of
average interest-earning assets.
Rate/Volume Analysis. The following table presents the extent to which
changes in interest rates and changes in the volume of interest-earning assets
and interest-bearing liabilities have affected our interest income and interest
expense during the periods indicated. Information is provided in each category
with respect to:
. changes attributable to changes in volume (changes in volume
multiplied by prior rate);
. changes attributable to changes in rate (changes in rate multiplied by
prior volume); and
. the net change.
The changes attributable to the combined impact of volume and rate have been
allocated on a proportional basis between changes in rate and volume.
<TABLE>
<CAPTION>
Year Ended
December 31, 1998
Compared to
Year Ended
December 31, 1997
-------------------------------
Increase
(Decrease)
Due to
-------------------------------
Volume Rate Net
------ -------------- -----
<S> <C> <C> <C>
(In thousands)
Interest-earning assets:
Mortgage loans, net................................. $486 $(97) $389
Consumer loans...................................... - - -
Overnight and short term deposits................... 19 51 70
Investment securities............................... (15) 31 16
---- ---- ----
Total interest-earning assets..................... $490 $(15) $475
==== ==== ====
Interest-bearing liabilities:
Transaction accounts................................ $ 28 $ 89 $117
Savings accounts.................................... 97 23 120
Certificates of deposit............................. 115 24 139
---- ---- ----
Total interest-bearing deposits................... 240 136 376
FHLB advances....................................... 40 27 67
---- ---- ----
Total interest-bearing liabilities................ $280 $163 $443
==== ==== ====
</TABLE>
Comparison of Financial Condition at December 31, 1998 and December 31, 1997
Assets totaled $100.9 million at December 31, 1998, an increase of $9.3
million, or 10.15%, from $91.6 million at December 31, 1997. Most of this
increase was concentrated in the loan portfolio, which increased $9.1 million
for the year ending December 31, 1998 to $84.6 million, which increase was
partially offset by a reduction in securities of $2.3 million. Cash and due
from banks and federal funds sold increased during the same period by $2.5
million. Total deposits increased by $9.8 million, from $75.9 million at
December 31, 1997 to $85.7 million at December 31, 1998. Federal Home Loan Bank
advances decreased $1.0 million from $6.0 million at December 31, 1997 to $5.0
million at December 31, 1998.
57
<PAGE>
Loans. The increase in total loans was primarily due to increases in
residential real estate loans. Total real estate mortgage loans increased $9.8
million, or 15.5%, and total real estate mortgage loans as a percentage of total
loans increased slightly from 83.82% at December 31, 1997 to 86.44% at December
31, 1998. Real estate construction loans increased from $5.3 million, or 6.29%
of the portfolio, at December 31, 1997 to $6.8 million, or 8.0% of the
portfolio, at December 31, 1998. The increase in real estate mortgage and
construction loans resulted from increased growth in the housing demand in our
market area.
Allowance for Loan Losses. The allowance for loan losses increased by
$134,000 to $1.0 million at December 31, 1998 from $866,000 at December 31,
1997. This increase reflects the slight increase in past due loans combined
with the significant increase in loan volume. The adequacy of the allowance for
loan losses is evaluated quarterly by management based upon a review of
significant loans, with particular emphasis on nonperforming and delinquent
loans that management believes warrant special attention. At December 31, 1998,
the allowance for loan losses provided coverage of 101.73% of total
nonperforming loans, up from 80.04% at December 31, 1997.
Investment Securities. The balances of securities held-to-maturity
decreased from $4.4 million at December 31, 1997 to $1.0 million at December 31,
1998. The balances of securities available-for-sale increased during the same
period from $2.7 million to $3.7 million. This net decrease was the result of
sales of equity securities and principal payments of these securities, totaling
approximately $4.9 million during the year ended December 31, 1998. The
repayments were offset by purchases of securities totaling $2.7 million.
Deposits. Total deposits increased $9.8 million, or 12.93% from $75.9
million at December 31, 1997 to $85.7 million at December 31, 1998. Of this
total increase, certificates of deposit increased $1.9 million, or 3.85%,
noninterest-bearing accounts increased $1.5 million, or 67.66%, and interest-
bearing demand and savings increased $6.4 million, or 25.61%. Interest-bearing
demand accounts include interest-bearing transaction accounts. The significant
increase in savings accounts is attributable to programs specifically
implemented to attract these particular types of accounts. The new program
implemented in 1997 offered special rates on savings accounts. The increase in
the average balance of these savings accounts for 1998 was $2.5 million, which
yielded 4.86%. Federal Home Loan Bank advances decreased from $6.0 million at
December 31, 1997 to $5.0 million at December 31, 1998, which decrease was
compensated for through net cash provided by operations.
Comparison of Operating Results for the Years Ended December 31, 1998 and 1997
General. Net income for the year ended December 31, 1998 increased by
$130,000, or 20.04% to $780,000 compared to $650,000 for the year ended December
31, 1997. Net interest income for both years ended December 31, 1998 and 1997
was $2.9 million. The constant level of net interest income for the year ended
December 31, 1998 represents an increase of $475,000 in interest income coupled
with an increase in interest expense of $443,000. Noninterest income increased
by $352,000 in 1998. Noninterest expense increased by $187,000 to $2.4 million
for the year ended December 31, 1998 compared to $2.2 million for the prior
year. The return on average assets increased from 0.75% for the year ended
December 31, 1997 to 0.81% for the year ended December 31, 1998. The return on
average equity also increased from 7.54% for the year ended December 31, 1997 to
8.43% for the year ended December 31, 1998.
58
<PAGE>
Interest Income. Interest income for the year ended December 31, 1998 was
$7.2 million, an increase of $475,000 or 7.10% from $6.7 million for the year
ended December 31, 1997. The largest component of interest income is interest
on mortgage loans. Interest on mortgage loans increased from $6.1 million for
the year ended December 31, 1997 to $6.5 million for the year ended December 31,
1998. This increase of $389,000 or 6.39% is primarily the result of loan volume
increases. The average balance of mortgage loans increased $6.0 million to
$79.8 million, while the yield on mortgage loans decreased 13 basis points from
8.25% to 8.12%, partially offsetting the increase due to volume. The increase
in interest on loans was complemented by an increase in interest on investment
securities and short-term deposits. Interest income on securities increased
$16,000 and interest income on short-term deposits increased by $69,000. The
increase in interest income on securities is attributable to higher yields. The
average balance of securities decreased from $6.1 million for the year ended
December 31, 1997 to $5.8 million for the year ended December 31, 1998. The
increase in interest income on short-term deposits is attributable to a
combination of increased volume and yields. The average balance increased by
$485,000 with an increase in yield of 110 basis points. Average interest-
earning assets were $91.4 million for the year ended December 31, 1998, an
increase of $6.2 million, or 7.28%, from $85.2 million for the year ended
December 31, 1997. The average yield on interest earning assets decreased one
basis point to 7.84% for the year ended December 31, 1998, from 7.85% for the
year ended December 31, 1997.
Interest Expense. Interest expense increased during the year ended
December 31, 1998 to $4.2 million, from $3.8 million for the year ended December
31, 1997. Substantially all, or 93.0%, of the interest expense is attributable
to interest-bearing deposits. The largest category of interest-bearing deposits
is certificates of deposit. Interest on certificates of deposit for the year
ended December 31, 1998 was $2.8 million, up $139,000 from $2.7 million in 1997,
which was primarily the result of an increase in the average balance on
certificates of deposit, from $47.0 million in 1997 to $49.0 million in 1998,
combined with an increase of five basis points in the rates paid on these
deposits from 5.73% in 1997 to 5.78% in 1998. Interest expense on savings
accounts increased $120,000, from $576,000 for the year ended December 31, 1997
to $696,000 for the year ended December 31, 1998. Interest expense on
transaction accounts increased $117,000, from $271,000 for the year ended
December 31, 1997 to $388,000 for the year ended December 31, 1998. This
increase is attributable to an increase in the average balance of transaction
accounts, which increased $984,000 during 1998, combined with an increase of 81
basis points in the rates paid on these accounts, from 2.65% to 3.46%. Interest
expense on Federal Home Loan Bank advances increased $67,000 from $238,000 for
the year ended December 31, 1997 to $305,000 for the year ended December 31,
1998. This increase is primarily attributable to the increase in average
advances outstanding from $4.6 million for the year ended December 31, 1997 to
$5.3 million for the year ended December 31, 1998. The factors contributing to
an increase in interest expense was representative of an 18 basis point increase
in the cost of interest-bearing liabilities.
Net Interest Income. Net interest income for the year ended December 31,
1998 was $2.9 million, compared to $2.9 million for the year ended December 31,
1997. The yield on average interest-earning assets increased from 7.85% to
7.84%, while the average yield on interest-bearing liabilities increased from
4.99% for the year ended December 31, 1997 to 5.17% for the year ended December
31, 1998. As a result, the interest rate spread decreased from 2.86% to 2.67%
while the net interest margin decreased from 3.41% to 3.21%.
Provision for Loan Losses. The provision for loan losses increased from
$60,000 for the year ended December 31, 1997 to $108,000 for the year ended
December 31, 1998. This increase is primarily the result of a slight increase
in past due loans combined with the significant increase in loan volume the
59
<PAGE>
year ended December 31, 1998. See "Business of Douglas Federal - Delinquent
Loans, Classified Assets and Real Estate Owned -Allowance for Loan Losses."
Noninterest Income. Total noninterest income increased $352,000, or 85.38%
to $764,000 for the year ended December 31, 1998, compared to $412,000 for the
same period in 1997. Noninterest income primarily consists of servicing fees
and deposit account service charges and gains on sale of securities. The single
most significant change in noninterest income was an increase of $274,000 in
gains on the sale of Freddie Mac and Fannie Mae stock.
Noninterest Expense. Total noninterest expense increased $187,000 to $2.4
million for the year ended December 31, 1998, up from $2.2 million for the prior
year. A decrease in compensation and benefits of $41,000 and equipment and
occupancy expenses of $33,000 was offset by increases in other expenses of
$194,000. Included in the increase in other expenses were increases in data
processing of $29,000, bank service charges of $43,000, and other losses of
$123,000, $14,000 of which was recovered after December 31, 1998. The increases
in noninterest expense represent normal increases and increases in expense
related to the volume of loans and deposit accounts for the year ended December
31, 1998. Other losses of $90,000 were recognized as a result of our conversion
to a new computer system.
The decrease in compensation expense of $41,000 for the year ended December
31, 1998 is directly related to our efforts to increase efficiencies in
operations.
Income Taxes. Income tax expense increased from $386,000 for the year
ended December 31, 1997 to $405,000 for the year ended December 31, 1998. The
increase is primarily the result of an increase in income from operations of
$149,000 for the year ended December 31, 1998 and net of an increase in deferred
taxes of $48,000, which is primarily due to loan loss reserves. The effective
tax rate for the years ended December 31, 1998 and 1997 was 34.0% and 37.0%,
respectively.
Liquidity and Capital Resources
Our primary sources of funds are deposits, principal and interest payments
on loans, mortgage-backed and investment securities and Federal Home Loan Bank
advances. While maturities and scheduled amortization of loans are predictable
sources of funds, deposit flows and mortgage prepayments are greatly influenced
by general interest rates, economic conditions and competition. We have
continued to maintain the required levels of liquid assets as defined by Office
of Thrift Supervision regulations. These requirements, which may be varied at
the direction of the Office of Thrift Supervision depending upon economic
conditions and deposit flows, are based upon a percentage of deposits and short-
term borrowings. Our current required liquidity ratio is 4.00%. At December
31, 1998 and December 31, 1997, our liquidity ratio was 12.03% and 11.34%,
respectively. Management's current strategy is to maintain liquidity as close
as possible to the minimum regulatory requirement and to invest any excess
liquidity in higher yielding interest-earning assets. We manage our liquidity
position and demands for funding primarily by investing excess funds in short-
term investments and utilizing Federal Home Loan Bank advances in periods when
our demands for liquidity exceed funding from deposit inflows.
Our most liquid assets are cash, cash equivalents and securities available-
for-sale. The levels of these assets are dependent on our operating, financing,
lending and investing activities during any given period. At December 31, 1998,
cash and cash equivalents and securities available-for-sale totaled $12.0
million, or 11.87% of total assets.
60
<PAGE>
We have other sources of liquidity if a need for additional funds arises.
At December 31, 1998, we had $5 million in advances outstanding from the Federal
Home Loan Bank and, at December 31, 1998, had an additional overall borrowing
capacity from the Federal Home Loan Bank of $8.5 million. Depending on market
conditions, the pricing of deposit products and Federal Home Loan Bank advances,
we may continue to rely on Federal Home Loan Bank borrowings to fund asset
growth.
At December 31, 1998, we had commitments to fund loans and unused
outstanding lines of credit, unused standby letters of credit and undisbursed
proceeds of construction mortgages totaling $7.0 million. We anticipate that we
will have sufficient funds available to meet our current loan origination
commitments. Certificate accounts, including Individual Retirement Accounts and
Keogh accounts which are scheduled to mature in less than one year from December
31, 1998 totaled $39.0 million. Based upon experience, management believes the
majority of maturing certificates of deposit will remain with us. In addition,
our management believes that we can adjust the rates offered on certificates of
deposit to retain deposits in changing interest rate environments. In the event
that we do not retain a significant portion of these deposits, we would be able
to utilize Federal Home Loan Bank advances to fund deposit withdrawals, which
would result in an increase in interest expense to the extent that the average
rate paid on such advances exceeds the average rate paid on deposits of similar
duration.
At December 31, 1998, we exceeded all minimum regulatory capital
requirements with a tangible capital level of $7.8 million, or 7.88% of total
adjusted assets, which exceeds the required level of $1.5 million, or 1.50%;
core capital of $7.8 million, or 7.88% of total adjusted assets, which exceeds
the required level of $3.0 million, or 3.00%; and risk-based capital of $8.5
million, or 15.08% of risk-weighted assets, which exceeds the required level of
$4.5 million, or 8.00%. See "Regulatory Capital Compliance."
Our primary investing activities are the origination of residential one- to
four-family loans, non-residential real estate loans, real estate construction
and development loans, and the purchase of United States Treasury and agency
securities, mortgage-backed securities and other investment securities. During
the years ended December 31, 1998 and 1997, our loan originations totaled $60.3
million and $46.4 million, respectively. Purchases of U.S. Treasury and agency
securities, mortgage-backed securities and other investment securities totaled
$2.7 million and $2.6 million for the years ended December 31, 1998 and 1997,
respectively. These activities were funded primarily by principal repayments on
loans, investment securities, and deposit growth.
We experienced a net increase in total deposits from the prior year of $9.8
million and $6.4 million for the years ended December 31, 1998 and 1997,
respectively. Deposit flows are affected by the level of interest rates, the
interest rates and products offered by local competitors, interest rates offered
by us and other factors.
Impact of Inflation and Changing Prices
The financial statements and notes presented in this prospectus have been
prepared in accordance with generally accepted accounting principals which
provide for the measurement of financial position and operating results
generally in terms of historical dollar amounts without considering the changes
in the relative purchasing power of money over time due to inflation. The
impact of inflation is reflected in the increased cost of our operations.
Unlike industrial companies, nearly all of our assets and liabilities are
monetary in nature. As a result, interest rates have a greater impact on our
performance than do the
61
<PAGE>
effects of general levels of inflation. Interest rates do not necessarily move
in the same direction or to the same extent as the prices of our goods and
services.
Accounting Matters
For a discussion of Statement of Financial Standards No. 130, "Reporting
Comprehensive Income and Statement of Financial Standards," and Statement of
Financial Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities", see pages F-12 and F-13 of our financial statements. Statement of
Financial Standards No. 134 "Accounting for Mortgage-Backed Securities Retained
After the Securitization of Mortgage Loans Held for Sale by a Mortgage Banking
Enterprise," and No. 135 "Recission of FASB Statement No. 75" are not applicable
to us.
Year 2000 Issues
Introduction. Similar to other financial institutions, our operations are
particularly sensitive to potential problems arising from the inability of many
existing computer hardware and software systems and association applications to
process accurately information relating to any two-digit "date field" entries
referring to the year 2000 and beyond. Many existing systems are constructed to
read such entries as referring to dates beginning with "19," rather than "20."
This set of issues is generally referred to as the "Year 2000" problem. The
Federal Financial Institutions Examination Council, through the bank regulatory
agencies, has issued compliance guidelines requiring financial institutions to
develop and implement plans for addressing Year 2000 issues relevant to their
operations.
State of Readiness. We have implemented a detailed Year 2000 plan, as
required by our regulators, to evaluate Year 2000 compliance of our computer
systems and the equipment which supports our operations. Also included in this
Year 2000 plan is a detailed review of the readiness of our service providers,
vendors, major fund providers, major borrowers, and companies with which we have
material investments. As of December 31, 1998, we had met all current target
objectives of the Year 2000 plan, and management believes that we will continue
to meet all future target objectives in accordance with the terms of the plan.
Like many financial institutions, we rely upon computers for the daily
conduct of our business and for data processing generally. As part of our
regular upgrading of computer systems, we purchased and installed new computers,
servers, and software. We also upgraded all of our ATMs. The vendor of our
core account processing system is executing its Year 2000 readiness plan in
cooperation with us and has certified that the system is Year 2000 compliant.
In addition to our core account processing system, we rely on financial
accounting and mortgage loan origination systems that are computer-based, and
thus vulnerable to the Year 2000 issues. We have also installed new financial
accounting, mortgage loan origination, and mortgage loan servicing systems which
are Year 2000 compliant as part of our computer upgrade.
As a result of our core account processing system and the new financial
accounting, mortgage loan origination, and mortgage loan servicing systems,
management believes that we have resolved the Year 2000 issues with respect to
the most critical computer systems and applications. Management has completed
the testing phase with respect to our computer systems and other equipment that
is Year 2000 sensitive, which includes equipment containing embedded
microprocessors or other technology related to the recognition of dates.
62
<PAGE>
Because of our substantial progress made towards our Year 2000 conversion,
we do not anticipate that any additional significant changes will be required or
that the Year 2000 issue will pose significant operational problems for us.
However, if the necessary changes are not made or completed in a timely fashion
or unanticipated problems arise, the Year 2000 issue may take longer for us to
address and may have a material impact on our financial condition and results of
operations.
We receive periodic updates from our third party service providers on the
status of their progress in remediation and testing. These providers are also
subject to Year 2000 compliance examinations by the federal bank regulatory
agencies. While these updates do not rise to the level of certification or
warranties, they do indicate what management believes to be satisfactory
progress toward a timely resolution of the Year 2000 issue by these providers.
In addition to our interaction with major service providers, we have
contacted in writing every vendor, major fund providers, major borrowers, and
companies with which we have material investments, to evaluate their Year 2000
compliance plans and state of readiness and to determine the extent to which our
systems may be affected by the failure of others to remediate their own Year
2000 issues. To date, we have received written responses from surveys
distributed from over 50% of such parties and we have not independently
confirmed any information received from other parties with respect to Year 2000
issues. These other parties may not complete their Year 2000 conversion in a
timely fashion or they may suffer a Year 2000 business disruption that may
adversely affect our financial condition and results of operations.
Costs to Address the Year 2000 Issue. The new computer systems were
installed as a result of management's desire to keep us competitive by ensuring
that our systems take advantage of recent advances in technology. Our costs to
achieve Year 2000 compliance are currently budgeted to be $50,000, and these
costs are not expected to have a material financial impact on us. At December
31, 1998, we expensed $23,336 to Year 2000 compliance costs. We have and intend
to continue to fund such costs from our operations. However, as we progress
with our Year 2000 conversion and implement the necessary changes to our
systems, certain additional costs may be identified. Additional costs could
have a material adverse effect on our financial condition and results of
operations.
Risks of Year 2000 Issues. To date, we have not identified any system
which presents a material risk of not being Year 2000 compliant in a timely
fashion or for which a suitable alternative cannot be implemented. However, as
we progress with our Year 2000 conversion, we may identify systems which do
present a material risk of Year 2000 disruption. Such disruption may include,
among other things, the inability to process and underwrite loan applications,
to credit deposits and withdrawals from customer accounts, to credit loan
payments or track delinquencies, to reconcile and record daily activity properly
or to engage in similar normal banking activities. Additionally, if our
commercial customers are not Year 2000 compliant and suffer adverse effects on
their operations, their ability to meet their obligations to us could be
adversely affected. Our failure to identify systems which require Year 2000
conversion that are critical to our operations or our failure or that of others
with which we do business to become Year 2000 compliant in a timely manner could
have a material adverse impact on our financial condition and results of
operations. Moreover, to the extent that the risks posed by the Year 2000
problem are pervasive in data processing and transmission and communications
services worldwide, we cannot predict with any certainty that our operations
will remain materially unaffected after January 1, 2000 or on dates preceding
this date at which time post-January 1, 2000 dates become significant within our
systems.
63
<PAGE>
Contingency Plans. We have two types of contingency plans: Remediation and
Business Interruption. Remediation Plans are designed to mitigate the risks
associated with the failure to complete renovation, validation, and
implementation of mission-critical systems successfully. Business Interruption
Plans are plans of action to ensure our ability to continue functioning as a
business entity in the event of unanticipated systems failures at critical dates
before, on, or after the Year 2000.
Remediation Plans: Our Year 2000 conversion is expected to be completed
before any potential disruption to our business. Moreover, we have developed
Year 2000 remediation contingency plans for mission-critical systems. These
plans would be invoked in the event of anticipated failures of particular Year
2000 projects or sub-projects. Such plans involve the designation of alternate
vendors to back up systems and would essentially constitute replacement of the
current Year 2000 remediation path with an alternate one. Remediation plans
will be built in succeeding stages of detail and this process may, if management
deems appropriate, be halted at any point where the success of the base project
is clearly predictable. We completed testing of our systems in 1998.
Business Interruption Plans: Those plans would be invoked if unanticipated
Year 2000 problems occur in production, similar to scenarios in disaster
recovery plans. We have targeted the essential functions that may be adversely
affected, and have developed specific responses, ranging from the printing out
of records from the core banking system before January 1, 2000, to ensure that a
hard copy of the data is available in the event of a failure, to preparations
for failures of voice and data communications through the use of manual posting
and courier services, as well as ensuring that branches can process off-line for
a period of time. Teams will be established for mobilization in case of
emergencies that threaten our viability, and require that certain resources be
available immediately for utilization. We will continue to fine-tune these
plans, train staff to carry them out, and test them. Staff will be trained to
follow the plans, in conjunction with our Year 2000 team, as they are trained to
follow disaster recovery plans in the event of a disaster.
The discussion above contains certain forward-looking statements. The
costs of the Year 2000 conversion, the date which we have set to complete such
conversion, and the possible risks associated with the Year 2000 issue are based
on our current estimates and are subject to various uncertainties that could
cause the actual results to differ materially from our expectations. Such
uncertainties include, among others, our success in identifying systems that are
not Year 2000 compliant, the nature and amount of programming required to
upgrade or replace each of the affected systems, the availability of qualified
personnel, consultants and other resources, and the success of the Year 2000
conversion efforts of others.
64
<PAGE>
BUSINESS OF DOUGLAS FEDERAL
General
We were originally organized in 1960 as a federally-chartered savings bank.
Our deposit accounts are insured to the maximum allowable amount by the Savings
Association Insurance Fund as administered by the Federal Deposit Insurance
Corporation. In addition to our principal office, which is located in
Douglasville, Georgia, we serve our customers from a full-service banking
facility located in Lithia Springs, Douglas County, Georgia.
We are a community-oriented savings institution whose principal business
consists of accepting retail deposits from the general public in our primary
market area. Our primary market area for lending consists of Douglas and
Paulding Counties, Georgia. We invest those deposits, together with funds
generated from operations and borrowings, primarily in one- to four-family
residential mortgage loans, construction loans, commercial real estate loans,
automobile loans and, to a much lesser extent, commercial loans and passbook
savings loans. We also invest in government issued and sponsored mortgage-
backed securities, securities issued by the U.S. Government and agencies
thereof, and other investments permitted by applicable laws and regulations.
We have a wholly-owned service subsidiary, Pinehurst Properties, LLC, that
holds our real estate owned and owns real property for residential development
purposes. At December 31, 1998, Pinehurst Corporation, the predecessor of
Pinehurst Properties, LLC had total assets of $1.9 million which consist of
subdivided residential real property located in Douglas County, Georgia. See
"Subsidiary."
At December 31, 1998, we had total assets of approximately $100.9 million,
total deposits of approximately $85.7 million, retained earnings of
approximately $9.7 million and had a tangible capital ratio of 7.88%, a core
capital ratio of 7.88% and a total risk-based capital ratio of 15.08%. See
"Regulation and Supervision - Federal Savings Institution Regulation - Capital
Requirements."
At December 31, 1998, our gross loan portfolio totaled $84.6 million, or
83.8% of the total assets, of which $73.1 million were one- to four-family
residential mortgage loans, $3.1 million were commercial real estate loans,
$416,000 were land and land development loans, $6.0 million were construction
and development loans, and $1.9 million were consumer loans, consisting
primarily of automobile loans. We originate one- to four-family mortgage loans
generally secured by properties located in our primary market area.
Our investment activities primarily consist of investments in mortgage-
backed securities and U.S. Government obligations. At December 31, 1998, our
securities portfolio totaled $4.7 million, or 4.7% of total assets, of which
$3.7 million was categorized as available-for-sale. At December 31, 1998, our
mortgage-backed securities portfolio totaled $1.0 million, or 1.0% of total
assets, of which all were classified as held-to-maturity and consisted entirely
of mortgage-backed securities, guaranteed or issued by governmental-sponsored
and federal agencies such as the Fannie Mae, Freddie Mac and Ginnie Mae. Our
investment securities generally consist of U.S. Government or federal agency
obligations. See "Investment Activities."
At December 31, 1998, our deposit accounts totaled $85.7 million or 93.9%
of total liabilities, of which $35.2 million, or 41.1% were comprised of
passbook savings accounts, retail checking/NOW accounts, money market accounts
and commercial checking accounts. In additional to core deposits, we had $50.5
million of certificate accounts, or 58.9% of total deposits, of which $12.8
million were certificates of deposit with balances of $100,000 or more.
65
<PAGE>
Market Area and Competition
We are headquartered in Douglasville, Georgia and have been, and intend to
continue to be, a community-oriented financial institution. Our primary market
area is comprised of the Counties of Douglas and Paulding, Georgia, which are
serviced through our main office and our other full service banking office. Our
main office is located in downtown Douglasville, and our branch office is
located approximately 10 miles from our main office. Based on the most recent
information available, we had approximately 13.41% of the total bank and thrift
deposits in Douglas County.
Our primary market area consists principally of suburban and rural
communities with service, wholesale/retail trade, government and manufacturing
serving as the basis of the local economy. Service jobs represent the largest
type of employment in our primary market area, with jobs in wholesale/retail
trade accounting for the second largest employment sector. Douglasville is
located approximately 25 miles from Atlanta, Georgia and is accessible from
Interstate 20, a major Interstate running east to west through Georgia. The
easy accessibility to Douglas County and its close proximity to Atlanta, Georgia
has resulted in the Douglas County being among one of the fastest growing areas
in the country in recent years. Management believes that our market area
continues to show economic growth with stable to moderately increasing real
estate values. Management hopes to capitalize on this high growth to expand our
market share.
We face significant competition both in generating loans and in attracting
deposits. Our primary market area is highly competitive and we face direct
competition from a significant number of financial institutions, many with a
statewide or regional presence and, in some cases, a national presence. Many of
these financial institutions are significantly larger and have greater financial
resources than we have. Our competition for loans comes principally from
commercial banks, savings banks, credit unions, mortgage brokers, mortgage
banking companies, and insurance companies. In addition, we have recently faced
significant competition for first mortgage loans on new home construction from
builders who have been offering financing for purchasers of new homes in the
builders' development projects. Our most direct competition for deposits has
historically come from savings, commercial banks, and credit unions. In
addition, we face significant competition for deposits from non-bank
institutions such as brokerage firms and insurance companies in such instruments
as short-term money market funds, corporate and government securities funds,
mutual funds, and annuities. Competition may also increase as a result of the
lifting of restrictions on the interstate operations of financial institutions.
We have also experienced significant competition from credit unions, which have
a competitive advantage because they do not pay state or federal income taxes.
Such competitive advantage has placed increased pressure on us with respect to
our loan and deposit pricing.
Lending Activities
Loan Portfolio Composition. Our loan portfolio consists primarily of first
mortgage loans secured by one- to four-family residences.
The types of loans that we may originate are subject to federal laws and
regulations. Interest rates we charge on loans are affected by the demand for
such loans, the supply of money available for lending purposes and the rates
offered by competitors. These factors are, in turn, affected by, among other
things, economic conditions, monetary policies of the federal government,
including the Federal Reserve Board and legislative tax policies.
66
<PAGE>
The following table sets forth the composition of our loan portfolio in
dollar amounts and as a percentage of the portfolio at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
------------------------------------------------------
1998 1997
------------------------------------------------------
Percent Percent
Amount of Total Amount of Total
---------- ---------- --------- ----------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Mortgage loans: $73,115 86.44% $63,304 83.82%
Residential: 3,109 3.68 2,501 3.31
One- to four-family 416 0.49 2,369 3.14
Commercial real estate 6,014 7.11 5,323 7.05
------- ------ ------- ------
Land and land development 82,654 97.72 73,497 97.32
------- ------ ------- ------
Construction and development 1,932 2.28 2,023 2.68
------- ------ ------- ------
Total loans $84,586 100.00% $75,520 100.00%
====== ======
Less:
Unearned discounts and
deferred loan fees 209 224
Allowance for loan losses 1,000 866
------- -------
Loan receivable, net $83,377 $74,430
======= =======
</TABLE>
Loan Maturity. The following table shows the remaining contractual
maturity of our loans at December 31, 1998. The table does not include the
effect of future principal prepayments.
67
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998
--------------------------------------------------------------------
One- to Construction Land and
Four- Commercial and Land Total
Family Real Estate Development Development Consumer Loans
------- ----------- ----------- ----------- -------- -----
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Amounts due:
One year or less........................ $13,333 $1,744 $5,986 284 $ 475 $21,822
After one year:
More than one year to two years....... 1,095 544 8 - 189 1,836
More than two years to five years..... 2,692 449 20 132 1,233 4,526
More than five years.................. $55,995 372 - - 35 $56,402
------- ------ ------ ------ ------ -------
Total amount due.................... $73,115 $3,109 $6,014 416 $1,932 84,586
======= ====== ====== === ======
Less:
Unearned discounts and deferred
loan fees............................... 209
Allowance for loan losses............... 1,000
Loans, net................................ $83,377
=======
</TABLE>
The following tables set forth at December 31, 1998, the dollar amount of
loans contractually due after December 31, 1999 and whether such loans have
fixed interest rates or adjustable interest rates.
<TABLE>
<CAPTION>
Due after December 31, 1999
----------------------------------------
Fixed Adjustable Total
---------- ----------- --------
(In thousands)
<S> <C> <C> <C>
Real estate loans:
One- to four-family.......................... $48,942 $10,840 $59,782
Commercial................................... 1,365 - 1,365
Construction and development................. 28 - 28
Land and land development.................... 132 - 132
------- ------- -------
Total real estate loans................. 50,467 10,840 61,307
Consumer loans............................... 1,457 - 1,457
------- ------- -------
Total Loans............................. $51,924 $10,840 $62,764
======= ======= =======
</TABLE>
Origination, Sale and Servicing of Loans. Our mortgage lending activities
are conducted primarily by our loan personnel operating at our two offices.
In-market loan originations are generated by our
68
<PAGE>
marketing efforts, which include print, radio and television advertising, lobby
displays and direct contact with local civic organizations, as well as by our
present customers, walk-in customers and referrals from real estate agents,
brokers and builders. We underwrite loans we originate pursuant to our policies
and procedures and generally underwrite in accordance with Fannie Mae, Freddie
Mac, Federal Housing Administration, and Department of Veterans Affairs
underwriting standards. We originate both adjustable-rate and fixed-rate loans.
Our ability to originate fixed- or adjustable-rate loans is dependent upon the
relative customer demand for such loans, which is affected by the current and
expected future level of interest rates. In recent years, we have originated
primarily fixed-rate loans as a result of low customer demand for adjustable-
rate loans given the prevailing low interest rate environment.
Generally, we hold loans we originate for investment, although we
frequently sell fixed-rate loans we originate through the secondary market.
During the years ended December 31, 1998 and December 31, 1997, we
originated $37.5 million and $24.8 million of one- to four-family mortgage
loans, respectively. On January 1, 1996, we implemented SFAS No. 122 pursuant
to which we may recognize the value of servicing rights as an asset. In the
year ended December 31, 1998, the fair value of servicing rights under SFAS No.
122 and SFAS No. 125 were not material and were not recognized in the financial
statements for those periods.
The following table sets forth loan originations, purchases, sales, and
principal repayments for the periods indicated:
<TABLE>
<CAPTION>
For the Year Ended at
-------------------------------
December 31,
-------------------------------
1998 1997
-------- --------
<S> <C> <C>
(In thousands)
Mortgage loans (gross):................. $ 73,497 $ 74,297
======== ========
Beginning balance....................... 37,512 24,806
Mortgage loans originated............. 1,837 3,886
One- to four-family................. 20,115 17,178
-------- --------
Commercial real estate.............. 59,464 45,870
Construction and development
Total mortgage loans
originated
Loan Purchases.......................... - -
Transfer of mortgage loans to
foreclosed real estate............. (188) (311)
Sales............................... (11,887) (12,295)
Principal repayments................ (38,232) (34,064)
-------- --------
Ending Balance...................... 82,654 73,497
======== ========
Consumer loans (gross):
Beginning balance..................... $ 2,023 $ 2,262
Consumer loans originated........... 793 514
Principal repayments................ (884) (753)
-------- --------
Ending balance...................... $ 1,932 $ 2,023
======== ========
</TABLE>
One- to Four-Family Lending. We currently offer both fixed-rate and
adjustable-rate mortgage ("ARM") loans with maturities of up to 30 years secured
by one- to four-family residences. Substantially all of the residences securing
these loans are located in our primary market area. One- to four-family
69
<PAGE>
mortgage loan originations are generally obtained from our in-house loan
representatives, from existing or past customers, and through referrals from
members of our local communities. At December 31, 1998, our one- to four-family
mortgage loans totaled $73.1 million, or 86.44% of total loans. Of the one- to
four-family mortgage loans outstanding at that date, 79.73% were fixed-rate
mortgage loans and 20.27% were ARM loans.
We currently offer fixed-rate mortgage loans with terms from ten to
generally 30 years. We generally sell approximately our fixed-rate loans with
maturities in excess of 15 years. We do not purchase one- to four-family
mortgage loans.
We currently offer one-year residential ARM loans with an interest rate
that adjusts annually based on the change in the relevant United States Treasury
index and ARM loans with an interest rate that adjusts every six months based on
the 11th District cost of funds. We also offer loans that bear fixed rates of
interest for specified periods of time and, thereafter, adjust on an annual
basis. These loans provide for up to a 2.0% periodic cap and a lifetime cap of
6.0% over the initial rate. As a consequence of using caps, the interest rates
on these loans may not be as rate sensitive as our cost of funds. Borrowers of
one-year residential ARM loans are generally qualified at a rate of 2.0% above
the initial interest rate. We also offer ARM loans that are convertible into
fixed-rate loans with interest rates based upon the then current market rates.
ARM loans generally pose greater credit risks than fixed-rate loans, primarily
because as interest rates rise, the required periodic payment by the borrower
rises, increasing the potential for default. However, as of December 31, 1998,
we had not experienced higher default rates on these loans relative to our other
loans.
Generally, one- to four-family mortgage loans are underwritten according to
secondary market policies and guidelines. Generally, we originate one- to four-
family residential mortgage loans in amounts up to 80.0% of the lower of the
appraised value or the selling price of the property securing the loan and up to
97.0% of the appraised value or selling price if private mortgage insurance is
obtained. Mortgage loans we originate generally include due-on-sale clauses
which provide us with the contractual right to deem the loan immediately due and
payable in the event the borrower transfers ownership of the property without
our consent. We require fire, casualty, title and, in certain cases, flood
insurance on all properties securing our real estate loans.
Included in our one- to four-family loan portfolio are home equity loans.
We originate home equity loans that are secured by a lien on the borrower's
residence and generally do not exceed $250,000. We use the same underwriting
standards for home equity loans as we use for one- to four-family residential
mortgage loans. Home equity loans are generally originated in amounts which,
together with all prior liens on such residence, do not exceed 90.0% of the
appraised value of the property securing the loan. The interest rates for home
equity loans either float at a stated margin over the prime rate or have fixed
interest rates. As of December 31, 1998, we had $3.5 million, or 4.19% of our
total loan portfolio outstanding, in home equity loans.
Commercial Real Estate Lending. We originate commercial real estate loans
that are generally secured by properties used for business purposes such as
office buildings, schools, nursing homes, retail stores and churches located in
our primary market area. We lend to local churches to fund construction of or
renovations to church facilities. Such loans are adjustable rate mortgages and
fixed-rate loans with a maximum loan to value ratio of 80.0%. We currently have
five church loans totaling $1.6 million in the aggregate. All such loans are
performing in accordance with their terms. Our commercial real estate
underwriting policies provide that commercial real estate loans may be made in
amounts up to 80.0% of the
70
<PAGE>
appraised value of the property, subject to our current internal loan-to-one-
borrower limit, which at December 31, 1998 was $1.5 million.
Commercial real estate loans generally have adjustable rates and terms to
maturity that do not exceed 15 years. Our current lending guidelines generally
require that the loan to value ratio on property securing commercial real estate
loans and multi-family loans not exceed 80.0%. Adjustable-rate commercial real
estate loans provide for interest at a margin over a designated index, often a
designated prime rate, with periodic adjustments, generally at frequencies of up
to five years. In underwriting commercial real estate loans, we analyze the
financial condition of the borrower, the borrower's credit history, the
reliability and predictability of the net income generated by the property
securing the loan and the value of the property itself. We generally require
personal guarantees of the borrowers in addition to the security property as
collateral for such loans. Appraisals on properties securing commercial loans
we originate are performed by independent appraisers approved by our Board of
Directors. At December 31, 1998, our largest commercial real estate loan was a
$728,000 loan secured by a local church and was performing in accordance with
its terms. There were no multi-family loans outstanding at December 31, 1998.
Commercial real estate loans generally present a higher level of credit
risk than loans secured by one- to four-family residences. This greater credit
risk is due to several factors, including the concentration of principal in a
limited number of loans and borrowers, the effect of general economic conditions
on income-producing properties and the increased difficulty of evaluating and
monitoring these types of loans. Furthermore, the repayment of loans secured by
commercial real estate and multi-family properties is typically dependent upon
the successful operation of the related real estate project. If the cash flow
from the project is reduced (for example, if leases are not obtained or renewed,
or a bankruptcy court modifies a lease term, or a major tenant is unable to
fulfill its lease obligations), the borrower's ability to repay the loan may be
impaired and the value of the property may be reduced. We seek to minimize
these risks through our underwriting standards.
Construction and Development and Land and Land Development Lending. We
originate construction loans for the development of residential and commercial
property, including speculative loans. Construction loans are offered primarily
to experienced local developers and builders operating in our market area. The
majority of our construction loans are originated to finance the construction by
developers and builders of one- to four-family residential real estate and, to a
lesser extent, multi-family and commercial real estate properties located in our
primary market area. Construction loans are generally offered with terms of up
to 12 months and may be made in amounts of up to 75.0% of the appraised value of
the property on multi-family and commercial real estate construction and 80.0%
on one- to four-family residential construction. Land loans are made in amounts
up to 60.0% of the appraised value of the land securing the loan.
Construction loan proceeds are disbursed periodically in increments as
construction progresses and as inspections by our inspecting officers warrant.
At December 31, 1998, our largest loan balance with a single construction and
development loan borrower was $1.3 million. At December 31, 1998, we had loans
of $953,672 to builders in connection with the real estate development
activities of our subsidiary, Pinehurst Properties, LLC.
Speculative construction loans are made to home builders and are termed
"speculative" because the home builder does not have, at the time of loan
origination, a signed contract with a home buyer who has a commitment for
permanent financing with us or another lender for the finished home. The home
buyer may be identified either during or after the construction period, with the
risk that the builder will have to debt
71
<PAGE>
service the speculative construction loan and finance real estate taxes and
other carrying costs of the completed home for a significant time after the
completion of construction until the home buyer is identified. We lend to
approximately ___ local builders, many of whom may have only __________
speculative loans outstanding from us. We consider approximately __ builders as
core borrowers with several speculative loans outstanding at any one time.
Rather than originating lines of credit to home builders to construct several
homes at once, we originate and underwrite a separate loan for each home.
Speculative construction loans are originated for a term of 12 months, with
interest rates ranging from ____% to ____% above the prime lending rate, and
with a loan-to-value ratio of no more than 80.0% of the appraised estimated
value of the completed property. At December 31, 1998, we had ___ borrowers with
aggregate outstanding speculative loan balances of $2.7 million, all of which
were performing according to their respective terms and the largest of which
amounted to $____ million.
Construction financing is generally considered to involve a higher degree
of credit risk than long-term financing or improved, owner-occupied real estate.
Risk of loss on a construction loan is dependent largely upon the accuracy of
the initial estimate of the property's value at completion of construction or
development compared to the estimated cost (including interest) of construction
and other assumptions, including the estimated time to sell residential
properties. If the estimated value proves to be inaccurate, we may be
confronted with a property, when completed, having a value which is insufficient
to assure full repayment. We seek to minimize this risk through our
underwriting standards.
Consumer Lending. Consumer loans at December 31, 1998 amounted to $1.9
million, or 2.28% of our total loans and consisted primarily of automobile loans
(new and used) and loans secured by savings accounts. Such loans are generally
originated in our primary market area and generally are secured by deposit
accounts, personal property and automobiles. These loans are typically shorter
term and generally have higher interest rates than one- to four-family mortgage
loans. Historically, we have not advertised our consumer loans and have made
these loans only to existing customers.
Loans secured by rapidly depreciable assets such as automobiles or that are
unsecured entail greater credit risks than one- to four-family residential
mortgage loans. In such cases, repossessed collateral for a defaulted loan may
not provide an adequate source of repayment of the outstanding loan balance,
since there is a greater likelihood of damage, loss or depreciation of the
underlying collateral. Further, consumer loan collections on these loans are
dependent on the borrower's continuing financial stability and, therefore, are
more likely to be adversely affected by job loss, divorce, illness or personal
bankruptcy. Finally, the application of various federal and state laws,
including federal and state bankruptcy and insolvency laws, may limit the amount
which can be recovered on such loans in the event of a default. At December 31,
1998, we did not have any loans 90 days or more delinquent.
Loan Approval Procedures and Authority. Our Board of Directors establishes
our lending policies. Such policies provide that our President, Senior Vice
President and other Vice Presidents may approve installment loans up to $25,000
and personal loans up to $5,000. Our Executive Committee may approve loans in
excess of these limits. Our Executive Committee approves all new loans over
$300,000 and all maturing loans with aggregate balances over $500,000. We have
loan review personnel who submit a written report to the Executive Committee and
the full Board of Directors each quarter, evaluating the quality and trend of
the loan portfolio. Our loan review personnel are independent of loan officers
and lending responsibilities.
72
<PAGE>
Delinquent Loans, Classified Assets and Real Estate Owned
Delinquencies and Classified Assets. Reports listing all delinquent
accounts are generated and reviewed by management on a monthly basis and the
Board of Directors performs a monthly review of all loans or lending
relationships delinquent 60 days or more and all REO. The procedures we take
with respect to delinquencies vary depending on the nature of the loan and cause
of delinquency and whether the borrower is habitually delinquent. When a
borrower fails to make a required payment on a loan, we take a number of steps
to have the borrower cure the delinquency and restore the loan to current
status. We generally send the borrower a written notice of non-payment after
the loan is first past due. Our guidelines provide that telephone, written
correspondence and/or face-to-face contact will be attempted to ascertain the
reasons for delinquency and the prospects of repayment. When contact is made
with the borrower at any time before foreclosure, we usually attempt to obtain
full payment, work out a repayment schedule with the borrower to avoid
foreclosure or, in some instances, accept a deed in lieu of foreclosure. In the
event payment is not then received or the loan not otherwise satisfied,
additional letters and telephone calls generally are made. If the loan is still
not brought current or satisfied and it becomes necessary for us to take legal
action, which typically occurs after a loan is 60 days or more delinquent, we
will commence foreclosure proceedings against any real property that secures the
loan. If a foreclosure action is instituted and the loan is not brought
current, paid in full, or refinanced before the foreclosure sale, the property
securing the loan generally is sold at foreclosure and, if purchased by us,
becomes real estate owned and is sold by us as soon as possible.
Federal regulations and our Asset Classification Policy require that we
utilize an internal asset classification system as a means of reporting problem
and potential problem assets. We have incorporated the Office of Thrift
Supervision internal asset classifications as a part of our credit monitoring
system. We currently classify problem and potential problem assets as
"Substandard," "Doubtful" or "Loss" assets. An asset is considered
"Substandard" if it is inadequately protected by the current net worth and
paying capacity of the obligor or of the collateral pledged, if any.
"Substandard" assets include those characterized by the "distinct possibility"
that the insured institution will sustain "some loss" if the deficiencies are
not corrected. Assets classified as "Doubtful" have all of the weaknesses
inherent in those classified "Substandard" with the added characteristic that
the weaknesses present make "collection or liquidation in full," on the basis of
currently existing facts, conditions and values, "highly questionable and
improbable." Assets classified as "Loss" are those considered "uncollectible"
and of such little value that their continuance as assets without the
establishment of a specific loss reserve is not warranted. Assets which do not
currently expose the insured institution to sufficient risk to warrant
classification in one of the aforementioned categories but possess weaknesses
are required to be designated "Special Mention."
When an insured institution classifies one or more assets, or portions
thereof, as Substandard or Doubtful, it is required to establish a general
valuation allowance for loan losses in an amount deemed prudent by management.
General valuation allowances represent loss allowances which have been
established to recognize the inherent risk associated with lending activities,
but which, unlike specific allowances, have not been allocated to particular
problem assets. When an insured institution classifies one or more assets, or
portions thereof, as "Loss," it is required either to establish a specific
allowance for losses equal to 100% of the amount of the asset so classified or
to charge off such amount.
A savings institution's determination as to the classification of its
assets and the amount of its valuation allowances is subject to review by the
Office of Thrift Supervision which can order the establishment of additional
general or specific loss allowances. The Office of Thrift Supervision, in
conjunction with the other federal banking agencies, has adopted an interagency
policy statement on the allowance for loan and lease losses. The policy
statement provides guidance for financial institutions on both
73
<PAGE>
the responsibilities of management for the assessment and establishment of
adequate allowances and guidance for banking agency examiners to use in
determining the adequacy of general valuation guidelines. Generally, the policy
statement recommends that institutions have effective systems and controls to
identify, monitor and address asset quality problems; that management has
analyzed all significant factors that affect the collectibility of the portfolio
in a reasonable manner; and that management has established acceptable allowance
evaluation processes that meet the objectives set forth in the policy statement.
Although management believes that, based on information currently available to
it at this time, its allowance for loan losses is adequate, actual losses are
dependent upon future events and, as such, further additions to the level of
allowances for loan losses may become necessary.
Our Investment Committee reviews and classifies our assets on a regular
basis and the Board of Directors reviews the results of the reports on a
quarterly basis. We classify assets in accordance with the management
guidelines described above. At December 31, 1998, we had $1.2 million, or 1.19%
of total assets, designated as Substandard. At such date, no assets were
classified as Doubtful or Loss in accordance with Office of Thrift Supervision
regulations. As of December 31, 1998, we did not have any classified loans
designated as Special Mention.
Non-Performing Assets and Impaired Loans. The following table sets forth
information regarding non-accrual loans and real estate owned. At December 31,
1998, we had $228,000 of real estate owned. It is our policy to cease accruing
interest on loans 90 days or more past due and to charge-off all accrued
interest. We do, however, continue accruing interest on loans 90 days or more
past due that are in the process of being renewed or extended. We believe that
all loans on nonaccrual status are well secured and have provided, when
necessary, for allocated reserves to bring specific loans to their net
realizable value. Each nonaccruing loan at December 31, 1998 is in process of
collection. For the years ended December 31, 1998 and 1997, no interest income
was recorded on nonaccrual loans. For the years ended December 31, 1998 and
1997, the amount of additional interest income that would have been recognized
on nonaccrual loans if such loans had continued to perform in accordance with
their contractual terms was $63,000 and $87,000, respectively. In 1993, we
adopted SFAS No. 114, "Accounting by Creditors for Impairment of a Loan" ("SFAS
No. 114"), as amended by SFAS No. 118. There were loans totaling $983,000 that
met the definition of impaired loans, per SFAS 114 at December 31, 1998. This
compares to $1.1 million for December 31, 1997.
74
<PAGE>
<TABLE>
<CAPTION>
At December 31,
---------------------------
1998 1997
<S> <C> <C>
(Dollars in thousands)
Non-accrual loans(1):
Mortgage loans:
One- to four-family.............................. $ 532 $ 612
Commercial real estate........................... 444 470
Construction and development..................... - -
Land and development............................. 7 -
Consumer and other loans........................... - -
Total non-accrual loans.......................... 983 1,082
Loans 90 days or more past due and accruing:
Construction and development....................... - -
Land and land development.......................... - -
Total accruing loans 90 days or more past due.... - -
Total non-performing loans............................. 983 1,082
Total foreclosed real estate........................... 228 353
------ ------
Total non-performing assets............................ $1,211 1,435
====== ======
Restructured loans..................................... - -
Non-performing loans to total loans.................... 1.16% 1.43%
====== ======
Non-performing assets to total assets.................. 1.20% 1.57%
====== ======
</TABLE>
_________
(1) Loans are presented before allowance for loan losses.
There were no restructured loans at December 31, 1998. Restructured loans
would include loans that were modified while delinquent. Although the amount
due under these loans would normally not be modified from the terms of the loans
when originated, certain adjustments may be made to these loans to help the
borrower make payments while the loans are delinquent and to enable us to avoid
foreclosure proceedings.
Allowance for Loan Losses. The allowance for loan losses is established
through a provision for loan losses based on management's evaluation of the
risks inherent in our loan portfolio and the general economy. The allowance for
loan losses is maintained at an amount management considers adequate to cover
estimated losses on loans which are deemed probable and estimable based on
information currently known to management. The allowance is based upon a number
of factors, including economic conditions, actual loss experience and industry
trends. In addition, various regulatory agencies, as an integral part of their
examination process, periodically review our allowance for loan losses. Such
agencies may require us to make additional provisions for estimated loan losses
based upon judgments different from those of management. As of December 31,
1998, our allowance for loan losses was 1.18% of total loans as compared to
1.15% as of December 31, 1997. We had non-performing loans of $983,000 at
December 31, 1998. We will continue to monitor and modify our allowances for
loan losses as conditions dictate. While management believes our allowance for
loan losses is sufficient to cover losses inherent in our loan portfolio at this
time, no assurances can be given that our level of allowance for loan losses
will be sufficient to cover loan losses incurred by us or that future
adjustments to the allowance for loan losses will not be necessary if economic
and other conditions differ substantially from the economic and other conditions
used by management to determine the current level of the allowance for loan
losses.
75
<PAGE>
The following table sets forth activity in our allowance for loan losses
for the periods as indicated.
<TABLE>
<CAPTION>
At or For the Year Ended December 31,
-------------------------------------
1998 1997
-------- --------
(Dollars in thousands)
<S> <C> <C>
Balance at beginning of period $ 866 $ 784
Provision for loan losses 108 60
Charge-offs:
Mortgage loans:
One- to four-family - -
Commercial real estate - -
Construction and development - -
Consumer loans (1) -
------ -----
Total charge-offs (1) -
Recoveries(1) 27 22
------ -----
Balance at end of period $1,000 $ 866
====== =====
Ratio of net recoveries during the period to average
net loans outstanding during the period .03% .03%
====== =====
Ratio of allowance for loan losses to total loans
receivable at the end of the period 1.18% 1.15%
====== =====
Ratio of allowance for loan losses to non-performing
loans at the end of the period 101.73% 80.04%
====== =====
</TABLE>
____________
(1) Consists of lease recoveries in a bankruptcy.
76
<PAGE>
The following table sets forth our percent of allowance for loan losses to
total allowance for loan losses and the percent of loans to total loans to total
loans in each of the categories listed at the dates indicated.
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------------------------------
1998 1997
-------------------------------------------- ------------------------------------------------
Percent Percent
of Loans of Loans
Percent of in Each Percent of in Each
Allowance Category Allowance Category
to Total to Total to Total to Total
Amount Allowance Loans Amount Allowance Loans
---------- ------------ ------------ ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
One- to four-family(1).. $ 593 59.30% 86.44% $496 57.27% 83.82%
Commercial real estate.. 193 19.30 3.68 163 18.82 3.31
Construction and
development.......... 130 13.00 7.11 116 13.40 7.05
Land and land
development.......... 14 1.40 .49 48 5.54 3.14
Consumer loans.......... 70 7.00 2.28 43 4.97 2.68
------ ------ ------ ---- ------ ------
Total allowance......... $1,000 100.00% 100.00% $866 100.00% 100.00%
====== ====== ====== ==== ====== ======
</TABLE>
________________
(1) Includes home equity lines of credit.
Real Estate Owned. At December 31, 1998, we had $228,000 of real estate
owned. At December 31, 1998, real estate owned consisted of two one- to four-
family properties. When we acquire property through foreclosure or by deed in
lieu of foreclosure, it is initially recorded at the lower of the recorded
investment in the corresponding loan or the fair value of the related assets at
the date of foreclosure, less costs to sell. Thereafter, if there is a further
deterioration in value, we provide for a specific valuation allowance and charge
operations for the diminution in value. It is our policy to have obtained an
appraisal on all real estate subject to foreclosure proceedings before the time
of foreclosure. It is our policy to require appraisals on foreclosed properties
and conduct inspections on foreclosed properties.
Investment Activities
We are authorized to invest in various types of liquid assets, including
U.S. Treasury obligations with terms of five years or less, U.S. Agency
obligations, including mortgage-backed securities with terms of five years or
less rated by a highly regarded rating service, such as Standard & Poors, as AA
or better with certain certificates of deposit of insured banks and savings
institutions, corporate obligations
77
<PAGE>
up to a maximum of 1.0% of our total assets that have terms of five years or
less and are rated by a highly regarded rating service, such as Standard &
Poors, as AA or better. We are also authorized to invest in mutual funds whose
assets conform to the investments that we are otherwise authorized to make
directly. In addition, at December 31, 1998, we owned approximately $1.2 million
of equity securities. At December 31, 1998, the equity securities consisted of
Freddie Mac and Fannie Mae stock.
Generally, our investment policy is to invest funds among various
categories of investments and maturities based upon our need for liquidity, to
achieve the proper balance between our desire to minimize risk and maximize
yield, and, to a much lesser extent, to provide collateral for borrowings and to
fulfill our asset/liability management policies. To date, our investment
strategy has been directed toward high-quality assets (primarily U.S. Treasury
obligations, federal agency obligations and high grade corporate debt
securities) with short and intermediate terms (five years or less) to maturity.
At December 31, 1998, the weighted average term to maturity for investment
securities available-for-sale and mortgage-backed and related securities held-
to-maturity was 4.2 years and 21.0 years, respectively. See "Notes to Financial
Statements" for information regarding the maturities of our securities.
Management determines the appropriate classification of securities at
the time of purchase. If management has the intent and ability to hold debt
securities to maturity, they are stated at amortized cost. If securities are
purchased for the purpose of selling them in the near term, they are classified
as trading securities and are reported at fair value with unrealized holding
gains and losses reflected in current earnings. All other debt and equity
securities are classified as securities available for sale and are reported at
fair value, with net unrealized gains or losses reported, net of income taxes,
as a separate component of equity. As a member of the Federal Home Loan Bank of
Atlanta, we are required to hold Federal Home Loan Bank of Atlanta stock which
is carried at cost since there is no readily available market value.
Historically, we have not held any securities considered to be trading
securities.
The following table sets forth certain information regarding the
amortized cost and fair value of our securities at the dates indicated.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------------
1998 1997
---------------------- ---------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
----------- -------- ---------- --------
(In thousands)
<S> <C> <C> <C> <C>
Investment securities, available-for-sale:(1)
U.S. Treasury and agency obligations $2,492 $2,504 $1,487 $1,500
Equity Securities 1,167 1,203 1,093 1,167
------ ------ ------ ------
Total investment securities $3,659 $3,707 $2,580 $2,667
====== ====== ====== ======
</TABLE>
78
<PAGE>
The following table sets forth certain information regarding the
amortized cost and fair values of our mortgage-backed and mortgage-related
securities, all of which were classified as held-to-maturity at the dates
indicated.
<TABLE>
<CAPTION>
At December 31,
-----------------------------------------
1998 1997
------------------ -------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- ------- --------- -------
<S> <C> <C> <C> <C>
(In thousands)
Investment securities, available-for-sale:(1)
U.S. Treasury and agency obligations $ -- $ -- $3,001 $2,987
Mortgage-backed securities held-to-maturity:
Fixed rate:
FHLMC pass-through securities 1,042 1,071 1,374 1,418
------ ------ ------ ------
Total mortgage-backed securities $1,042 $1,071 $4,375 $4,405
====== ====== ====== ======
</TABLE>
The following table sets forth our mortgage-backed securities activities
for the periods indicated.
<TABLE>
<CAPTION>
For the Year Ended
December 31,
-----------------------------------
1998 1997
----------- ----------
<S> <C> <C>
(In thousands)
Mortgage-backed securities:
At beginning of period $1,374 $1,497
Mortgage-back securities purchased -- --
Mortgage-backed securities sold -- --
Amortization and repayments (332) (123)
Balance of mortgage-backed $1,042 $1,374
securities at end of period ====== ======
</TABLE>
The table below sets forth certain information regarding the carrying
amount, weighted average yields and contractual maturities of our investment
securities, and mortgage-related securities as of December 31, 1998.
79
<PAGE>
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------------------------------
One Year or Less One to Five Years Five to Ten Years
----------------------------- ---------------------------- --------------------------
Weighted Weighted Weighted
Carrying Average Carrying Average Carrying Average
Amount Yield Amount Yield Amount Yield
-------------- ------------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Investment securities,
available-for-sale
U.S. Treasury and agency
obligations $ -- -- % $2,005 6.25% $499 6.08%
Equity securities 1,203 0.78 -- -- -- --
------ ----- ----- ----- ---- ----
Total investment securities $1,203 0.78% $2,005 6.25% $499 6.08%
====== ==== ====== ----- ---- ====
Mortgage-backed securities held-
to-maturity:
FHLMC pass through securities $ -- --% $ 26 10.50% $175 8.00%
======= ===== ====== ===== ==== ====
</TABLE>
<TABLE>
<CAPTION>
December 31, 1998
---------------------------------------------------------------------------------------
More than Ten Years Total
----------------------------- Average ---------------------------------------
Weighted Remaining Weighted
Carrying Average Years to Carrying Market Average
Amount Yield Maturity Amount Value Yield
-------------- ------------- ------------- ------------- ----------- -------------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment securities,
available-for-sale
U.S. Treasury and agency
obligations $ -- --% 4.2 $2,504 $2,504 6.22%
Equity securities -- --% -- 1,203 1,203 0.78
------ ----- ---- ------ ------ ----
Total investment securities $ -- 4.2 $3,707 $3,707 4.45%
====== ====== ====== ====
Mortgage-backed securities held-
to-maturity:
FHLMC pass through securities $ 841 7.83% 21.0 $1,042 $1,071 7.93%
====== ==== ===== ====== ====== ====
</TABLE>
Sources of Funds
General. Deposits, loan repayments and prepayments, maturities of
securities and cash flows generated from operations are the primary sources of
our funds for use in lending, investing and for other general purposes.
Deposits. We offer a variety of deposit accounts with a range of interest
rates and terms. Our deposits consist of passbook and statement savings
accounts, money market accounts, transaction accounts and time deposits
currently ranging in terms from one to five years. At December 31, 1998, the
balance of core deposits (savings and money market accounts) represented 41.1%
of total deposits. The flow of deposits is influenced significantly by general
economic conditions, changes in money market rates, prevailing interest rates
and competition. Our deposits are obtained predominantly from the areas
surrounding our offices. We have historically relied primarily on providing a
higher level of customer service and long-standing relationships with customers
to attract and retain these deposits and also rely on competitive pricing
policies and advertising; however, market interest rates and rates offered by
competing financial institutions significantly affect our ability to attract and
retain deposits. We have become more susceptible to short-term fluctuations in
deposit flows, as customers have become more interest rate conscious. We manage
the pricing of our deposits in keeping with our asset/liability management,
liquidity and
80
<PAGE>
profitability objectives. Based on our experience, we believe that our passbook
and statement savings, money market accounts and transaction accounts are
relatively stable sources of deposits. Our time deposits have been a relatively
stable source of funds as well, including the $39.0 million of certificates of
deposit maturing in one year or less; however, our ability to attract and
maintain time deposits and the rates paid on these deposits has been and will
continue to be significantly affected by market conditions. We are seeking
opportunities to increase transaction deposit accounts through aggressive
advertising, offering ATM services, and offering interest on such accounts. We
also intend to expand our deposit products to attract new customers, including
local businesses.
The following table presents our deposit activity for the periods
indicated:
<TABLE>
<CAPTION>
For the Year Ended
December 31,
-------------------------
1998 1997
--------- --------
(In thousands)
<S> <C> <C>
Net increase before interest credited $6,763 $3,593
Interest credited 3,046 2,830
------ ------
Net increase in deposits $9,809 $6,423
====== ======
</TABLE>
At December 31, 1998, we had $12.8 million in certificate accounts in
amounts of $100,000 or more maturing as follows:
<TABLE>
<CAPTION>
Amount
--------------
(In thousands)
<S> <C>
3 months or less $ 3,596
Over 3 through 6 months 1,818
Over 6 through 12 months 5,568
Over 12 months 1,774
-------
Total $12,756
=======
</TABLE>
81
<PAGE>
The following table sets forth the distribution of our deposit accounts as
of the dates indicated and the weighted average interest rates on each category
of deposits presented.
<TABLE>
<CAPTION>
At December 31,
----------------------------------------------------------------------------
1998 1997
------------------------------------- ------------------------------------
Percent Weighted Percent Weighted
of Total Average of Total Average
Balance Deposits Rate Balance Deposits Rate
---------- ------------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
(Dollars in thousands)
Noninterest bearing demand.................. $ 3,826 4.46% - % $ 2,281 3.01% - %
Interest bearing demand and savings......... 31,350 36.59 3.96 24,959 32.89 3.51
------- ------ ------- -----
Total..................................... 35,176 41.05 3.53 27,240 35.90 3.22
------- ------ ---- ------- ----- ----
Certificate accounts (1)(2):
Within 12 months.......................... 39,032 45.56 5.52 37,611 49.57 5.76
Over 12 months through 36 months.......... 8,355 9.75 5.83 7,982 10.52 5.90
Over 36 months............................ 3,123 3.64 6.04 3,044 4.01 6.06
------- ------ ---- ------- ----- ----
Total certificate accounts................ 50,510 58.95 5.60 48,637 64.10 5.80
------- ------ ---- ------- ----- ----
Total deposits............................ $85,686 100.00% 4.75% $75,877 100.0% 4.87%
======= ====== ==== ======= ===== ====
</TABLE>
________________
(1) Based on remaining maturity of certificates.
(2) Includes retirement accounts such as IRA and Keogh accounts.
The following table presents by various rate categories, the amount of
certificate accounts outstanding at the dates indicated and the periods to
maturity of the certificate accounts outstanding at December 31, 1998.
82
<PAGE>
<TABLE>
<CAPTION>
Period to Maturity from
December 31, 1998
--------------------------------------
At December 31,
--------------------
Less than One to Over
One Three Three
Year Years Years 1998 1997
----------- ---------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(Dollars in thousands)
Certificate
Accounts:
0 to 4.00% $ 30 $ 22 $ $ 52 $ 36
4.01% to 5.00%... 3,732 229 31 3,992 949
5.01% to 6.00%... 33,696 7,476 811 41,983 40,755
6.01% to 7.00%... 1,332 2,580 108 4,020 6,161
7.01% to 8.00%... 241 180 42 463 732
8.01% to 9.00%... -- -- -- -- 4
Total....... $39,031 $10,487 $991 $50,510 $48,637
======= ======= ==== ======= =======
</TABLE>
Borrowings. As part of our operating strategy, we have utilized advances
from the Federal Home Loan Bank as an alternative to retail deposits to fund our
operations when borrowings are less costly and can be invested at a positive
interest rate spread or when we need additional funds to satisfy loan demand.
By utilizing Federal Home Loan Bank advances, which possess varying stated
maturities, we can meet our liquidity needs without otherwise being dependent
upon retail deposits and revising our deposit rates to attract retail deposits,
which have no stated maturities, except for certificates of deposit, which are
interest rate sensitive and which are subject to withdrawal from us at any time.
These Federal Home Loan Bank advances are collateralized primarily by certain of
our mortgage loans and secondarily by our investment in capital stock of the
Federal Home Loan Bank. Federal Home Loan Bank advances are made pursuant to
several different credit programs, each of which has its own interest rate and
range of maturities. The maximum amount that the Federal Home Loan Bank will
advance to member institutions, including us, fluctuates from time to time in
accordance with the policies of the Federal Home Loan Bank. See "Regulation and
Supervision - Federal Home Loan Bank System." At December 31, 1998, we had $5.0
million in outstanding advances from the Federal Home Loan Bank. We have
borrowing capacity at December 31, 1998 of $8.5 million.
The following table sets forth certain information regarding our borrowed
funds at or for the periods ended on the dates indicated:
83
<PAGE>
<TABLE>
<CAPTION>
At or For the Year Ended
December 31,
--------------------------
1998 1997
--------- ----------
<S> <C> <C>
(In thousands)
FHLB advances:
Average balance outstanding (monthly)................. $5,307 $4,833
Maximum amount outstanding at any month-end during
the period........................................... 6,000 6,000
Balance outstanding at end of period.................. 5,000 6,000
Weighted average interest rate during period.......... 5.75 4.92
Weighted average interest rate at end of period....... 5.60 6.49
</TABLE>
Subsidiary
Our service corporation subsidiary, Pinehurst Properties, LLC, successor by
merger on April __, 1999 to Pinehurst Corporation, is involved in the
development of residential real estate. Pinehurst Properties is involved in two
developments. One is a gated residential community consisting of 33 lots, of
which 16 had been sold as of December 31, 1998. The second development is a more
traditional subdivision project that has been divided into two phases; Phase I
consists of 61 lots and Phase II consists of 81 lots. As of December 31, 1998,
none of the lots in this development had been sold. Douglas Federal had made
loans totaling approximately $1.9 million in the aggregate as of December 31,
1998, to builders to finance the construction of single-family homes on lots
sold by Pinehurst Corporation, the predecessor of Pinehurst Properties, LLC.
Properties
We conduct our business through an executive and one other full service
branch office. We own both offices. The following table sets forth information
regarding our properties.
<TABLE>
<CAPTION>
Original Year Net Book Value of Property
Location Acquired at December 31, 1998
-------- ------------- --------------------------
<S> <C> <C>
Executive/Main Branch Office:
8458 Campbellton Street
Douglasville, Georgia 30134-1803 September 1969 $150,000
Branch Office:
1855 Thornton Road
Lithia Springs, Georgia 30122-2619 June 1973 $158,000
</TABLE>
84
<PAGE>
We also own property for possible branch expansion or a new main office
located at Chapel Hill Road and Interstate 20, Douglasville, Georgia. The net
book value of this property as of December 31, 1998 is $246,000. Our subsidiary,
Pinehurst Properties, LLC, owns approximately 80 acres of real property located
in Douglasville, Georgia, that has been subdivided and is being currently
developed and sold as residential lots. We also own property for possible branch
expansion located at Douglas Boulevard and Brightstar Road in Douglasville. The
net book value of this property as of December 31, 1998, is $400,606.
Legal Proceedings
We are not involved in any pending legal proceedings other than routine
legal proceedings occurring in the ordinary course of business. Such routine
legal proceedings, in the aggregate, are believed by management to be immaterial
to our financial condition or results of operations.
Personnel
As of March 1, 1999, we had 35 full-time employees and 4 part-time
employees. The employees are not represented by a collective bargaining unit
and we consider our relationship with our employees to be good. See "Management
of Douglas Federal - Benefits Plans" for a description of certain compensation
and benefit programs offered to our employees.
85
<PAGE>
MANAGEMENT OF FIRST DEPOSIT
Directors of First Deposit
The Board of Directors of First Deposit is divided into three classes, two
of which contains three persons and one of which contains two persons. The
directors will be elected by First Deposit's shareholders for staggered three
year terms, or until their successors are elected and qualified. One class of
directors, consisting of Messrs. Boyd and J. Fowler, has a term of office
expiring at the first annual meeting of shareholders, a second class, consisting
of Messrs. King, Zellars and A. Fowler, has a term expiring at the second annual
meeting of shareholders and a third class, consisting of Messrs. Abercrombie,
Higgins and Belyeu, has a term of office expiring at the third annual meeting of
shareholders. The biographical information of each director is contained in
"Management of Douglas Federal - Biographical Information." It is currently
intended that directors of First Deposit will receive no additional fees for
their services as directors of First Deposit.
Executive Officers of First Deposit
The following individuals are executive officers of First Deposit and hold
the offices indicated opposite their names. The biographical information for
each executive officer is contained in "Management of Douglas Federal -
Biographical Information."
<TABLE>
<CAPTION>
Name Position(s) Held With First Deposit
- ---- --------------------------------------
<S> <C>
Danny A. Belyeu Chairman of the Board of Directors
Alpha A. Fowler, Jr. Vice Chairman of the Board of Directors
J. David Higgins President, Chief Executive Officer and Treasurer
John L. King Senior Vice President and Chief Financial Officer
Patricia Owen Secretary
</TABLE>
The executive officers of First Deposit are elected annually and hold
office until their respective successors have been elected and qualified or
until death, resignation, retirement or removal by the Board of Directors.
Since the formation of First Deposit, none of the executive officers,
directors or other personnel has received remuneration from First Deposit.
Information concerning the principal occupations, employment and other
information concerning the directors and officers of First Deposit during the
past five years is described in "Management of Douglas Federal - Biographical
Information."
86
<PAGE>
MANAGEMENT OF DOUGLAS FEDERAL
Directors
The directors of First Deposit are also our directors. Our current
directors will remain directors of Douglas Federal after the conversion. The
following table sets forth certain information regarding our Board of Directors.
<TABLE>
<CAPTION>
Position(s) Held Director Term
Name Age (1) With Us Since Expires
- ------------------- -------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Alpha A. Fowler, Jr. 78 Chairman and Chief 1960 2000
Executive Officer
J. David Higgins 61 President, Treasurer 1990 2001
John L. King 46 Senior Vice President, Controller 1993 2000
and Director
Mac C. Abercrombie, Jr. 69 Director 1993 2001
Danny A. Belyeu 54 Director 1979 2001
Carlton H. Boyd 67 Director 1984 2002
Joseph H. Fowler 47 Director 1984 2002
John B. Zellars 75 Director 1990 2000
</TABLE>
________________
(1) As of February 10, 1999.
Executive Officers Who Are Not Directors
<TABLE>
<CAPTION>
Name Age (1) Position(s) Held With Us
- --------------------------------------------- ------------- ----------------------------------------
<S> <C> <C>
Patricia Owen 54 Vice President and Secretary
Michael Coggin 54 Vice President
</TABLE>
_______________
(1) As of February 10, 1999.
Our executive officers are elected annually and will hold office until the
annual meeting of the Board of Directors held immediately after the first annual
meeting of our shareholders after the conversion, and until their successors are
elected and qualified or until death, resignation, retirement or removal by the
Board of Directors. Officers are re-elected by the Board of Directors annually.
Biographical Information
Alpha A. Fowler, Jr. has served as our Chairman of the Board of Directors
and Chief Executive Officer since 1994. Mr. Fowler co-founded us in 1960 and
has been a director and officer since then. Mr. Fowler also served on the
Georgia Public Service Commission from 1965 to 1970 and represented Douglas
County in the Georgia House of Representatives from 1946 to 1960.
87
<PAGE>
Mac C. Abercrombie, Jr. has served on our Board since 1993. Mr.
Abercrombie currently serves as Vice Chairman of the Board of Commissioners of
Douglas County, on which he has served since 1992. Mr. Abercrombie also served
as Sheriff of Douglas County from 1965 to 1973.
Carlton H. Boyd has served on our Board since 1984. Mr. Boyd was the Vice
President and General Manager of a local automobile dealership for over 45 years
and is now semi-retired.
Danny A. Belyeu has served on our Board since 1979. Mr. Belyeu has owned
and operated an automobile dealership since 1980.
Joseph H. Fowler has served on our Board since 1984. Mr. Fowler has
practiced law with the law firm of Hartley, Rowe & Fowler, P.C. of Douglasville,
Georgia since 1978.
John B. Zellars has served on our Board since 1990. Mr. Zellars also has
served as Vice Chairman of the Federal Home Loan Bank. Mr. Zellars has served
previously as the Chairman and Chief Executive Officer of Georgia Federal
Savings Bank and as the Chairman of the United States League of Savings
Institutions.
J. David Higgins has served on our Board since 1990. He has served as our
President and Treasurer since 1994. Before joining us, Mr. Higgins served for
four years as a Regional Branch Manager for California Federal Savings & Loan.
John L. King has served as our Senior Vice President since 1994, as our
Controller since 1985, and has served on our Board since 1993. Before joining
us, Mr. King worked for Georgia Federal Bank as the financial reporting and tax
manager, First Atlanta Corporation as an accounting officer and for the Internal
Revenue Service as an agent.
Patricia Owen has served us in various capacities since 1973, and presently
serves as our Vice President and as Secretary of us and our Service Corporation.
Michael Coggin has served as our Vice President and Vice President of Real
Estate Development for our Service Corporation since 1999. Before joining us,
Mr. Coggin had served as Vice President of Marketing Services for Russell
Corporation since 1994.
Meetings and Committees of the Boards of Directors of Douglas Federal and First
Deposit
Our Board of Directors meets monthly and may have additional special
meetings as may be called in the manner specified in the Bylaws. During the
year ended December 31, 1998, the Board held 12 meetings. For the year ended
December 31, 1998, no Director attended fewer than 75% in the aggregate of the
total number of meetings of the Board or Committees on which such Director
served.
Our Board of Directors has established the following committees:
The Executive Committee consists of Messrs. A. Fowler, Belyeu, and
Abercrombie. This committee also acts as our loan committee and acts for the
Board on matters not requiring action by the full Board between regular meetings
of the Board. The committee meets on an as-needed basis and met 51 times in
fiscal year 1998.
The Audit Committee consists of Messrs. J. Fowler and Zellars. The
committee meets annually or as necessary with our private auditors to review the
annual audit report and any other matters of concern. The Audit Committee will
make a report at least annually to the Board of Directors on the findings of the
annual audit report.
Additionally, the Board has established the following committees composed
of directors and/or management: the Investment Committee, the Appraisal
Committee, the Construction Loan Inspection Committee, the Compliance Committee
and the Compensation Committee.
88
<PAGE>
Compensation of Directors
All of our outside Directors receive an annual retainer of $3,000 to be
paid quarterly. In addition, each Director receives a fee of $500 for each
regular meeting which they attend and members of committees receive a fee of
$400 for each committee meeting attended.
Executive Compensation
The following table sets forth the cash compensation we paid for services
rendered in all capacities during the fiscal year ended December 31, 1998, to
our Chairman and Chief Executive Officer and to our President. None of our
other executive officers received salary and bonus in excess of $100,000 in
1998.
<TABLE>
<CAPTION>
Annual Compensation
----------------------- All Other
Name and Principal Position Year Salary Bonus Compensation
- -------------------------------------- ---- ------- -------- -----------------------
<S> <C> <C> <C> <C>
Alpha A. Fowler, Jr. 1998 $53,000 $ 5,000 $ 8,745(1)
Chairman and Chief Executive
Officer
J. David Higgins 1998 $79,000 $25,000 $13,035(1)
President and Treasurer
</TABLE>
_______________
(1) Consists of contributions to our profit sharing plan.
Employment Agreements
Upon the conversion, First Deposit and Douglas Federal intend to enter into
employment agreements with Messrs. A. Fowler, Higgins and King. The employment
agreements are subject to the review and approval of the Office of Thrift
Supervision and may be amended as a result of such Office of Thrift Supervision
review. Review of compensation arrangements by the Office of Thrift Supervision
does not indicate, and should not be construed to indicate, that the Office of
Thrift Supervision has passed on the merits of such arrangements. The employment
agreements are intended to ensure that we will be able to maintain a stable and
competent management base after the conversion. Our continued success depends to
a significant degree on the skills and competence of Messrs. A. Fowler, Higgins
and King. We do not currently hold "key man" life insurance on any executive
officer.
The employment agreement with Alpha A. Fowler, Jr. provides that he shall
continue to serve as Chairman and Chief Executive Officer of Douglas Federal and
shall serve as Vice Chairman of First Deposit. During the term of this
Agreement, Mr. Fowler will receive:
. an annual salary of $58,300, which is subject to discretionary annual
increases by our Board of Directors;
. benefits under other programs that are maintained for employees of
Douglas Federal or First Deposit generally;
. reimbursements for reasonable business expenses; and
. the medical, dental and other healthcare benefits as are extended to
other management personnel.
89
<PAGE>
The agreement has an initial term of three years and may be renewed for a one-
year term on the third anniversary by agreement of the parties. If the
agreement is terminated by us for cause, as defined in the agreement, or by Mr.
Fowler without good reason, as defined in the agreement, Mr. Fowler will receive
only such salary amounts as are due and owed to him through the effective date
of the termination. If he is terminated without cause or upon permanent
disability, or if he terminates his employment with good reason, 60 days' prior
written notice of intent to terminate is required and Mr. Fowler will receive a
termination payment equal to his average monthly compensation (as defined below)
for the remaining term of the agreement. Average monthly compensation means the
quotient determined by dividing (a) the greater of (1) Mr. Fowler's then current
base salary, or (2) the highest average of his base salary for the most recent
three consecutive 12-month periods during which he was employed by us
immediately before the effective date of the termination by (b) twelve (12). In
addition, Mr. Fowler has agreed not to engage in the community banking business
or become involved in a bank holding company within a 20-mile radius of any of
our existing offices or facilities for a period equal to the greater of 12
months or the remainder of the term of the Agreement following his termination
for any reason, and not to solicit our customers or employees within the same
geographic area for the same period of time.
We also intend to enter into employment agreements with Messrs. Higgins
and King that contain essentially identical terms and conditions, except that
the base salaries set forth in such agreements are $86,900 for Mr. Higgins and
$75,000 for Mr. King. The employment agreements will become effective as of
June 17, 1999.
Insurance Plans
All of our full-time employees, upon completion of the applicable
introductory period, are covered as a group for comprehensive hospitalization,
including major medial and long- term disability insurance. Life insurance is
also provided to employees and directors.
Benefit Plans
Profit Sharing Plan. We have a profit sharing plan pursuant to which we
may contribute on an after-tax basis from 2.0% to 15.0% of an employee's salary,
including any bonus, in increments of 1.0%. Employees are enrolled in our
profit sharing plan on the first of the month following the date on which we
have continuously employed the employee for one year (during which the employee
has completed at least 1000 hours) and the employee has attained age 21. The
amounts we contribute to the profit sharing plan are discretionary and are
contributed on an annual basis. Our contribution to the profit sharing plan is
allocated to each employee in the same ratio as such employee's salary bears to
the total compensation of all employees participating in the plan during the
year of the contribution. Following the conversion, we plan to discontinue
contributions under this plan.
Employee Stock Ownership Plan ("ESOP"). In connection with the
conversion, we also intend to implement an ESOP. An ESOP is a special type of
tax-qualified defined contribution retirement plan designed to invest primarily
in prescribed types of employer securities, including common stock. An ESOP is
funded by employer contributions, in the form of either cash or stock. The ESOP
holds funds in trust for the benefit of eligible employees and their
beneficiaries, and uses such funds to buy stock from existing shareholders or
directly from the employer. Beyond providing additional retirement benefits, an
ESOP provides eligible employees with an opportunity to become "owners" of the
employer (or an affiliate of the employer) and to participate in the potential
appreciation in the value of the stock.
90
<PAGE>
Each of our employees who has satisfied the ESOP eligibility
requirements may become a participant in our ESOP. The ESOP is intended
primarily to provide benefits when a participant retires on or after age 65.
The ESOP also provides benefits before age 65 if the participant becomes totally
and permanently disabled or if the participant dies with an amount to his or her
credit under the ESOP. A participant may also be entitled to a benefit under
the ESOP if the participant leaves us for reasons other than retirement,
disability or death.
A participant will become vested in a percentage of his or her ESOP
account in accordance with the following schedule:
Years of Service Percentage
---------------- ----------
Fewer than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
Regardless of the number of his or her years of service, a participant will
become fully vested in his or her ESOP account if he or she is employed by us at
age 65, if he or she becomes totally and permanently disabled while working for
us or if he or she dies while employed.
The amount of a participant's benefit under the ESOP depends on a number
of factors, including our contributions, the amount of the participant's
compensation, the amounts forfeited by participants who leave their jobs with us
before their benefits are vested and the value of the ESOP Stock (described
below). Thus, the value of a participant's ultimate benefit under the ESOP
cannot be predicted.
The ESOP intends to purchase 8.0% of the common stock issued in
connection with the conversion (the "ESOP Stock"). As part of the conversion
and in order to fund the ESOP's purchase of the ESOP Stock, the ESOP intends to
borrow from First Deposit an amount equal to 100% of the aggregate purchase
price of the ESOP Stock. The term of such loan will be 10 years. The interest
rate on the loan is expected to be at or near the prime rate, which is currently
7.75%. The ESOP Stock purchased with the loan proceeds will serve as collateral
for the loan. Based on the sale of 1,071,000 shares or 1,449,000 shares at the
minimum and maximum of the estimated price range, the amount of the loan to the
ESOP would be $856,800 or $1,159,200, respectively (or $1,333,080 if the
estimated price range is increased by 15.0%). We will make annual contributions
to the ESOP to enable the ESOP's trustees to repay the loan. Additionally, any
dividends First Deposit may pay with respect to the ESOP Stock First Deposit may
also use to repay the loan.
The ESOP will hold the common stock purchased with the loan proceeds in
a suspense account, which stock will be released from the suspense account each
year in accordance with the method of release selected by the administrative
committee administering the ESOP. While held in the suspense account, the ESOP
Stock is pledged as collateral for the ESOP loan. The ESOP can provide no other
security. When released from the suspense account, the ESOP Stock will be
allocated to the accounts of the participants. Each participant's share of the
ESOP Stock released from the suspense account will be that number of shares of
ESOP Stock which his or her compensation for the plan year bears to the
compensation of all eligible employees entitled to share in our contribution for
the plan year.
91
<PAGE>
We will appoint three individuals to serve as the ESOP's trustees.
Subject to their fiduciary duties, the trustees will vote the shares of the ESOP
Stock allocated to each participant's ESOP account in accordance with the
participant's instructions. The trustees will vote those shares of ESOP Stock
for which they do not receive timely instructions, or that have not been
allocated to the accounts of participants, as directed by the ESOP's
administrative committee.
Stock Option Plan. Following the conversion, the Board of Directors of
First Deposit intends to adopt a stock-based benefit plan which would provide
for the granting of options to purchase common stock to certain individuals.
Currently, First Deposit anticipates granting stock options under a single stock
option plan covering full-time employees and outside directors of First Deposit
and its affiliates. However, it is possible that First Deposit may establish a
separate option plan solely for outside directors. At a meeting of shareholders
of First Deposit following the conversion, which under applicable regulations
may not be held earlier than six months after the completion of the conversion,
the Board of Directors intends to present the stock option plan to shareholders
for approval. First Deposit anticipates reserving an amount equal to 10.0% of
the shares of common stock issued in the conversion, or 144,900 shares based
upon the issuance of 1,449,000 shares, for issuance under the stock option plan.
No specific award determinations have been made at this date.
First Deposit intends to design the stock option benefits provided under
the stock option plan to attract and retain qualified personnel in key
positions, provide officers and key employees with a proprietary interest in
First Deposit as an incentive to contribute to the success of First Deposit and
reward key employees for outstanding performance. First Deposit may condition
the granting or vesting of stock options on the achievement of individual or
company-wide performance goals, including the achievement by First Deposit or
Douglas Federal of specified levels of net income, asset growth, return on
equity or other specific financial performance goals. First Deposit anticipates
that the stock option plan will provide for the grant of:
. options for employees to purchase First Deposit's common stock
intended to qualify as incentive stock options under Section 422 of
the Internal Revenue Code;
. options for all participants that do not qualify as incentive stock
options or "Non-Statutory Stock Options"; and
. limited rights (discussed below) which participants may exercise only
upon a change in control of First Deposit.
Unless sooner terminated, the stock option plan will be in effect for a period
of ten years from the earlier of adoption by the Board of Directors or approval
by First Deposit's shareholders. If such plan is adopted within one year after
conversion, Office of Thrift Supervision regulations provide that none of our
individual officers or employees may receive more than 25.0% of the stock
options available under the stock option plan and non-employee directors may not
receive more than 5.0% individually, or 30.0% in the aggregate, of the stock
options available under the stock option plan. First Deposit intends to grant
options with limited rights under the stock option plan at an exercise price
equal to the fair market value of the underlying common stock on the date of
grant. Subject to any applicable regulations, upon exercise of limited rights
in the event of a change in control, the employee will be entitled to receive a
lump sum cash payment equal to the difference between the exercise price of the
related option and the fair market value of the shares of common stock subject
to the option on the date of exercise of the right in lieu of purchasing the
stock underlying the option. First Deposit anticipates that all options granted
92
<PAGE>
contemporaneously with shareholder approval of the stock option plan will
qualify as incentive stock options to the extent permitted under Section 422 of
the Internal Revenue Code.
A committee of the Board of Directors will administer the stock option
plan and will determine which officers and employees may receive options,
whether such options will qualify as incentive stock options, the number of
shares underlying each option, the exercise price of each option, the manner of
exercise of the options and the time when such options become exercisable.
If First Deposit adopts an option plan in the form described above, an
employee will not realize taxable income upon grant or exercise of any incentive
stock option, provided that the employee does not dispose of the shares received
through the exercise of such option for at least one year after the date the
employee receives the stock in connection with the option exercise and two years
after the date of grant of the option (a "disqualifying disposition"). First
Deposit may not take a compensation expense deduction with respect to the grant
or exercise of incentive stock options, unless the employee disposes of the
shares in a disqualifying disposition. In the case of a non-statutory stock
option and in the case of a disqualifying disposition of an incentive stock
option, an employee will be deemed to receive ordinary income upon exercise of
the stock option in an amount equal to the amount by which the fair market value
of the common stock on the date of exercise exceeds the exercise price of the
option. The amount of taxable income realized by an optionee upon the exercise
of a non-statutory stock option or due to a disqualifying disposition of shares
acquired through the exercise of an incentive stock option are a deductible
expense for tax purposes by First Deposit.
Stock options under an option plan adopted by First Deposit would become
vested and exercisable in the manner specified by the committee responsible for
administering the plan, subject to applicable regulations. If the stock option
plan is adopted within one year after the conversion, awards would become vested
and exercisable subject to applicable Office of Thrift Supervision regulations,
which such regulations require that any awards begin vesting not earlier than
one year from the date of shareholder approval of the plan and, thereafter, vest
at a rate of no more than 20.0% per year and may not be accelerated except in
case of death or disability. First Deposit anticipates options granted in
connection with the stock option plan will remain exercisable for at least three
months following the date on which the employee ceases to perform services for
Douglas Federal or First Deposit, except that in the event of death or
disability, in which cases options accelerate and become fully vested and remain
exercisable for up to one year thereafter, or such longer period as determined
by First Deposit. However, any incentive stock options exercised more than
three months following the date the employee ceases to perform services as an
employee, other than termination due to death or disability, would be treated
for tax purposes as a non-statutory stock option. First Deposit also
anticipates that in the event of retirement, if the optionee continues to
perform services as a director or consultant on behalf of Douglas Federal, First
Deposit or an affiliate, unvested options would continue to vest in accordance
with their original vesting schedule until the optionee ceases to serve as our
director or consultant. If the stock option plan is adopted in the form
described above, First Deposit, if requested by the optionee, could elect, in
exchange for vested options, to pay the optionee, or beneficiary in the event of
death, the amount by which the fair market value of the common stock exceeds the
exercise price of the options on the date of the employee's termination of
employment.
All options granted to outside directors under an option plan must, by
law, be non-statutory stock options and would vest and become exercisable in a
manner specified by the committee, in compliance with applicable regulations,
and would expire upon the earlier of ten years following the date of grant or
one year following the date the optionee ceases to be a director or consultant.
In the event of
93
<PAGE>
the death or disability of a participant, all previously granted options would
immediately vest and become fully exercisable.
In compliance with any applicable regulations, the stock option plan
described above may be amended after the expiration of the one-year period to
provide for accelerated vesting of previously granted options in the event of a
change in control of First Deposit or Douglas Federal. A change in control
would be defined in the plan document and would generally occur when a person or
group of persons acting in concert acquires beneficial ownership of 20.0% or
more of any class of equity security of First Deposit or Douglas Federal or in
the event of a tender or exchange offer, merger or other form of business
combination, sale of all or substantially all of the assets of First Deposit or
Douglas Federal or contested election of directors which resulted in the
replacement of a majority of the Board of Directors by persons not nominated by
the directors in office before the contested election.
Restricted Stock Program. Following the conversion, First Deposit
intends to establish a restricted stock program which would provide for the
grant of stock awards to our officers, employees and non-employee directors as a
method of providing officers, employees and non-employee directors with a
proprietary interest in First Deposit in a manner designed to encourage such
persons to continue their employment with us. The benefits under the restricted
stock program may be provided for under either a separate plan for officers and
employees and a separate plan for outside directors or may be combined with the
stock option plan. First Deposit intends to present the restricted stock
program for shareholder approval at a meeting of shareholders, which First
Deposit may hold no earlier than six months after the completion of the
conversion.
First Deposit expects to contribute funds to the restricted stock
program to enable such plan to acquire, in the aggregate, an amount equal to
4.0% of the shares of common stock issued in the conversion, or 57,960 shares
based upon the issuance of 1,449,000 shares. First Deposit will acquire these
shares through open market purchases, if permitted, or from authorized but
unissued shares. Although no specific award determinations have been made at
this date, First Deposit anticipates that it will provide stock awards to our
directors, officers and employees or their affiliates to the extent permitted by
applicable regulations. If such program is adopted within one year after
conversion, Office of Thrift Supervision regulations provide that no individual
officer or employee may receive more than 25.0% of the stock awards available
under the restricted stock program, and non-employee directors may not receive
more than 5.0% individually, or 30.0% in the aggregate, of the stock awards
available under the restricted stock program. Shares of common stock granted
under to the restricted stock program will be awarded at no cost to the
recipients. Our officers, directors and employees will also be eligible
recipients under a stock option plan, if a stock option plan is adopted.
A committee of the Board of Directors will administer the restricted
stock program. Stock awards will not be transferable or assignable. First
Deposit may make allocations and grants to officers and employees under the
restricted stock program in the form of non performance-based grants and/or
performance-based grants. First Deposit may make the granting or vesting of
stock awards under the restricted stock program conditioned upon the achievement
of individual or company-wide performance goals, including First Deposit's or
Douglas Federal's achievement of specified levels of net income, return on
assets, return on equity or other specified financial performance goals and will
be in compliance with applicable regulations. If First Deposit adopts the
restricted stock program (or any separate plans for employees and directors)
within one year after the conversion, awards would become vested in compliance
with applicable Office of Thrift Supervision regulations, which such regulations
require that any awards begin vesting not earlier than one year from the date of
shareholder approval of the program
94
<PAGE>
and, thereafter, vest at a rate of no more than 20.0% per year and may not be
accelerated except in case or death or disability.
In the event of death, stock awards will become 100% vested. In the
event of disability, stock awards would be 100% vested upon termination of
employment of an officer or employee, or upon termination of service as a
director. In the event of retirement, if the participant continues to perform
services as a director or consultant on behalf of us, First Deposit or an
affiliate or, in the case of a retiring director or as a consulting director,
unvested stock awards will continue to vest in accordance with their original
vesting schedule until the recipient ceases to perform such services at which
time any unvested stock awards would lapse.
The restricted stock program described above may be amended after the
expiration of the one-year period to provide for accelerated vesting of shares
granted under the restricted stock program in the event of a change in control
of Douglas Federal or First Deposit in accordance with applicable regulations.
A change in control, which will be defined in the plan document, generally
occurs when a person or group of persons acting in concert acquires beneficial
ownership of 20.0% or more of a class of equity securities of First Deposit or
Douglas Federal or in the event of a tender or exchange offer, merger or other
form of business combination, sale of all or substantially all of the assets of
First Deposit or Douglas Federal or contested election of directors which
results in the replacement of a majority of the Board of Directors by persons
not nominated by the directors in office before the contested election.
When shares become vested in accordance with the restricted stock
program described above, the participants will recognize taxable income equal to
the fair market value of the common stock at that time. First Deposit may take
a deduction equal to that amount for the year in which it becomes taxable to the
individual. When shares become vested and are actually distributed in
accordance with the restricted stock program, the participants also receive
amounts equal to any accrued dividends with respect thereto. Before vesting,
recipients of grants may direct the voting of the shares awarded to them.
Shares not subject to grants and shares allocated subject to the achievement of
performance goals will be voted by the trustee of the restricted stock program
in accordance to the directions provided by individuals with respect to shares
subject to grants. Vested shares will be distributed to recipients as soon as
practicable following the day on which they are vested.
In the event that the restricted stock program acquires additional
authorized but unissued shares after the conversion, the interests of existing
shareholders would be diluted. See "Pro Forma Data."
Certain Transactions
Federal regulations require that all loans or extensions of credit to
executive officers and directors must be made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with the general public and must not involve more than
the normal risk of repayment or present other unfavorable features. In
addition, loans made to a principal shareholder, director or executive officer
or their related interests in excess of the greater of $25,000 or 5.0% of our
capital and surplus must be approved in advance by a majority of the
disinterested members of the Board of Directors.
We may extend credit to an executive officer:
95
<PAGE>
. in any reasonable and legally permissible amount to finance the
education of the executive officer's children;
. in any reasonable and legally permissible amount to finance the
purchase, construction, maintenance or improvement of the
executive officer's primary residence when secured by a first
lien and no other such loan is outstanding; or
. for any other purpose not specifically authorized, if the
aggregate amount of such loans to our executive officer at any
one time does not exceed the higher of $25,000 or 2.5% of our
capital and unimpaired surplus, but in no event shall such
extensions of credit be more $100,000.
At December 31, 1998, we had approximately $149,819 in loans to our
directors and executive officers. All loans to executive officers and directors
were performing in accordance with their original terms at December 31, 1998.
We do not extend credit to a director or any related interest of that
individual, in an amount that when aggregated, is more than our legal lending
limit. Loans to employees and nonexecutive officers do not need the prior
approval of our Board of Directors, though all such loans must be made
exclusively by one of our senior officers. All such loans shall also be subject
to the general restrictions outlined in the paragraph above and must be reported
to the Board of Directors when the aggregate amount of the extensions of credit
to any one employee or nonexecutive officer exceeds $500,000.
We do not extend credit or grant a line of credit to our directors,
executive officers, or to any related interest of those individuals, in an
amount that when aggregated with all other extensions of credit to these
individuals and their related interests, exceeds the regulatory percentage of
our total equity capital and reserves. We do not prohibit any extension of
credit made under to a benefit or compensation program that is widely available
to our employees and that does not give preference to any insider over our other
employees.
96
<PAGE>
FEDERAL AND STATE TAXATION
Federal Taxation
General. We will report our income on a December 31 fiscal year basis
using the accrual method of accounting and will be taxed in the same manner as
other corporations with some exceptions, including particularly our reserve for
bad debts discussed below. The following discussion of tax matters is intended
only as a summary and does not purport to be a comprehensive description of the
tax rules applicable to us.
Bad Debt Reserve. Historically, savings institutions such as ours which
met certain definitional tests primarily related to their assets and the nature
of their business ("qualifying thrifts") were permitted to establish a reserve
for bad debts and to make annual additions thereto, which are deducted in
arriving at their taxable income. Our deductions with respect to "qualifying
real property loans," which are generally loans secured by certain interest in
real property, were computed using an amount based on our actual loss
experience, or a percentage equal to 8.0% of our taxable income, computed with
certain modifications and reduced by the amount of any permitted addition to the
non-qualifying reserve. Due to our loss experience, we generally recognized a
bad debt deduction equal to 8.0% of taxable income.
In August 1996, the provisions repealing the above thrift bad debt rules
were passed by Congress as part of "The Small Business Job Protection Act of
1996." The new rules eliminate the 8.0% of taxable income method for deducting
additions to the tax bad debt reserves for all thrifts for tax years beginning
after December 31, 1995. These rules also require that all thrift institutions
recapture all or a portion of their bad debt reserves added since the base year
(last taxable year beginning before January 1, 1988). We have previously
recorded a deferred tax liability equal to the bad debt recapture and as such,
the new rules will have no effect on net income or federal income tax expense.
For taxable years beginning after December 31, 1995, our bad debt deduction will
be equal to net charge-offs. The new rules allow an institution to suspend the
bad debt reserve recapture for the 1996 and 1997 tax years if the institution's
lending activity for those years is equal to or greater than the institution's
average mortgage lending activity for the six taxable years preceding 1996. For
this purpose, only home purchase and home improvement loans are included and the
institution can elect to have the tax years with the highest and lowest lending
activity removed from the average calculation. If an institution is permitted
to postpone the reserve recapture, it must begin our six year recapture no later
than the 1998 tax year. The unrecaptured base year reserves will not be subject
to recapture as long as the institution continues to carry on the business of
banking. In addition, the balance of the pre-1988 bad debt reserves continue to
be subject to a provision of present law referred to below that require
recapture in the case of certain excess distributions to shareholders.
Distributions. To the extent that we make "non-dividend distributions"
that are considered as made
. from the reserve for losses on qualifying real property loans, to the
extent the reserve for such losses exceeds the amount that would have
been allowed under the experience method, or
. from the supplemental reserve for losses on loans ("Excess
Distributions"), then an amount based on the amount distributed will
be included in the our taxable income.
97
<PAGE>
Non-dividend distributions include distributions in excess of our current and
accumulated earnings and profits, distributions in redemption of stock, and
distributions in partial or complete liquidation. However, dividends paid out
of our current or accumulated earnings and profits, as calculated for federal
income tax purposes, will not be considered to result in a distribution from our
bad debt reserve. Thus, any dividends that would reduce amounts appropriated to
our bad debt reserve and deducted for federal income tax purposes would create a
tax liability for us. The amount of additional taxable income created from an
Excess Distribution is an amount that, when reduced by the tax attributable to
the income, is equal to the amount of the distribution. Thus, if, after the
conversion, we make a "non-dividend distribution," then approximately one and
one-half times the amount so used would be includable in gross income for
federal income tax purposes, assuming a 34.0% corporate income tax rate
(exclusive of state and local taxes). See "Regulation and Supervision" and
"Dividend Policy" for our limits on the payment of dividends. We do not intend
to pay dividends that would result in a recapture of any portion of our bad debt
reserve.
Corporate Alternative Minimum Tax. The Internal Revenue Code imposes a
tax on alternative minimum taxable income at a rate of 20.0%. The excess of the
bad debt reserve deduction claimed by us over the deductions that would have
been allowable under the experience method is treated as a preference item for
purposes of computing "alternative minimum taxable income." Only 90.0% of the
"alternative minimum taxable income" can be offset by net operating loss
carryovers of which we currently have none. "Alternative minimum taxable
income" is increased by an amount equal to 75.0% of the amount by which our
adjusted current earnings exceeds our "minimum taxable income" (determined
without regard to this preference and before reduction for net operating
losses).
Dividends Received Deduction and Other Matters. We may exclude from our
income 100% of dividends we receive as a member of the same affiliated group of
corporations. The corporate dividends received deduction is generally 70.0% in
the case of dividends received from unaffiliated corporations with which we will
not file a consolidated tax return, except that if we own more than 20.0% of the
stock of a corporation distributing a dividend then 80.0% of any dividends
received may be deducted.
Georgia Taxation
The State of Georgia imposes a tax at the rate of 6.0% on the "Georgia
taxable income" of Douglas Federal and First Deposit. Georgia taxable income is
equal is equal to federal taxable income with certain adjustments. Significant
modifications include the subtraction from federal taxable income of interest or
dividends on obligations or securities of the United States that are exempt from
state income taxes, and a recomputation of the bad debt reserve deduction on
reduced modified taxable income. Since Douglas Federal and First Deposit will
recognize no taxable gain for federal tax purposes as a result of the
conversion, Douglas Federal and First Deposit will recognize no Georgia taxable
income as a result of the conversion.
98
<PAGE>
REGULATION AND SUPERVISION
General
As a federal savings association, we are subject to extensive
regulation, examination and supervision by the Office of Thrift Supervision, as
our chartering agency, and the Federal Deposit Insurance Corporation, as the
insurer of our deposits. We must file reports with the Office of Thrift
Supervision and the Federal Deposit Insurance Corporation concerning our
activities and financial condition in addition to obtaining regulatory approvals
before entering into certain transactions such as mergers with, or acquisitions
of, other financial institutions. We are subject to periodic examinations by
the Office of Thrift Supervision and the Federal Deposit Insurance Corporation
to test our compliance with various regulatory requirements. This regulation
and supervision establishes a comprehensive system of oversight of our
activities and our financial condition, and is intended primarily for the
protection of the insurance fund and our depositors.
This system also gives the regulatory authorities extensive discretion
in connection with their supervisory and enforcement activities and examination
policies, including policies with respect to the classification of our assets
and our establishment of adequate loan loss reserves. Any change in such
policies, whether by the Office of Thrift Supervision, the Federal Deposit
Insurance Corporation or Congress, could have a material adverse impact on our
operations. In addition, First Deposit, as a savings and loan holding company,
will be required to file certain reports with, and otherwise comply with the
rules and regulations, of the Office of Thrift Supervision and of the Securities
and Exchange Commission under the federal securities laws.
The following description of statutory provisions and regulations which
apply to savings associations and their holding companies are not complete
descriptions of such statutes and regulations. The purpose of the description
is to give you a general understanding of the application of such laws and
regulations to our activities and operations. For a more complete understanding
of these laws and regulations, you should review them in their entirety.
Federal Savings Institution Regulation
Business Activities. As a federal savings institution, our activities
are governed by the Home Owners' Loan Act, as amended and, in certain respects,
the Federal Deposit Insurance Act and the regulations issued by the Office of
Thrift Supervision and the Federal Deposit Insurance Corporation under these
statutes. These laws and regulations set forth the nature and extent of our
permissible activities. In particular, certain types of our lending activities,
such as commercial loans, non-residential real property loans and consumer
loans, are limited to a specified percentage of our capital or assets.
Loans-to-One Borrower. The Home Owners' Loan Act provides generally
that, as a federal savings association, we are subject to the same limits as a
national bank on loans to a single borrower. Generally, this limit is 15.0% of
our unimpaired capital and surplus and allowance for loan losses, plus an
additional 10.0% of unimpaired capital and surplus, if the loan is secured by
readily-marketable collateral, which includes certain types of financial
instruments and bullion. At December 31, 1998, our largest loan consisted of a
$728,000 commercial real estate loan to a local church. At December 31, 1998,
our largest relationship with a single borrower consisted of an aggregate of
$1.2 million in real estate loans.
99
<PAGE>
Qualified Thrift Lender Test. The Home Owners' Loan Act also requires us to
meet what is called "a qualified thrift lender test." Under this test, we are
required to either qualify as a "domestic building and loan association" as that
term is defined in the Internal Revenue Code, or maintain at least 65.0% of our
"portfolio assets" in certain "qualified thrift investments" in at least nine
months out of each 12-month period. Generally speaking, our "portfolio assets"
are our total assets less certain liquid and intangible assets and the property
used in the conduct of our business. "Qualified thrift investments" are
primarily residential mortgages and related investments. If we failed to meet
this test, we would be required to either convert to a bank charter or operate
under certain restrictions. As of December 31, 1998, we met the "qualified
thrift lender test." Recent legislation has permitted education loans, credit
card loans and small business loans to be considered as "qualified thrift
investments."
Limitation on Capital Distributions. The Office of Thrift Supervision
imposes limitations on all capital distributions by a savings institution, such
as cash dividends, payments to repurchase its shares, cash payments to
shareholders of another institution in a merger transaction and other
distributions charged against capital. These limitations establish three tiers
of institutions, which are based primarily on an institution's designated
capital level. As a result, if we were to meet or exceed all of our regulatory
capital requirements both before and after a proposed distribution and we have
not been advised by the Office of Thrift Supervision that we were in need of
more than normal supervision, we could, after prior notice to the Office of
Thrift Supervision, make capital distributions during a calendar year equal to
the greater of:
. 100% of our net earnings to date during the calendar year plus the
amount that would reduce our excess capital by 50.0% at the beginning of
the calendar year; or
. 75.0% of our net earnings during the previous four quarters.
Any additional capital distributions would require prior approval from the
Office of Thrift Supervision. In the event we do not meet our capital
requirements or the Office of Thrift Supervision notifies us that we are in need
of more than normal supervision, our ability to make capital distributions could
be restricted. In addition, the Office of Thrift Supervision could prohibit a
proposed capital distribution, which limitations would otherwise permit, if the
Office of Thrift Supervision determines that such distribution constituted an
unsafe or unsound practice.
The Office of Thrift Supervision has recently adopted amendments to its
capital distribution limitations which, if adopted, would simplify these
limitations and more closely resemble the limitations the other banking agencies
impose. These proposed rules would eliminate the prior notice requirement for
cash dividends within a certain amount paid by institutions which will remain
adequately capitalized following the distribution. However, capital
distributions over a certain amount will still require approval. In addition, a
savings association must provide notice to the Office of Thrift Supervision if a
capital distribution would reduce the amount of common or preferred stock, or
would retire debt instruments included in the capital. Also, savings
associations which are part of a holding company structure must provide notice
to the Office of Thrift Supervision with regard to any capital distributions.
Liquidity. We are required to maintain an average daily balance of
specified liquid assets which will result in a monthly average of not less than
a certain percentage of our net withdrawable deposit accounts plus short-term
borrowings. This percentage requirement is currently established at 4.0%. The
Office of Thrift Supervision may impose monetary penalties if we fail to satisfy
these
100
<PAGE>
liquidity requirements. Our average liquidity ratio for the month ended December
31, 1998 was 12.03%, which exceeded the applicable requirements. We have never
been subject to monetary penalties for failure to meet our liquidity
requirements. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources."
Assessments. As a federal savings association, we are required by
regulation to pay assessments to the Office of Thrift Supervision to fund the
agency's operations. The general assessment, paid on a semi-annual basis, is
based upon our total assets, including those of our consolidated subsidiaries,
as reported in our latest quarterly Thrift Financial Report. The assessments we
paid for the year ended December 31, 1998 totaled $26,554.
Branching. Office of Thrift Supervision regulations permit us to branch
throughout the country under certain conditions. We are generally permitted to
establish interstate networks and geographically diversify our loan portfolios
and lines of business. Federal regulatory authority preempts any state law
purporting to regulate branching by federal savings associations.
Transactions with Related Parties. The Federal Reserve Act limits our
authority to engage in transactions with related parties or "affiliates." The
Federal Reserve Act restricts the aggregate amount of covered transactions with
any individual affiliate to 10.0% of our capital and surplus and also limits the
aggregate amount of transactions with all affiliates to 20.0% of our capital and
surplus. Certain transactions with affiliates are required to be secured by
collateral in an amount and of a type described in the Federal Reserve Act, and
the purchase of low-quality assets from affiliates is generally prohibited. The
Federal Reserve Act generally requires that certain transactions with
affiliates, including loans and asset purchases, must be on terms and under
circumstances, including credit standards, that are substantially the same or at
least as favorable to us as those prevailing at the time for comparable
transactions with non-affiliates. We are also prohibited from extending credit
to any affiliate engaged in activities not permitted for a bank holding company
and from purchasing the securities of an affiliate, other than those of a
subsidiary.
Our authority to extend credit to executive officers, directors and 10.0%
or more shareholders, as well as entities such persons control, is governed by
the Federal Reserve Act and Regulation O issued under these provisions. Among
other things, such loans are required to be made on terms substantially the same
as those offered to non-affiliated individuals, and not to involve more than the
normal risk of repayment. Recent legislation created an exception for loans to
insiders made under a benefit or compensation program that is widely available
to all of our employees and which do not give a preference to the insiders over
other employees. Regulation O also places individual and aggregate limits on
the amounts of loans which we may make to insiders, based, in part, on our
capital position and requires that we follow certain board of directors approval
procedures.
Enforcement. Under the Federal Deposit Insurance Act, the Office of Thrift
Supervision has primary enforcement responsibility over savings institutions and
has the authority to bring action against all "institution-affiliated parties,"
including shareholders, and any attorneys, appraisers and accountants who
knowingly or recklessly participate in wrongful action likely to have an adverse
effect on an insured institution. Formal enforcement action may range from the
issuance of a capital directive or cease and desist order to removal of officers
or directors, receivership, conservatorship or termination of deposit insurance.
Civil penalties cover a wide range of violations and can amount to $25,000 per
day, or $1 million per day in especially egregious cases. The Federal Deposit
Insurance Corporation has the authority to recommend to the Office of Thrift
Supervision that enforcement action be taken with respect
101
<PAGE>
to a particular savings institution. If the Office of Thrift Supervision takes
no action, the Federal Deposit Insurance Corporation has authority to take such
action under certain circumstances. Federal and state law also establish
criminal penalties for certain violations.
Standards for Safety and Soundness. The Federal Deposit Insurance Act
requires each federal banking agency to establish standards for all insured
depository institutions relating to, among other things, internal controls,
information systems and audit systems, loan documentation, credit underwriting,
interest rate risk exposure, asset growth, and compensation, fees and benefits
and such other operational and managerial standards as the agency deems
appropriate. The federal banking agencies have adopted final regulations and
Interagency Guidelines Establishing Standards for Safety and Soundness to
implement these safety and soundness standards. These guidelines set forth the
safety and soundness standards that the federal banking agencies use to identify
and address problems at insured depository institutions before capital becomes
impaired. If the appropriate federal banking agency determines that an
institution fails to meet any standard prescribed by these guidelines, the
agency may require the institution to submit to the agency an acceptable plan to
achieve compliance. The final regulations establish deadlines for the submission
and review of such safety and soundness compliance plans.
Capital Requirements. The Office of Thrift Supervision capital regulations
require savings institutions to meet three capital standards: a 1.5% tangible
capital standard, a 3.0% leverage (core capital to total assets) ratio and an
8.0% risk-based capital standard. Core capital is defined as common
shareholder's equity (including retained earnings), certain non-cumulative
perpetual preferred stock and related surplus, minority interests in equity
accounts of consolidated subsidiaries less intangibles other than certain
mortgage servicing rights and credit card relationships. The Office of Thrift
Supervision regulations require that, in meeting the leverage ratio, tangible
and risk-based capital standards institutions generally must deduct investments
in and loans to subsidiaries engaged in activities not permissible for a
national bank. In addition, the Office of Thrift Supervision prompt corrective
action regulation provides that a savings institution that has a leverage
capital ratio of less than 4.0% (3.0% for institutions receiving the highest
CAMEL examination rating) will be deemed to be "undercapitalized" and may be
subject to certain restrictions. See " - Prompt Corrective Regulatory Action."
The risk-based capital standard for savings institutions requires the
maintenance of total capital, which is defined as core capital and supplementary
capital, to risk-weighted assets of 8.0%. In determining the amount of risk-
weighted assets, all assets, including certain off-balance sheet assets, are
multiplied by a risk-weight of between 0% and 100%, as assigned by the Office of
Thrift Supervision capital regulation based on the risks Office of Thrift
Supervision believes are inherent in the type of asset. The components of core
capital are equivalent to those discussed earlier under the 3.0% leverage
standard. The components of supplementary capital currently include cumulative
preferred stock, long-term perpetual preferred stock, mandatory convertible
securities, subordinated debt and intermediate preferred stock and, within
specified limits, the allowance for loan and lease losses. Overall, the amount
of supplementary capital included as part of total capital cannot exceed 100% of
core capital.
The Office of Thrift Supervision has incorporated an interest rate risk
component into its regulatory capital rule. The final interest rate risk rule
also adjusts the risk-weighting for certain mortgage derivative securities.
Under the rule, savings associations with "above normal" interest rate risk
exposure would be subject to a deduction from total capital for purposes of
calculating their risk-based capital requirements. The net portfolio value is
the difference between incoming and outgoing discounted cash flows from assets,
liabilities and off-balance sheet contracts. A savings association's interest
rate risk
102
<PAGE>
would be measured by the decline in the net portfolio value of its assets that
would result from a hypothetical 2.0% increase or decrease in market interest
rates divided by the estimated economic value of the association's assets, as
calculated in accordance with guidelines our regulators set forth. A savings
association whose measured interest rate risk exposure exceeds 2.0% must deduct
an interest rate component in calculating its total capital under the risk-based
capital rule. The interest rate risk component is an amount equal to one-half of
the difference between the institution's measured interest rate risk and 2.0%,
multiplied by the estimated economic value of the institution's assets. That
dollar amount is deducted from an association's total capital in calculating
compliance with its risk-based capital requirement. Under the rule, there is a
two quarter lag between the reporting date of an institution's financial data
and the effective date for the new capital requirement based on that data. A
savings association with assets of less than $300 million and risk-based capital
ratios in excess of 12.0% is not subject to the interest rate risk component,
unless the Office of Thrift Supervision determines otherwise. The rule also
provides that the Office of Thrift Supervision may waive or defer an
institution's interest rate risk component on a case-by-case basis. The Office
of Thrift Supervision has postponed indefinitely the date that the component
will first be deducted from an institution's total capital.
At December 31, 1998, we met each of our capital requirements, in each case
on a fully phased-in basis. See " - Regulatory Capital Compliance" for a table
which sets forth in terms of dollars and percentages tangible, leverage and
risk-based capital requirements, our historical amounts and percentages at
December 31, 1998, and estimated amounts and percentages based upon the issuance
of the shares within the estimated price range and assuming that First Deposit
retains a portion of the net proceeds.
Prompt Corrective Regulatory Action. Under the Office of Thrift
Supervision prompt corrective action regulations, our federal regulators are
required to take certain supervisory actions against undercapitalized
institutions, the severity of which depends upon the institution's degree of
capitalization. Generally, a savings institution that has a total risk-based
capital ratio of less than 8.0% or a leverage ratio or a Tier 1 capital ratio
that is less than 4.0% is considered to be undercapitalized. A savings
institution that has a total risk-based capital less than 6.0%, a Tier 1 risk-
based capital ratio of less than 3.0% or a leverage ratio that is less than 3.0%
is considered to be "significantly undercapitalized" and a savings institution
that has a tangible capital to assets ratio equal to or less than 2.0% is deemed
to be "critically undercapitalized." The Office of Thrift Supervision generally
is required to appoint a receiver or conservator for an institution that is
critically undercapitalized. The regulation also provides that an institution
must file a capital restoration plan with the Office of Thrift Supervision
within 45 days of the date an institution receives notice that it is
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Any parent holding company must guarantee compliance with
the plan. In addition, numerous mandatory supervisory actions may become
immediately applicable to the institution depending upon its category,
including, but not limited to, increased monitoring by regulators, restrictions
on growth and capital distributions, and limitations on expansion. The Office
of Thrift Supervision could also take any one of a number of discretionary
supervisory actions, including the issuance of a capital directive and the
replacement of senior executive officers and directors.
Insurance of Deposit Accounts. The Federal Deposit Insurance Corporation
has adopted a risk-based insurance assessment system. Institutions are assigned
to one of three capital categories based on their financial information, as of
the reporting period ending seven months before the assessment period. The
capital categories are
103
<PAGE>
. well capitalized,
. adequately capitalized, or
. undercapitalized.
Institutions are also placed in one of three supervisory subcategories within
each capital group. The supervisory subgroup to which an institution is assigned
is based on a supervisory evaluation provided to the Federal Deposit Insurance
Corporation by the institution's primary federal regulator and information that
the Federal Deposit Insurance Corporation determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds. An institution's assessment rate depends on the capital category and
supervisory category to which it is assigned with the most well capitalized,
healthy institutions receiving the lowest rates.
Our deposits are presently insured by the Savings Association Insurance
Fund. Both the Savings Association Insurance Fund and the Bank Insurance Fund
are statutorily required to be recapitalized to a 1.25% of insured reserve
deposits ratio. Until recently, members of the Savings Association Insurance
Fund and Bank Insurance Fund were paying average deposit insurance assessments
of between 24 and 25 basis points. The Bank Insurance Fund met the required
reserve in 1995, whereas the Savings Association Insurance Fund was not expected
to meet or exceed the required level until 2002 at the earliest. This situation
was primarily due to the statutory requirement that Savings Insurance
Association Fund members make payments on bonds issued in the late 1980s by the
Financing Corporation to recapitalize the predecessor to the Savings Association
Insurance Fund.
In view of the Bank Insurance Fund's achieving the 1.25% ratio, the Federal
Deposit Insurance Corporation ultimately adopted a new assessment rate schedule
of from 0 to 27 basis points under which 92% of Bank Insurance Fund members paid
an annual premium of only $2,000. With respect to Savings Association Insurance
Fund member institutions, the Federal Deposit Insurance Corporation adopted a
final rule retaining the previously existing assessment rate schedule applicable
to Savings Association Insurance Fund member institutions of 23 to 31 basis
points. As long as the premium differential continued, it may have had adverse
consequences for Savings Association Insurance Fund members, including reduced
earnings and an impaired ability to raise funds in the capital markets. In
addition, Savings Association Insurance Fund members could have been placed at a
substantial competitive disadvantage to Bank Insurance Fund members with respect
to pricing of loans and deposits and the ability to achieve lower operating
costs.
On September 30, 1996, the President of the United States signed into law
the Deposit Insurance Funds Act of 1996 which, among other things, imposed a
special one-time assessment on Savings Association Insurance Fund member
institutions to recapitalize the Savings Association Insurance Fund. As required
by this legislation, the Federal Deposit Insurance Corporation imposed a special
assessment of 65.7 basis points on Savings Association Insurance Fund assessable
deposits held as of March 31, 1995, payable November 27, 1996. We recognized
this special assessment as an expense in the quarter ended September 30, 1996
that was generally tax deductible. The special assessment we recorded amounted
to $396,910 on a pre-tax basis and $244,000 on an after-tax basis.
The Deposit Insurance Funds Act also spread the obligations for payment of
the Financing Corporation bonds across all Savings Association Insurance Fund
and Bank Insurance Fund members. Beginning on January 1, 1997, Bank Insurance
Fund deposits were assessed for a Financing Corporation bond payment of 1.30
basis points, while Savings Association Insurance Fund deposits pay 6.48 basis
points. Full pro rata sharing of the Financing Corporation bond payments between
Bank Insurance Fund
104
<PAGE>
and Savings Association Insurance Fund members will occur on the earlier of
January 1, 2000 or the date the Bank Insurance Fund and Savings Association
Insurance Fund are merged.
As a result of the Deposit Insurance Funds Act, the Federal Deposit
Insurance Corporation voted to effectively lower Savings Association Insurance
Fund assessments to 0 to 27 basis points as of January 1, 1997, a range
comparable to that of Bank Insurance Fund members. Most recently, the Federal
Deposit Insurance Corporation determined to continue the 0 to 27 basis point
range for the second half of 1998. Savings Association Insurance Fund members
will also continue to make the Financing Corporation bond payments described
above. We cannot predict the level of Federal Deposit Insurance Corporation
insurance assessments on an on-going basis, whether the federal thrift charter
will be eliminated or whether the Bank Insurance Fund and the Savings
Association Insurance Fund will eventually be merged.
Our assessment rate for 1998 ranged from 6.28 to 5.82 basis points and the
regular premium paid for this period was $46,725.
The Federal Deposit Insurance Corporation is authorized to raise the
assessment rates in certain circumstances. The Federal Deposit Insurance
Corporation has exercised this authority several times in the past and may raise
insurance premiums in the future. If the Federal Deposit Insurance Corporation
takes such action, it could have an adverse effect on our earnings.
Community Reinvestment Act. Under the Community Reinvestment Act, we have
a continuing and affirmative obligation consistent with our safe and sound
operation to help meet the credit needs of our entire community, including low-
and moderate-income neighborhoods. The Community Reinvestment Act does not
establish specific lending requirements or programs nor does it limit our
discretion to develop the types of products and services that we believe are
best suited to our community, consistent with the provisions of the statute. The
Community Reinvestment Act requires the Office of Thrift Supervision, in
connection with its examination of our operations, to assess our record of
meeting the credit needs of our community and to take such record into account
in its evaluation of certain applications which we may submit. Finally, the
Community Reinvestment Act requires the Office of Thrift Supervision to provide
a written evaluation of our Community Reinvestment Act performance through the
use of a four-tiered descriptive rating system, which replaced the five-tiered
numerical rating system. Our latest Community Reinvestment Act rating we
received was "Outstanding."
Federal Home Loan Bank System. We are a member of the Federal Home Loan
Bank System, which consists of 12 regional Federal Home Loan Banks. This system
provides a central credit facility primarily for member institutions. As a
member, we are required to acquire and hold shares of capital stock in the
Federal Home Loan Bank in an amount at least equal to 1.0% of the aggregate
principal amount of our unpaid residential mortgage loans and similar
obligations at the beginning of each year, or 1/20th of our borrowings from the
Federal Home Loan Bank, whichever is greater. We were in compliance with this
requirement with an investment in Federal Home Loan Bank stock at December 31,
1998 of $0.7 million. Advances from the Federal Home Loan Bank must be secured
by specified types of collateral and a member may only obtain long-term advances
for the purpose of providing funds for residential housing finance. At December
31, 1998, we had $5.0 million in Federal Home Loan Bank advances.
The Federal Home Loan Banks are required to provide funds for the
resolution of insolvent savings institutions and to contribute funds for
affordable housing programs. These requirements
105
<PAGE>
could reduce the amount of dividends that the Federal Home Loan Banks pay to
their members and could also result in the Federal Home Loan Banks imposing a
higher rate of interest on advances to their members. For the years ended
December 31, 1998, and 1997, our dividends from the Federal Home Loan Bank
amounted to approximately $53,065 and $51,721. If dividends were reduced, the
our net interest income would likely also be reduced. Further, there can be no
assurance that the impact of recent or future legislation on the Federal Home
Loan Banks will not also cause a decrease in the value of the Federal Home Loan
Bank stock we hold.
Federal Reserve System. The Federal Reserve Board regulations require
savings institutions to maintain non-interest-earning reserves against their
transaction accounts. The Federal Reserve Board regulations generally require
that reserves be maintained against transaction accounts as follows: for
accounts aggregating $47.8 million or less, the reserve requirement is 3.0%; and
for accounts greater than $47.8 million, the reserve requirement is $1.4 million
plus 10.0% against that portion of total transaction accounts in excess of $47.8
million. The Federal Reserve Board may change these reserve requirements. The
first $4.7 million of otherwise reservable balances are exempted from the
reserve requirements. We are currently in compliance with these requirements.
Because we must maintain required reserves in the form of either vault cash, a
non-interest-bearing account at a Federal Reserve Bank or a pass-through
account, as defined by the Federal Reserve Board, the effect of this reserve
requirement is to reduce the amount of our interest-earning assets. Federal
Home Loan Bank System members are also authorized to borrow from the Federal
Reserve "discount window," but Federal Reserve Board regulations require
institutions to exhaust all Federal Home Loan Bank sources before borrowing from
a Federal Reserve Bank.
Holding Company Regulation
First Deposit will be a non-diversified unitary savings and loan holding
company within the meaning of the Home Owners' Loan Act. As such, First Deposit
will be required to register with the Office of Thrift Supervision and will be
subject to Office of Thrift Supervision regulations, examinations, supervision
and reporting requirements. In addition, the Office of Thrift Supervision has
enforcement authority over First Deposit and Pinehurst Properties, LLC. Among
other things, this authority permits the Office of Thrift Supervision to
restrict or prohibit activities that it determines to be a serious risk to
Douglas Federal, as the subsidiary savings institution of First Deposit. We
must notify the Office of Thrift Supervision 30 days before declaring any
dividend to First Deposit.
As a unitary savings and loan holding company, First Deposit generally will
not be restricted under existing laws as to the types of business activities in
which it may engage, provided that we continue to be a qualified thrift lender,
as discussed above. See " - Federal Savings Institution Regulation - Qualified
Thrift Lender Test" for a discussion of the requirements of a "qualified thrift
lender." Upon First Deposit's acquisition of another savings association, First
Deposit would become a multiple savings and loan holding company, if the
acquired institution is held as a separate subsidiary, and would be subject to
extensive limitations on the types of business activities in which it could
engage. The Home Owners' Loan Act limits the activities of a multiple savings
and loan holding company and its non-insured institution subsidiaries primarily
to activities permissible for bank holding companies under Section 4(c)(8) of
the Bank Holding Company Act, as amended, subject to the prior approval of the
Office of Thrift Supervision, and to other activities authorized by Office of
Thrift Supervision regulation.
The Home Owners' Loan Act prohibits First Deposit, directly or indirectly,
or through one or more subsidiaries, from acquiring more than 5.0% of the voting
stock of another savings institution, or
106
<PAGE>
a savings and loan holding company, without prior written approval of the Office
of Thrift Supervision; from acquiring or retaining, with certain exceptions,
more than 5.0% of a non-subsidiary holding company or savings association. The
Home Owners' Loan Act also prohibits First Deposit from acquiring more than 5.0%
of a company engaged in activities other than those authorized for savings and
loan holding companies by the Home Owners' Loan Act; or acquiring or retaining
control of a depository institution that is not insured by the Federal Deposit
Insurance Corporation. In evaluating applications by holding companies to
acquire savings institutions, the Office of Thrift Supervision must consider the
financial and managerial resources and future prospects of First Deposit and
institution involved, the effect of the acquisition on the risk to the insurance
funds, the convenience and needs of the community and competitive factors.
The Office of Thrift Supervision is prohibited from approving any
acquisition that would result in a multiple savings and loan holding company
controlling savings institutions in more than one state, except:
. the approval of interstate supervisory acquisitions by savings and
loan holding companies, and
. the acquisition of a savings institution in another state if the laws
of the state of the target savings institution specifically permit
such acquisitions.
The states vary in the extent to which they permit interstate savings and loan
holding company acquisitions.
As a federally-chartered savings institution, we generally are not subject
to those provisions of Georgia law governing state-chartered financial
institutions or to the jurisdiction of the Georgia Department of Banking and
Finance. However, the Georgia Department of Banking and Finance interprets the
Georgia Bank Holding Company Act to require the prior approval of the Georgia
Department of Banking and Finance for any acquisition of control of any savings
institution (whether chartered by state or federal authority) located in
Georgia. As a result, First Deposit will be required to obtain the prior
written consent of the Georgia Department of Banking and Finance before it will
be able to acquire our capital stock. The department also interprets the
Georgia Bank Holding Company Act to include savings and loan holding companies
as "bank holding companies." This interpretation gives the Department the
authority to make examinations of First Deposit and any subsidiaries and to
require periodic and other reports. Existing Georgia Department of Banking and
Finance regulations do not restrict our business activities or investments or
those of First Deposit.
Federal Securities Laws
First Deposit has filed with the Securities and Exchange Commission a
registration statement under the Securities Act of 1933 for the registration of
the common stock to be issued in the conversion. First Deposit's common stock
has been registered with the Securities and Exchange Commission under the
Securities Exchange Act of 1934. First Deposit is subject to the information,
proxy solicitation, insider trading restrictions and other requirements under
the Securities Exchange Act of 1934.
The registration under the Securities Act of 1933 of shares of the common
stock to be issued in the conversion does not cover the resale of such shares.
Persons who are not affiliates of First Deposit may resell shares of the common
stock without registration. Shares an affiliate of First Deposit purchases
107
<PAGE>
will be subject to the resale restrictions of Rule 144 under the Securities Act
of 1933. If First Deposit meets the current public information requirements of
Rule 144, each affiliate of First Deposit who complies with the other conditions
of Rule 144 would be able to sell in the public market, without registration, a
number of shares not to exceed, in any three-month period, the greater of:
. 1.0% of the outstanding shares of First Deposit, or
. the average weekly volume of trading in such shares during the preceding
four calendar weeks. Provision may be made in the future by First
Deposit to permit affiliates to have their shares registered for sale
under the Securities Act under certain circumstances.
108
<PAGE>
RESTRICTIONS ON ACQUIRING DOUGLAS FEDERAL
OR FIRST DEPOSIT
General
The plan of conversion provides for our conversion from the mutual to the
stock form of organization and, in connection therewith, a new federal stock
charter and bylaws to be adopted by our members. The plan of conversion also
provides for the concurrent formation of a holding company. See "The
Conversion." Certain plans provisions in First Deposit's Articles of
Incorporation and Bylaws and in its management remuneration plans entered into
in connection with the conversion, together with provisions of Georgia corporate
law, may have anti-takeover effects. In addition, regulatory restrictions may
make it difficult for persons or companies to acquire control of either Douglas
Federal or First Deposit.
Restrictions in First Deposit's Articles of Incorporation and Bylaws
A number of provisions of First Deposit's Articles of Incorporation and
Bylaws deal with matters of corporate governance and certain rights of
shareholders. The following discussion is a general summary of the material
provisions of First Deposit's Articles of Incorporation and Bylaws and certain
other statutory and regulatory provisions relating to stock ownership and
transfers, the Board of Directors and business combinations, which might be
deemed to have a potential "anti- takeover" effect. These provisions may have
the effect of discouraging a future takeover attempt which the Board of
Directors does not approve but which individual First Deposit shareholders may
deem to be in their best interests or in which shareholders may receive a
substantial premium for their shares over then current market prices. As a
result, shareholders who might desire to participate in such a transaction may
not have an opportunity to do so. Such provisions will also render the removal
of the current Board of Directors or management of First Deposit more difficult.
The following description of certain of the provisions of the Articles of
Incorporation and Bylaws of First Deposit is necessarily general and reference
should be made in each case to such Articles of Incorporation and Bylaws, which
are incorporated herein by reference. See "Additional Information" as to how to
obtain a copy of these documents.
Board of Directors. The Board of Directors of First Deposit is divided
into three classes, each of which shall contain approximately one-third of the
whole number of members of the Board. Each class shall serve a staggered term,
with approximately one-third of the total number of directors being elected each
year. First Deposit's Bylaws provide that the Board shall have from three to
twenty-five members and that the vote of the holders of at least 80.0% of the
shares entitled to vote or two-thirds of the directors then in office is
required to change the size of the Board. First Deposit's Articles of
Incorporation provide for the initial Board of eight directors. The Bylaws
provide that any vacancy occurring on the Board, including a vacancy created by
an increase in the number of directors or resulting from death, resignation,
retirement, disqualification, removal from office or other cause, may be filled
for the remainder of the unexpired term by a majority vote of the directors then
in office. In addition, the Bylaws provide that any director may be removed
for cause by the holders of a majority of the outstanding voting shares of First
Deposit, but may only be removed without cause by the holders of 80.0% of the
outstanding voting shares of First Deposit. The classified Board is intended to
provide for continuity of the Board of Directors and to make it more difficult
and time consuming for a shareholder group to fully use its voting power to gain
control of the Board of Directors without the consent of two- thirds of the
incumbent Board of Directors of First Deposit.
109
<PAGE>
In the absence of these provisions, the vote of the holders of a majority
of the shares could remove the entire Board, with or without cause, and replace
it with persons of such holders' choice.
Cumulative Voting. The Articles of Incorporation and Bylaws do not provide
for cumulative voting in elections of directors. Elimination of cumulative
voting rights will help to ensure continuity and stability of the Board by
making it more difficult for the holders of a relatively small number of shares
to elect their nominee to the Board.
Mergers, Consolidations and Sales of Assets. First Deposit's Articles of
Incorporation require the approval of the holders of 80.0% of the outstanding
stock of First Deposit entitled to vote for mergers or consolidations, and for
sales, leases or exchanges of all or substantially all of First Deposit's assets
unless the transaction is approved by two-thirds of the members of the Boards of
Directors. This provision could tend to make the acquisition of First Deposit
more difficult to accomplish without the cooperation or favorable recommendation
of First Deposit's Board of Directors.
As holder of all of our outstanding stock after consummation of the
conversion, First Deposit generally will be able to authorize a merger,
consolidation or other business combination involving us without the approval of
the shareholders of First Deposit.
Shares. The Articles of Incorporation authorize the issuance of 10,000,000
shares of common stock and 10,000,000 shares of preferred stock. The shares of
common stock and preferred stock were authorized in an amount greater than that
to be issued in the conversion to provide First Deposit's Board of Directors
with as much flexibility as possible to effect, among other transactions,
financings, acquisitions, stock dividends, stock splits and employee stock
options. However, these additional authorized shares may also be used by the
Board of Directors consistent with its fiduciary duty to deter future attempts
to gain control of First Deposit. The Board of Directors also has sole
authority to determine the terms of any one or more series of preferred stock,
including voting rights, conversion rates, and liquidation preferences. As a
result of the ability to fix voting rights for a series of preferred stock, the
Board has the power, to the extent consistent with its fiduciary duty, to issue
a series of preferred stock to persons friendly to management in order to
attempt to block a post-tender offer merger or other transaction by which a
third party seeks control, and thereby assist management to retain its position.
First Deposit's Board of Directors currently has no plans for the issuance of
additional shares, other than the issuance of additional shares under to the
terms of the employee stock ownership plan and the restricted stock program and
upon exercise of stock options to be issued under the terms of the stock option
plan, all of which are to be established and presented to shareholders at the
first annual meeting after the conversion.
Business Combinations With Interested Shareholders. Georgia law imposes
certain restrictions on business combinations between First Deposit and large
shareholders. Georgia law generally prohibits a "business combination" (defined
generally under Georgia law as including mergers, sales and leases of assets,
issuances of securities and similar transactions) between First Deposit or a
subsidiary and an "interested shareholder" within five years after the person or
entity becomes an interested shareholder. An "interested shareholder" is
generally defined as the beneficial owner of 10.0% of a company's capital stock.
Three exceptions to the above prohibition are:
. before the person or entity becoming an interested shareholder, the
business combination pursuant to which such person or entity became an
interested shareholder shall have been approved by First Deposit's
Board;
110
<PAGE>
. upon consummation of the transaction in which the interested shareholder
became such, the interested shareholder holds at least 90.0% of the
common stock of First Deposit; or
. after becoming an interested shareholder, he or she acquires additional
shares resulting in ownership of at least 90.0% of the common stock
of First Deposit and obtains the approval of a majority of the
remaining shares.
The restrictions described above may prevent highly leveraged takeovers and
certain coercive acquisition tactics. They also prevent a substantial
shareholder from engaging in transactions with First Deposit that may not be in
the best interests of First Deposit.
Georgia law also requires that business combinations with interested
shareholders must meet one of three criteria designed to protect minority
shareholders:
. the transaction must be unanimously approved by the continuing directors
of First Deposit;
. the transaction must be approved by two-thirds of the continuing
directors and a majority of shares held by shareholders other than
the interested shareholder; or
. the terms of the transaction must meet specified fair pricing criteria
and certain other tests that are intended to ensure that all
shareholders receive a fair price and equivalent consideration for
their shares regardless of when they sell their shares to an
acquiring party (Georgia law defines "continuing directors" as
generally, directors who serve before the time the interested
shareholder acquired 10.0% beneficial ownership of First Deposit and who
are unaffiliated with the interested shareholder). The above requirement
is designed to protect shareholders against the inequities of certain
tactics that have been used in hostile takeover attempts. For example,
in "two-tier" transactions, the acquiring party usually tenders in cash
at a substantial premium for a major stock interest in the target
corporation. After acquiring this initial interest in the corporation,
the acquiring party may acquire total ownership of the corporation by
effecting a "freeze-out" merger that forces minority shareholders to
receive cash or other consideration for their shares of the acquired
corporation. As a result, minority shareholders who do not participate
in the initial tender may receive a lower price or less desirable form
of consideration than was received by shareholders that tendered. The
"fair price" provisions of Georgia law are designed to discourage
transactions of this kind and to encourage negotiated acquisitions in
which all shareholders will be more likely to receive equal treatment.
Evaluation of Offers. First Deposit's Articles of Incorporation further
provide that the Board of Directors of First Deposit, when evaluating any offer
of another "Person" (as defined therein) to (i) make a tender or exchange offer
for any equity security of First Deposit, (ii) merge or consolidate First
Deposit with another corporation or entity, or (iii) purchase or otherwise
acquire all or substantially all of the properties and assets of First Deposit,
shall, in determining what is in the best interest of First Deposit and its
shareholders, give due consideration to all relevant factors, including, without
limitation, (A) the social and economic effects of acceptance of such offer on
First Deposit's customers and our present and future account holders, borrowers
and employees; on the communities in which Douglas Federal and
111
<PAGE>
First Deposit operate or are located; and (B) the consideration being offered by
the other party in relation to the then-current value of First Deposit in a
freely-negotiated transaction and in relation to the Board of Directors' then
estimate of the future value of First Deposit as an independent entity. By
having these standards in First Deposit's Articles of Incorporation, the Board
of Directors may be in a stronger position to oppose such a transaction if the
Board concludes that the transaction would not be in the best interest of First
Deposit, even if the price offered is significantly greater than the then market
price of any equity security of First Deposit.
Amendment of Articles of Incorporation and Bylaws. Amendments to First
Deposit's Articles of Incorporation or Bylaws changing or removing the
provisions that:
. require a classified Board of Directors;
. require a super-majority vote of the shareholders to change the number
of directors, remove a director without cause or approve a merger or
sale of First Deposit;
. eliminate personal liability of directors; or
. allow the board to consider factors in addition to price when evaluating
acquisitions offers
must be approved by the affirmative vote of the holders of at least 80.0% of the
issued and outstanding stock of First Deposit unless two-thirds of the Board
approves the amendment.
Certain Bylaw Provisions. The Bylaws of First Deposit require a
shareholder who intends to nominate a candidate for election to the Board of
Directors, or to raise new business at a shareholder meeting to give at least 30
days advance notice to the Secretary of First Deposit. The notice provision
requires a shareholder who desires to raise new business to provide certain
information to First Deposit concerning the nature of the new business, the
shareholder and the shareholder's interest in the business matter. Similarly, a
shareholder wishing to nominate any person for election as a director must
provide First Deposit with certain information concerning the nominee and the
proposing shareholder.
Dissenters' Rights of Appraisal. After the conversion, the rights of
appraisal of dissenting shareholders of First Deposit will be governed by
Georgia law. Pursuant thereto, a shareholder of a Georgia corporation generally
has the right to dissent from any merger or consolidation involving the
corporation or the sale of all or substantially all of the corporation's assets,
subject to specified procedural requirements. However, no such appraisal rights
are available for the shares of any class or series of a corporation's capital
stock if
. as of the record date fixed to determine the shareholders entitled to
receive notice of and to vote at the meeting of shareholders to act upon
the agreement of merger or consolidation, such shares were either listed
on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers or held of record by more than 2,000
shareholders, or
112
<PAGE>
. the corporation is the surviving corporation of a merger and the merger
did not require the approval of the corporation's shareholders, unless
in either case, the holders of such stock are required by an agreement
of merger or consolidation to accept for that stock something other
than: (a) shares of stock of the corporation surviving or resulting from
the merger or consolidation; (b) shares of stock of any other
corporation that, at the effective date of the merger, will be listed on
a national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers or held of record by more than 2,000 shareholders;
(c) cash in lieu of fractional shares of a corporation described in
clause (a) or (b) above; or (d) any combination of the shares of stock
and cash in lieu of fractional shares described in clauses (a) through
(c) above.
Anti-Takeover Effects of First Deposit's Articles of Incorporation and Bylaws
and Management Remuneration Plans Adopted in Conversion
The provisions described above are intended to reduce First Deposit's
vulnerability to takeover attempts and certain other transactions which have not
been negotiated with and approved by members of its Board of Directors. The
provisions of the employment agreements, restricted stock program or stock
option plan to be established may also discourage takeover attempts by
increasing the costs to be incurred by Douglas Federal and First Deposit in the
event of a takeover. See "Management of Douglas Federal - Employment
Agreements."
First Deposit's Board of Directors believes that the provisions of the
Articles of Incorporation, Bylaws and management remuneration plans to be
established are in the best interest of First Deposit and its shareholders. An
unsolicited non-negotiated proposal can seriously disrupt the business and
management of a corporation and cause it great expense. Accordingly, the Board
of Directors believes it is in the best interests of First Deposit and its
shareholders to encourage potential acquirors to negotiate directly with
management and that these provisions will encourage such negotiations and
discourage non-negotiated takeover attempts. It is also the Board of Directors'
view that these provisions should not discourage persons from proposing a merger
or other transaction at a price that reflects the true value of First Deposit
and that otherwise is in the best interest of all shareholders.
Restrictions in Our New Charter and Bylaws
Although we are not aware of any effort to obtain control of us after the
conversion, we believe that it is appropriate to adopt certain provisions
permitted by federal regulations to protect our interests and that of our
shareholders from any hostile takeover. Such provisions may, indirectly,
inhibit a change in control of First Deposit, as our sole shareholder. See "Risk
Factors - Our Charter and Bylaws contain anti-takeover provisions that could
discourage acquisitions of control."
Our federal stock Charter will contain a provision whereby acquiring or
offering to acquire beneficial ownership of more than 10.0% of the issued and
outstanding shares of any class of our equity securities by any person (i.e.,
any individual, corporation, group acting in concert, trust, partnership, joint
stock company or similar organization), either directly or through an affiliate
thereof, will be prohibited for a period of five years following the date of
completion of the conversion. Any stock in excess of 10.0% acquired in
violation of the federal stock Charter provision will not be counted as
outstanding for voting purposes. This limitation shall not apply to any
transaction in which we form a holding company without a change in the
respective beneficial ownership interests of our shareholders other than
pursuant
113
<PAGE>
to the exercise of any dissenter or appraisal rights. In the event
that holders of revocable proxies for more than 10.0% of the shares of the
common stock of First Deposit seek, among other things, to elect one-third or
more of First Deposit's Board of Directors, to cause First Deposit's
shareholders to approve the acquisition or corporate reorganization of First
Deposit or to exert a continuing influence on a material aspect of the business
operations of First Deposit, which actions could indirectly result in a change
in our control, our Board of Directors will be able to assert this provision of
our federal stock Charter against such holders. Although our Board of Directors
is not currently able to determine when and if it would assert this provision,
our Board of Directors, in exercising its fiduciary duty, may assert this
provision if it were deemed to be in the best interests of Douglas Federal,
First Deposit and First Deposit's shareholders. It is unclear, however, whether
this provision, if asserted, would be successful against such persons in a proxy
contest which could result in a change in our control indirectly through a
change in control of First Deposit. Finally, for five years, shareholders will
not be permitted to call a special meeting of shareholders relating to a change
of our control or a charter amendment or to cumulate their votes in the election
of directors. Furthermore, the staggered terms of the Board of Directors could
have an anti-takeover effect by making it more difficult for a majority of
shares to force an immediate change in the Board of Directors since only one-
third of the Board is elected each year. The purpose of these provisions is to
assure stability and continuity of our management in the years immediately
following the conversion.
Although we have no arrangements, understandings or plans at the present
time, except as described in "Description of Capital Stock of Douglas Federal,"
for the issuance or use of the shares of undesignated preferred stock proposed
to be authorized, our Board of Directors believes that the availability of such
shares will provide us with increased flexibility in structuring possible future
financings and acquisitions and in meeting other corporate needs which may
arise. In the event of a proposed merger, tender offer or other attempt to gain
control of us of which our Board of Directors does not approve, it may be
possible for our Board of Directors to authorize the issuance of one or more
series of preferred stock with rights and preferences which could impede the
completion of such a transaction. An effect of the possible issuance of such
preferred stock, therefore, may be to deter a future takeover attempt. Our Board
of Directors does not intend to issue any preferred stock except on terms which
the Board deems to be in our best interest and that of our then existing
shareholders.
Regulatory Restrictions
The plan of conversion prohibits any person, before the completion of the
conversion, from transferring, or from entering into any agreement or
understanding to transfer, to the account of another, legal or beneficial
ownership of the subscription rights issued under the plan or the common stock
to be issued upon their exercise. The plan also prohibits any person, before
the completion of the conversion, from offering, or making an announcement of an
offer or intent to make an offer, to purchase such subscription rights or common
stock.
For three years following the conversion, Office of Thrift Supervision
regulations prohibit any person from acquiring or making an offer to acquire
more than 10.0% of the stock of any converted savings institution, except for:
. offers that, if consummated, would not result in the acquisition by such
person during the preceding 12-month period of more than 1.0% of such
stock;
114
<PAGE>
. offers for up to 25.0% in the aggregate by the ESOP or our other tax
qualified plans; or
. offers which are not opposed by our Board of Directors and which receive
the prior approval of the Office of Thrift Supervision.
Such prohibition is also applicable to the acquisition of the stock of
First Deposit. Such acquisition may be disapproved by the Office of Thrift
Supervision if it finds, among other things, that the proposed acquisition
would:
. frustrate the purposes of the provisions of the regulations regarding
conversions;
. be manipulative or deceptive;
. subvert the fairness of the conversion;
. be likely to result in injury to the savings institution;
. not be consistent with economical home financing;
. otherwise violate law or regulation; or
. not contribute to the prudent deployment of the savings institution's
conversion proceeds.
In the event that any person, directly or indirectly, violates this regulation,
the securities beneficially owned by such person in excess of 10.0% shall not be
counted as shares entitled to vote and shall not be voted by any person or
counted as voting shares in connection with any matters submitted to a vote of
shareholders. The definition of beneficial ownership for this regulation extends
to persons holding revocable or irrevocable proxies for First Deposit's stock
under circumstances that give rise to a conclusive or rebuttable determination
of control under the Office of Thrift Supervision regulations.
In addition, any proposal to acquire 10.0% of any class of equity security
of First Deposit generally would require approval by the Office of Thrift
Supervision under the Change in Bank Control Act. The Office of Thrift
Supervision requires all persons seeking control of a savings institution and,
therefore, indirectly its holding company, to obtain regulatory approval before
offering to obtain control. Federal law generally provides that no "person,"
acting directly or indirectly or through or in concert with one or more other
persons, may acquire directly or indirectly "control," as that term is defined
in Office of Thrift Supervision regulations, of a federally-insured savings
institution without giving at least 60 days' written notice to the Office of
Thrift Supervision and providing the Office of Thrift Supervision an opportunity
to disapprove the proposed acquisition. Such acquisitions of control may be
disapproved if it is determined, among other things, that the
. acquisition would substantially lessen competition;
. financial condition of the acquiring person might jeopardize the
financial stability of the savings institution or prejudice the
interests of its depositors; or
115
<PAGE>
. competency, experience or integrity of the acquiring person or the
proposed management personnel indicates that it would not be in the
interest of the depositors or the public to permit the acquisition of
control by such person.
Such change in control restrictions on the acquisition of holding company stock
are not limited to three years after conversion but will apply for as long as
the regulations are in effect. Persons holding revocable or irrevocable proxies
may be deemed to be beneficial owners of such securities under Office of Thrift
Supervision regulations and therefore prohibited from voting all or the portion
of such proxies in excess of the 10.0% aggregate beneficial ownership limit.
Such regulatory restrictions may prevent or inhibit proxy contests for control
of First Deposit or Douglas Federal which have not received prior regulatory
approval.
116
<PAGE>
DESCRIPTION OF CAPITAL STOCK OF FIRST DEPOSIT
General
First Deposit is authorized to issue 10,000,000 shares of common stock
having no par value per share and 10,000,000 shares of preferred stock having no
par value per share. Based on the sale of common stock in connection with the
conversion, First Deposit currently expects to issue up to 1,449,000 shares of
common stock (or 1,666,350 in the event of an increase of 15.0% in the estimated
price range) and no shares of preferred stock in the conversion. Except as
discussed above in "Restrictions on Acquiring Douglas Federal or First Deposit,"
each share of First Deposit's common stock will have the same relative rights
as, and will be identical in all respects with, each other share of common
stock. Upon payment of the purchase price for the common stock, in accordance
with the plan of conversion, all such stock will be duly authorized, fully paid
and non-assessable.
The common stock of First Deposit will represent non-withdrawable capital,
will not be an account of an insurable type, and will not be insured by the
Federal Deposit Insurance Corporation.
Common Stock
Dividends. First Deposit can pay dividends out of statutory surplus or
from certain net profits if, as and when declared by its Board of Directors.
First Deposit's payment of dividends is subject to limitations which are imposed
by law and applicable regulation. See "Dividend Policy" and "Regulation and
Supervision." First Deposit's shareholders will be entitled to receive and
share equally in such dividends as its Board of Directors may declare out of
funds legally available therefor. If First Deposit issues preferred stock, the
holders thereof may have a priority over the holders of the common stock with
respect to dividends.
Voting Rights. Upon conversion, the holders of common stock of First
Deposit will possess exclusive voting rights in First Deposit. They will elect
First Deposit's Board of Directors and act on such other matters as are required
to be presented to them under Georgia law or First Deposit's Articles of
Incorporation or as are otherwise presented to them by the Board of Directors.
Except as discussed in "Restrictions on Acquiring Douglas Federal and First
Deposit," each holder of common stock will be entitled to one vote per share and
will not have any right to cumulate votes in the election of directors. If
First Deposit issues preferred stock, holders of the preferred stock may also
possess voting rights. Certain matters may require an 80.0% shareholder vote.
See "Restrictions on Acquiring Douglas Federal and First Deposit."
Liquidation. In the event of the liquidation, dissolution or winding up of
First Deposit, the holders of its common stock would be entitled to receive,
after payment or provision for payment of all its debts and liabilities, all of
the assets of First Deposit available for distribution. If preferred stock is
issued, the holders thereof may have a priority over the holders of the common
stock in the event of liquidation or dissolution.
Preemptive Rights. Holders of the common stock of First Deposit will not
be entitled to preemptive rights with respect to any shares which may be issued.
The common stock is not redeemable by First Deposit.
117
<PAGE>
Preferred Stock
None of the shares of First Deposit's authorized preferred stock will be
issued in the conversion. Such stock may be issued with such preferences and
designations as the Board of Directors may from time to time determine. The
Board of Directors can, without shareholder approval, issue preferred stock with
voting, dividend, liquidation and conversion rights which could dilute the
voting strength of the holders of the common stock and may assist management in
impeding an unfriendly takeover or attempted change in control.
118
<PAGE>
DESCRIPTION OF THE CAPITAL STOCK OF DOUGLAS FEDERAL
General
Our federal stock Charter, to be effective upon the conversion, authorizes
the issuance of capital stock consisting of 5,000,000 shares of common stock,
par value $1.00 per share, and 1,000,000 shares of preferred stock, par value
$1.00 per share, which preferred stock may be issued in series and classes
having such rights, preferences, privileges and restrictions as our Board of
Directors may determine. Each share of our common stock will have the same
relative rights as, and will be identical in all respects with, each other share
of common stock. After the conversion, our Board of Directors will be
authorized to approve the issuance of common stock up to the amount authorized
by the federal stock Charter without the approval of our shareholders. First
Deposit will hold all of our issued and outstanding common stock as our sole
shareholder. Our capital stock will represent non-withdrawable capital, will
not be an account of an insurable type, and will not be insured by the Federal
Deposit Insurance Corporation.
Common Stock
Dividends. The holders of our common stock will be entitled to receive and
to share equally in such dividends as our Board of Directors may declare out of
funds legally available therefor, subject to the preferences of holders of the
outstanding shares of any class of stock having preference over such common
stock as to the payment of dividends. See "Dividend Policy" for certain
restrictions on the payment of dividends and "Federal and State Taxation -
Federal Taxation" for a discussion of the consequences of the payment of cash
dividends from income appropriated to bad debt reserves.
Voting Rights. Immediately after the conversion, the holders of our common
stock will possess exclusive voting rights. Each holder of shares of common
stock will be entitled to one vote for each share held, subject to the right of
shareholders to cumulate their votes for the election of directors. During the
five-year period after the effective date of the conversion, cumulation of votes
will not be permitted. See "Restrictions on Acquiring Douglas Federal and First
Deposit - Anti-Takeover Effects of First Deposit's Articles of Incorporation
and Bylaws and Management Remuneration Plans Adopted in Conversion."
Liquidation. In the event of our liquidation, dissolution or winding up,
the holders of common stock will be entitled to receive, after payment of all of
our debts and liabilities (including all deposit accounts and accrued interest
thereon), and distribution of the balance in the special liquidation account to
eligible account holders and supplemental eligible account holders, all of our
assets available for distribution in cash or in kind. If preferred stock is
issued after the conversion, the holders thereof may also have priority over the
holders of common stock in the event of our liquidation or dissolution.
Preemptive Rights; Redemption. Holders of our common stock will not be
entitled to preemptive rights with respect to any shares which may be issued.
The common stock will not be subject to redemption. Upon our receipt of the
full specified purchase price therefor, the common stock will be fully paid and
non-assessable.
119
<PAGE>
Preferred Stock
None of the shares of our authorized preferred stock will be issued in the
conversion. Such stock may be issued with such preferences and designations as
our Board of Directors may from time to time determine. Our Board of Directors
may issue preferred stock with voting, dividend, liquidation and conversion
rights which may assist management in impeding an unfriendly takeover or
attempted change in control.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the common stock is _____________________.
EXPERTS
Our consolidated financial statements as of December 31, 1998 and 1997, and
for the years ended December 31, 1998 and December 31, 1997, have been included
herein in reliance upon the report of Mauldin & Jenkins, LLC, independent
certified public accountants, appearing elsewhere herein, and upon the authority
of said firm as experts in accounting and auditing.
Ferguson & Company has consented to the publication herein of the summary
of its report to Douglas Federal and First Deposit setting forth its opinion as
to the estimated market value of the common stock upon conversion and its
opinion with respect to subscription rights.
LEGAL AND TAX OPINIONS
The legality of the common stock and the federal income tax consequences of
the conversion will be passed upon for us by Womble Carlyle Sandridge & Rice,
PLLC, Atlanta, Georgia, our special counsel. Georgia income tax consequences
will be passed upon for us by Mauldin & Jenkins, LLC. Certain legal matters
will be passed upon for Trident Securities by Muldoon, Murphy & Faucette LLP,
Washington, D.C.
WHERE YOU CAN FIND MORE INFORMATION
First Deposit has filed with the Securities and Exchange Commission
("Commission") a registration statement under the Securities Act of 1933 with
respect to the common stock offered hereby. As permitted by the rules and
regulations of the Commission, this prospectus does not contain all the
information contained in the registration statement. Such information,
including the Appraisal Report, which is an exhibit to the Registration
Statement, can be examined without charge at the public reference facilities of
the Commission located at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies of such material can be obtained from the Commission at prescribed rates.
Please call the Commission at 1- 800-SEC-0330 for further information on the
public reference rooms.
In addition, the Commission maintains a web site (http://www.sec.gov) that
contains reports, proxy and information statements and other information
regarding registrants that file electronically with the Commission, including
First Deposit. The conversion valuation Appraisal Report may also be inspected
by our members at our offices during normal business hours. This prospectus
contains a description of the material terms and features of all material
contracts, reports or exhibits to the
120
<PAGE>
registration statement required to be described; however, the statements
contained in this prospectus as to the contents of any contract or other
document filed as an exhibit to the registration statement are, of necessity,
brief descriptions thereof and are not necessarily complete; each such statement
is qualified by reference to such contract or document.
We have filed an application for conversion with the Office of Thrift
Supervision. The rules and regulations of the Office of Thrift Supervision,
allow us to omit certain information contained in that application from this
prospectus. The application may be examined at the principal office of the
Office of Thrift Supervision, 1700 G Street, Washington, D.C. 20552 and at the
office of the Regional Director of the Office of Thrift Supervision located at
1475 Peachtree Street, N.E., Atlanta, Georgia 30309.
First Deposit has filed with the Office of Thrift Supervision an
Application to Form a Holding Company. This prospectus omits certain
information contained in this application. The application may be inspected at
the offices of the Office of Thrift Supervision, 1700 G Street, N.W.,
Washington, D.C. 20552.
In connection with the conversion, First Deposit has registered its common
stock with the Commission under Section 12(g) of the Securities Exchange Act of
1934, and, First Deposit and the holders of its stock must comply with the proxy
solicitation rules, reporting requirements and restrictions on stock purchases
and sales by directors, officers and greater than 10.0% shareholders, the annual
and periodic reporting and certain other requirements of the Securities Exchange
Act of 1934. Under the plan of conversion , First Deposit has undertaken that
it will not terminate such registration for a period of at least three years
following the conversion.
A copy of the plan of conversion, Articles of Incorporation and the Bylaws
of First Deposit and our Charter and Bylaws are available without charge from
us. Our principal office is located at 8458 Campbellton Street, Douglasville,
Georgia 30134-1803, and our telephone number at that address is (770) 942-
5108.
121
<PAGE>
DOUGLAS FEDERAL BANK, FSB
AND SUBSIDIARY
- -------------------------------------------------------------------------------
Index to Consolidated Financial Statements
-----------------
Page
-------
INDEPENDENT AUDITOR'S REPORT .................................... F-1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated balance sheets ................................ F-2
Consolidated statements of income .......................... F-3
Consolidated statements of comprehensive income ............ F-4
Consolidated statements of retained earnings ............... F-5
Consolidated statements of cash flows ...................... F-6
Notes to consolidated financial statements ................. F-8
<PAGE>
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
To the Board of Directors
Douglas Federal Bank, FSB and Subsidiary
Douglasville, Georgia
We have audited the accompanying consolidated balance sheets of
Douglas Federal Bank, FSB and subsidiary as of December 31, 1998 and 1997, and
the related consolidated statements of income, comprehensive income, members'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Douglas Federal
Bank, FSB and subsidiary as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
/s/ Mouldin & Jenkins, LLC
Atlanta, Georgia
February 12, 1999
F-1
<PAGE>
DOUGLAS FEDERAL BANK, FSB
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
Assets 1998 1997
------ ------------ ----------
Cash and due from banks $ 7,556,511 $ 5,663,428
Federal funds sold 715,000 65,000
Securities held-to-maturity (fair value $1,071,369
and $4,405,084) 1,042,000 4,374,402
Securities available-for-sale 3,706,925 2,666,245
Loans held for sale 188,350 380,962
Loans receivable, net 83,188,926 74,048,813
Other real estate owned 228,402 352,942
Premises and equipment 1,777,472 1,828,898
Real estate held for development and sale 1,744,502 1,468,812
Accrued interest receivable 475,315 472,995
Other assets 268,589 277,312
------------ -----------
Total assets $100,891,992 $91,599,809
============ ===========
Liabilities and Retained Earnings
---------------------------------
Deposits
Noninterest-bearing demand $ 3,826,066 $ 2,281,599
Interest-bearing demand and savings 31,350,310 24,958,708
Time deposits 50,509,550 48,636,575
------------ -----------
Total deposits 85,685,926 75,876,882
Federal Home Loan Bank advances 5,000,000 6,000,000
Accrued expenses and other liabilities 543,709 813,229
------------ -----------
Total liabilities 91,229,635 82,690,111
------------ -----------
Commitments and contingent liabilities
Retained earnings, substantially restricted 9,632,457 8,852,711
Accumulated other comprehensive income 29,900 56,987
------------ -----------
Total retained earnings 9,662,357 8,909,698
------------ -----------
Total liabilities and retained earnings $100,891,992 $91,599,809
============ ===========
See Notes to Consolidated Financial Statements.
F-2
<PAGE>
DOUGLAS FEDERAL BANK, FSB
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
1998 1997
---------- ----------
Interest income
Mortgage loans $6,472,776 $6,084,240
Other loans 97,671 96,631
Taxable securities 362,076 346,192
Interest-bearing deposits and Federal
funds sold 229,780 160,391
---------- ----------
Total interest income 7,162,303 6,687,454
---------- ----------
Interest expense
Deposits 3,921,464 3,544,616
Federal Home Loan Bank advances 304,986 238,584
---------- ----------
Total interest expense 4,226,450 3,783,200
---------- ----------
Net interest income 2,935,853 2,904,254
Provision for loan losses 107,805 60,000
---------- ----------
Net interest income after provision
for loan losses 2,828,048 2,844,254
---------- ----------
Other income
Service charges on deposit accounts 203,420 169,093
Loan servicing income 42,137 48,226
Gain on sale of securities
available-for-sale 274,018 -
Gain on sale of loans 85,880 125,379
Other operating income 158,949 69,647
---------- ----------
Total other income 764,404 412,345
---------- ----------
Other expenses
Salaries and employee benefits 1,127,935 1,168,571
Equipment and occupancy expenses 310,030 276,637
Other operating expenses 969,928 776,076
---------- ----------
Total other expenses 2,407,893 2,221,284
---------- ----------
Income before income taxes 1,184,559 1,035,315
Income tax expense 404,813 385,729
---------- ----------
Net income $ 779,746 $ 649,586
========== ==========
See Notes to Consolidated Financial Statements.
F-3
<PAGE>
DOUGLAS FEDERAL BANK, FSB
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
1998 1997
--------- --------
Net income $ 779,746 $649,586
--------- --------
Other comprehensive income (loss):
Unrealized gains (losses) on securities
available-for-sale:
Unrealized holding gains arising during period,
net of taxes of $93,097 and $29,355,
respectively 142,804 56,987
Reclassification adjustment for gains realized in
net income, net of taxes of $104,127 and $--,
respectively (169,891) -
--------- --------
Other comprehensive income (loss) (27,087) 56,987
--------- --------
Comprehensive income $ 752,659 $706,573
========= ========
See Notes to Consolidated Financial Statements.
F-4
<PAGE>
DOUGLAS FEDERAL BANK, FSB
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- --------------------------------------------------------------------------------
Accumulated
Other Total
Retained Comprehensive Retained
Earnings Income Earnings
---------- ------------- ----------
Balance, December 31, 1996 $8,203,125 $ - $8,203,125
Net income 649,586 - 649,586
Other comprehensive income - 56,987 56,987
---------- -------- ----------
Balance, December 31, 1997 8,852,711 56,987 8,909,698
Net income 779,746 - 779,746
Other comprehensive loss - (27,087) (27,087)
---------- -------- ----------
Balance, December 31, 1998 $9,632,457 $ 29,900 $9,662,357
========== ======== ==========
See Notes to Consolidated Financial Statements.
F-5
<PAGE>
DOUGLAS FEDERAL BANK, FSB
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
1998 1997
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 779,746 $ 649,586
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 177,844 156,092
Provision for loan losses 107,805 60,000
Deferred income taxes (55,884) (8,269)
Gain on sale of other real estate owned (4,558) (20,666)
Net realized gains on sales of
securities available-for-sale (274,018) -
(Increase) decrease in loans held for sale, net 192,612 (75,376)
Gain on sale of land (113,682) (10,000)
(Increase) decrease in accrued interest receivable (2,320) 35,191
Other operating activities (193,881) 131,993
----------- -----------
Net cash provided by operating activities 613,664 918,551
----------- -----------
INVESTING ACTIVITIES
Purchases of securities available-for-sale (2,672,935) (2,579,902)
Proceeds from maturities of securities
available-for-sale 994,052 -
Proceeds from sales of securities
available-for-sale 874,104 -
Proceeds from maturities of securities
held-to-maturity 3,332,402 843,772
Increase in loans, net (9,436,299) (5,810,522)
Net increase in Federal funds sold (650,000) -
Purchase of premises and equipment (128,619) (355,788)
Proceeds from sales of premises and equipment 2,200 -
Proceeds from sales of other real estate owned 325,547 269,712
Investment in other real estate owned (8,069) (43,683)
Investment in real estate held for development
and sale (626,684) -
Purchase of real estate held for development and sale - (1,489,812)
Proceeds from sales of real estate held for
development and sale 464,676 31,000
----------- -----------
Net cash used in investing activities (7,529,625) (9,135,223)
----------- -----------
FINANCING ACTIVITIES
Net increase in deposits 9,809,044 6,422,788
Net increase (decrease) in Federal Home Loan Bank
advances (1,000,000) 5,250,000
----------- -----------
Net cash provided by financing activities 8,809,044 11,672,788
----------- -----------
Net increase in cash and due from banks 1,893,083 3,456,116
Cash and due from banks at beginning of year 5,663,428 2,207,312
----------- -----------
Cash and due from banks at end of year $ 7,556,511 $ 5,663,428
=========== ===========
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
DOUGLAS FEDERAL BANK, FSB
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998 AND 1997
- -------------------------------------------------------------------------------------------------------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid for:
Interest $ 4,205,701 $ 3,823,587
Income taxes $ 568,691 $ 334,519
SUPPLEMENTAL DISCLOSURES OF NONCASH
INVESTING ACTIVITIES
Transfer of loans to other real estate owned $ 188,381 $ 310,868
Unrealized (gains) losses on securities available-for-sale $ 38,117 $ (86,342)
See Notes to Consolidated Financial Statements.
</TABLE>
F-7
<PAGE>
DOUGLAS FEDERAL BANK, FSB
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
Douglas Federal Bank, FSB (the "Company") is a federally chartered
thrift with operations in Douglasville, Douglas County, Georgia. The
Company provides a full range of banking services in its primary
market area of Douglas County, Georgia and the surrounding counties.
Pinehurst Corp. was incorporated in July 1995 and is a wholly-owned
subsidiary of the Company. Pinehurst Corp. was organized for the
purpose of developing and selling real estate in its primary market
area of Douglas County.
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its subsidiary. Significant intercompany transactions
and accounts are eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at
the date of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Cash and Due from Banks
Cash on hand, cash items in process of collection and amounts due
from banks are included in cash and due from banks. At December 31,
1998 and 1997, cash and due from banks included interest-bearing due
from bank accounts in the amounts of $6,683,371 and $4,670,875,
respectively.
The Company maintains amounts due from banks which, at times, may
exceed Federally insured limits. The Company has not experienced any
losses in such accounts.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Securities
Securities are classified based on management's intention on the date
of purchase. Securities which management has the intent and ability
to hold to maturity are classified as held-to-maturity and reported
at amortized cost. All other debt securities are classified as
available-for-sale and carried at fair value with net unrealized
gains and losses included in retained earnings, net of tax.
Marketable equity securities are classified as available-for-sale and
carried at fair value with net unrealized gains and losses included
in equity, net of tax. Equity securities without a readily
determinable fair value are classified as available-for-sale and
carried at cost.
Interest and dividends on securities, including amortization of
premiums and accretion of discounts, are included in interest income.
Realized gains and losses from the sale of securities are determined
using the specific identification method.
Loans Held for Sale
Loans held for sale consist of mortgage loans which are carried at
the lower of aggregate cost or fair value. The determination of fair
value includes consideration of outstanding commitments from
investors, related origination fees and costs, and commitment fees
paid. Gains and losses are recognized at settlement dates and are
determined by the difference between the selling price and the
carrying value of the loans sold. The Company sells certain mortgage
loans to third party investors. The Company's practice is to
originate these mortgage loans subject to existing purchase
commitments from third party investors.
Loans
Loans are carried at their principal amounts outstanding less
deferred loan fees and costs and the allowance for loan losses.
Interest income on loans is credited to income based on the principal
amount outstanding.
Loan origination fees and certain direct costs incurred in
originating loans are deferred and recognized as income over the life
of the loan.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Loans (Continued)
The allowance for loan losses is maintained at a level that
management believes to be adequate to absorb potential losses in the
loan portfolio. Management's determination of the adequacy of the
allowance is based on an evaluation of the portfolio, past loan loss
experience, current economic conditions, volume, growth, composition
of the loan portfolio, and other risks inherent in the portfolio.
This evaluation is inherently subjective as it requires material
estimates that are susceptible to significant change including the
amounts and timing of future cash flows expected to be received on
impaired loans. In addition, regulatory agencies, as an integral
part of their examination process, periodically review the Company's
allowance for loan losses, and may require the Company to record
additions to the allowance based on their judgment about information
available to them at the time of their examinations.
The accrual of interest on loans is discontinued when, in
management's opinion, the borrower may be unable to meet payments as
they become due. When accrual of interest is discontinued, all
unpaid accrued interest is reversed. Interest income is subsequently
recognized only to the extent cash payments are received.
A loan is considered to be impaired when it is probable the Company
will be unable to collect all principal and interest payments due in
accordance with the terms of the loan agreement. Individually
identified impaired loans are measured based on the present value of
payments expected to be received, using the contractual loan rate as
the discount rate. Alternatively, measurement may be based on
observable market prices or, for loans that are solely dependent on
the collateral for repayment, measurement may be based on the fair
value of the collateral. If the recorded investment in the impaired
loan exceeds the measure of fair value, a valuation allowance is
established as a component of the allowance for loan losses. Changes
to the valuation allowance are recorded as a component of the
provision for loan losses.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation. Depreciation is computed by the straight-line and
accelerated methods over the estimated useful lives of the assets.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Other Real Estate Owned
Other real estate owned represents properties acquired through
foreclosure. Other real estate owned is held for sale and is carried
at the lower of the recorded amount of the loan or fair value of the
properties less estimated selling costs. Any write-down to fair
value at the time of transfer to other real estate owned is charged
to the allowance for loan losses. Subsequent gains or losses on sale
and any subsequent adjustment to the value are recorded as other
expenses.
Real Estate Held for Development and Sale
Real estate held for development and sale are carried at the lower of
cost or net realizable value. Carrying costs associated with the
properties under development are capitalized as part of the
construction costs during the construction period.
Sales of real estate are recognized upon closing. The recognition of
gains is dependent upon and determined by the terms and conditions of
the sale and whether the Company has provided financing to facilitate
such sales. If the transaction does not meet the initial investment
requirements of Statement of Financial Accounting Standards ("SFAS")
No. 66, "Accounting for Sales of Real Estate", income recognition is
deferred until such requirements are met. Gains recognized or
deferred are based on the proceeds from sale, less selling costs and
the carrying value of the real estate. Any losses are recognized at
time of sale.
Income Taxes
Income tax expense consists of current and deferred taxes. Current
income tax provisions approximate taxes to be paid or refunded for
the applicable year. Deferred income tax assets and liabilities are
determined using the balance sheet method. Under this method, the
net deferred tax asset or liability is determined based on the tax
effects of the differences between the book and tax bases of the
various balance sheet assets and liabilities and gives current
recognition to changes in tax rates and laws.
Recognition of deferred tax balance sheet amounts is based on
management's belief that it is more likely than not that the tax
benefit associated with certain temporary differences, tax operating
loss carryforwards and tax credits will be realized. A valuation
allowance would be recorded for those deferred tax items for which it
is more likely than not that realization would not occur.
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes (Continued)
The Company and the subsidiary file a consolidated income tax return.
Each entity provides for income taxes based on its contribution to
income taxes of the consolidated group.
Profit-Sharing Plan
Profit-sharing plan costs are based on a percentage of individual
employee's salary, not to exceed the amount that can be deducted for
Federal income tax purposes.
Reclassifications
Certain balance sheet and income statement items for the year ended
December 31, 1997 have been reclassified, with no effect on total
assets or net income, to be consistent with classifications adopted
for the year ended December 31, 1998.
Comprehensive Income
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive
Income". This statement establishes standards for reporting and
display of comprehensive income and its components in the financial
statements. This statement requires that all items that are required
to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is
displayed in equal prominence with the other financial statements.
The Company has elected to report comprehensive income in a separate
financial statement titled "Consolidated Statements of Comprehensive
Income". SFAS No. 130 describes comprehensive income as the total of
all components of comprehensive income including net income. This
statement uses other comprehensive income to refer to revenues,
expenses, gains and losses that under generally accepted accounting
principles are included in comprehensive income but excluded from net
income. Currently, the Company's other comprehensive income consists
of items previously reported directly in equity under SFAS No. 115,
"Accounting for Certain Investments in Debt and Equity Securities".
As required by SFAS No. 130, the financial statements for the prior
year have been reclassified to reflect application of the provisions
of this statement. The adoption of this statement did not affect the
Company's financial position, results of operations or cash flows.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent Developments
In June 1998, the Financial Accounting Standards Board issued SFAS
No. 133, "Accounting for Derivative Instruments and Hedging
Activities". This statement is required to be adopted for fiscal
years beginning after June 15, 1999. However, the statement permits
early adoption as of the beginning of any fiscal quarter after its
issuance. The Company expects to adopt this statement effective
January 1, 2000. SFAS No. 133 requires the Company to recognize all
derivatives as either assets or liabilities in the balance sheet at
fair value. For derivatives that are not designated as hedges, the
gain or loss must be recognized in earnings in the period of change.
For derivatives that are designated as hedges, changes in the fair
value of the hedged assets, liabilities, or firm commitments must be
recognized in earnings or recognized in other comprehensive income
until the hedged item is recognized in earnings, depending on the
nature of the hedge. The ineffective portion of a derivative's
change in fair value must be recognized in earnings immediately.
Management has not yet determined what effect the adoption of SFAS
No. 133 will have on the Company's earnings or financial position.
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. SECURITIES
The amortized cost and fair value of securities are summarized as
follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Securities Available-for-Sale
December 31, 1998:
U. S. Government and
agency securities $ 2,491,538 $ 13,800 $ (1,126) $ 2,504,212
Equity securities 1,167,162 35,551 - 1,202,713
-------------- -------------- -------------- --------------
$ 3,658,700 $ 49,351 $ (1,126) $ 3,706,925
============== ============== ============== ==============
December 31, 1997:
U. S. Government and
agency securities $ 1,487,401 $ 12,161 $ - $ 1,499,562
Equity securities 1,092,502 74,181 - 1,166,683
-------------- -------------- -------------- --------------
$ 2,579,903 $ 86,342 $ - $ 2,666,245
============== ============== ============== ==============
Securities Held-to-Maturity
December 31, 1998:
Mortgage-backed securities $ 1,042,000 $ 29,369 $ - $ 1,071,369
============== ============== ============== ==============
December 31, 1997:
U. S. Government and
agency securities $ 3,000,509 $ - $ (13,164) $ 2,987,345
Mortgage-backed securities 1,373,893 43,846 - 1,417,739
-------------- -------------- -------------- --------------
$ 4,374,402 $ 43,846 $ (13,164) $ 4,405,084
============== ============== ============== ==============
</TABLE>
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 2. SECURITIES (Continued)
The amortized cost and fair value of securities as of December 31,
1998 by contractual maturity are shown below. Maturities may differ
from contractual maturities of mortgage-backed securities because the
mortgages underlying the securities may be called or prepaid with or
without penalty. Therefore, these securities and equity securities
are not included in the maturity categories in the following summary.
<TABLE>
<CAPTION>
Securities Available-for-Sale Securities Held-to-Maturity
----------------------------- ---------------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Due from one year to five years $1,991,538 $2,005,338 $ - $ -
Due from five years to ten years 500,000 498,874 - -
Mortgage-backed securities - - 1,042,000 1,071,369
Equity securities 1,167,162 1,202,713 - -
---------- ---------- ---------- ----------
$3,658,700 $3,706,925 $1,042,000 $1,071,369
========== ========== ========== ==========
</TABLE>
Securities with a carrying value of $751,475 and $1,021,296 at
December 31, 1998 and 1997, respectively, were pledged to secure
public deposits and for other purposes.
For the year ended December 31, 1998, gross gains on sales of
securities available-for-sale were $274,018. There were no sales of
securities for the year ended December 31, 1997.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. LOANS RECEIVABLE
The composition of loans receivable is summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
---------------- ----------------
<S> <C> <C>
Commercial $ 1,268,000 $ 871,000
Real estate - construction 6,765,000 5,323,000
Real estate - mortgage 75,403,272 67,808,691
Consumer and other loans 962,000 1,136,000
-------------- --------------
84,398,272 75,138,691
Deferred fees and costs (209,346) (224,320)
Allowance for loan losses (1,000,000) (865,558)
-------------- --------------
Loans receivable, net $ 83,188,926 $ 74,048,813
============== ==============
</TABLE>
Changes in the allowance for loan losses are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Balance, beginning of year $ 865,558 $ 784,062
Provision for loan losses 107,805 60,000
Loans charged off (1,423) -
Recoveries of loans previously charged off 28,060 21,496
-------------- --------------
Balance, end of year $ 1,000,000 $ 865,558
============== ==============
</TABLE>
The total recorded investment in impaired loans was $982,942 and
$1,082,100 at December 31, 1998 and 1997, respectively. There were no
impaired loans that had related allowances for loan losses determined
in accordance with SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan". The average recorded investment in impaired
loans for 1998 and 1997 was $1,017,236 and $1,050,250, respectively.
Interest income on impaired loans of $77,544 and $94,763 was
recognized for cash payments received for the years ended 1998 and
1997, respectively.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. LOANS RECEIVABLE (CONTINUED)
The Company has granted loans to certain related parties, including
directors, executive officers, and their related entities. The
interest rates on these loans were substantially the same as rates
prevailing at the time of the transaction and repayment terms are
customary for the type of loan involved. Changes in related party
loans for the year ended December 31, 1998 are as follows:
Balance, beginning of year $ 181,274
Advances 145,000
Repayments (176,455)
------------
Balance, end of year $ 149,819
============
As of December 31, 1998 and 1997, the Company was servicing loans for
others with approximate balances of $14,657,911 and $13,728,351,
respectively.
NOTE 4. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
December 31,
-----------------------------------
1998 1997
-------------- -------------
Land $ 980,194 $ 980,194
Buildings 728,593 712,360
Equipment 1,298,685 1,188,500
-------------- -------------
3,007,472 2,881,054
Accumulated depreciation (1,230,000) (1,052,156)
--------------- --------------
$ 1,777,472 $ 1,828,898
=============== ==============
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 5. DEPOSITS
The amount of time deposits of $100,000 and over was $12,756,042 and
$14,041,171 at December31, 1998 and 1997, respectively.
At December 31, 1998, scheduled maturities of time deposits are as
follows:
Years ended December 31,
1999 $38,960,580
2000 6,548,662
2001 1,858,931
2002 2,133,964
2003 936,047
Thereafter 71,366
-----------
$50,509,550
===========
NOTE 6. FEDERAL HOME LOAN BANK ADVANCES
Federal Home Loan Bank advances consist of the following:
<TABLE>
<CAPTION>
December 31,
-------------------------------
1998 1997
-------------- --------------
<S> <C> <C>
Advance from the Federal Home Loan Bank with interest at
5.90%, due on July 3, 2000. $1,000,000 $ -
Advance from the Federal Home Loan Bank with interest at
5.29%, due on September 18, 2000. 1,000,000 -
Advance from the Federal Home Loan Bank with interest at
5.96%, due on July 2, 2001. 1,000,000 -
Advance from the Federal Home Loan Bank with interest at
5.63%, due on August 28, 2001. 1,000,000 -
Advance from the Federal Home Loan Bank with interest at
5.21%, due on October 1, 2001. 1,000,000 -
Advance from the Federal Home Loan Bank with interest at
6.41%, due on September 14, 1998. - 1,000,000
Variable rate advance from the Federal Home Loan Bank
at .25% plus the overnight investment rate.
Matured on December 31, 1998. - 5,000,000
---------- ----------
$5,000,000 $6,000,000
========== ==========
</TABLE>
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. FEDERAL HOME LOAN BANK ADVANCES (CONTINUED)
The advances from the Federal Home Loan Bank are collateralized by a
blanket floating lien on qualifying first mortgages and the Company's
Federal Home Loan Bank stock.
Aggregate maturities of Federal Home Loan Bank advances at December
31, 1998 are as follows:
2000 $ 2,000,000
2001 3,000,000
---------------
$ 5,000,000
===============
NOTE 7. EMPLOYEE BENEFIT PLAN
The Company has a defined contribution plan covering all employees,
subject to certain minimum age and service requirements. The
contributions were $117,799 and $126,500 for the years ended December
31, 1998 and 1997, respectively.
NOTE 8. INCOME TAXES
Income tax expense consists of the following:
December 31,
------------------------------
1998 1997
----------- ------------
Current $ 460,697 $ 393,998
Deferred (55,884) (8,269)
----------- ------------
Income tax expense $ 404,813 $ 385,729
=========== ============
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 8. INCOME TAXES (CONTINUED)
The Company's income tax expense differs from the amounts computed by
applying the Federal income tax statutory rates to income before
income taxes. A reconciliation of the differences is as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------------------------
1998 1997
------------------- ------------------
Amount Percent Amount Percent
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Tax provision at statutory rate $402,750 34 % $352,007 34%
State income tax 19,632 2 19,394 2
Other (17,569) (2) 14,328 1
-------- -- -------- --
Income tax expense $404,813 34 % $385,729 37%
======== == ======== ==
</TABLE>
The components of deferred income taxes are as follows:
December 31,
-----------------------
1998 1997
-------- --------
Deferred tax assets:
Loan loss reserves $169,408 $107,560
-------- --------
Deferred tax liabilities:
Depreciation 40,119 20,705
FHLB stock 42,401 42,401
Other - 13,450
Securities available-for-sale 18,325 29,356
-------- --------
100,845 105,912
-------- --------
Net deferred tax assets $ 68,563 $ 1,648
======== ========
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES
The Company enters into firm commitments to sell mortgage loans which
it has originated at agreed upon prices. The sales price for these
loans are based on market rates at the time of the commitment. The
Company generally has ten days after the loan closing to provide the
investor with the loan documentation, at which time the investor will
fund the loan. The investor bears the interest rate risk on the loan
from the time of the commitment until funding. The Company's risk is
limited to specific recourse provisions within the agreement with the
investor and its ability to provide the required loan documentation to
the investor within the commitment period.
The Company sells mortgage loans to investors under various blanket
agreements. Under the agreements, investors generally have a limited
right of recourse to the Company for normal representations and
warranties and, in some cases, for delinquencies within the first
three to six months which lead to loan default and foreclosure.
Management believes that the risk of loss to the Company as a result
of these provisions is insignificant.
As of December 31, 1998 and 1997, the Company had commitments to sell
loans of $188,350 and $380,962, respectively.
The Company enters into residential construction and commercial loan
commitments to fund loans to its customers at prime based interest
rates in the normal course of business. These instruments involve
credit risk in excess of the amount recognized in the financial
statements.
In the normal course of business, the Company has entered into off-
balance sheet financial instruments which are not reflected in the
financial statements. These financial instruments consist of
commitments to extend credit. Such financial instruments are included
in the financial statements when funds are disbursed or the
instruments become payable. These instruments involve, to varying
degrees, elements of credit risk in excess of the amount recognized in
the consolidated balance sheet.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
The Company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit is represented by the contractual amount of those
instruments. A summary of the Company's commitments is as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1997
------------------ ----------------
<S> <C> <C>
Unfunded mortgage loan commitments $ 1,374,567 $ 784,762
Construction loan commitments 4,172,033 3,443,407
Other commitments to extend credit 1,418,996 1,635,955
------------------ ----------------
$ 6,965,596 $ 5,864,124
================== ================
</TABLE>
Commitments to extend credit generally have fixed expiration dates or
other termination clauses and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn
upon, the total commitment amounts do not necessarily represent future
cash requirements. The credit risk involved in issuing these
financial instruments is essentially the same as that involved in
extending loans to customers. The Company evaluates each customer's
creditworthiness on a case-by-case basis. The amount of collateral
obtained, if deemed necessary by the Company upon extension of credit,
is based on management's credit evaluation of the customer.
Collateral held varies but may include real estate and improvements,
marketable securities, accounts receivable, inventory, equipment, and
personal property.
In the normal course of business, the Company is involved in various
legal proceedings. In the opinion of management of the Company, any
liability resulting from such proceedings would not have a material
effect on the Company's financial statements.
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. COMMITMENTS AND CONTINGENT LIABILITIES (CONTINUED)
Year 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year.
Systems that do not properly recognize the year "2000" could generate
erroneous data or cause systems to fail. The Company is heavily
dependent on computer processing and telecommunication systems in the
daily conduct of business activities. In addition, the Company must
rely on intermediaries, vendors and customers to appropriately modify
their systems in order that all may continue normal operations and
operate without significant disruptions. The Company has conducted a
review of its computer systems to identify the systems that could be
affected by the Year 2000 issue. The Company presently believes that,
with modifications to its computer systems and conversions to new
systems, the Year 2000 issue will not pose significant operational
problems for the Company or have a material adverse effect on future
operating results. However, absolute assurance cannot be given that;
(1) the modifications and conversions will remedy all deficiencies,
(2) failure of any of the Company's systems will not have a material
impact on operations, or (3) failure of any other companies' systems
with whom the Company conducts business will not have a material
impact on operations.
NOTE 10. CONCENTRATIONS OF CREDIT
The Company originates primarily commercial, residential, and consumer
loans to customers in Douglas County and surrounding counties. The
ability of the majority of the Company's customers to honor their
contractual loan obligations is dependent on the economy in their
primary market area.
Ninety-seven percent of the Company's loan portfolio is concentrated
in loans secured by real estate, of which a substantial portion is
secured by real estate in the Company's primary market area. In
addition, a substantial portion of the other real estate owned and
real estate held for development and sale is located in those same
markets. Accordingly, the ultimate collectibility of the loan
portfolio and the recovery of the carrying amount of real estate owned
are susceptible to changes in market conditions in the Company's
primary market area.
The Company, as a matter of policy, does not generally extend credit
to any single borrower or group of related borrowers in excess of
$1,320,000.
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. REGULATORY MATTERS
The Company is subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory, and possibly
additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the financial statements.
Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, the Company must meet specific capital
guidelines that involve quantitative measures of the assets,
liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Company's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital
adequacy require the Company to maintain minimum amounts and ratios of
Total and Tier I capital to risk-weighted assets, Tier I capital to
total adjusted assets, core capital to total adjusted assets, and
tangible capital to total adjusted assets. Management believes, as of
December 31, 1998, the Company meets all capital adequacy requirements
to which it is subject.
As of December 31, 1998, the most recent notification from the FDIC
categorized the Company as well capitalized under the regulatory
framework for prompt corrective action. To be categorized as well
capitalized, the Company must maintain minimum Total risk-based, Tier
I risk-based, and Tier I leverage ratios as set forth in the following
table. There are no conditions or events since that notification that
management believes have changed the Company's category.
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. REGULATORY MATTERS (CONTINUED)
The Company's actual capital amounts and ratios are presented in the
following tables.
<TABLE>
<CAPTION>
To Be Well
For Capital Capitalized Under
Adequacy Prompt Corrective
Actual Purposes Action Provisions
-------------------------- -------------------------- --------------------------
Amount Ratio Amount Ratio Amount Ratio
-------------- --------- -------------- --------- ------------- ----------
(Dollars in Thousands)
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital
(to Risk Weighted Assets):
Consolidated $ 8,513 15.08% $ 4,515 8.00% $ 5,644 10.00%
Tier I Capital
(to Risk Weighted Assets):
Consolidated $ 7,804 13.83% $ 2,258 4.00% $ 3,387 6.00%
Tier I Capital
(to Total Adjusted Assets):
Consolidated $ 7,804 7.88% $ 3,961 4.00% $ 4,952 5.00%
Core Capital
Consolidated $ 7,804 7.88% $ 2,971 3.00%
Tangible Capital
Consolidated $ 7,804 7.88% $ 1,485 1.50%
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets):
Consolidated $ 7,920 15.32% $ 4,136 8.00% $ 5,171 10.00%
Tier I Capital
(to Risk Weighted Assets):
Consolidated $ 7,271 14.06% $ 2,068 4.00% $ 3,103 6.00%
Tier I Capital
(to Total Adjusted Assets):
Consolidated $ 7,271 8.47% $ 3,434 4.00% $ 4,292 5.00%
Core Capital
Consolidated $ 7,271 8.08% $ 2,699 3.00%
Tangible Capital
Consolidated $ 7,271 8.08% $ 1,350 1.50%
</TABLE>
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments. In
cases where quoted market prices are not available, fair values are
based on estimates using discounted cash flow models. Those models
are significantly affected by the assumptions used, including the
discount rates and estimates of future cash flows. In that regard,
the derived fair value estimates cannot be substantiated by comparison
to independent markets and, in many cases, could not be realized in
immediate settlement of the instrument. The use of different
methodologies may have a material effect on the estimated fair value
amounts. Also, the fair value estimates presented herein are based on
pertinent information available to management as of December 31, 1998
and 1997. Such amounts have not been revalued for purposes of these
financial statements since those dates and, therefore, current
estimates of fair value may differ significantly from the amounts
presented herein.
Cash and Due From Banks, and Federal Funds Sold:
The carrying amounts of cash and due from banks, interest-bearing
deposits in banks, and Federal funds sold approximate their fair
value.
Available-For-Sale and Held-To-Maturity Securities:
Fair values for securities are based on available quoted market
prices. The carrying values of equity securities with no readily
determinable fair value approximate fair values.
Loans Held for Sale:
The carrying amounts of loans held for sale approximate their fair
values.
Loans:
For variable-rate loans that reprice frequently and have no
significant change in credit risk, fair values are based on carrying
values. For other loans, the fair values are estimated using
discounted cash flow models, using current market interest rates
offered for loans with similar terms to borrowers of similar credit
quality. Fair values for impaired loans are estimated using
discounted cash flow models or based on the fair value of the
underlying collateral.
F-26
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
Deposits:
The carrying amounts of demand deposits, savings deposits, and
variable-rate certificates of deposit approximate their fair values.
Fair values for fixed-rate certificates of deposit are estimated
using discounted cash flow models, using current market interest
rates offered on certificates with similar remaining maturities.
Accrued Interest:
The carrying amounts of accrued interest approximate their fair
values.
Federal Home Loan Bank Advances:
The fair value of the Company's Federal Home Loan Bank advances are
estimated using discounted cash flow models, using current market
interest rates offered on similar borrowings.
Off-Balance Sheet Instruments:
Fair values of the Company's off-balance sheet financial instruments
are based on fees charged to enter into similar agreements. However,
commitments to extend credit and standby letters of credit do not
represent a significant value to the Company until such commitments
are funded. The Company has determined that these instruments do not
have a distinguishable fair value and no fair value has been
assigned.
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
The carrying amounts and estimated fair values of the Company's
financial instruments are as follows:
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997
------------------------------------- -------------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and due from
banks, and
Federal funds sold $ 8,271,511 $ 8,271,511 $ 5,728,428 $ 5,728,428
Securities available-for-sale 3,706,925 3,706,925 2,666,245 2,666,245
Securities held-to-maturity 1,042,000 1,071,369 4,374,402 4,405,084
Loans held for sale 188,350 188,350 380,962 380,962
Loans 83,188,926 83,017,000 74,048,813 77,350,000
Accrued interest receivable 475,315 475,315 472,995 472,995
Financial liabilities:
Deposits 85,685,926 86,515,376 75,876,882 75,949,307
Other borrowings 5,000,000 5,000,000 6,000,000 6,000,000
Accrued interest payable 134,156 134,156 113,407 113,407
</TABLE>
NOTE 13. SUPPLEMENTAL FINANCIAL DATA
Components of other operating expenses in excess of 1% of total
revenue are as follows:
December 31,
-----------------------------------
1998 1997
--------------- --------------
Computer service $ 113,399 $ 84,415
NOW account expenses 124,676 135,670
Conversion losses 90,000 -
F-28
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 14. PLAN OF CONVERSION
On February 9, 1999, Douglas Federal Bank's Board of Directors adopted
a plan of conversion ("Plan") to convert from a federally chartered
mutual savings bank to a federally chartered stock savings bank,
subject to approval by Douglas Federal Bank's members. The Plan, which
includes the formation of a thrift holding company, First Deposit
Bancshares, Inc. ("First Deposit"), is subject to approval by the OTS
and includes the filing of a registration statement with the
Securities and Exchange Commission.
The Plan is expected to be accomplished by the sale of common stock of
First Deposit and the acquisition of all of the capital stock of
Douglas Federal Bank by First Deposit in exchange for a portion of the
net proceeds of the conversion. First Deposit's common stock will be
offered to various eligible account holders, to a Employee Stock
Ownership Plan, to other supplemental eligible depositors, and to
other members in a subscription offering. Shares of First Deposit's
common stock not subscribed for in the subscription offering, if any,
may be offered for sale in a community offering, as determined by the
Board of Directors of Douglas Federal Bank.
At the time of conversion, Douglas Federal Bank will establish a
liquidation account in an amount equal to its retained earnings as
reflected in the latest balance sheet used in the final conversion
prospectus. The liquidation account will be maintained for the benefit
of eligible account holders and supplemental eligible account holders
(collectively, "eligible depositors") who continue to maintain their
deposit accounts in Douglas Federal Bank after conversion. In the
event of a complete liquidation of Douglas Federal Bank (and only in
such event), eligible depositors who continue to maintain accounts
shall be entitled to receive distribution from the liquidation account
before any liquidation may be made with respect to common stock.
Douglas Federal Bank may not declare or pay a cash dividend if the
effect thereof would cause its equity to be reduced below either the
amount required for the liquidation account or the regulatory capital
requirements imposed by the OTS.
Conversion costs will be deducted from the proceeds of sale of common
stock and recorded as a reduction to equity. If the conversion is not
completed, all costs will be charged to expense.
F-29
<PAGE>
You should rely only on the information contained in this prospectus or that we
have referred to you. We have not authorized anyone to provide you with
information that is different. This prospectus does not constitute an offer to
sell, or a the solicitation of an offer to buy, any of the shares of common
stock offered hereby, to any person in any jurisdiction in which such offer or
solicitation is unlawful. Neither the delivery of this prospectus nor any sale
made hereunder shall under any circumstances create any implication that the
information herein is correct as of any time after the date hereof or that
there has been no change in the affairs of Douglas Federal or First Deposit
since such date.
FIRST DEPOSIT BANCSHARES, INC.
(Holding Company for
Douglas Federal Bank, a Federal Savings Bank)
1,449,000 Shares
Common Stock
----------------
Prospectus
----------------
TRIDENT SECURITIES
Dated May , 1999
These securities are not deposits or accounts
and are not insured or guaranteed.
Dealer Prospectus Delivery Obligation
Until , 1999 (90 days after the date of this prospectus), all dealers that
effect transactions in these securities, whether or not participating in this
offering, may be required to deliver a prospectus. This is in addition to the
dealers obligation to deliver a prospectus when acting as underwriters and with
respect to their unsold allotments or subscriptions.
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
<TABLE>
<CAPTION>
Legal Fees and Expenses.............................................. $160,000
<S> <C>
Printing, Postage and Mailing........................................ 100,000
Appraisal and Business Plan Fees and Expenses........................ 27,500
Conversion Agent Fees and Expenses................................... 10,000
Transfer Agent Fees and Stock Certificates........................... 10,000
Accounting Fees and Expenses......................................... 50,000
Blue Sky Fees and Expenses
(including counsel fees)............................................ 15,000
SEC Filing Fee....................................................... 4,633
OTS Filing Fee....................................................... 8,400
OTC Bulletin Board................................................... *
NASD Fees............................................................ *
Underwriter's Fees and Expenses**.................................... 268,202
Local Counsel........................................................ 5,000
Other Expenses....................................................... *
Miscellaneous........................................................ *
Total.............................................................. *
</TABLE>
- --------
*To be supplied by amendment.
**Assumes sale of 1,666,350 shares at $10.00 per share.
All amounts are estimated, other than the filing fees.
Item 14. Indemnification of Directors and Officers
Indemnification of Directors and Officers of First Deposit
First Deposit's Bylaws contain certain indemnification provisions providing
that directors, officers, and employees or agents of First Deposit will be
indemnified against expenses actually and reasonably incurred by them if they
are successful on the merits of a claim or proceeding.
When a case or dispute is not ultimately determined on its merits (i.e., it
is settled), the indemnification provisions provide that First Deposit will
indemnify directors when they meet the applicable standard of conduct. The
applicable standard of conduct is met if the director acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interests of First Deposit, and with respect to an employee benefit plan, for a
purpose the director believed in good faith to be in the interests of the
participants and beneficiaries of the plan. The standard of conduct with
respect to any criminal action or proceeding is met if the director had no
reasonable cause to believe his or her conduct was unlawful. Whether the
applicable standard of conduct has been met is determined by the Board of
Directors, the shareholders or independent legal counsel in each specific case.
First Deposit can also provide for greater indemnification than that set
forth in the Bylaws if it chooses to do so, subject to approval by First
Deposit's shareholders. First Deposit may not, however, indemnify a director
for liability arising out of circumstances which constitute exceptions to
limitation of a director's liability for monetary damages.
First Deposit may purchase and maintain insurance on behalf of any director
against any liability asserted against such person and incurred by him or her
in any such capacity, whether or not First Deposit would have had the power to
indemnify against such liability.
II-1
<PAGE>
In addition, Article 11 of First Deposit's Articles of Incorporation,
subject to certain exceptions, eliminates the potential personal liability of
a director for monetary damages to First Deposit and to the shareholders of
First Deposit for breach of any duty as a director. There is no elimination of
liability for (a) a breach of duty involving appropriation of a business
opportunity of First Deposit, (b) an act or omission not in good faith or
involving intentional misconduct or a knowing violation of law, (c) a
transaction from which the director derives an improper material tangible
personal benefit, or (d) as to any payment of a dividend or approval of a
stock repurchase that is illegal under the Georgia Business Corporation Code.
The Articles of Incorporation do not eliminate or limit the right of First
Deposit or its shareholders to seek injunctive or other equitable relief not
involving monetary damages.
The engagement letter dated January 26, 1999, between Douglas Federal and
Ferguson & Company provides for the indemnification of Ferguson & Company and
its employees under certain circumstances, in connection with the appraisal
services rendered under the terms of that engagement letter. The engagement
letter dated February 3, 1999 between Douglas Federal and Trident Securities
provides for the indemnification of Trident Securities and its controlling
persons under certain circumstances, in connection with the conversion and
Trident Securities' engagement under the engagement letter. The Sales Agency
Agreement to be entered into between Trident Securities and First Deposit will
provide for the indemnification of Trident Securities, its affiliates, and
their respective officers, directors, employees, agents and controlling
persons under certain circumstances.
Item 15. Recent Sales of Unregistered Securities.
The only securities to be sold by First Deposit before effectiveness of
this registration statement will be of 10 shares of common stock to be issued
to its sole shareholder, Douglas Federal Bank, a Federal Savings Bank, for
$10.00 per share, which shares will be canceled upon consummation of the
conversion. Because the shares will be sold to only one entity and were sold
only to facilitate the organization of First Deposit, the sale will be exempt
from registration under the Securities Act of 1933 pursuant to Section 4(2)
thereof.
Item 16. Exhibits and Financial Statement Schedules:
The exhibits and financial statement schedules filed as a part of this
registration statement are as follows:
(a) List of Exhibits
<TABLE>
<CAPTION>
Exhibit
No. Description Page No.
------- ----------- --------
<C> <S> <C>
1.1 Engagement Letter with Trident Securities
*1.2 Form of Sales Agency Agreement with Trident Securities
2.1 Plan of Conversion
3.1 Articles of Incorporation of First Deposit
3.2 Bylaws of First Deposit
3.3 Federal Stock Charter and Stock Bylaws of Douglas Federal
Bank, a Federal Savings Bank
*4.1 Form of Common Stock Certificate of First Deposit
5.1 Opinion of Womble Carlyle Sandridge & Rice, PLLC, regarding
legality of securities being registered
8.1 Form of Federal Tax Opinion
*8.2 Form of State Tax Opinion
*8.3 Opinion of Ferguson & Company as to the value of
subscription rights for tax purposes
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description Page No.
------- ----------- --------
<C> <S> <C>
10.1 Employee Stock Ownership Plan of Douglas Federal Bank
10.2 Proposed Form of 1999 Stock Option and Incentive Plan
10.3 Proposed Form of Management Recognition Plan
10.4 Employment Agreement by and between Douglas Federal Bank
and Alpha A. Fowler, Jr.
10.5 Employment Agreement by and between Douglas Federal Bank
and J. David Higgins
10.6 Employment Agreement by and between Douglas Federal Bank
and John L. King
23.1 Consent of Womble Carlyle Sandridge & Rice, PLLC (contained
in opinion filed as
Exhibit 5)
23.2 Consent of Mauldin & Jenkins LLC
23.3 Consent of Ferguson & Company
24.1 Power of Attorney
27.1 Financial Data Schedule
*99.1 Form of Proposed Stock Order Form and Form of Certification
*99.2 Proxy Statement for Special Meeting of Members of Douglas
Federal Bank and Form of Proxy
*99.3 Miscellaneous Solicitation and Marketing Materials
*99.4 Appraisal Report of Ferguson & Company
</TABLE>
- --------
*To be filed by amendment.
(b) Financial Statement Schedules.
No financial statement schedules are filed because the required information
is not applicable or is included in the consolidated financial statements or
related notes.
Item 17. Undertakings
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i)To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii)To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may be reflected in the form of prospectus filed with the Commission
pursuant to Rule 424(b) if, in the aggregate, the changes in volume and
price represent no more than 20 percent change in the maximum aggregate
offering price set forth in the "Calculation of Registration Fee" table in
the effective registration statement;
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
II-3
<PAGE>
(2) That, for the purpose of determining any liability under the Securities
Act of 1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of
the offering.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreements, certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 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 is
therefore unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the questions whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Douglasville, State of
Georgia on March 17, 1999.
FIRST DEPOSIT BANCSHARES, INC.
/s/ J. David Higgins
By: _________________________________
J. David Higgins, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Danny A. Belyeu* Chairman of the Board March 17, 1999
_________________________________
Danny A. Belyeu
/s/ Alpha A. Fowler, Jr. Vice Chairman of the Board March 17, 1999
_________________________________
Alpha A. Fowler, Jr.
/s/ J. David Higgins President, Chief Executive March 17, 1999
_________________________________ Officer, Treasurer and
J. David Higgins Director (Principal
Executive Officer)
/s/ John L. King* Senior Vice President, Chief March 17, 1999
_________________________________ Financial Officer
John L. King (Principal Financial and
Accounting Officer) and
Director
/s/ Mac C. Abercrombie, Jr.* Director March 17, 1999
_________________________________
Mac C. Abercrombie, Jr.
/s/ Joseph H. Fowler* Director March 17, 1999
_________________________________
Joseph H. Fowler
/s/ Carlton H. Boyd* Director March 17, 1999
_________________________________
Carlton H. Boyd
/s/ John B. Zellars* Director March 17, 1999
_________________________________
John B. Zellars
/s/ J. David Higgins
*By: ____________________________
J. David Higgins, Attorney-in-
Fact
</TABLE>
II-5
<PAGE>
EXHIBIT 1.1
TRIDENT SECURITIES, INC.
4601 SIX FORKS ROAD, SUITE 400
RALEIGH, NORTH CAROLINA 27609
TELEPHONE (919) 781-8900
FACSIMILE (919) 787-1670
February 2, 1999
Board of Directors
Douglas Federal Bank, FSB
8458 Campbellton Street
Douglasville, Georgia 30133
RE: Conversion Stock Marketing Services
Gentlemen:
This letter sets forth the terms of the proposed engagement between Trident
Securities, Inc., together with its successors and assigns, ("Trident") and
Douglas Federal Bank, FSB, Douglasville, Georgia, together with its successors
and assigns, (the "Bank") concerning our investment banking services in
connection with the conversion of the Bank from a mutual to a capital stock form
of organization.
Trident is prepared to assist the Bank in connection with the offering of its
shares of common stock during the subscription offering and community offering
as such terms are defined in the Bank's Plan of Conversion. The specific terms
of the services contemplated hereunder shall be set forth in a definitive sales
agency agreement (the "Agreement") between Trident and the Bank to be executed
on the date the offering circular/prospectus is declared effective by the
appropriate regulatory authorities. The price of the shares during the
subscription offering and community offering will be the price established by
the Bank's Board of Directors, based upon an independent appraisal as approved
by the appropriate regulatory authorities, provided such price is mutually
acceptable to Trident and the Bank.
In connection with the subscription offering and community offering, Trident
will act as financial advisor and exercise its best efforts to assist the Bank
in the sale of its common stock during the subscription offering and community
offering. Additionally, Trident may enter into agreements with other National
Association of Securities Dealers, Inc., ("NASD") member firms to act as
selected dealers, assisting in the sale of the common stock. Trident and the
Bank will determine the selected dealers to assist the Bank during the community
offering. At the appropriate time, Trident in conjunction with its counsel, will
conduct an examination of the relevant documents and records of
<PAGE>
TRIDENT SECURITIES, INC.
Board of Directors
February 2, 1999
Page 2
the Bank as Trident deems necessary and appropriate. The Bank will make all
documents, records and other information deemed necessary by Trident or its
counsel available to them upon request.
For its services hereunder, Trident will receive the following compensation and
reimbursement from the Bank:
1. A management fee in the amount of $40,000.
2. A commission equal to 1.65% of the aggregate dollar amount of capital
stock sold in the subscription and community offerings, excluding any
shares of conversion stock sold to the Bank's directors, executive
officers and the employee benefit plan. Additionally, commissions will
be excluded on those shares sold to "associates" of the Bank's
directors and executive officers. The term "associates" as used herein
shall have the same meaning as that found in the Bank's Plan of
Conversion.
3. For stock sold by other NASD member firms under selected dealer's
agreements, the commission shall not exceed a fee to be agreed upon
jointly by Trident and the Bank to reflect market requirements at the
time of the stock allocation in a Syndicated Community Offering.
4. The foregoing fees and commissions are to be payable to Trident at
closing as defined in the Agreement to be entered into between the
Bank and Trident.
5. Trident shall be reimbursed for allocable expenses incurred by them,
including legal fees, whether or not the Agreement is consummated.
Trident's out-of-pocket expenses will not exceed $10,000, excluding
legal fees. The Bank will forward to Trident a check in the amount of
$10,000 as an advance payment to defray the allocable expenses of
Trident.
It further is understood that the Bank will pay all other expenses of the
conversion including but not limited to its attorneys' fees, NASD filing fees,
and filing and registration fees and fees of either Trident's attorneys or the
attorneys relating to any required state securities law filings, telephone
charges, air freight, rental equipment, supplies, transfer agent charges, fees
relating to auditing and accounting and costs of printing all documents
necessary in connection with the foregoing.
<PAGE>
TRIDENT SECURITIES, INC.
Board of Directors
February 2, 1999
Page 3
For purposes of Trident's obligation to file certain documents and to make
certain representations to the NASD in connection with the conversion, the Bank
warrants that: (a) the Bank has not privately placed any securities within the
last 18 months; (b) there have been no material dealings within the last 12
months between the Bank and any NASD member or any person related to or
associated with any such member; (c) none of the officers or directors of the
Bank has any affiliation with the NASD; (d) except as contemplated by this
engagement letter with Trident, the Bank has no financial or management
consulting contracts outstanding with any other person; (e) the Bank has not
granted Trident a right of first refusal with respect to the underwriting of any
future oftering of the Bank stock; and (f) there has been no intermediary
between Trident and the Bank in connection with the public offering of the
Bank's shares, and no person is being compensated in any manner for providing
such service.
The Bank agrees to indemnify and hold harmless Trident and each person, if any,
who controls the firm against all losses, claims, damages or liabilities, joint
or several and all legal or other expenses reasonably incurred by them in
connection with the investigation or defense thereof (collectively, Losses"), to
which they may become subject under the securities laws or under the common law,
that arise out of or are based upon the conversion or the engagement hereunder
of Trident. If the foregoing indemnification is unavailable for any reason, the
Bank agrees to contribute to such Losses in the proportion that its financial
interest in the conversion bears to that of the indemnified parties. If the
Agreement is entered into with respect to the common stock to be issued in the
conversion, the Agreement will provide for indemnification, which will be in
addition to any rights that Trident or any other indemnified party may have at
common law or otherwise. The indemnification provision of this paragraph will be
superseded by the indemnification provisions of the Agreement entered into by
the Bank and Trident.
This letter is merely a statement of intent and is not a binding legal agreement
except as to paragraph (5) above with regard to the obligation to reimburse
Trident for allocable expenses to be incurred prior to the execution of the
Agreement and the indemnity described in the preceding paragraph. While Trident
and the Bank agree in principle to the contents hereof and propose to proceed
promptly, and in good faith, to work out the arrangements with respect to the
proposed offering, any legal obligations between Trident and the Bank shall be
only as set forth in a duly executed Agreement. Such Agreement shall be in form
and content satisfactory to Trident and the Bank, as well as their counsel, and
Trident's obligations thereunder shall be subject to, among other things, there
being in Trident's opinion no material adverse change in the condition or
obligations of the Bank or no market conditions which might render the sale of
the shares by the Bank hereby contemplated inadvisable.
<PAGE>
TRIDENT SECURITIES, INC. EXHIBIT 1.1
Board of Directors
February 2, 1999
Page 4
Please acknowledge your agreement to the foregoing by signing below and
returning to Trident one copy of this letter along with the advance payment of
$10,000. This proposal is open for your acceptance for a period of thirty (30)
days from the date hereof.
Yours very truly,
TRIDENT SECURITIES, INC.
By: /s/ R. Lee Burrows, Jr.
---------------------------------
R. Lee Burrows, Jr.,
Managing Director
Agreed and accepted to this
3rd day of February, 1999
DOUGLAS FEDERAL BANK, FSB
By: /s/ Alpha A. Fowler, Jr.
------------------------------
Alpha A. Fowler, Jr.,
Chairman of the Board
<PAGE>
EXHIBIT 2.1
DOUGLAS FEDERAL BANK, A FEDERAL SAVINGS BANK
PLAN OF CONVERSION
FROM MUTUAL TO STOCK FORM OF ORGANIZATION
1. GENERAL
This Plan of Conversion provides for the conversion of Douglas Federal
Bank, a Federal Savings Bank from a federally-chartered mutual savings
association to a federally-chartered capital stock savings association. The
Board of Directors of the Bank currently contemplates that all of the capital
stock of the Bank shall be held by a Georgia corporation. The Plan provides that
non-transferable subscription rights to purchase Conversion Stock will be
offered first to the Bank's Eligible Account Holders of record as of December
31, 1997, and then, to the extent that Conversion Stock is available, to a Tax-
Qualified Employee Stock Benefit Plan, and then, to the extent that Conversion
Stock is available, to Supplemental Eligible Account Holders, and then, to the
extent that Conversion Stock is available, to Other Members of the Bank.
Concurrently with the Subscription Offering, any shares of Conversion Stock not
sold in the Subscription Offering may also be offered to the general public in a
Direct Community Offering. Shares remaining will then be offered to the general
public in an underwritten public offering or otherwise. The price of the
Conversion Stock will be based upon an independent appraisal of the Bank and the
Holding Company and will reflect the Bank's estimated pro forma market value, as
converted. The Holding Company will use the net proceeds it derives from the
offering of Conversion Stock to purchase shares of the capital stock of the Bank
authorized upon its conversion; provided, however, that the Holding Company may
retain, for general business purposes, from the net proceeds of the Conversion,
up to the maximum amount permitted to be retained by the Holding Company
pursuant to applicable regulations and policy guidelines.
It is the desire of the Board of Directors of the Bank to attract new
capital to the Bank in order to increase its net worth, repay certain
outstanding indebtedness, support future deposit growth, increase the amount of
funds available for residential mortgage and other lending, and to provide
greater resources for possible branching and acquisitions and for the expansion
of customer services. The Converted Bank is also expected to benefit from its
management and other personnel having a stock ownership in its business since
stock ownership is viewed as an effective performance incentive and as a means
of attracting, retaining and compensating management and other personnel. In
addition, the stock form of organization will permit Members of the Bank and
others the opportunity to become shareholders of the Holding Company and thereby
participate more directly in earnings and growth. The Holding Company structure
has been adopted as a part of the Conversion to provide the Bank with greater
organizational flexibility to respond to the increasingly competitive
environment in which it operates.
<PAGE>
This Plan, which has been approved by the Board of Directors of the Bank,
must also be approved by the affirmative vote of a majority of the total number
of outstanding votes entitled to be cast by Voting Members of the Bank at a
special meeting to be called for that purpose. Prior to the submission of this
Plan to the Voting Members for consideration the Plan must be approved by the
OTS.
No change will be made in the Board of Directors or management of the Bank
as a result of the Conversion. The Board of Directors and management of the
Holding Company will be selected from members of the Board of Directors and
management of the Bank.
2. DEFINITIONS
Actual Purchase Price. The per share price at which the Conversion Stock
---------------------
is ultimately sold in accordance with the terms hereof.
Affiliate. An "affiliate" of, or a person "affiliated" with, a specified
----------
Person, is a Person that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
the Person specified.
Associate. The term "associate" when used to indicate relationship with
----------
any Person, means (i) any corporation or organization (other than the Bank or a
majority-owned subsidiary of the Bank or the Holding Company) of which such
Person is a director, officer or partner or is, directly or indirectly, the
beneficial owner of ten percent (10%) or more of any class of equity securities,
(ii) any trust or other estate in which such Person has a substantial beneficial
interest or as to which such Person serves as trustee or in a similar fiduciary
capacity, except that, the term "Associate" does not include any Non-Tax-
Qualified Employee Stock Benefit Plan or any Tax-Qualified Employee Stock
Benefit Plan in which a person has a substantial beneficial interest or serves
as a trustee or in a similar fiduciary capacity, and except that, for purposes
of aggregating total shares that may be held by Officers or Directors, the term
"Associate" does not include any Tax-Qualified Employee Stock Benefit Plan, and
(iii) any relative or spouse of such Person, or any relative of such spouse, who
has the same home as such Person or who is a director or officer of the Bank or
any of its parents or subsidiaries.
Bank. Douglas Federal Bank, FSB, a federal mutual savings bank whose
-----
principal office is located in Douglasville, Georgia, and including the
Converted Bank, as the context requires.
Conversion. Change of the Bank's charter and bylaws from a federal mutual
-----------
savings bank charter and bylaws to a federal savings bank charter and bylaws
authorizing issuance of shares of common stock by the Bank pursuant to and
otherwise conforming to the requirements of a federal stock savings bank. Such
term includes the issuance of Conversion Stock as provided for in the Plan, and
the purchase by the Holding Company of all of the shares of capital stock to be
issued by the Bank in connection with its Conversion from the mutual to stock
form of organization.
2
<PAGE>
Conversion Stock. The no par value common stock to be offered and issued
----------------
by the Holding Company in the Conversion.
Converted Bank. The federally chartered stock savings bank resulting
--------------
from the Conversion of the Bank in accordance with this Plan.
Dealer. Any Person who engages directly or indirectly as agent, broker or
------
principal in the business of offering, buying, selling, or otherwise dealing or
trading in securities issued by another Person.
Direct Community Offering. The offering for sale to certain members of
-------------------------
the general public, with preference given to residents of Douglas County in the
State of Georgia, of any shares of Conversion Stock not subscribed for in the
Subscription Offering.
Eligibility Record Date. The close of business on December 31, 1997.
-----------------------
Eligible Account Holder. Holder of a Qualifying Deposit in the Bank on the
-----------------------
Eligibility Record Date for purposes of determining Subscription Rights and
establishing subaccount balances in the liquidation account to be established
pursuant to Section 18 hereof.
Estimated Price Range. The range of the estimated aggregate pro forma
---------------------
market value of the total number of shares of Conversion Stock to be issued in
the Conversion, as determined by the independent appraiser prior to the
Subscription Offering and as it may be amended from time to time thereafter.
FDIC. Federal Deposit Insurance Corporation.
----
Holding Company. The corporation organized under Georgia law to own and
---------------
hold 100% of the outstanding capital stock of the Converted Bank.
Internal Revenue Code. The Internal Revenue Code of 1986, as amended.
---------------------
Market Maker. A Dealer who, with respect to a particular security, (i)
------------
regularly publishes bona fide, competitive bid and offer quotations in a
recognized inter-dealer quotation system; or (ii) furnishes bona fide
competitive bid and offer quotations on request; and (iii) is ready, willing,
and able to effect transactions in reasonable quantities at his or her quoted
prices with other brokers or dealers.
Members. All Persons or entities who qualify as members of the Bank
-------
pursuant to its mutual charter and bylaws.
3
<PAGE>
Non-Tax-Qualified Employee Stock Benefit Plan. Any defined benefit plan or
----------------------------------------------
defined contribution plan maintained by the Bank which is not a Tax-Qualified
Employee Stock Benefit Plan.
Officer. The chairman of the board, vice-chairman of the board, president,
--------
any vice-president, secretary, treasurer or principal financial officer,
comptroller or principal accounting officer, and any other person performing
similar functions with respect to any organization, whether incorporated or
unincorporated.
Order Forms. The form sent by the Bank to any Eligible Account Holder,
-----------
any Tax-Qualified Employee Benefit Plan, any Supplemental Eligible Account
Holder, any Other Member, or any other Person which contains a description of
the alternatives available to such Person under the Plan and by which any such
Person may make elections regarding subscriptions for Conversion Stock in the
Subscription and Direct Community Offerings.
Other Members. Members of the Bank, other than Eligible Account Holders or
--------------
Supplemental Eligible Account Holders, as of the Voting Record Date.
OTS. Office of Thrift Supervision.
----
Person. An individual, a corporation, a partnership, a bank, a joint-
-------
stock company, a trust, any unincorporated organization, or a government or
political subdivision thereof.
Plan. The Plan of Conversion of the Bank, including any amendment
-----
approved as provided in the Plan.
Preferred Subscribers. Those members of the general public who are natural
----------------------
persons residing in Douglas County in the State of Georgia.
Qualifying Deposit. The aggregate balance as of the Eligibility Record Date
-------------------
or Supplemental Eligibility Record Date of all deposit accounts of an Eligible
Account Holder or Supplemental Eligible Account Holder, as applicable, provided
such aggregate balance is not less than $50.00. Multiple deposit accounts which
are separate accounts for purposes of FDIC insurance shall be deemed to be
separate Qualifying Deposits for purposes of determining whether a holder is an
Eligible Account Holder, Supplemental Eligible Account Holder, or Other Member.
Sales Agents. The Dealer or Dealers or investment banking firm or firms
------------
agreeing to offer and sell Conversion Stock for the Bank and the Holding Company
in the Direct Community Offering.
SEC. The United States Securities and Exchange Commission.
----
4
<PAGE>
Special Meeting. The special meeting of Members, and any adjournments
---------------
thereof, called for the purpose of considering and voting upon the Plan.
Subscription Offering. The offering of shares of Conversion Stock for
---------------------
subscription through Order Forms to Eligible Account Holders, Tax-Qualified
Employee Benefit Plans, Supplemental Eligible Account Holders, and Other
Members, pursuant to the provisions of the Plan.
Subscription Price. The amount per share of Conversion Stock to be paid
------------------
initially by Eligible Account Holders, any Tax-Qualified Employee Stock Benefit
Plan, Supplemental Eligible Account Holders, and Other Members in the
Subscription Offering and by persons in the Direct Community Offering.
Subscription Rights. Non-transferable, non-negotiable personal rights of
--------------------
Eligible Account Holders, any Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders, and Other Members to subscribe for shares
of Conversion Stock in the Subscription Offering.
Supplemental Eligibility Record Date. The last day of the calendar quarter
------------------------------------
preceding OTS approval of the Application for Conversion of the Bank.
Supplemental Eligible Account Holder. Any Person (other than an Eligible
------------------------------------
Account Holder) holding a Qualifying Deposit, except officers, directors, and
their Associates, as of the Supplemental Eligibility Record Date for purposes of
determining Subscription Rights and establishing subaccount balances in the
liquidation account to be established pursuant to Section 18 hereof.
Tax-Qualified Employee Stock Benefit Plan. Any defined benefit plan or
-----------------------------------------
defined contribution plan maintained by the Bank or the Holding Company such as
an employee stock ownership plan, stock bonus plan, profit-sharing plan or other
plan, which, with its related trust, meets the requirements to be "qualified"
under Section 401 of the Internal Revenue Code.
Voting Members. Those persons qualifying as voting members of the Bank
--------------
pursuant to its mutual charter and bylaws.
Voting Record Date. The close of business on the date set by the Board of
------------------
Directors in accordance with applicable law for determining Members eligible to
vote at the Special Meeting.
3. PROCEDURE FOR CONVERSION
A. The Board of Directors of the Bank shall adopt the Plan by not less
than a two-thirds vote.
5
<PAGE>
B. The Bank shall notify its Members of the adoption of the Plan by
publishing a statement in a newspaper having a general circulation in each
community in which an office of the Bank is located and/or by mailing a letter
to each of its members, which statement shall comply with the provisions of 12
C.F.R. (S)563b.4(a).
C. The Bank shall have copies of the Plan as adopted available for
inspection by the Members at each office of the Bank.
D. The Bank shall submit an Application for Conversion to convert from a
mutual form to a stock form of organization to the OTS. Upon filing such
application in the prescribed form, the Bank shall publish a "Notice of Filing
of an Application for Conversion to Convert to a Stock Savings Bank" in a
newspaper of general circulation in each community in which an office of the
Bank is located. The Bank also shall prominently post the notice in each of its
offices.
E. The Bank shall cause the Holding Company to be incorporated under the
laws of the State of Georgia. Upon its organization, the Board of Directors of
the Holding Company shall adopt and approve the Plan.
F. An Application shall be filed with the OTS on behalf of the Holding
Company for permission to acquire control of the Bank and become a duly
registered savings and loan holding company ("Savings and Loan Holding Company
Application").
G. As soon as practicable after the adoption of the Plan by the Boards of
Directors of the Bank and the Holding Company, a registration statement relating
to the Conversion Stock will be filed with the SEC under the Securities Act of
1933, as amended, and appropriate filings will be made under applicable state
securities laws.
H. The Bank and the Holding Company shall obtain an opinion of counsel or
a favorable ruling from the Internal Revenue Service which shall state that the
Conversion of the Bank to a stock savings and loan association and the adoption
of the holding company structure will not result in any gain or loss for federal
income tax purposes to the Holding Company or the Bank or to the Bank's Eligible
Account Holders, Supplemental Eligible Account Holders, or Other Members.
Receipt of such a favorable opinion or ruling is a condition precedent to
completion of the Conversion.
I. After approval by the OTS of the Application for Conversion, approval
by the OTS of the Saving and Loan Holding Company Application, and registration
of the Conversion Stock with the SEC and applicable state securities
authorities, the Plan will be submitted to the Members at a Special Meeting for
their approval and, following such approvals, the Conversion Stock may be
offered as hereinafter provided.
4. SALE OF CONVERSION STOCK AND CONSUMMATION OF CONVERSION
6
<PAGE>
Upon registration with the SEC and receipt of other required regulatory
approvals, the Holding Company will offer the Conversion Stock for sale in the
Subscription Offering at the Subscription Price to Eligible Account Holders, any
Tax-Qualified Employee Stock Benefit Plans, Supplemental Eligible Account
Holders and Other Members of the Bank. The Subscription Offering may be
commenced as early as the mailing of the proxy statement for the Special
Meeting. The Bank and the Holding Company may, concurrently with or at any time
during the Subscription Offering, also offer the Conversion Stock to and accept
subscriptions from other persons in a Direct Community Offering; provided that
Eligible Account Holders, any Tax-Qualified Employee Stock Benefit Plan,
Supplemental Eligible Account Holders, and Other Members shall have the priority
rights to subscribe for Conversion Stock set forth in Section 6(B) of this Plan.
If the Subscription Offering and/or the Direct Community Offering commence prior
to the Special Meeting, subscriptions will be accepted subject to the approval
of the Plan at the Special Meeting.
If shares of Conversion Stock falling within the Estimated Price Range are
not sold in the Subscription Offering, completion of the sale of shares of
Conversion Stock at least sufficient to fall within the Estimated Price Range is
required within 45 days after termination of the Subscription Offering, subject
to the extension of such 45 day period by the Bank and the Holding Company. The
Bank and the Holding Company may seek one or more extensions of such 45 day
period if necessary to complete the sale of shares at least sufficient to fall
within the Estimated Price Range. In connection with such extensions,
subscribers and other purchasers will be permitted to increase, decrease or
rescind their subscriptions or purchase orders. If for any reason the minimum
amount of Conversion Stock cannot be sold in the Subscription Offering and
Direct Community Offering, the Bank and the Holding Company will use their best
efforts to obtain other purchasers. Completion of the sale of the minimum amount
of Conversion Stock is required within 24 months after the date of the Special
Meeting.
The Holding Company will purchase all of the capital stock of the Bank
issued in the Conversion with the net proceeds received by the Holding Company
from the sale of Conversion Stock, provided that the Holding Company may retain
up to the maximum amount permitted to be retained by the Holding Company
pursuant to applicable regulations and policy guidelines.
5. SUBMISSION TO THE MEMBERS FOR APPROVAL
After the approval of the Application for Conversion and the Savings and
Loan Holding Company Application by the OTS, a Special Meeting of Members to
vote on the Plan shall be held in accordance with the Bank's mutual bylaws. The
Bank will distribute proxy solicitation materials to all Members as of the
Voting Record Date. Notice of the Special Meeting shall be given to each Member
by means of the approved proxy statement not less than twenty (20) nor more than
forty-five (45) days prior to the date of the Special Meeting.
The proxy materials will include such documents authorized for use by the
regulatory authorities and may also include a prospectus as provided below. The
Bank may also use a
7
<PAGE>
summary form of proxy statement, in which case the Bank will provide Members
with an attached postage-paid postcard on which to indicate whether the Member
wishes to receive the full prospectus, and the Subscription Offering will not be
closed prior to the expiration of 30 days after the mailing of the postage-paid
postcard. The Bank will also advise each Eligible Account Holder and
Supplemental Eligible Account Holder not entitled to vote at the Special Meeting
of the proposed Conversion and the scheduled Special Meeting, and provide a
postage-paid postcard on which to indicate whether such Person wishes to receive
the prospectus, if the Subscription Offering is not held concurrently with the
proxy solicitation, provided that the Subscription Offering will not be closed
prior to the expiration of 30 days after the mailing of the postage-paid
postcard.
Pursuant to OTS regulations, the affirmative vote of not less than a
majority of the total outstanding votes of the Members will be required for
approval of the Plan. Voting may be in person or by proxy. The OTS shall be
notified promptly of the action of the Members.
6. STOCK OFFERING
A. Number of Shares and Purchase Price of Conversion Stock.
The total number of shares (or a range thereof) of Conversion Stock to
be issued and offered for sale will be determined jointly by the Board of
Directors of the Bank and the Board of Directors of the Holding Company
immediately prior to the commencement of the Subscription and Direct Community
Offerings, subject to adjustment thereafter if necessitated by market or
financial conditions, with the approval of the OTS, if necessary. In particular,
the total number of shares may be increased by up to 15% of the number of shares
offered in the Subscription and Direct Community Offering if the Estimated Price
Range is increased subsequent to the commencement of the Subscription and Direct
Community Offering due to regulatory considerations or to reflect changes in
market conditions or general economic conditions.
All shares sold in the Conversion will be sold at a uniform price per
share referred to in this Plan as the Actual Purchase Price. The aggregate
purchase price for all shares of Conversion Stock will not be inconsistent with
the estimated consolidated pro forma market value of the Bank and the Holding
Company. The estimated consolidated pro forma market value of the Bank and the
Holding Company will be determined for such purpose by an independent appraiser
retained by the Bank to prepare such an appraisal. The independent appraiser
retained by the Bank will be an independent investment banking or financial
consulting firm experienced in the area of financial institution appraisals. The
appraisal will include, among other things, an analysis of the historical and
pro forma operating results and net worth of the Converted Bank and the Holding
Company and a comparison of the Converted Bank and the Holding Company and the
Conversion Stock with comparable stock financial institutions and holding
companies and their respective outstanding capital stocks.
8
<PAGE>
Prior to the commencement of the Subscription and Direct Community
Offering , an Estimated Price Range will be established, which range will vary
within 15% above to 15% below the midpoint of such range. The number of shares
of Conversion Stock to be issued and the purchase price per share may be
increased or decreased by the Bank and the Holding Company. In the event that
the aggregate purchase price of Conversion Stock is below the minimum of the
Estimated Price Range, or materially above the maximum of the Estimated Price
Range, resolicitation of purchasers may be required provided that up to a 15%
increase above the maximum of the Estimated Price Range will not be deemed
material so as to require a resolicitation. Up to a 15% increase in the number
of shares to be issued which is supported by an appropriate change in the
estimated pro forma market value of the Bank and the Holding Company will not be
deemed to be material so as to require a resolicitation of subscriptions. In the
event that the aggregate purchase price of the Conversion Stock is below the
minimum of the Estimated Price Range or in excess of 15% above the maximum of
the Estimated Price Range, and a resolicitation is required, such resolicitation
shall be effected in such manner and within such time as the Bank may establish,
with the approval of the OTS, if required.
Based upon the independent appraisal as updated prior to the
commencement of the Subscription and the Direct Community Offerings, the Board
of Directors of the Holding Company, and the Board of Directors of the Bank will
fix the Subscription Price and the range of the number of shares to be offered.
If upon completion of the Subscription and Direct Community Offerings all of the
Conversion Stock is subscribed for, or if because of a limited number of
unsubscribed shares or otherwise a syndicated community offering cannot be
effected, the total number of shares of Conversion Stock to be issued and sold
will be jointly determined by the Bank and Holding Company as follows: (a) the
estimated aggregate pro forma market value of the Bank and the Holding Company
immediately after conversion as determined by the independent appraiser,
expressed in terms of a specific aggregate dollar amount rather than as a range,
upon completion of the Subscription and Community Offerings or other sale of all
of the Conversion Stock shall be divided by (b) the Actual Purchase Price.
B. Subscription Rights
Non-transferable Subscription Rights to purchase shares of Conversion
Stock will be issued without payment therefor to Eligible Account Holders, any
Tax-Qualified Employee Stock Benefit Plan, Supplemental Eligible Account
Holders, and Other Members as set forth below. The Bank and the Holding Company
may retain and pay for the services of financial and other advisors and
investment bankers to assist in connection with any or all aspects of the
Subscription Offering. All such fees, expenses, commissions and retainers shall
be reasonable.
1. Subscription Rights of Eligible Account Holders (First Priority)
Each Eligible Account Holder shall receive, without payment,
nontransferable Subscription Rights to purchase a number of shares of Conversion
Stock in an
9
<PAGE>
amount equal to the greater of (i) the maximum purchase limitation established
for the Direct Community Offering, which amount currently is $375,000 for any
Person and $750,000 when combined with Associates of and persons acting in
concert with such Person; (ii) one-tenth of one percent (0.10%) of the total
offering of Conversion Stock, or (iii) 15 times the product (rounded down to the
next whole number) obtained by multiplying the total number of shares of
Conversion Stock to be issued by a fraction of which the numerator is the amount
of the Qualifying Deposit of the Eligible Account Holder and the denominator is
the total amount of Qualifying Deposits of all Eligible Account Holders in the
Bank, in each case on the Eligibility Record Date, subject to the maximum and
minimum purchase limitations set forth in Section 7, and exclusive of an
increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%.
In the event that Eligible Account Holders exercise Subscription
Rights for a number of shares of Conversion Stock in excess of the total number
of shares eligible for subscription, the shares of Conversion Stock shall be
allocated among the subscribing Eligible Account Holders so as to permit each
subscribing Eligible Account Holder, to the extent possible, to purchase a
number of shares sufficient to make his or her total allocation of Conversion
Stock equal to the lesser of 100 shares or the number of shares subscribed for
by the Eligible Account Holder. Any shares remaining after such allocation will
be allocated among the subscribing Eligible Account Holders whose subscriptions
remain unsatisfied in the proportion that the amount of the Qualifying Deposit
of each Eligible Account Holder whose subscriptions remains unsatisfied bears to
the total amount of Qualifying Deposits of all Eligible Account Holders whose
subscriptions remain unsatisfied. If the amount so allocated exceeds the amount
subscribed for by any one or more Eligible Account Holders, the excess shall be
reallocated (one or more times as necessary) among those Eligible Account
Holders whose subscriptions are still not fully satisfied on the same principle
until all available shares have been allocated or all subscriptions satisfied.
Subscription Rights as Eligible Account Holders received by
directors and Officers and their Associates which are based on deposits made by
such persons during the twelve (12) months preceding the Eligibility Record Date
shall be subordinated to the Subscription Rights of all other Eligible Account
Holders.
2. Subscription Rights of Tax-Qualified Employee Stock Benefit Plans
(Second Priority)
Each Tax-Qualified Employee Stock Benefit Plan shall receive,
without payment, nontransferable Subscription Rights to subscribe for the number
of shares of Conversion Stock in the Subscription Offering requested by any such
plan remaining after satisfying the subscriptions of Eligible Account Holders
provided for above, subject to the purchase limitations set forth in Section 7
of this Plan. If, after the filling of subscriptions of Eligible Account
Holders, a sufficient number of shares are not available to fill the
subscriptions of such Tax-Qualified Employee Stock Benefit Plans, the
subscription by such Tax-Qualified
10
<PAGE>
Employee Benefit Plans shall be filled to the maximum extent possible; provided,
however, that in the event of an increase in the Estimated Price Range of up to
15%, the additional shares may be sold to any Tax-Qualified Employee Stock
Benefit Plan, subject to the purchase limitations set forth in Section 7 of this
Plan.
Any such Tax-Qualified Employee Benefit Plan shall not be deemed
to be an Associate or Affiliate of or person acting in concert with any director
or Officer of the Bank or the Holding Company.
3. Subscription Rights of Supplemental Eligible Account Holders
(Third Priority)
In the event that the Eligibility Record Date is more than 15
months prior to the date of the latest amendment to the Application for
Conversion filed prior to OTS approval, and if there are any shares of
Conversion Stock remaining after satisfying the subscriptions of Eligible
Account Holders and the subscriptions of any Tax-Qualified Employee Stock
Benefit Plans provided for above, then and only in that event each Supplemental
Eligible Account Holder of the Bank shall receive, as third priority and without
payment, non-transferable Subscription Rights to purchase a number of shares of
Conversion Stock equal to an amount up to the greater of: the maximum purchase
limitation established for the Direct Community Offering, which amount currently
is $375,000 for any Person and $750,000 when combined with Associates of and
persons acting in concert with such Person; one-tenth of one percent (.10%) of
the total offering of Conversion Stock; or 15 times the product (rounded down to
the next whole number) obtained by multiplying the total number of shares of
Conversion Stock to be issued by a fraction of which the numerator is the amount
of the Qualifying Deposit of the Supplemental Eligible Account Holder and the
denominator is the total amount of the Qualifying Deposits of all Supplemental
Eligible Account Holders in the Bank on the Supplemental Eligibility Record
Date, in each case subject to any maximum and minimum purchase limitations
established in the Plan, and exclusive of an increase in the total number of
shares issued due to an increase in the Estimated Price Range of up to 15%.
In the event that Supplemental Eligible Account Holders exercise
Subscription Rights for a number of shares of Conversion Stock in excess of the
total number of shares eligible for subscription, the remaining shares shall be
allocated among the subscribing Supplemental Eligible Account Holders so as to
permit each such Supplemental Account Holder, to the extent possible, to
purchase a number of shares sufficient to make his or her total allocation of
Conversion Stock equal to the lesser of 100 shares or the number of shares
subscribed for by the Supplemental Eligible Account Holder. Any shares remaining
after such allocation shall be allocated among the subscribing Supplemental
Eligible Account Holders whose subscriptions remain unsatisfied in the
proportion that the amount of the Qualifying Deposit of each Supplemental
Eligible Account Holder whose subscription remains unsatisfied bears to the
total amount of the Qualifying Deposits of all Supplemental Eligible Account
Holders whose subscriptions remain unsatisfied. If the amount so allocated
exceeds the amount subscribed for
11
<PAGE>
by any one or more remaining Supplemental Eligible Account Holders, the excess
shall be reallocated (one or more times as necessary) among those remaining
Supplemental Eligible Account Holders whose subscriptions are still not fully
satisfied on the same principle until all available shares have been allocated
or all subscriptions satisfied.
Subscription Rights received by an Eligible Account Holder as provided in
paragraph 1 above shall be applied in partial satisfaction of the Subscription
Rights to be received as a Supplemental Eligible Account Holder pursuant to this
paragraph 3.
4. Subscription Rights of Other Members (Fourth Priority)
Each Other Member shall receive, without payment, as a fourth
priority after the filling of subscriptions of the Eligible Account Holders, any
Tax-Qualified Employee Stock Benefit Plans, and the Supplemental Eligible
Account Holders, nontransferable subscription rights to subscribe for shares of
Conversion Stock equal to an amount up to the greater of: the amount permitted
to be subscribed for in the Direct Community Offering, which amount currently is
$375,000 for any Person and $750,000 when combined with Associates of and
persons acting in concert with such Person; or one-tenth of one percent (.10%)
of the total offering of shares of Conversion Stock, in each case subject to any
maximum and minimum purchase limitations established in the Plan, and exclusive
of an increase in the total number of shares issued due to an increase in the
Estimated Price Range of up to 15%.
In the event that the Other Members exercise Subscription Rights
for a number of shares of Conversion Stock in excess of the total number of
shares eligible for subscription, the remaining shares of Conversion Stock shall
be allocated among the subscribing Other Members as to permit each subscribing
Other Member, to the extent possible, to purchase a number of shares sufficient
to make his or her total allocation of Conversion Stock equal to the lesser of
100 shares or the number of shares subscribed for by the Other Member. Any
shares remaining after such allocation will be allocated among the subscribing
Other Members whose subscriptions remain unsatisfied pro rata in the same
proportion that the number of votes of a subscribing Other Member on the Voting
Record Date bears to the total votes on the Voting Record Date of all
subscribing Other Members. If the amount so allocated exceeds the amount
subscribed for by any one or more remaining Other Members, the excess shall be
reallocated (one or more times as necessary) among those remaining Other Members
whose subscriptions are still not fully satisfied on the same principle until
all available shares have been allocated or all subscriptions satisfied.
C. Direct Community Offering
If less than the total number of shares of Conversion Stock to be
subscribed for in the Conversion are sold in the Subscription Offering, it is
expected that shares remaining unsubscribed for will be made available for
purchase in the Direct Community Offering to
12
<PAGE>
certain members of the general public, with preference given to Preferred
Subscribers. Any Person in the Direct Community Offering may subscribe for up to
$375,000 worth of Conversion Stock, or up to $750,000 worth of Conversion Stock
when combined with Associates of or persons acting in concert with such Person,
subject to the maximum and minimum purchase limitations provided for in Section
7 of the Plan, and exclusive of an increase in the total number of shares issued
due to an increase in the Estimated Price Range of up to 15%. The shares may be
made available in the Direct Community Offering through a direct community
marketing program which may provide for the utilization of a broker, Dealer,
consultant or investment banking firm, experienced or expert in the sale of
savings institution securities. Such entities may be compensated on a fixed fee
basis or on a commission basis, or a combination thereof. The Bank shall make
distribution of the Conversion Stock to be sold in the Direct Community Offering
in such a manner as to promote the widest distribution of Conversion Stock. The
Bank reserves the right to reject any or all subscription orders, in whole or in
part, which are received in the Direct Community Offering.
If the subscribers in the Direct Community Offering, whose orders would
otherwise be accepted, subscribe for more shares than are available for
purchase, the shares available to them will be allocated among such Persons in
the manner which permits each such person to the extent possible, to purchase
the number of shares necessary to make his or her total allocation of Conversion
Stock equal to the lesser of 100 shares or the number of shares subscribed for
by such person with preference given to the Preferred Subscribers. Thereafter,
unallocated shares will be allocated among the Preferred Subscribers whose
subscriptions remain unsatisfied on a 100 shares per order basis until all such
orders have been filled or the remaining shares have been allocated. To the
extent that there are shares remaining after all subscriptions by Preferred
Subscribers have been filled, any remaining shares will be allocated among
members of the general public using the foregoing allocation as applied to
Preferred Subscribers. The Bank may establish all other terms and conditions of
such offering. It is expected that the Direct Community Offering will commence
concurrently with the Subscription Offering. The Direct Community Offering must
be completed within 45 days after the completion of the Subscription Offering
unless otherwise extended by the OTS.
If for any reason any shares remain unsold after the Subscription Offering
and the Direct Community Offering, if any, the Board of Directors will seek to
make other arrangements for the sale of the remaining shares, pursuant to
procedures approved by the OTS. If such other arrangements cannot be made, the
Plan will terminate.
7. LIMITATIONS UPON PURCHASES OF SHARES OF CONVERSION STOCK
In addition to the maximum amount of Conversion Stock that may be
subscribed for as set forth in Section 6 above, the following limitations shall
apply to all purchases of shares of Conversion Stock:
13
<PAGE>
A. The maximum number of shares of Conversion Stock which may be
subscribed for or purchased in all categories in the Conversion by any Person
together with any Associate or group or persons acting in concert shall not
exceed 5.0% of the Conversion Stock offered (the "Maximum Overall Purchase
Limitation"), except for any Tax-Qualified Employee Benefit Plan which may
subscribe for up to 10% of the Conversion Stock issued and except for certain
Eligible Account Holders and Supplemental Eligible Account Holders which may
subscribe for or purchase shares in accordance with Sections 6(B)(1) and 6(B)(3)
herein respectively; provided, however, that orders for Conversion Stock in the
Direct Community Offering, if any, shall, as determined by the Bank, first be
filled up to a maximum of 2.0% of the total number of shares of Conversion Stock
offered and thereafter remaining shares shall be allocated on an equal number of
shares basis until all orders have been filled. Shares held by one or more Tax-
Qualified Employee Stock Benefit Plans and attributed to a Person shall not be
aggregated with shares purchased directly by or otherwise attributable to that
Person.
B. Directors and Officers and their Associates may not purchase in all
categories in the Conversion an aggregate of more than 34% of the Conversion
Stock offered in the Conversion. In calculating the number of shares which may
be purchased, any shares attributable to the Officers and directors and their
Associates but held by one or more Tax-Qualified Employee Stock Benefit Plans
shall not be included.
C. The minimum number of shares of Conversion Stock that may be purchased
by any Person in the Conversion is 25 shares, provided sufficient shares are
available; provided, however, that if the Subscription Price is greater than
$20.00 per share, such minimum number of shares shall be adjusted so that the
aggregate Subscription Price will not exceed $500.00.
D. The Boards of Directors of the Bank and the Holding Company may, in
their sole discretion, and without further approval of Members, increase the
maximum purchase limitation set forth in subparagraph (A) above up to 9.99% of
the Conversion Stock offered in the Conversion, provided that orders for shares
exceeding 5% of the shares of Conversion Stock shall not exceed, in the
aggregate, 10% of the shares of Conversion Stock, except that Tax-Qualified
Employee Stock Benefit Plans may purchase in the aggregate up to ten percent
(10%) of the Conversion Stock offered in the Conversion and not be included in
the order limit.
E. In determining the maximum percentage limitation under subparagraph
(A) above and in Sections 6(B)(1), 6(B)(3) and 6(B)(4) the Boards of Directors
of the Bank and the Holding Company may set separate limitations for each Person
together with Associates and Persons acting in concert. Such separate
limitations shall not, however, apply to any Tax-Qualified Employee Stock
Benefit Plan. The Boards of Directors of the Bank and the Holding Company may,
in their sole discretion, decrease the Maximum Purchase Limitation set forth in
subparagraph (A) above, without further approval of Members.
14
<PAGE>
F. Subject to any required regulatory approval and the requirements of
applicable laws and regulations, the Holding Company and the Bank may increase
or decrease any of the purchase limitations set forth herein at any time. In the
event that either the individual purchase limitation or the number of shares of
Conversion Stock to be sold in the Conversion, is increased after commencement
of the Subscription Offering, the Holding Company and the Bank shall permit any
Person who subscribed for shares of Conversion Stock to purchase an additional
number of shares such that such Person shall be permitted to subscribe for the
then maximum number of shares permitted to be subscribed for by such Person,
subject to the rights and preferences of any person who has priority
Subscription Rights. In the event that either the individual purchase limitation
or the number of shares of Conversion Stock to be sold in the Conversion is
decreased after commencement of the Subscription Offering, the orders of any
Person who subscribed for the maximum number of shares of Conversion Stock shall
be decreased by the minimum amount necessary so that such Person shall be in
compliance with the then maximum number of shares permitted to be subscribed for
by such Person.
G. For purposes of this Section 7, the directors of the Bank and the
Holding Company shall not be deemed to be Associates or a group acting in
concert solely as a result of their being directors of the Bank or of the
Holding Company.
H. Each Person purchasing Conversion Stock in the Conversion shall be
deemed to confirm that such purchase does not conflict with the above purchase
limitations.
I. For a period of three years following the Conversion, no Officer,
director, or their Associates shall purchase, without the prior written approval
of the OTS, any outstanding shares of common stock of the Holding Company except
from a broker-dealer registered with the SEC. This provision shall not apply to
negotiated transactions involving more than one percent (1.0%) of the
outstanding shares of common stock of the Holding Company, the exercise of any
options pursuant to a stock option plan or purchases of common stock of the
Holding Company made by or held by any Tax-Qualified Employee Stock Benefit Plan
or Non-Tax Qualified Employee Stock Benefit Plan of the Bank or the Holding
Company which may be attributable to any Officer or director. As used herein,
the term "negotiated transaction" means a transaction in which the securities
are offered and the terms and arrangements relating to any sale are arrived at
through direct communications between the seller or any person acting on its
behalf and the purchaser or his or her investment representative. The term
"investment representative" shall mean a professional investment advisor acting
as agent for the purchaser, independent of the seller, and not acting on behalf
of the seller in connection with the transaction.
8. RESTRICTIONS ON RESALE AND SUBSEQUENT DISPOSITION
A. Conversion Stock purchased by Persons other than directors and
Officers of the Bank or the Holding Company will be transferable without
restriction. Shares purchased by directors or Officers of the Bank or of the
Holding Company shall not be sold or otherwise
15
<PAGE>
disposed of for value for a period of one year from the date of Conversion,
except for any disposition of such shares: (i) following the death of the
original purchaser or (ii) resulting from an exchange of securities in a merger
or acquisition approved by the applicable regulatory authorities. Transfers that
could result in a change of control of the Bank or the Holding Company or result
in the ownership by any person of more than 10% of any class of the Bank's or of
the Holding Company's equity securities may be subject to the prior approval of
the OTS. Moreover, transfers of Holding Company common stock are also subject to
restrictions in the Holding Company's Articles of Incorporation.
B. The certificates representing shares of Conversion Stock issued by
Holding Company to directors and Officers shall bear a legend giving appropriate
notice of the one year holding period restriction. The Holding Company shall
give appropriate instructions to the transfer agent for such stock with respect
to the applicable restrictions relating to the transfer of restricted stock. Any
shares subsequently issued as a stock dividend, stock split, or otherwise with
respect to any such restricted stock shall be subject to the same holding period
restrictions for directors and Officers of the Bank and of the Holding Company
as may be then applicable to such restricted stock.
C. Except as set forth below, for a period of three years following
Conversion, the Holding Company shall not repurchase any shares of its capital
stock, except in the case of an offer approved by the OTS to repurchase on a pro
rata basis made to all holders of common stock of the Holding Company, or the
repurchase of qualifying shares of a director. Notwithstanding anything to the
contrary in the foregoing, the Holding Company may repurchase its common stock
to the extent and subject to the requirements set forth in 12 C.F.R.
563b.3(g)(3), as it may be amended from time to time.
D. The Converted Bank may not declare or pay a cash dividend on or
repurchase any of its capital stock if the effect thereof would cause the
regulatory capital of the Converted Bank to be reduced below the amount required
for its liquidation account established pursuant to Section 18 of this Plan. Any
dividend declared or paid on, or repurchase of, the Converted Bank's capital
stock also shall be in compliance with the provisions of 12 C.F.R. (S)563.134.
The above limitations shall not preclude payments of dividends or repurchases of
stock by the Converted Bank or by the Holding Company in the event applicable
federal regulatory limitations are liberalized subsequent to OTS approval of the
Plan.
9. VOTING RIGHTS.
Upon consummation of the Conversion, holders of deposit accounts and
borrowers of the Bank will not have voting rights in the Converted Bank or the
Holding Company. Exclusive voting rights with respect to the Converted Bank will
be held and exercised by the Holding Company as holder of the Bank's capital
stock. Voting rights with respect to the Holding Company shall be held and
exercised by the holders of the Holding Company's common stock. Each shareholder
of the Holding Company will upon Conversion be entitled to vote on
16
<PAGE>
any matters coming before the shareholders of the Holding Company for
consideration and will be entitled to one vote for each share of Holding Company
common stock owned by said shareholder, except as otherwise prescribed by law
and except insofar as the Holding Company's Articles of Incorporation may
provide with respect to the cumulation of votes for the election of directors or
may limit voting rights as set forth in Section 19 hereof.
10. EXERCISE OF SUBSCRIPTION RIGHTS; ORDER FORMS
A. The Bank may commence the Subscription Offering concurrently with the
proxy solicitation for the Special Meeting. If the Subscription Offering occurs
concurrently with the solicitation of proxies for the Special Meeting, the
prospectus and Order Form may be sent to each Eligible Account Holder,
Supplemental Eligible Account Holder and Other Member at their last known
address as shown on the records of the Bank. However, the Bank may furnish a
prospectus and Order Form only to Eligible Account Holders, Supplemental
Eligible Account Holders and Other Members who have returned to the Bank by a
specified date a postcard or other written communication requesting a prospectus
and Order Form, provided that the Subscription Offering shall not be closed
prior to the expiration of 30 days after the mailing of the proxy solicitation
material and/or letter sent in lieu of the proxy statement to those Eligible
Account Holders and Supplemental Eligible Account Holders who are not Members on
the Voting Record Date. In such event, the Bank shall provide a postage-paid
postcard for this purpose and make appropriate disclosure in its proxy statement
for the solicitation of proxies to be voted at the Special Meeting and/or letter
sent in lieu of the proxy statement to those Eligible Account Holders and
Supplemental Eligible Account Holders who are not Members on the Voting Record
Date. If the Subscription Offering is not commenced within 45 days after the
Special Meeting, the Bank may transmit, no more than 30 days prior to the
commencement of the Subscription Offering, to each Eligible Account Holder,
Supplemental Eligible Account Holder and Other Member who had been furnished
with proxy solicitation materials a notice which shall state that the Bank is
not required to furnish a prospectus or Order Form to them unless they return by
a reasonable date a certain postage-paid postcard or other written communication
requesting a prospectus and Order Form.
B. Each Order Form will be preceded or accompanied by a prospectus
describing the Bank, the Holding Company and the shares of Conversion Stock
being offered for subscription and containing all other information required
under the Securities Act of 1933 and by the OTS, or necessary to enable Persons
to make informed investment decisions regarding the purchase of Conversion
Stock.
C. The Order Forms (or accompanying instructions) used for the
Subscription Offering will contain, among other things, the following: (i) a
clear and intelligible explanation of the Subscription Rights granted under the
Plan to Eligible Account Holders, Tax-Qualified Employee Stock Benefit Plans,
Supplemental Eligible Account Holders and Other Members; (ii) a specified
expiration date by which Order Forms must be returned to and actually received
by the Bank or the Holding Company or their representative for purposes
17
<PAGE>
of exercising Subscription Rights, which date will be not less than 20 days
after the Order Forms are mailed; (iii) the Subscription Price to be paid for
each share subscribed for when the Order Form is returned; (iv) except as
otherwise provided in Section 7 hereof, a statement that 25 shares is the
minimum number of shares of Conversion Stock that may be subscribed for under
the Plan; (v) a specifically designated blank space for indicating the number of
shares being subscribed for; (vi) a set of detailed instructions as to how to
complete the Order Form; (vii) specifically designated blank spaces for dating
and signing the Order Form; (viii) an acknowledgment that the subscriber has
received the prospectus; (ix) a statement of the consequences of failure to
properly complete and return the Order Form, including a statement that the
Subscription Rights will expire on the expiration date specified on the Order
Form unless such expiration date is extended by the Bank and the Holding
Company, and that the Subscription Rights may be exercised only by delivering
the Order Form, properly completed and executed, to the Bank or the Holding
Company or their representative by the expiration date, together with required
payment of the Subscription Price for all shares of Conversion Stock subscribed
for; (x) a statement that the Subscription Rights are non-transferable and that
all shares of Conversion Stock subscribed for upon exercise of Subscription
Rights must be purchased on behalf of the Person exercising the Subscription
Rights for his or her own account; and (xi) a statement that, after receipt by
the Bank or the Holding Company or their representative, a subscription may not
be modified, withdrawn or canceled without the consent of the Bank and the
Holding Company.
11. METHOD OF PAYMENT
A. Payment for all shares of Conversion Stock subscribed for, computed on
the basis of the Subscription Price, must accompany all completed Order Forms.
Payment may be made in cash (if presented in person), by check, or, if the
subscriber has a deposit account in the Bank (including a certificate of
deposit), the subscriber may authorize the Bank to charge the subscriber's
account .
B. Payment for shares of Conversion Stock subscribed for by Tax-Qualified
Employee Stock Benefit Plans may be made with funds contributed by the Bank or
the Holding Company and/or funds obtained pursuant to a loan from an unrelated
financial institution or the Holding Company pursuant to a loan commitment which
is in force from the time that any such plan submits an order form until the
closing of the Conversion.
C. If a subscriber authorizes the Bank to charge his or her account, the
funds will continue to earn interest, but may not be used by the subscriber
until all Conversion Stock has been sold or the Plan is terminated, whichever is
earlier. The Bank will allow subscribers to purchase shares by withdrawing funds
from certificate of deposit accounts, without the assessment of early withdrawal
penalties. In the case of early withdrawal of only a portion of such account,
the certificate evidencing such account shall be canceled if the remaining
balance of the account is less than the applicable minimum balance requirement,
in which event the remaining balance will earn interest at the then-current
passbook rate. This waiver
18
<PAGE>
of early withdrawal penalty is applicable only to withdrawals made in connection
with the purchase of Conversion Stock under the Plan. Interest will also be
paid, at not less than the then current passbook rate, on all orders paid in
cash or by check or money order, from the date payment is received until
consummation of the Conversion. Payments made in cash or by check or money order
will be placed by the Bank or the Holding Company in an escrow or other account
established specifically for such purpose.
D. In the event of an unfilled amount of any subscription order, the
Converted Bank will make an appropriate refund, or cancel an appropriate portion
of the related withdrawal authorization, after consummation of the Conversion.
If for any reason the Conversion is not consummated, purchasers will have
refunded to them all payments made and all withdrawal authorizations will be
canceled in the case of subscription payments authorized from accounts at the
Bank.
12. UNDELIVERED, DEFECTIVE OR LATE ORDER FORMS; INSUFFICIENT PAYMENT
In the event Order Forms (a) are not delivered and are returned to the Bank
by the United States Postal Service or the Bank is unable to locate the
addressee, (b) are not received back by the Bank or are received by the Bank
after the expiration date specified thereon, (c) are defectively filled out or
executed, (d) are not accompanied by the full required payment, except in the
case of institutional investors in the Direct Community Offering, by delivering
irrevocable orders together with a legally binding commitment to pay in cash,
check, money order or wire transfer the full amount of the purchase price prior
to 48 hours before the completion of the Conversion for the shares of Conversion
Stock subscribed for (including cases in which savings accounts from which
withdrawals are authorized are insufficient to cover the amount of the required
payment), or (e) are not mailed pursuant to a "no mail" order placed in effect
by the account holder, the subscription rights of the person to whom such rights
have been granted will lapse as though such person failed to return the
contemplated Order Form within the time period specified thereon; provided,
however, that the Bank may, but will not be required to, waive any immaterial
irregularity on any Order Form or require the submission of corrected Order
Forms or the remittance of full payment for subscribed shares by such date as
the Bank may specify. The interpretation of the Bank of the terms and conditions
of the Plan and of the Order Forms will be final, subject to the authority of
the OTS.
13. MEMBERS IN NON-QUALIFIED STATES OR IN FOREIGN COUNTRIES
The Bank and the Holding Company will make reasonable efforts to
comply with the securities laws of all states in the United States in which
Persons entitled to subscribe for Conversion Stock pursuant to the Plan reside.
However, the Bank or the Holding Company will not be required to offer
Subscription Rights to any Person who resides in a foreign country or who
resides in a state of the United States with respect to which all of the
following apply: (i) a small number of Persons otherwise eligible to subscribe
for shares under this Plan reside in such state and (ii) the granting of
Subscription Rights or offer or sale of shares of
19
<PAGE>
Conversion Stock to such Persons would require the Bank or the Holding Company
or their respective Officers or directors to register, under the securities laws
of such state, as a broker, dealer, salesman or agent or to register or
otherwise qualify the Conversion Stock for sale in such state; and (iii) such
registration, qualification or filing in the judgment of the Holding Company and
the Bank would be impracticable or unduly burdensome for reasons of cost or
otherwise.
14. FEDERAL STOCK CHARTER AND BYLAWS
As part of the Conversion, the Bank shall take all appropriate steps to
amend its charter to read in the form of a federal stock charter as prescribed
by the OTS for a federal stock savings bank. By their approval of the Plan, the
Members of the Bank will thereby approve and adopt such federal stock charter.
The Bank Shall also take appropriate steps to amend its bylaws to read in the
form prescribed by the OTS for a federal stock savings bank. The effective date
of the adoption of the Converted Bank's federal stock charter and bylaws shall
be the date of the issuance and sale of the Conversion Stock as specified by the
OTS. Copies of the amended charter and bylaws will be mailed to all Members as
part of the proxy materials for the Special Meeting.
15. STOCK INCENTIVE PLANS AND EMPLOYEE CONTRACTS
In order to provide an incentive for directors, Officers and employees of
the Holding Company and the Bank, the Board of Directors of the Holding Company
or of the Bank is authorized to adopt a stock option plan or plans, a management
retention plan, a restricted stock bonus plan, an employee stock ownership plan,
and similar stock incentive plans, in each case subject to the requirements of
12 C.F.R. (S)563b.3(g)(4). Such plans (other than an employee stock ownership
plan) shall be subject to approval at an annual or special meeting of
shareholders of the Holding Company, and in the case of any such plans other
than an employee stock ownership plan, will be implemented no earlier than the
date of such shareholder meeting to be held no earlier than six (6) months
following completion of the Conversion. Moreover, the Boards of Directors of the
Bank and Holding Company are authorized to enter into employment contracts with
key employees.
16. SECURITIES REGISTRATION AND MARKET MAKING
In connection with the Conversion, the Holding Company will register its
common stock with the SEC, pursuant to the Securities Exchange Act of 1934, as
amended. In connection with the registration, the Holding Company will undertake
not to deregister such stock, without the approval of the OTS, for a period of
three years thereafter.
The Holding Company shall use its best efforts to encourage and assist one
or more Market Makers to establish and maintain a market for its common stock
promptly following the Conversion. The Holding Company will also use its best
efforts to cause its common stock to
20
<PAGE>
be quoted on the National Association of Securities Dealers Automated Quotations
System or to be listed on a national or regional securities exchange.
17. STATUS OF DEPOSIT ACCOUNTS AND LOANS SUBSEQUENT TO CONVERSION
All deposit accounts of the Converted Bank will retain the same status
after the Conversion as such accounts had prior to the Conversion. Each deposit
account holder shall retain, without payment, a withdrawable deposit account or
accounts in the Converted Bank, equal in amount to the withdrawable value of
such account holder's deposit account or accounts immediately prior to
Conversion. All deposit accounts will continue to be insured by the FDIC up to
the applicable limits of insurance coverage, and shall be subject to the same
terms and conditions (except as to voting and liquidation rights) to which such
deposit accounts were subject at the time of the Conversion. All loans shall
retain the same status after the Conversion as those loans had prior to the
Conversion.
Notwithstanding the foregoing, as provided in Section 9of this Plan, any
voting rights held by deposit account holders and borrowers will not survive the
Conversion.
18. LIQUIDATION ACCOUNT
For purposes of granting to Eligible Account Holders and Supplemental
Eligible Account Holders who continue to maintain deposit accounts at the
Converted Bank a priority in the event of a complete liquidation of the
Converted Bank, the Converted Bank will, at the time of Conversion, establish a
liquidation account in an amount equal to the net worth of the Bank as shown on
its latest statement of financial condition contained in the final prospectus
used in connection with the Conversion. The operation and maintenance of the
liquidation account will not operate to restrict the use or application of any
of the net worth accounts of the Converted Bank; provided, however, that such
net worth accounts will not be voluntarily reduced below the required dollar
amount of the liquidation account. Each Eligible Account Holder and Supplemental
Eligible Account Holder shall, with respect to each deposit account held, have a
related inchoate interest in a portion of the liquidation account balance
("subaccount balance").
The initial subaccount balance of a deposit account held by an Eligible
Account Holder and Supplemental Eligible Account Holder shall be determined by
multiplying the opening balance in the liquidation account by a fraction of
which the numerator is the amount of the Qualifying Deposit in the deposit
account on the Eligibility Record Date and/or the Supplemental Eligibility
Record Date of such Eligible Account Holder or Supplemental Eligible Account
Holder and the denominator is the total amount of the Qualifying Deposits of all
Eligible Account Holders and Supplemental Eligible Account Holders on such
date(s). For savings accounts in existence at both dates, separate subaccounts
shall be determined on the basis of the Qualifying Deposits in such savings
accounts on such record dates. Such
21
<PAGE>
initial subaccount balance shall not be increased, and it shall be subject to
downward adjustment as provided below.
If the deposit balance in any deposit account of an Eligible Account Holder
or Supplemental Eligible Account Holder at the close of business on any annual
closing date subsequent to the respective record dates is less than the lesser
of (i) the deposit balance in such deposit account at the close of business on
any other annual closing date subsequent to the Eligibility Record Date or the
Supplemental Eligibility Record Date or (ii) the amount of the Qualifying
Deposit in such deposit account on the Eligibility Record Date or the
Supplemental Eligibility Record Date, the subaccount balance shall be reduced in
an amount proportionate to the reduction in such deposit balance. In the event
of a downward adjustment, the subaccount balance shall not be subsequently
increased, notwithstanding any increase in the deposit balance of the related
deposit account. If all funds in such deposit account are withdrawn, the related
subaccount balance shall be reduced to zero.
In the event of a complete liquidation of the Converted Bank (and only in
such event), each Eligible Account Holder and/or Supplemental Eligible Account
Holder shall be entitled to receive a liquidation distribution from the
liquidation account in the amount of the then-current adjusted subaccount
balances for deposit accounts then held before any liquidation distribution may
be made to shareholders. No merger, consolidation, bulk purchase of assets with
assumptions of deposit accounts and other liabilities, or similar transactions
in which the Converted Bank is not the surviving institution, shall be
considered to be a complete liquidation if the surviving institution is a
qualifying institution insured by the FDIC. In such transactions, the
liquidation account shall be assumed by the surviving institution.
The Converted Bank shall not be required to recompute the liquidation
account and subaccount balances provided the Converted Bank maintains records
sufficient to make necessary computations in the event of a complete liquidation
or such other events as may require a computation of the balance of the
liquidation account. The liquidation subaccount of an account holder shall be
maintained for as long as the account holder maintains an account with the same
Social Security number.
19. RESTRICTIONS ON ACQUISITION OF THE HOLDING COMPANY
A. Present regulations provide that for a period of three years following
completion of the Conversion, no person (i.e., individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock company, a
trust, or any unincorporated organization or similar company, a syndicate or any
other group formed for the purpose of acquiring, holding or disposing of
securities of an insured institution) shall directly or indirectly offer to
purchase or actually acquire the beneficial ownership of more than ten percent
(10%) of any class of equity securities of the Holding Company without the prior
approval of the OTS. However, approval is not required for purchases directly
from the Holding Company or from underwriters or a selling group acting on its
behalf with a view toward public resale, or for
22
<PAGE>
purchases not exceeding one percent (1%) per annum of the shares outstanding.
Civil penalties may be imposed by the OTS for willful violation or assistance of
any violation. Where any person directly or indirectly acquires beneficial
ownership of more than ten percent (10%) of Holding Company common stock
outstanding within such three year period without the prior approval of the OTS,
the Holding Company stock beneficially owned by such person in excess of ten
percent (10%) shall not be counted as shares entitled to vote and shall not be
voted by any person or counted as voting shares in connection with any matter
submitted to the shareholders of the Holding Company for a vote.
B. The Holding Company may provide in its Articles of Incorporation that,
for a specified period of up to five years or for an unspecified period of time
following the date of the completion of the Conversion, no person shall directly
or indirectly offer to acquire or acquire the beneficial ownership of more than
ten percent (10%) of the outstanding Holding Company common stock. Furthermore,
the Articles of Incorporation may provide that, for a specified period of up to
five years or for an unspecified period of time following the date of the
completion of the Conversion, shares of Holding Company common stock
beneficially owned in violation of such percentage limitation shall not be
entitled to vote and shall not be voted by any person or counted as voting
shares in connection with any matter submitted to the shareholders of the
Holding Company for a vote. The Holding Company may provide in its Articles of
Incorporation such other provisions affecting acquisition of Holding Company
common stock or possible changes of control of the Holding Company as shall be
determined by the Holding Company's Board of Directors.
20. AMENDMENT OR TERMINATION OF PLAN
If necessary or desirable, the Plan may be amended at any time prior to
submission of the Plan and proxy materials to the Members by a two-thirds vote
of the Boards of Directors of the Bank and the Holding Company. After submission
of the Plan and proxy materials to the Members, the Plan may be amended by a
two-thirds vote of the Boards of Directors of the Bank and the Holding Company
only with the concurrence of the OTS or resubmission to the Members.
The Plan may be terminated by a two-thirds vote of the Boards of Directors
of the Bank and the Holding Company at any time prior to the Special Meeting,
and at any time following such Special Meeting with the concurrence of the OTS.
In its discretion, the respective Boards of Directors may modify or terminate
the Plan upon the order or with the approval of the OTS, and without a
resolicitation of proxies or another meeting of Members. The Plan shall
terminate if the sale of shares of Conversion Stock falling within the Estimated
Price Range is not completed within 24 months of the date of the Special
Meeting. A specific resolution approved by a majority of the Boards of Directors
of the Bank and the Holding Company is required in order for the Bank and the
Holding Company to terminate the Plan prior to the end of such 24 month period.
23
<PAGE>
21. EXPENSES OF THE CONVERSION
The Holding Company and the Bank shall use their best efforts to assure
that expenses incurred by the Bank and the Holding Company in connection with
the Conversion shall be reasonable.
22. EXTENSION OF CREDIT FOR PURCHASE OF STOCK
Neither the Bank nor the Holding Company shall knowingly loan funds or
otherwise extend credit to any Person to purchase shares of Conversion Stock.
23. EFFECTIVE DATE
The effective date of the Conversion shall be the date of the closing of
the sale of all shares of Conversion Stock. The closing (which shall be within
45 days after the completion of the Subscription Offering, unless the Holding
Company and the Bank extend such period as provided herein) for all shares of
Conversion Stock sold in the Subscription Offering and any Direct Community
Offering shall occur simultaneously, and the closing is conditioned upon the
prior receipt of all requisite regulatory and other approvals.
24
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
FIRST DEPOSIT BANCSHARES, INC.
1.
The name of the Corporation is: "FIRST DEPOSIT BANCSHARES, INC."
2.
The Corporation is organized pursuant to the provisions of the Georgia
Business Corporation Code.
3.
The object of the Corporation is pecuniary gain and profit, and the
Corporation is formed for the purpose of becoming and operating as a bank
holding company and engaging in such related and permissible activities in
connection therewith as the Board of Directors may from time to time specify by
resolution.
4.
(a) The Corporation shall have authority to issue Ten Million (10,000,000)
shares of common stock (the "Common Stock"), no par value, and Ten Million
(10,000,000) shares of preferred stock (the "Preferred Stock").
(b) The Board of Directors of the Corporation is authorized, subject to
limitations prescribed by law and the provisions of this Article, to provide for
the issuance of the shares of Preferred Stock in series, and by filing a
certificate pursuant to the applicable law of the State of Georgia to establish
from time to time the number of shares to be included in each such series, and
to fix the designation, powers, preferences, and relative rights of the shares
of each such series and the qualifications, or restrictions thereof. The
authority of the Board of Directors with respect to each series shall include,
but not be limited to, determination of the following:
(i) The number of shares constituting that series and the distinctive
designation of that series;
(ii) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and
the relative rights of priority, if any, of payments of dividends
on shares of that series;
<PAGE>
(iii) Whether that series shall have voting rights, in addition to
the voting rights provided by law, and, if so, the terms of
such voting rights;
(iv) Whether that series shall have conversion privileges, and, if
so, the terms and conditions of such conversion, including
provisions for adjustment of the conversion rate in such events
as the Board of Directors shall determine;
(v) Whether or not the shares of that series shall be redeemable,
and, if so, the terms and conditions of such redemption,
including the date or dates upon or after which they shall be
redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions
and at different redemption rates;
(vi) Whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so,
the terms and amount of such sinking fund;
(vii) The rights of the shares of that series in the event of
voluntary or involuntary liquidation, dissolution or winding-up
of the Corporation, and the relative rights of priority, if
any, of payment of shares of that series; and
(viii) Any other relative rights, preferences and limitations of that
series.
5.
The initial registered office of the Corporation shall be at 8458
Campbellton Street, Douglasville, Douglas County, Georgia 30134-1803. The
initial registered agent of the Corporation at such address shall be Alpha A.
Fowler, Jr.
6.
The mailing address of the initial principal office of the corporation is
8458 Campbellton Street, Douglasville, Douglas County, Georgia 30134-1803.
7.
(a) The Board of Directors shall be divided into three (3) classes, Class
I, Class II and Class III, which shall be as nearly equal in number as possible.
Each director in Class I shall be elected to an initial term of one (1) year,
each director in Class II shall be elected to an initial term of two (2) years,
each director in Class III shall be elected to an initial term of three (3)
years, and each director shall serve until the election and qualification of his
or her successor or until his or her earlier resignation, death or removal from
office. Upon the expiration of the initial terms of office for each Class of
directors, the directors of each Class shall be elected for terms of three (3)
years,
-2-
<PAGE>
to serve until the election and qualification of their successors or until their
earlier resignation, death or removal from office.
(b) Unless two-thirds (2/3) of the directors then in office shall approve
the proposed change, this Article 7 may be amended or rescinded only by the
affirmative vote of the holders of at least eighty percent (80%) of the issued
and outstanding shares of the Corporation entitled to vote in an election of
directors, at any regular or special meeting of the shareholders, and notice of
the propos ed change must be contained in the notice of the meeting.
8.
(a) Except as provided in paragraph (b) of this Article 8, the Board of
Directors shall have the right to adopt, amend or repeal the bylaws of the
Corporation by the affirmative vote of a majority of all directors then in
office, and the shareholders shall have such right by the affirmative vote of a
majority of the issued and outstanding shares of the Corporation entitled to
vote in an election of directors.
(b) Notwithstanding paragraph (a) of this Article 8, any amendment of the
bylaws of the Corporation changing the number of directors shall require the
affirmative vote of two-thirds (2/3) of all directors then in office or the
affirmative vote of the holders of eighty percent (80%) of the issued and
outstanding shares of the Corporation entitled to vote in an election of
directors, at any regular or special meeting of the shareholders, and notice of
the proposed change must be contained in the notice of the meeting.
9.
(a) At any shareholders' meeting with respect to which notice of such
purpose has been given, the entire Board of Directors or any individual director
may be removed without cause only by the affirmative vote of the holders of at
least eighty percent (80%) of the issued and outstanding shares of the
Corporation entitled to vote in an election of directors.
(b) At any shareholders' meeting with respect to which notice of such
purpose has been given, the entire Board of Directors or any individual director
may be removed with cause only by the affirmative vote of the holders of at
least a majority of the issued and outstanding shares of the Corporation
entitled to vote in an election of directors.
(c) For purposes of this Article 9, a director of the Corporation may be
removed for cause if (i) the director has been convicted of a felony; (ii) any
bank regulatory authority having jurisdiction over the Corporation requests or
demands the removal; or (iii) at least two-thirds (2/3) of the directors of the
Corporation then in office, excluding the director to be removed, determine that
the director's conduct has been inimical to the best interests of the
Corporation.
-3-
<PAGE>
(d) Unless two-thirds (2/3) of the directors then in office shall approve
the proposed change, this Article 9 may be amended or rescinded only by the
affirmative vote of the holders of at least eighty percent (80%) of the issued
and outstanding shares of the Corporation entitled to vote in an election of
directors, at any regular or special meeting of the shareholders, and notice of
the proposed change must be contained in the notice of the meeting.
10.
The initial Board of Directors of the Corporation shall consist of eight
(8) members who shall be and whose addresses are:
Alpha A. Fowler, Jr.
8815 Campbellton Street
Douglasville, Georgia 30134
J. David Higgins
215 Canterbury Walk
Bremen, Georgia 30110
John L. King
4090 Lake Land Hills Drive
Douglasville, Georgia 30134
Mac C. Abercrombie, Jr.
2297 Sister Mill Road
Douglasville, Georgia 30315
Danny A. Belyeu
6445 Elizabeth Drive
Douglasville, Georgia 30134
Carlton H. Boyd
8752 Club Drive
Douglasville, Georgia 30134
Joseph H. Fowler
3116 Nightingale Lane
Douglasville, Georgia 30134
John B. Zellars
3710 Namore Drive
Atlanta, Georgia 30319
11.
(a) A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages, for breach of any duty as
a director, except for liability for:
(i) any appropriation, in violation of his or her duties, of any
business opportunity of the Corporation;
(ii) acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
-4-
<PAGE>
(iii) the types of liability set forth in Section 14-2-832 of the
Georgia Business Corporation Code dealing with unlawful
distributions of corporate assets to shareholders; or
(iv) any transaction from which the director derived an improper
personal benefit.
(b) Any repeal or modification of this Article by the shareholders of the
Corporation shall be prospective only and shall not adversely affect any right
or protection of a director of the Corporation existing at the time of such
repeal or modification.
(c) Unless two-thirds (2/3) of the directors then in office shall approve
the proposed change, this Article 11 may be amended or rescinded only by the
affirmative vote of the holders of at least eighty percent (80%) of the issued
and outstanding shares of the Corporation entitled to vote thereon, at any
regular or special meeting of the shareholders, and notice of the proposed
change must be contained in the notice of the meeting.
12.
Any action required by law or by the Bylaws of the Corporation to be taken
at a meeting of the shareholders of the Corporation, and any action which may be
taken at such a meeting, may be taken without a meeting, if written consent,
setting forth the action so taken, is signed by persons entitled to vote at a
meeting those shares having sufficient voting power to cast not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote were present and voted. Notice
of such action without a meeting by less than unanimous written consent shall be
given within ten (10) days after taking such action to those shareholders of
record on the date when the written consent is first executed and whose shares
were not represented on the written consent.
13.
(a) Except as set forth in subparagraph (b) of this Article 13, the
affirmative vote of the holders of at least eighty percent (80%) of the issued
and outstanding shares of the Corporation entitled to vote thereon shall be
required to approve:
(i) any merger or share exchange of the Corporation with or into any
other corporation; and
(ii) any sale, lease, exchange or other disposition of all or
substantially all of the assets of the Corporation to any other
corporation, person or other entity.
(b) The provisions of this Article 13 shall not apply to:
-5-
<PAGE>
(i) any merger or similar transaction with any corporation if two-
thirds (2/3) of the directors of the Corporation then in office
approve such transaction prior to its consummation;
(ii) any merger or share exchange of the Corporation with, or any sale
or lease to the Corporation (or any subsidiary thereof) of any
assets of, or any sale or lease by the Corporation (or any
subsidiary thereof) of any of its assets to, any corporation of
which a majority of the outstanding shares of all classes of
stock entitled to vote in an election of directors is owned of
record or beneficially by the Corporation and its subsidiaries.
(c) Unless two-thirds (2/3) of the directors then in office shall approve
the proposed change, this Article 13 may be amended or rescinded only by the
affirmative vote of the holders of at least eighty percent (80%) of the issued
and outstanding shares of the Corporation entitled to vote thereon at any
regular or special meeting of the shareholders, and notice of the proposed
change must be contained in the notice of the meeting.
14.
(a) The Board of Directors, when evaluating any offer of another party (i)
to make a tender offer or exchange offer for any equity security of the
Corporation, (ii) to merge or consolidate any other corporation with the
Corporation, or (iii) to purchase or otherwise acquire all or substantially all
of the assets of the Corporation, shall, in determining what is in the best
interests of the Corporation and its shareholders, give due consideration to all
relevant factors, including without limitation: (A) the short-term and long-
term social and economic effects on the employees, customers, shareholders and
other constituents of the Corporation and its subsidiaries, and on the
communities within which the Corporation and its subsidiaries operate (it being
understood that any subsidiary bank of the Corporation is charged with providing
support to and being involved in the communities it serves); and (B) the
consideration being offered by the other party in relation to the then-current
value of the Corporation in a freely negotiated transaction and in relation to
the Board of Directors' then-estimate of the future value of the Corporation as
an independent entity.
(b) Unless two-thirds (2/3) of the directors then in office shall approve
the proposed change, this Article 14 may be amended or rescinded only by the
affirmative vote of the holders of at least eighty percent (80%) of the issued
and outstanding shares of the Corporation entitled to vote thereon, at any
regular or special meeting of the shareholders, and notice of the proposed
change must be contained in the notice of the meeting.
15.
Should any provision of these Articles of Incorporation, or any clause
hereof, be held to be invalid, illegal or unenforceable, in whole or in part,
the remaining provisions and clauses of these Articles of Incorporation shall
remain valid and fully enforceable.
-6-
<PAGE>
16.
The Incorporator of the Corporation is Steven S. Dunlevie, whose address is
Suite 700, 1275 Peachtree Street, N.E., Atlanta, Fulton County, Georgia 30309-
3574.
IN WITNESS WHEREOF, the undersigned has caused these Articles of
Incorporation to be executed, this 22nd day of February, 1999.
FIRST DEPOSIT BANCSHARES, INC.
/s/ Steven S. Dunlevie
----------------------
STEVEN S. DUNLEVIE, Esq.
Attorney for Incorporator
-7-
<PAGE>
EXHIBIT 3.2
BYLAWS
FIRST DEPOSIT BANCSHARES, INC.
<PAGE>
BYLAWS
FIRST DEPOSIT BANCSHARES, INC.
CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE ONE
OFFICES............................................................... 1
ARTICLE TWO
SHAREHOLDERS' MEETINGS................................................ 1
2.1 Annual Meeting................................................... 1
2.2 Special Meetings................................................. 1
2.3 Place............................................................ 1
2.4 Notice........................................................... 1
2.5 Quorum........................................................... 2
2.6 Proxies; Required Vote........................................... 2
2.7 Presiding Officer and Secretary.................................. 2
2.8 Shareholder List................................................. 2
2.9 Action in Lieu of Meeting........................................ 2
ARTICLE THREE
DIRECTORS............................................................. 2
3.1 Management....................................................... 2
3.2 Number of Directors.............................................. 3
3.3 Vacancies........................................................ 3
3.4 Election of Directors............................................ 3
3.5 Nomination of Directors.......................................... 3
3.6 Removal.......................................................... 4
3.7 Resignation...................................................... 4
3.8 Compensation..................................................... 4
3.9 Honorary and Advisory Directors.................................. 4
ARTICLE FOUR
COMMITTEES............................................................ 5
4.1 Executive Committee.............................................. 5
4.2 Other Committees................................................. 6
4.3 Removal.......................................................... 6
</TABLE>
-i-
<PAGE>
BYLAWS
FIRST DEPOSIT BANCSHARES, INC.
CONTENTS (Cont.)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE FIVE
MEETINGS OF THE BOARD OF DIRECTORS........................................ 6
5.1 Time and Place.................................................. 6
5.2 Regular Meetings................................................ 6
5.3 Special Meetings................................................ 6
5.4 Content and Waiver of Notice.................................... 6
5.5 Quorum; Participation by Telephone.............................. 7
5.6 Action in Lieu of Meeting....................................... 7
5.7 Interested Directors and Officers............................... 7
ARTICLE SIX
OFFICERS, AGENTS AND EMPLOYEES....................................... 7
6.1 General Provisions.............................................. 7
6.2 Powers and Duties of the Chairman of the
Board and the President......................................... 8
6.3 Powers and Duties of Vice Presidents............................ 8
6.4 Powers and Duties of the Secretary.............................. 9
6.5 Powers and Duties of the Treasurer.............................. 9
6.6 Appointment, Powers and Duties of Assistant Secretaries......... 9
6.7 Appointment, Powers and Duties of Assistant Treasurers.......... 9
6.8 Delegation of Duties............................................ 10
ARTICLE SEVEN
CAPITAL STOCK........................................................ 10
7.1 Certificates.................................................... 10
7.2 Shareholder List................................................ 11
7.3 Transfer of Shares.............................................. 11
7.4 Record Dates.................................................... 11
7.5 Registered Owner................................................ 11
7.6 Transfer Agent and Registrars................................... 11
7.7 Lost Certificates............................................... 11
7.8 Fractional Shares or Scrip...................................... 12
</TABLE>
-ii-
<PAGE>
BYLAWS
FIRST DEPOSIT BANCSHARES, INC.
CONTENTS (Cont.)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE EIGHT
BOOKS AND RECORDS; SEAL; ANNUAL STATEMENTS................................ 12
8.1 Inspection of Books and Records................................ 12
8.2 Seal........................................................... 13
8.3 Annual Statements.............................................. 13
ARTICLE NINE
INDEMNIFICATION...................................................... 13
9.1 Authority to Indemnify......................................... 13
9.2 Mandatory Indemnification...................................... 13
9.3 Advance for Expenses........................................... 14
9.4 Court-ordered Indemnification and Advances for Expenses........ 14
9.5 Determination of Indemnification............................... 14
9.6 Authorization of Indemnification............................... 15
9.7 Other Rights................................................... 15
9.8 Insurance...................................................... 15
9.9 Continuation of Expenses....................................... 15
ARTICLE TEN
NOTICES: WAIVERS OF NOTICE........................................... 16
10.1 Notices........................................................ 16
10.2 Waivers of Notice.............................................. 16
ARTICLE ELEVEN
BUSINESS COMBINATION................................................. 16
ARTICLE TWELVE
FAIR PRICING......................................................... 16
ARTICLE THIRTEEN
EMERGENCY POWERS..................................................... 16
13.1 Bylaws......................................................... 16
13.2 Lines of Succession............................................ 17
13.3 Head Office.................................................... 17
</TABLE>
-iii-
<PAGE>
BYLAWS
FIRST DEPOSIT BANCSHARES, INC.
CONTENTS (Cont.)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
13.4 Period of Effectiveness........................................ 17
13.5 Notices........................................................ 17
13.6 Officers as Directors Pro Tempore.............................. 17
13.7 Liability of Officers, Directors and Agents.................... 17
ARTICLE FOURTEEN
CHECKS, NOTES, DRAFTS, ETC........................................... 17
ARTICLE FIFTEEN
AMENDMENTS........................................................... 18
</TABLE>
-iv-
<PAGE>
BYLAWS
OF
FIRST DEPOSIT BANCSHARES, INC.
ARTICLE ONE
OFFICES
The corporation shall maintain its principal office in Douglasville,
Georgia, its registered office in the State of Georgia and its registered agent
in the State of Georgia, but it may have other offices located within or outside
the State of Georgia as the Board of Directors may determine.
ARTICLE TWO
SHAREHOLDERS' MEETINGS
2.1 Annual Meeting. A meeting of shareholders of the corporation shall be
held annually, within six (6) months after the end of each fiscal year of the
corporation. The annual meeting shall be held at such time and place and on such
date as the Directors shall determine from time to time and as shall be
specified in the notice of the meeting.
2.2 Special Meetings. Special meetings of the shareholders may be called
at any time by the corporation's Board of Directors, its President, and by the
corporation upon the written request of any one or more shareholders, owning an
aggregate of not less than twenty-five percent of the outstanding capital stock
of the corporation. Special meetings shall be held at such a time and place and
on such date as shall be specified in the notice of the meeting.
2.3 Place. Annual or special meetings of shareholders may be held within
or without the State of Georgia.
2.4 Notice. Notice of annual or special shareholders meetings stating
place, day and hour of the meeting shall be given in writing not less than ten
nor more than sixty days before the date of the meeting, either mailed to the
last known address as shown on the stock records of the corporation, transmitted
by telefax or other commonly accepted means of communication or personally given
to each shareholder. Notice of any special meeting of shareholders shall state
the purpose or purposes for which the meeting is called. The notice of any
meeting at which amendments to or restatements of the articles of incorporation,
merger or share exchange of the corporation, or the disposition of corporate
assets requiring shareholder approval are to be considered shall state such
purpose, and shall further comply with all requirements of law. Notice of a
meeting may be waived by an instrument in writing executed before or after the
meeting. The waiver need not specify the purpose of the meeting or the business
transacted, unless one of the purposes of the meeting concerns a plan of merger
or share exchange, in which event the waiver shall comply with the further
requirements of law concerning such waivers. Attendance at such meeting in
person or by proxy shall constitute a waiver of notice thereof.
<PAGE>
2.5 Quorum. At all meetings of shareholders a majority of the outstanding
shares of stock shall constitute a quorum for the transaction of business, and
no resolution or business shall be transacted without the favorable vote of the
holders of a majority of the shares represented at the meeting and entitled to
vote. A lesser number may adjourn from day to day, and shall announce the time
and place to which the meeting is adjourned. Notice of any adjourned meeting
need only be given by announcement at the meeting at which the adjournment is
taken.
2.6 Proxies; Required Vote. At every meeting of the shareholders,
including meetings of shareholders for the election of Directors, any
shareholder having the right to vote shall be entitled to vote in person or by
proxy, but no proxy shall be voted after eleven months from its date, unless
said proxy provides for a longer period. Each shareholder shall have one vote
for each share of stock having voting power, registered in his or her name on
the books of the corporation. If a quorum is present, the affirmative vote of
the majority of the shares represented at the meeting and entitled to vote on
the subject matter shall be the act of the shareholders, except as otherwise
provided by law, by the Articles of Incorporation or by these bylaws.
2.7 Presiding Officer and Secretary. At every meeting of shareholders,
the Chairman or the President, or, if such officers shall not be present, then
the person appointed by one of them shall preside. In the absence of the
Chairman and President, the Board of Directors shall designate one of its
members in attendance to act as Chairman. The Secretary or an Assistant
Secretary, or if such officers shall not be present, the appointee of the
presiding officer of the meeting, shall act as secretary of the meeting.
2.8 Shareholder List. The officer or agent having charge of the stock
transfer books of the corporation shall produce for inspection of any
shareholder at, and continuously during, every meeting of the shareholders, a
complete alphabetical list of shareholders showing the address and share
holdings of each shareholder. If the record of shareholders readily shows such
information, it may be produced in lieu of such a list.
2.9 Action in Lieu of Meeting. Any action to be taken at a meeting of the
shareholders of the corporation, or any action that may be taken at a meeting of
the shareholders, may be taken without a meeting if a consent in writing setting
forth the action so taken shall be signed by those persons who would be entitled
to vote at a meeting those shares having voting power to cast not less than the
minimum number (or numbers, in the case of voting by class) of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote were present and voted.
ARTICLE THREE
DIRECTORS
3.1 Management. Subject to these bylaws, or any lawful agreement between
the shareholders, the full and entire management of the affairs and business of
the corporation shall be
2
<PAGE>
vested in the Board of Directors, which shall have and may exercise all of the
powers that may be exercised or performed by the corporation.
3.2 Number of Directors. The Board of Directors shall consist of not less
than three (3) nor more than twenty-five (25) members. The number of Directors
may be fixed or changed from time to time, within the minimum and maximum, by
the shareholders by the affirmative vote of eighty percent (80%) of the issued
and outstanding shares of the corporation entitled to vote in an election of
Directors, or by the Board of Directors by the affirmative vote of two-thirds
(66-2/3%) of all Directors then in office.
3.3 Vacancies. The Directors may fill the place of any Director which may
become vacant prior to the expiration of such Director's term, though less than
a quorum, or by the sole remaining Director, as the case may be, such
appointment by the Directors to continue until the expiration of the term of the
Director whose place has become vacant, whether by death, resignation or
removal, or by an increase in the number of Directors.
3.4 Election of Directors. The Board of Directors shall be divided into
three (3) classes, Class I, Class II and Class III, which shall be nearly equal
in number as possible. Each Director in Class I shall be elected to an initial
term of one (1) year, each Director in Class II shall be elected to an initial
term of two (2) years and each Director in Class III shall be elected to an
initial term of three (3) years, and each Director shall serve until the
election and qualification of his or her successor or until his or her earlier
resignation, death or removal from office. Upon the expiration of the initial
terms of office for each Class of Directors, the Directors of each Class shall
be elected for terms of three (3) years, to serve until the election and
qualification of their successors or until their earlier resignation, death or
removal from office. Unless two-thirds (2/3) of the directors then in office
shall approve the proposed change, this Section 3.4 may be amended or rescinded
only by the affirmative vote of the holders of at least eighty percent (80%) of
the issued and outstanding shares of the corporation entitled to vote in an
election of directors, at any regular or special meeting of the shareholders,
and notice of the proposed change must be contained in the notice of the
meeting.
3.5 Nomination of Directors. Nominations for election to the Board of
Directors may be made by the Board of Directors or by any shareholder of any
outstanding class of capital stock of the corporation entitled to vote for
election of directors. Nominations other than those made by or on behalf of the
existing management shall be made in writing and be delivered or mailed to the
president of the corporation not less than 30 days nor more than 60 days prior
to any meeting of shareholders called for the election of directors; provided,
however, that if less than 21 days notice of the meeting is given to
shareholders, such nominations shall be received by the president of the
corporation not later than the close of business on the seventh day following
the day on which the notice of meeting was mailed. Such notification shall
contain the following information to the extent known to the notifying
shareholder:
(i) The name and address of each proposed nominee.
3
<PAGE>
(ii) The principal occupation of each proposed nominee.
(iii) The total number of shares of capital stock of the corporation
that will be voted for each proposed nominee.
(iv) The name and residence address of the notifying shareholder.
(v) The number of shares of capital stock of the corporation owned
by the notifying shareholder.
Nominations not made in accordance herewith may, in his or her discretion, be
disregarded by the chairperson of the meeting, and the vote tellers may
disregard all votes cast for each such nominee.
3.6 Removal. Subject to any further limitations in the Articles of
Incorporation, any Director may be removed from office, at a meeting with
respect to which notice of such purpose is given (a) without cause, only upon
the affirmative vote of the holders of at least eighty percent (80%) of the
issued and outstanding shares of the corporation, and (b) with cause, only upon
the affirmative vote of the holders of a majority of the issued and outstanding
shares of the corporation.
3.7 Resignation. Any Director may resign at any time either orally at any
meeting of the Board of Directors or by so advising the Chairman of the Board or
the President or by giving written notice to the corporation. A Director who
resigns may postpone the effectiveness of his or her resignation to a future
date or upon the occurrence of a future event specified in a written tender of
resignation. If no time of effectiveness is specified therein, a resignation
shall be effective upon tender. A vacancy shall be deemed to exist at the time a
resignation is tendered, and the Board of Directors or the shareholders may,
then or thereafter, elect a successor to take office when the resignation by its
terms becomes effective.
3.8 Compensation. Directors may be allowed such compensation for their
services as Directors as may from time to time be fixed by resolution of the
Board of Directors.
3.9 Honorary and Advisory Directors. When a Director of the corporation
retires under the retirement policies of the corporation as established from
time to time by the Board of Directors, such Director automatically shall become
an Honorary Director of the corporation following his or her retirement. The
Board of Directors of the corporation also may appoint any individual an
Honorary Director, Director Emeritus, or member of any advisory board
established by the Board of Directors. Any individual automatically becoming an
Honorary Director or appointed an Honorary Director, Director Emeritus, or
member of an advisory board as provided by this Section 3.8 may be compensated
as provided in Section 3.7, but such individual may not vote at any meeting of
the Board of Directors or be counted in determining a quorum as provided in
Section 5.5 and shall not have any responsibility or be subject to any liability
imposed upon a Director, or otherwise be deemed a Director.
4
<PAGE>
ARTICLE FOUR
COMMITTEES
4.1 Executive Committee.
(a) The Board of Directors may, by resolution adopted by a
majority of the entire Board, designate an Executive Committee consisting of one
or more Directors. Each Executive Committee member shall hold office until the
first meeting of the Board of Directors after the annual meeting of shareholders
and until the member's successor is elected and qualified, or until the member's
death, resignation or removal, or until the member shall cease to be a Director.
(b) During the intervals between the meetings of the Board of
Directors, the Executive Committee may exercise all the authority of the Board
of Directors; provided, however, that the Executive Committee shall not have the
power to amend or repeal any resolution of the Board of Directors that by its
terms shall not be subject to amendment or repeal by the Executive Committee,
and the Executive Committee shall not have the authority of the Board of
Directors in reference to (i) the amendment of the Articles of Incorporation or
bylaws of the corporation; (ii) the adoption of a plan of merger or
consolidation; (iii) the sale, lease, exchange or other disposition of all or
substantially all the property and assets of the corporation; or (iv) a
voluntary dissolution of the corporation or the revocation of any such voluntary
dissolution.
(c) The Executive Committee shall meet from time to time on the
call of the Chairman of the Board or the President or of any two or more members
of the Executive Committee. Meetings of the Executive Committee may be held at
such place or places, within or without the State of Georgia, as the Executive
Committee shall determine or as may be specified or fixed in the respective
notices or waivers of such meetings. The Executive Committee may fix its own
rules of procedure, including provision for notice of its meetings. It shall
keep a record of its proceedings and shall report these proceedings to the Board
of Directors at the meeting thereof held next after they have been taken, and
all such proceedings shall be subject to revision or alteration by the Board of
Directors except to the extent that action shall have been taken pursuant to or
in reliance upon such proceedings prior to any such revision or alteration.
(d) The Executive Committee shall act by majority vote of its
members; provided, however, that contracts or transactions of and by the
corporation in which officers or Directors of the corporation are interested
shall require the affirmative vote of a majority of the disinterested members of
the Executive Committee at a meeting of the Executive Committee at which the
material facts as to the interest and as to the contract or transaction are
disclosed or known to the members of the Executive Committee prior to the vote.
(e) Members of the Executive Committee may participate in
committee proceedings by means of conference telephone or similar communications
equipment by means of which all
5
<PAGE>
persons participating in the proceedings can hear each other, and such
participation shall constitute presence in person at such proceedings.
(f) The Board of Directors, by resolution adopted in accordance
with paragraph (a) of this section, may designate one or more Directors as
alternate members of the Executive Committee who may act in the place and stead
of any absent member or members at any meeting of said committee.
4.2 Other Committees. The Board of Directors, by resolution adopted by a
majority of the entire Board, may designate one or more additional committees,
each committee to consist of one or more of the Directors of the corporation,
which shall have such name or names and shall have and may exercise such powers
of the Board of Directors, except the powers denied to the Executive Committee,
as may be determined from time to time by the Board of Directors. Such
committees shall provide for their own rules of procedure, subject to the same
restrictions thereon as provided above for the Executive Committee.
4.3 Removal. The Board of Directors shall have power at any time to
remove any member of any committee, with or without cause, and to fill vacancies
in and to dissolve any such committee.
ARTICLE FIVE
MEETINGS OF THE BOARD OF DIRECTORS
5.1 Time and Place. Meetings of the Board of Directors may be held at any
place either within or without the State of Georgia.
5.2 Regular Meetings. Regular meetings of the Board of Directors may be
held without notice at such time and place, within or without the State of
Georgia, as shall be determined by the Board of Directors from time to time.
5.3 Special Meetings. Special meetings of the Board of Directors may be
called by the Chairman of the Board or the President on not less than one day's
notice by mail, telegram, cablegram, personal delivery, telephone, telefax, or
other commonly accepted means of communication to each Director and shall be
called by the Chairman of the Board or the President in like manner and on like
notice on the written request of any two or more Directors. Any such special
meeting shall be held at such time and place, within or without the State of
Georgia, as shall be stated in the notice of the meeting.
5.4 Content and Waiver of Notice. No notice of any meeting of the Board
of Directors need state the purposes thereof. Notice of any meeting may be
waived by an instrument in writing executed before or after the meeting.
Attendance in person at any such meeting shall constitute a waiver of notice
thereof unless the Director at the beginning of the meeting (or promptly upon
his
6
<PAGE>
or her arrival) objects to holding the meeting or transacting business at the
meeting and does not thereafter vote for or assent to action taken at the
meeting.
5.5 Quorum; Participation by Telephone. At all meetings of the Board of
Directors, the presence of a majority of the authorized number of Directors
shall be necessary and sufficient to constitute a quorum for the transaction of
business. Directors may participate in any meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by means of such communications equipment shall constitute the presence in
person at such meeting. Except as may be otherwise specifically provided by law,
the Articles of Incorporation or these bylaws, all resolutions adopted and all
business transacted by the Board of Directors shall require the affirmative vote
of a majority of the Directors present at the meeting. In the absence of a
quorum, a majority of the Directors present at any meeting may adjourn the
meeting from time to time until a quorum is present. Notice of any adjourned
meeting need only be given by announcement at the meeting at which the
adjournment is taken.
5.6 Action in Lieu of Meeting. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting if a written consent thereto is signed by all members
of the Board of Directors or of such committee, as the case may be, and such
written consent is filed with the minutes of the proceedings of the Board of
Directors and upon compliance with any further requirements of law pertaining to
such consents.
5.7 Interested Directors and Officers. An interested Director or officer
is one who is a party to a contract or transaction with the corporation or who
is an officer or director of, or has a financial interest in, another
corporation, partnership or association which is a party to a contract or
transaction with the corporation. Contracts and transactions between the
corporation and one or more interested Directors or officers shall not be void
or voidable solely because of the involvement or vote of such interested persons
as long as (a) the contract or transaction is approved in good faith by the
Board of Directors or appropriate committee by the affirmative vote of a
majority of disinterested Directors, even if the disinterested Directors be less
than a quorum, at a meeting of the Board or committee at which the material
facts as to the interested person or persons and the contract or transaction are
disclosed or known to the Board or committee prior to the vote; or (b) the
contract or transaction is approved in good faith by the shareholders after the
material facts as to the interested person or persons and the contract or
transaction have been disclosed to them; or (c) the contract or transaction is
fair as to the corporation as of the time it is authorized, approved or ratified
by the Board, committee or shareholders. Interested Directors may be counted in
determining the presence of a quorum at a meeting of the Board or committee
which authorizes the contract or transaction.
7
<PAGE>
ARTICLE SIX
OFFICERS, AGENTS AND EMPLOYEES
6.1 General Provisions. The officers of the corporation shall be a
President and a Secretary, and may include a Treasurer, Chairman of the Board,
one or more Vice Presidents, one or more Assistant Secretaries, and one or more
Assistant Treasurers. The officers shall be elected by the Board of Directors at
the first meeting of the Board of Directors after the annual meeting of the
shareholders in each year or shall be appointed as provided in these bylaws. The
Board of Directors may elect other officers, agents and employees, who shall
have such authority and perform such duties as may be prescribed by the Board of
Directors. All officers shall hold office until the meeting of the Board of
Directors following the next annual meeting of the shareholders after their
election or appointment and until their successors shall have been elected or
appointed and shall have qualified. Any two or more offices may be held by the
same person. Any officer, agent or employee of the corporation may be removed by
the Board of Directors with or without cause. Removal without cause shall be
without prejudice to such person's contract rights, if any, but the election or
appointment of any person as an officer, agent or employee of the corporation
shall not of itself create contract rights. The compensation of officers, agents
and employees elected by the Board of Directors shall be fixed by the Board of
Directors or by a committee thereof, and this power may also be delegated to any
officer, agent or employee as to persons under his or her direction or control.
The Board of Directors may require any officer, agent or employee to give
security for the faithful performance of his or her duties.
6.2 Powers and Duties of the Chairman of the Board and the President. The
powers and duties of the Chairman of the Board and the President, subject to the
supervision and control of the Board of Directors, shall be those usually
appertaining to their respective offices and whatever other powers and duties
are prescribed by these bylaws or by the Board of Directors.
(a) The Chairman of the Board shall preside at all meetings of
the Board of Directors and at all meetings of the shareholders. The Chairman of
the Board shall perform such other duties as the Board of Directors may from
time to time direct, but shall not participate in any major policy-making
functions of the corporation other than in his or her capacity as a Director.
The Vice-Chairman shall act as Chairman of the Board of Directors in the absence
of the Chairman unless another Director is elected Chairman.
(b) The President shall, unless otherwise provided by the Board
of Directors, be the chief executive officer of the corporation. The President
shall have general charge of the business and affairs of the corporation and
shall keep the Board of Directors fully advised. The President shall employ and
discharge employees and agents of the corporation, except such as shall be
elected by the Board of Directors, and he or she may delegate these powers. The
President shall have such powers and perform such duties as generally pertain to
the office of the President, as well as such further powers and duties as may be
prescribed by the Board of Directors. The President may vote the shares or other
securities of any other domestic or foreign corporation of any type or kind
which may at any time be owned by the corporation, may execute any shareholders'
or other consents in
8
<PAGE>
respect thereof and may in his or her discretion delegate such powers by
executing proxies, or otherwise, on behalf of the corporation. The Board of
Directors, by resolution from time to time, may confer like powers upon any
other person or persons.
6.3 Powers and Duties of Vice Presidents. Each Vice President shall have
such powers and perform such duties as the Board of Directors or the President
may prescribe and shall perform such other duties as may be prescribed by these
bylaws. In the absence or inability to act of the President, unless the Board of
Directors shall otherwise provide, the Vice President who has served in that
capacity for the longest time and who shall be present and able to act, shall
perform all duties and may exercise any of the powers of the President. The
performance of any such duty by a Vice President shall be conclusive evidence of
his or her power to act.
6.4 Powers and Duties of the Secretary. The Secretary shall have charge
of the minutes of all proceedings of the shareholders and of the Board of
Directors and shall be responsible for the taking and maintenance of the minutes
of all their meetings at which he or she is present. Except as otherwise
provided by these bylaws, the Secretary shall attend to the giving of all
notices to shareholders and Directors. He or she shall have charge of the seal
of the corporation, shall attend to its use on all documents the execution of
which on behalf of the corporation under its seal is duly authorized and shall
attest the same by his or her signature whenever required. The Secretary shall
have charge of the record of shareholders of the corporation, of all written
requests by shareholders that notices be mailed to them at an address other than
their addresses on the record of shareholders, and of such other books and
papers as the Board of Directors may direct. Subject to the control of the Board
of Directors, the Secretary shall have all such powers and duties as generally
are incident to the position of Secretary or as may be assigned to the Secretary
by the President or the Board of Directors.
6.5 Powers and Duties of the Treasurer. The Treasurer shall have charge
of all funds and securities of the corporation, shall endorse the same for
deposit or collection when necessary and deposit the same to the credit of the
corporation in such banks or depositaries as the Board of Directors may
authorize. The Treasurer may endorse all commercial documents requiring
endorsements for or on behalf of the corporation and may sign all receipts and
all commercial documents requiring endorsements for or on behalf of the
corporation and may sign all receipts and vouchers for payments made to the
corporation. The Treasurer shall have all such powers and duties as generally
are incident to the position of Treasurer or as may be assigned to the Treasurer
by the President or by the Board of Directors.
6.6 Appointment, Powers and Duties of Assistant Secretaries. Assistant
Secretaries may be appointed by the President or elected by the Board of
Directors. In the absence or inability of the Secretary to act, any Assistant
Secretary may perform all the duties and exercise all the powers of the
Secretary. The performance of any such duty shall be conclusive evidence of the
Assistant Secretary's power to act. An Assistant Secretary shall also perform
such other duties as the Secretary or the Board of Directors may assign to him
or her.
9
<PAGE>
6.7 Appointment, Powers and Duties of Assistant Treasurers. Assistant
Treasurers may be appointed by the President or elected by the Board of
Directors. In the absence or inability of the Treasurer to act, an Assistant
Treasurer may perform all the duties and exercise all the powers of the
Treasurer. The performance of any such duty shall be conclusive evidence of the
Assistant Treasurer's power to act. An Assistant Treasurer shall also perform
such other duties as the Treasurer or the Board of Directors may assign to him
or her.
6.8 Delegation of Duties. In case of the absence of any officer of the
corporation, or for any other reason that the Board of Directors may deem
sufficient, the Board of Directors (or in the case of Assistant Secretaries or
Assistant Treasurers only, the President) may confer for the time being the
powers and duties, or any of them, of such officer upon any other officer or
elect or appoint any new officer to fill a vacancy created by death,
resignation, retirement or termination of any officer. In such latter event such
new officer shall serve until the next annual election of officers.
ARTICLE SEVEN
CAPITAL STOCK
7.1 Certificates.
(a) The interest of each shareholder shall be evidenced by a
certificate or certificates representing shares of the corporation which shall
be in such form as the Board of Directors may from time to time adopt and shall
be numbered and shall be entered in the books of the corporation as they are
issued. Each certificate representing shares shall set forth upon the face
thereof the following:
(i) the name of this corporation;
(ii) that the corporation is organized under the laws of
the State of Georgia;
(iii) the name or names of the person or persons to whom the
certificate is issued;
(iv) the number and class of shares, and the designation of
the series, if any, which the certificate represents;
and
(v) if any shares represented by the certificate are
nonvoting shares, a statement or notation to that
effect; and, if the shares represented by the
certificate are subordinate to shares of any other
class or series with respect to dividends or amounts
payable on liquidation, the certificate shall further
set forth on either the face or back thereof a clear
and concise statement to that effect.
10
<PAGE>
(b) Each certificate shall be signed by the President or a Vice
President and the Secretary or an Assistant Secretary and may be sealed with the
seal of the corporation or a facsimile thereof. If a certificate is
countersigned by a transfer agent or registered by a registrar, other than the
corporation itself or an employee of the corporation, the signature of any such
officer of the corporation may be a facsimile. In case any officer or officers
who shall have signed, or whose facsimile signature or signatures shall have
been used on, any such certificate or certificates shall cease to be such
officer or officers of the corporation, whether because of death, resignation or
otherwise, before such certificate or certificates shall have been delivered by
the corporation, such certificate or certificates may nevertheless be delivered
as though the person or persons who signed such certificate or certificates or
whose facsimile signatures shall have been used thereon had not ceased to be
such officer or officers.
7.2 Shareholder List. The corporation shall keep or cause to be kept a
record of the shareholders of the corporation which readily shows, in
alphabetical order or by alphabetical index, and by classes or series of stock,
if any, the names of the shareholders entitled to vote, with the address of and
the number of shares held by each. Said record shall be presented and kept open
at all meetings of the shareholders.
7.3 Transfer of Shares. Transfers of stock shall be made on the books of
the corporation only by the person named in the certificate, or by power of
attorney lawfully constituted in writing, and upon surrender of the certificate,
or in the case of a certificate alleged to have been lost, stolen or destroyed,
upon compliance with the provisions of Section 7.7 of these bylaws.
7.4 Record Dates. For the purpose of determining shareholders entitled to
notice of or to vote at any meeting of shareholders or any adjournment thereof,
or entitled to receive payment of any dividend, or in order to make a
determination of shareholders for any other proper purpose, the Board of
Directors may fix in advance a date as the record date for any such
determination of shareholders, such date to be not more than seventy days and,
in case of a meeting of shareholders, not less than ten days, prior to the date
on which the particular action requiring such determination of shareholders is
to be taken.
7.5 Registered Owner. The corporation shall be entitled to treat the
holder of record of any share of stock of the corporation as the person entitled
to vote such share, to receive any dividend or other distribution with respect
to such share, and for all other purposes and accordingly shall not be bound to
recognize any equitable or other claim or interest in such share on the part of
any other person, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
7.6 Transfer Agent and Registrars. The Board of Directors may appoint one
or more transfer agents and one or more registrars and may require each stock
certificate to bear the signature or signatures of a transfer agent or a
registrar or both.
11
<PAGE>
7.7 Lost Certificates. Any person claiming a certificate of stock to be
lost, stolen or destroyed shall make an affidavit or affirmation of the fact in
such manner as the Board of Directors may require and, if the Directors so
require, shall give the corporation a bond of indemnity in form and amount and
with one or more sureties satisfactory to the Board of Directors, whereupon an
appropriate new certificate may be issued in lieu of the certificate alleged to
have been lost, stolen or destroyed.
7.8 Fractional Shares or Scrip. The corporation may, when and if
authorized so to do by its Board of Directors, issue certificates for fractional
shares or scrip in order to effect share transfers, share distributions or
reclassifications, mergers, consolidations or reorganizations. Holders of
fractional shares shall be entitled, in proportion to their fractional holdings,
to exercise voting rights, receive dividends and participate in any of the
assets of the corporation in the event of liquidation. Holders of scrip shall
not, unless expressly authorized by the Board of Directors, be entitled to
exercise any rights of a shareholder of the corporation, including voting
rights, dividend rights or the right to participate in any assets of the
corporation in the event of liquidation. In lieu of issuing fractional shares or
scrip, the corporation may pay in cash the fair value of fractional interests as
determined by the Board of Directors; and the Board of Directors may adopt
resolutions regarding rights with respect to fractional shares or scrip as it
may deem appropriate, including without limitation the right for persons
entitled to receive fractional shares to sell such fractional shares or purchase
such additional fractional shares as may be needed to acquire one full share, or
sell such fractional shares or scrip for the account of such persons.
ARTICLE EIGHT
BOOKS AND RECORDS; SEAL; ANNUAL STATEMENTS
8.1 Inspection of Books and Records.
(a) A shareholder of record shall be entitled to the inspection
rights with respect to the corporation's records set forth in O.C.G.A. Section
14-2-1602(b), subject to all of the terms and conditions set forth therein and
in this Article Eight. A shareholder of record of at least two percent (2%) of
the outstanding shares of the corporation shall be entitled to the inspection
rights set forth in O.C.G.A. Section 14-2-1602(d), subject to the terms and
conditions therein and in this Article Eight. The records of the corporation are
confidential to the corporation and, except to the extent set forth herein,
shall not be disclosed to any party, except as provided by law.
(b) A shareholder may inspect and copy the records described in
the immediately preceding paragraph only if (i) his or her demand is made in
good faith and for a proper purpose that is reasonably relevant to his or her
legitimate interest as a shareholder; (ii) the shareholder describes with
reasonable particularity his or her purpose and the records he or she desires to
inspect; (iii) the records are directly connected with the stated purpose; and
(iv) the records are to be used only for that purpose.
12
<PAGE>
(c) If the Secretary or a majority of the corporation's Board of
Directors or Executive Committee members find that the request is proper, the
Secretary shall promptly notify the shareholder of the time and place at which
the inspection may be conducted.
(d) If said request is found by the Secretary, the Board of
Directors or the Executive Committee to be improper, the Secretary shall so
notify the requesting shareholder on or prior to the date on which the
shareholder requested to conduct the inspection. The Secretary shall specify in
said notice the basis for the rejection of the shareholder's request (which may
include prior action or conduct of the shareholder).
(e) The Secretary, the Board of Directors and the Executive
Committee shall at all times be entitled to rely on the corporate records in
making any determination hereunder.
8.2 Seal. The corporate seal shall be in such form as the Board of
Directors may from time to time determine. In the event it is inconvenient to
use such a seal at any time, the signature of the corporation followed by the
word "Seal" enclosed in parentheses or scroll shall be deemed the seal of the
corporation.
8.3 Annual Statements. Not later than four months after the close of each
fiscal year, and in any case prior to the next annual meeting of shareholders,
the corporation shall prepare:
(a) A balance sheet showing in reasonable detail the financial
condition of the corporation as of the close of its fiscal year, and
(b) A profit and loss statement showing the results of its
operations during its fiscal year. Upon written request, the corporation
promptly shall mail to any shareholder of record a copy of its most recent
balance sheet and profit and loss statement.
ARTICLE NINE
INDEMNIFICATION
9.1 Authority to Indemnify. The corporation shall indemnify or obligate
itself to indemnify an individual made a party to a proceeding because he or she
is or was a Director, officer, employee or agent of the corporation (or was
serving at the request of the corporation as a director, officer or employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise) for reasonable expenses, judgments, fines, penalties and amounts
paid in settlement (including attorneys' fees), incurred in connection with the
proceeding if the individual acted in manner he or she believed in good faith to
be in or not opposed to the best interests of the corporation and, in the case
of any criminal proceeding, he or she had no reasonable cause to believe his or
her conduct was unlawful. The termination of a proceeding by judgment, order,
settlement, or conviction, or upon a plea of
13
<PAGE>
nolo contendere or its equivalent is not, of itself, determinative that the
Director, officer, employee or agent did not meet the standard of conduct set
forth above. Indemnification permitted under this action in connection with a
proceeding by or in the right of the corporation is limited to reasonable
expenses incurred in connection with the proceeding.
9.2 Mandatory Indemnification. To the extent that a Director, officer,
employee or agent of the corporation has been successful, on the merits or
otherwise, in the defense of any proceeding to which he or she was a party, or
in defense of any claim, issue, or matter therein, because he or she is or was a
Director, officer, employee or agent of the corporation, the corporation shall
indemnify the Director, employee or agent against reasonable expenses incurred
by him or her in connection therewith.
9.3 Advance for Expenses. The corporation shall pay for or reimburse the
reasonable expenses incurred by a Director, officer, employee or agent of the
corporation who is a party to a proceeding in advance of final disposition of
the proceeding if (a) he or she furnishes the corporation written affirmation of
his or her good faith belief that he or she has met the standard of conduct set
forth in Section 9.1 of this section, and (b) he or she furnishes the
corporation a written undertaking, executed personally or on his or her behalf,
to repay any advances if it is ultimately determined that he or she is not
entitled to indemnification. The undertaking required by this section must be an
unlimited general obligation but need not be secured and may be accepted without
reference to financial ability to make repayment.
9.4 Court-ordered Indemnification and Advances for Expenses. A Director,
officer, employee or agent of the corporation who is a party to a proceeding may
apply for indemnification or advances for expenses to the court conducting the
proceeding or to another court of competent jurisdiction.
9.5 Determination of Indemnification. Except as provided in Section 9.2
and except as may be ordered by the court, the corporation may not indemnify a
Director, officer, employee or agent under Section 9.1 unless authorized
thereunder and a determination has been made in the specific case that
indemnification of the Director, officer, employee or agent is permissible in
the circumstances because he or she has met the standard of conduct set forth in
Section 9.1. The determination shall be made:
(a) By the Board of Directors by majority vote of a quorum
consisting of Directors not at the time parties to the proceedings;
(b) If a quorum cannot be obtained, by majority vote of a
committee duly designated by the Board of Directors (in which designation
directors who are parties may participate), consisting solely of two or more
Directors not at the time parties to the proceeding;
14
<PAGE>
(c) By special legal counsel:
(i) Selected by the Board of Directors or its committee in
the manner prescribed in paragraph (a) or (b) of this
section;
or
(ii) If a quorum of the Board of Directors cannot be
obtained and a committee cannot be designated, selected
by majority vote of the full Board of Directors (in
which selection Directors who are parties may
participate); or
(d) By the shareholders, but shares owned by or voted under the
control of Directors who are at the time parties to the proceeding may not be
voted on the determination.
9.6 Authorization of Indemnification. Authorization of indemnification or
an obligation to indemnify and evaluation as the reasonableness of expenses
shall be made in the same manner as the determination that indemnification is
permissible, except that if the determination is made by special legal counsel,
authorization of indemnification and evaluation as to reasonableness of expenses
shall be made by those entitled under subsection (c) of Section 9.5 to select
counsel.
9.7 Other Rights. The indemnification and advancement of expenses
provided by or granted pursuant to this Article Nine shall not be deemed
exclusive of any other rights, in respect of indemnification or otherwise, to
which those seeking indemnification or advancement of expenses may be entitled
under any bylaw, resolution, agreement or contract either specifically or in
general terms approved by the affirmative vote of the holders of a majority of
the shares entitled to vote thereon taken at a meeting the notice of which
specified that such bylaw, resolution or agreement would be placed before the
stockholders, both as to action by a Director, trustee, officer, employee or
agent in his or her official capacity and as to action in another capacity while
holding such office or position; except that no such other rights, in respect to
indemnification or otherwise, may be provided or granted to a Director, trustee,
officer, employee, or agent pursuant to this Section 9.7 by the corporation for
liability for (a) any appropriation, in violation of his or her duties, of any
business opportunity of the corporation; (b) acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation of law; (c) the
types of liability set forth in Section 14-2-832 of the Georgia Business
Corporation Code dealing with illegal or unauthorized distributions of corporate
assets, whether as dividends or in liquidation of the corporation or otherwise;
or (d) any transaction from which the Director derived an improper material
tangible personal benefit.
9.8 Insurance. The corporation may purchase and maintain insurance on
behalf of an individual who is or was a Director, officer, employee, or agent of
the corporation or who, while a Director, officer, employee, or agent of the
corporation, is or was serving at the request of the corporation as a director,
officer, partner, trustee, employee, or agent of another foreign or domestic
corporation, partnership, joint venture, trust, employee benefit plan, or other
enterprise against liability asserted against or incurred by him or her in that
capacity or arising from his or her status
15
<PAGE>
as a Director, officer, employee, or agent whether or not the corporation would
have power to indemnify him or her against the same liability under this Article
Nine.
9.9 Continuation of Expenses. The indemnification and advancement of
expenses provided by or granted pursuant to this Article Nine shall continue as
to a person who has ceased to be a Director, trustee, officer, employee, or
agent and shall inure to the benefit of the heirs, executors, and administrators
of such a person.
ARTICLE TEN
NOTICES: WAIVERS OF NOTICE
10.1 Notices. Except as otherwise specifically provided in these bylaws,
whenever under the provisions of these bylaws notice is required to be given to
any shareholder, Director or officer, it shall not be construed to mean personal
notice, but such notice may be given by personal notice, by telegram or
cablegram, or by mail by depositing the same in the post office or letter box in
a postage prepaid sealed wrapper, addressed to such shareholder, Director or
officer at such address as appears on the books of the corporation, and such
notice shall be deemed to be given at the time when the same shall be thus sent
or mailed.
10.2 Waivers of Notice. Except as otherwise provided in these bylaws, when
any notice is required to be given by law, by the Articles of Incorporation or
by these bylaws, a written waiver thereof, signed by the person entitled to
notice, whether before or after the time stated therein, shall be deemed
equivalent to notice. In the case of a shareholder, such waiver of notice may be
signed by the shareholder's attorney or proxy duly appointed in writing.
ARTICLE ELEVEN
BUSINESS COMBINATION
The requirements of Article 11, Part 2 of the Georgia Business Corporation
Code shall be applicable to the corporation.
ARTICLE TWELVE
FAIR PRICING
The requirements of Article 11, Part 3 of the Georgia Business Corporation
Code shall be applicable to the corporation.
16
<PAGE>
ARTICLE THIRTEEN
EMERGENCY POWERS
13.1 Bylaws. The Board of Directors may adopt emergency bylaws, subject
to repeal or change by action of the shareholders, which shall, notwithstanding
any provision of law, the Articles of Incorporation or these Bylaws, be
operative during any emergency in the conduct of the business of the corporation
resulting from an attack on the United States or on a locality in which the
corporation conducts its business or customarily holds meeting of its Board of
Directors or its shareholders, or during any nuclear or atomic disaster, or
during the existence of any catastrophe, or other similar emergency condition,
as a result of which a quorum of the Board of Directors or a standing committee
thereof cannot readily be convened for action. The emergency bylaws may make any
provision that may be practical and necessary for the circumstances of the
emergency.
13.2 Lines of Succession. The Board of Directors, either before or during
any such emergency, may provide, and from time to time modify, lines of
succession in the event that during such an emergency any or all officers or
agents of the corporation shall for any reason be rendered incapable of
discharging their duties.
13.3 Head Office. The Board of Directors, either before or during any
such emergency, may (effective during the emergency) change the head office or
designate several alternative head offices or regional offices, or authorize the
officers to do so.
13.4 Period of Effectiveness. To the extent not inconsistent with any
emergency bylaws so adopted, these bylaws shall remain in effect during any such
emergency and upon its termination, the emergency bylaws shall cease to be
operative.
13.5 Notices. Unless otherwise provided in emergency bylaws, notice of
any meeting of the Board of Directors during any such emergency may be given
only to such of the Directors as it may be feasible to reach at the time, and by
such means as may be feasible at the time, including publication, radio or
television.
13.6 Officers as Directors Pro Tempore. To the extent required to
constitute a quorum at any meeting of the Board of Directors during any such
emergency, the officers of the corporation who are present shall, unless
otherwise provided in emergency bylaws, be deemed, in order of rank and within
the same rank in order of seniority, Directors for such meeting.
13.7 Liability of Officers, Directors and Agents. No officer, Director,
agent or employee acting in accordance with any emergency bylaw shall be liable
except for willful misconduct. No officer, Director, agent or employee shall be
liable for any action taken by him or her in good faith in such an emergency in
furtherance of the ordinary business affairs of the corporation even though not
authorized by the bylaws then in effect.
17
<PAGE>
ARTICLE FOURTEEN
CHECKS, NOTES, DRAFTS, ETC.
Checks, notes, drafts, acceptances, bills of exchange and other orders or
obligations for the payment of money shall be signed by such officer or officers
or person or persons as the Board of Directors by resolution shall from time to
time designate.
ARTICLE FIFTEEN
AMENDMENTS
The bylaws of the corporation may be altered or amended and new bylaws may
be adopted by the shareholders at any annual or special meeting of the
shareholders or by the Board of Directors at any regular or special meeting of
the Board of Directors; provided, however, that, if such action is to be taken
at a meeting of the shareholders, notice of the general nature of the proposed
change in the bylaws shall be given in the notice of meeting. The shareholders
may provide by resolution that any bylaw provision repealed, amended, adopted,
or altered by them may not be repealed, amended, adopted or altered by the Board
of Directors. Except as otherwise provided in the Articles of Incorporation,
action by the shareholders with respect to bylaws shall be taken by an
affirmative vote of a majority of all shares entitled to elect Directors, and
action by the Board of Directors with respect to bylaws shall be taken by an
affirmative vote of a majority of all Directors then holding office.
18
<PAGE>
EXHIBIT 3.3
FEDERAL STOCK CHARTER
OF
DOUGLAS FEDERAL BANK, A FEDERAL SAVINGS BANK
Section 1. Corporate Title. The full corporate title of the savings bank is
"Douglas Federal Bank, a Federal Savings Bank."
Section 2. Home Office. The home office shall be located in Douglasville,
Georgia.
Section 3. Duration. The duration of the savings bank is perpetual.
Section 4. Purpose and Powers. The purpose of the savings bank is to pursue
any or all of the lawful objectives of a Federal savings bank
chartered under section 5 of the Home Owners' Loan Act and to
exercise all of the express, implied, and incidental powers
conferred thereby and by all acts amendatory thereof and
supplemental thereto, subject to the Constitution and laws of the
United States as they are now in effect, or as they may hereafter
be amendment, and subject to all lawful and applicable rules,
regulations, and orders of the Office of Thrift Supervision
("Office").
Section 5. Capital stock. The total number of shares of all classes of
capital stock that the savings bank has the authority to issue is
6,000,000, of which 5,000,000 shall be common stock of par value
of $1.00 per share and of which 1,000,000 shares shall be Class
"A" preferred stock of par value of $1.00 per share. The shares
may be issued from time to time as authorized by the board of
directors without further approval of shareholders, except as
otherwise provided in this Section 5 or to the extent that such
approval is required by governing law, rule or regulation. The
consideration for the issuance of the shares shall be paid in
full before their issuance and shall not be less than the value.
Neither promissory notes nor future services shall constitute
payment or part payment for the issuance of shares of the savings
bank. The consideration for the shares shall be cash, tangible or
intangible property (to the extent direct investment in such
property would be permitted), labor, or services actually
performed for the savings bank, or any combination of the
foregoing. In the absence of actual fraud in the transaction, the
value of such property, labor, or services, as determined by the
board of directors of the savings bank, shall be conclusive. Upon
payment of such consideration, such shares shall be deemed to be
fully paid and nonassessable. In the case of a stock dividend,
that part of the retained earnings of the savings bank that is
transferred to common stock or paid-in capital accounts upon the
issuance of shares as a stock dividend shall be deemed to be the
consideration for their issuance.
<PAGE>
Except for shares issued in the initial organization of the savings
bank or in connection with the conversion of the savings bank from the
mutual to the stock form of capitalization, no shares of capital stock
(including shares issuable upon conversion, exchange or exercise of
other securities) shall be issued, directly or indirectly, to
officers, directors, or controlling persons of the savings bank other
than as part of a general public offering or as qualifying shares to a
director, unless their issuance or the plan under which they would be
issued has been approved by a majority of the total votes eligible to
be cast at a legal meeting. Nothing contained in this Section 5 (or in
any supplementary sections hereto) shall entitle the holders of any
class of a series of capital stock to vote as a separate class or
series or to more than one vote per share, except as to the cumulation
of votes for the election of directors, unless the charter otherwise
provides that there shall be no such cumulative voting; provided, that
this restriction on voting separately by class or series shall not
apply:
(i) To any provision which would authorize the holders of preferred
stock, voting as a class or series, to elect some members of the board
of directors, less than a majority thereof, in the event of default in
the payment of dividends on any class or series of preferred stock;
(ii) To any provision that would require the holders of preferred
stock, voting as a class or series, to approve the merger or
consolidation of the savings bank with another corporation or the
sale, lease, or conveyance (other than by mortgage or pledge) of
properties or business in exchange for securities of a corporation
other than the savings bank if the preferred stock is exchanged for
securities of such other corporation; provided, that no provision may
require such approval for transactions undertaken with the assistance
or pursuant to the direction of the Office or the Federal Deposit
Insurance Corporation;
(iii) To any amendment which would adversely change the specific terms
of any class or series of capital stock as set forth in this Section 5
(or in any supplementary sections hereto), including any amendment
which would create or enlarge any class or series ranking prior
thereto in rights and preferences. An amendment which increases the
number of authorized shares of any class or series of capital stock,
or substitutes the surviving association in a merger or consolidation
for the savings bank, shall not be considered to be such an adverse
change. A description of the different classes and series (if any) of
the savings bank's capital stock and a statement of the designations,
and the relative rights, preferences, and limitations of the shares of
each class of and series (if any) of capital stock are as follows:
A. Common stock. Except as provided in this Section 5 (or in any
supplementary sections thereto) the holders of the common stock shall
exclusively possess all voting power. Each holder of shares of the
common stock shall be entitled to one vote for each share held by each
holder, except as to the cumulation of votes for the election of
directors,
<PAGE>
unless the charter otherwise provides that there shall be no such
cumulative voting. Whenever there shall have been paid, or declared
and set aside for payment, to the holders of the outstanding shares of
any class of stock having preference over the common stock as to the
payment of dividends, the full amount of dividends and of sinking
fund, retirement fund, or other retirement payments, if any, to which
such holders are respectively entitled in preference to the common
stock, then dividends may be paid on the common stock and on any class
or series of stock entitled to participate therewith as to dividends
out of any assets legally available for the payment of dividends. In
the event of any liquidation, dissolution, or winding up of the
savings bank, the holders of the common stock (and the holders of any
class or series of stock entitled to participate with the common stock
in the distribution of assets) shall be entitled to receive, in cash
or in kind, the assets of the savings bank available for distribution
remaining after: (i) payment or provision for payment of the savings
bank's debts and liabilities; (ii) distributions or provision for
distributions in settlement of its liquidation account; and (iii)
distributions or provision for distributions to holders of any class
or series of stock having preference over the common stock in the
liquidation, dissolution, or winding up of the savings bank. Each
share of common stock shall have the same relative rights as and be
identical in all respects with all the other shares of common stock.
B. Preferred stock. The shares of any class of the savings bank's
preferred stock may be divided into and issued in series, with each
series separately designated so as to distinguish the shares thereof
from the shares of all other series and classes. The terms of each
series shall be set forth in a supplementary section to the charter.
All shares of the same class shall be identical except as to the
following relative rights and preferences, as to which there may be
variations between different series:
(a) The distinctive serial designation and the number of shares
constituting such series;
(b) The dividend rate or the amount of dividends to be paid on the
shares of such series, whether dividends shall be cumulative and, if
so, from which date(s), the payment date(s) for dividends, and the
participating or other special rights, if any, with respect to
dividends;
(c) The voting powers, full or limited, if any, of shares of such
series;
(d) Whether the shares of such series shall be redeemable and, if so,
the price(s) at which, and the terms and conditions on which, such
shares may be redeemed;
(e) The amount(s) payable upon the shares of such series in the event
of voluntary or involuntary liquidation, dissolution or winding up of
the savings bank;
(f) Whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase
or redemption of such shares, and if so entitled, the amount of such
fund and the manner of
<PAGE>
its application, including the price(s) at which such shares may be
redeemed or purchased through the application of such fund;
(g) Whether the shares of such series shall be convertible into, or
exchangeable for, shares of any other class or classes of stock of
the savings bank and, if so, the conversion price(s) or the rate(s)
of exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and
conditions of such conversion or exchange.
(h) The price or other consideration for which the shares of such
series shall be issued; and
(i) Whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of
serial preferred stock and whether such shares may be reissued as
shares of the same or any other series of serial preferred stock.
Each share of each series of serial preferred stock shall have the
same relative rights as and be identical in all respects with all the
other shares of the same series.
The board of directors shall have authority to divide, by the
adoption of supplementary charter sections, any authorized class of
preferred stock into series, and, within the limitations set forth in
this section and the remainder of this charter, fix and determine the
relative rights and preferences of the shares of any series so
established. Prior to the issuance of any preferred shares of a
series established by a supplementary charter section adopted by the
board of directors, the savings bank shall file with the Secretary to
the Office a dated copy of that supplementary section of this charter
established and designating the series and fixing and determining the
relative rights and preferences thereof.
Section 6. Preemptive Rights. Holders of the capital stock of the savings bank
shall not be entitled to preemptive rights with respect to any shares
of the savings bank which may be issued.
Section 7. Directors. The savings bank shall be under the direction of a board
of directors. The authorized number of directors, as stated in the
savings bank's bylaws, shall not be fewer than five nor more than
fifteen except when a greater or lesser number is approved by the
Director of the Office, or his or her delegate.
Section 8. Certain Provisions Applicable for Five Years. Notwithstanding
anything contained in the savings bank's charter or bylaws to the
contrary, for a period of five years from the date of completion of
the conversion of the savings bank from mutual to stock form, the
following provisions shall apply:
(a) Beneficial Ownership Limitation. No person shall directly or
indirectly offer to acquire or acquire the beneficial ownership of
more than
<PAGE>
10 percent of any class of an equity security of the savings bank.
This limitation shall not apply to a transaction in which the savings
bank forms a holding company without change in the respective
beneficial ownership interests of its stockholders other than
pursuant to the exercise of any dissenter and appraisal rights, the
purchase of shares by underwriters in connection with a public
offering, or the purchase of shares by a tax-qualified employee stock
benefit plan which is exempt from the approval requirements under
Sec. 574.3(c)(1)(vi) of the Office's regulations. In the event shares
are acquired in violation of this section 8, all shares beneficially
owned by any person in excess of 10% shall be considered "excess
shares" and shall not be counted as shares entitled to vote and shall
not be voted by any person or counted as voting shares in connection
with any matters submitted to the stockholders for a vote.
For purposes of this section 8, the following definitions apply:
(1) The term "person" includes an individual, a group acting in
concert, a corporation, a partnership, an association, a joint stock
company, a trust, an unincorporated organization or similar company,
a syndicate or any other group formed for the purpose of acquiring,
holding or disposing of the equity securities of the savings bank.
(2) The term "offer" includes every offer to buy or otherwise
acquire, solicitation of an offer to sell, tender offer for, or
request or invitation for tenders of, a security or interest in a
security for value.
(3) The term "acquire" includes every type of acquisition,
whether effected by purchase, exchange, operation of law or
otherwise.
(4) The term "acting in concert" means (a) knowing participation
in a joint activity or conscious parallel action towards a common
goal whether or not pursuant to an express agreement, or (b) a
combination or pooling of voting or other interests in the securities
of an issuer for a common purpose pursuant to any contract,
understanding, relationship, agreement or other arrangements, whether
written or otherwise.
(b) Cumulative Voting Limitation. Stockholders shall not be
permitted to cumulate their votes for election of directors.
(c) Call for Special Meetings. Special meetings of stockholders
relating to changes in control of the savings bank or amendments to
its charter shall be called only upon direction of the board of
directors.
Section 9. Liquidation Account. Pursuant to the requirements of the Office's
regulations (12 C.F.R. Part 563b), the savings bank shall establish
and
<PAGE>
maintain a liquidation account for the benefit of its savings
account holders as of March 31, 1999 ("eligible savers"). In the
event of a complete liquidation of the savings bank, it shall comply
with such regulations with respect to the amount and the priorities
on liquidation of each of the savings bank's eligible savers'
inchoate interest in the liquidation account, to the extent it is
still in existence; provided, that an eligible saver's inchoate
interest shall not entitle such eligible saver to any voting rights
at meetings of the savings bank's stockholders.
Section 10. Amendment of Charter. Except as provided in Section 5, no amendment,
addition, alteration, change or repeal of this charter shall be
made, unless such is proposed by the board of directors of the
savings bank, approved by the shareholders by a majority of the
votes eligible to vote at a legal meeting, unless a higher vote is
otherwise required, and approved or pre-approved by the Office.
By: _________________________________
J. David Higgins, President
Attest: _________________________________
Patricia Owen, Secretary
Attest: _________________________________
Secretary of the Office of Thrift
Supervision
By: ________________________________
Director of the Office of Thrift
Supervision
Effective Date: ______________________
<PAGE>
BYLAWS OF DOUGLAS FEDERAL BANK,
A FEDERAL SAVINGS BANK
Article I - Home Office
The home office of the savings bank shall be at 8458 Campbellton Street,
Douglasville, Georgia 30134, in the County of Douglas, in the State of Georgia.
Article II - Shareholders
Section 1. Place of Meetings. All annual and special meetings of shareholders
shall be held at the home office of the savings bank or at such other convenient
place as the board of directors may determine.
Section 2. Annual Meeting. A meeting of the shareholders of the savings bank
for the election of directors and for the transaction of any other business of
the savings bank shall be held annually within 150 days after the end of the
savings bank's fiscal year on the 15th of April if not a legal holiday, and if a
legal holiday, then on the next day following which is not a legal holiday, at
10:00 a.m., or at such other date and time within such 150-day period as the
board of directors may determine.
Section 3. Special Meetings. Special meetings of the shareholders for any
purpose or purposes, unless otherwise prescribed by the regulations of the
Office of Thrift Supervision ("Office"), may be called at any time by the
chairman of the board, the president, or a majority of the board of directors,
and shall be called by the chairman of the board, the president, or the
secretary upon the written request of the holders of not less than one-tenth of
all of the outstanding capital stock of the savings bank entitled to vote at the
meeting. Such written request shall state the purpose or purposes of the meeting
and shall be delivered to the home office of the savings bank addressed to the
chairman of the board, the president, or the secretary.
Section 4. Conduct of Meetings. Annual and special meetings shall be conducted
in accordance with the most current edition of Robert's Rules of Order unless
otherwise prescribed by regulations of the Office or these bylaws or the board
of directors adopts another written procedure for the conduct of meetings. The
board of directors shall designate, when present, either the chairman of the
board or president to preside at such meetings.
Section 5. Notice of Meetings. Written notice stating the place, day, and hour
of the meeting and the purpose(s) for which the meeting is called shall be
delivered not fewer than 20 nor more than 50 days before the date of the
meeting, either personally or by mail, by or at the direction of the chairman of
the board, the president, or the secretary, or the directors calling the
meeting, to each shareholder of record entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in the mail,
addressed to the shareholder at the address as it appears on the stock transfer
books or records of the savings bank as of the record date prescribed in Section
6 of this Article
<PAGE>
II with postage prepaid. When any shareholders' meeting, either annual or
special, is adjourned for 30 days or more, notice of the adjourned meeting shall
be given as in the case of an original meeting. It shall not be necessary to
give any notice of the time and place of any meeting adjourned for less than 30
days or of the business to be transacted at the meeting, other than an
announcement at the meeting at which such adjournment is taken. Notwithstanding
the foregoing, as long as the savings bank is a wholly-owned subsidiary of a
holding company, there shall be no shareholder notice requirement.
Section 6. 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, or shareholders 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 shall fix in advance a date as the record date for any such
determination of shareholders. Such date in any case shall be not more than 60
days and, in case of a meeting of shareholders, not fewer than 10 days prior to
the date on which the particular action, requiring such determination of
shareholders, is to be taken. When a determination of shareholders entitled to
vote at any meeting of shareholders has been made as provided in this section,
such determination shall apply to any adjournment.
Section 7. Voting Lists. At least 20 days before each meeting of the
shareholders, the officer or agent having charge of the stock transfer books for
shares of the savings bank shall make a complete list of the shareholders of
record entitled to vote at such meeting, or any adjournment thereof, arranged in
alphabetical order, with the address and the number of shares held by each. This
list of shareholders shall be kept on file at the home office of the savings
bank and shall be subject to inspection by any shareholder of record or the
shareholders agent at any time during usual business hours for a period of 20
days prior to such meeting. Such list shall also be produced and kept open at
the time and place of the meeting and shall be subject to inspection by any
shareholder of record or any shareholders agent during the entire time of the
meeting. The original stock transfer book shall constitute prima facie evidence
of the shareholders entitled to examine such list or transfer books or to vote
at any meeting of shareholders. In lieu of making the shareholder list available
for inspection by shareholders as provided in the preceding paragraph, the board
of directors may elect to follow the procedures prescribed in (S) 552.6(d) of
the Office's regulations as now or hereafter in effect. Notwithstanding the
foregoing, as long as the savings bank is a wholly-owned subsidiary of a holding
company, there shall be no such voting list requirement.
Section 8. Quorum. A majority of the outstanding shares of the savings bank
entitled to vote, represented in person or by proxy, shall constitute a quorum
at a meeting of shareholders. If less than a majority of the outstanding shares
is represented at a meeting, a majority of the shares so represented may adjourn
the meeting from time to time without further notice. At such adjourned meeting
at which a quorum shall be present or represented, any business may be
transacted which might have been transacted at the meeting as originally
notified. The shareholders present at a duly organized meeting may continue to
transact business until adjournment, notwithstanding the withdrawal of enough
shareholders to constitute less than a quorum. If a quorum is present, the
2
<PAGE>
affirmative vote of the majority of the shares represented at the meeting and
entitled to vote on the subject matter shall be the act of the shareholders,
unless the vote of a greater number of shareholders voting together or voting by
classes is required by law or the charter. Directors, however, are elected by a
plurality of the votes cast at an election of directors.
Section 9. Proxies. At all meetings of shareholders, a shareholder may vote by
proxy executed in writing by the shareholder or by his or her duly authorized
attorney in fact. Proxies may be given telephonically or electronically as long
as file holder uses a procedure for verifying the identity of the shareholder.
Proxies solicited on behalf of the management shall be voted as directed by the
shareholder or, in the absence of such direction, as determined by a majority of
the board of directors. No proxy shall be valid more than eleven months from the
date of its execution except for a proxy coupled with an interest.
Section 10. Voting of Shares in the Name of Two or More Persons. When ownership
stands in the name of two or more persons, in the absence of written directions
to the savings bank to the contrary, at any meeting of the shareholders of the
savings bank any one or more of such shareholders may cast, in person or by
proxy, all votes to which such ownership is entitled. In the event an attempt is
made to cast conflicting votes, in person or by proxy, by the several persons in
whose names shares of stock stand, the vote or votes to which those persons are
entitled shall be cast as directed by a majority of those holding such and
present in person or by proxy at such meeting, but no votes shall be cast for
such stock if a majority cannot agree.
Section 11. Voting of Shares by Certain Holders. Shares standing in the name of
another corporation may be voted by any officer, agent, or proxy as the bylaws
of such corporation may prescribe, or, in the absence of such provision, as the
board of directors of such corporation may determine. Shares held by an
administrator, executor, guardian, or conservator may be voted by him or her,
either in person or by proxy, without a transfer of such shares into his or her
name. Shares standing in the name of a trustee may be voted by him or her,
either in person or by proxy, but no trustee shall be entitled to vote shares
held by him or her without a transfer of such shares into his or her name.
Shares held in trust in an IRA or Keogh Account, however, may by voted by the
savings bank if no other instructions are received. Shares standing in the name
of a receiver may be voted by such receiver, and shares held by or under the
control of a receiver may be voted by such receiver without the transfer into
his or her name if authority to do so is contained in an appropriate order of
the court or other public authority by which such receiver was appointed.
A shareholder whose shares are pledged shall be entitled to vote such shares
until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
Neither treasury shares of its own stock held by the savings bank nor shares
held by another corporation, if a majority of the shares entitled to vote for
the election of directors
3
<PAGE>
of such other corporation are held by the savings bank, shall be voted at any
meeting or counted in determining the total number of outstanding shares at any
given time for purposes of any meeting.
Section 12. Cumulative Voting. There shall be no cumulative voting, except as
provided for in the savings bank's charter.
Section 13. Inspectors of Election. In advance of any meeting of shareholders,
the board of directors may appoint any person other than nominees for office as
inspectors of election to act at such meeting or any adjournment. The number of
inspectors shall be either one or three. Any such appointment shall not be
altered at the meeting. If inspectors of election are not so appointed, the
chairman of the board or the president may, or on the request of not fewer than
10 percent of the votes represented at the meeting shall, make such appointment
at the meeting. If appointed at the meeting, the majority of the votes present
shall determine whether one or three inspectors are to be appointed. In case any
person appointed as inspector fails to appear or fails or refuses to act, the
vacancy may be filled by appointment by the board of directors in advance of the
meeting or at the meeting by the chairman of the board or the president.
Unless otherwise prescribed by regulations of the Office, the duties of such
inspectors shall include: determining the number of shares and the voting power
of each share, the shares represented at the meeting, the existence of a quorum,
and the authenticity, validity and effect of proxies; receiving votes, ballots,
or consents; heating and determining all challenges and questions in any way
arising in connection with the rights to vote; counting and tabulating all votes
or consents; determining the result; and such acts as may be proper to conduct
the election or vote with fairness to all shareholders.
Section 14. Nominating Committee. The board of directors shall act as a
nominating committee for selecting the management nominees for election as
directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the secretary at least 20 days prior to the date
of the annual meeting. Upon delivery, such nominations shall be posted in a
conspicuous place in each office of the savings bank. No nominations for
directors except those made by the nominating committee shall be voted upon at
the annual meeting unless other nominations by shareholders are made in writing
and delivered to the secretary of the savings bank at least five days prior to
the date of the annual meeting. Upon delivery, such nominations shall be posted
in a conspicuous place in each office of the savings bank. Ballots bearing the
names of all persons nominated by the nominating committee and by shareholders
shall be provided for use at the annual meeting. However, if the nominating
committee shall fail or refuse to act at least 20 days prior to the annual
meeting, nominations for directors may be made at the annual meeting by any
shareholder entitled to vote and shall be voted upon.
Section 15. New Business. Any new business to be taken up at the annual meeting
shall be stated in writing and filed with the secretary of the savings bank at
least five days before the date of the annual meeting, and all business so
stated, proposed, and filed shall
4
<PAGE>
be considered at the annual meeting, but no other proposal shall be acted upon
at the annual meeting. Any shareholder may make any other proposal at the annual
meeting and the same may be discussed and considered, but unless stated in
writing and filed with the secretary at least five days before the meeting, such
proposal shall be laid over for action at an adjourned, special, or annual
meeting of the shareholders taking place 30 days or more thereafter. This
provision shall not prevent the consideration and approval or disapproval at the
annual meeting of reports of officers, directors, and committees; but in
connection with such reports, no new business shall be acted upon at such annual
meeting unless stated and filed as herein provided.
Section 16. Informal Action by Shareholders. Any action required to be taken at
a meeting of the shareholders, or any other action which may be taken at a
meeting of shareholders, may be taken without a meeting if consent in writing,
setting forth the action so taken, shall be given by all of the shareholders
entitled to vote with respect to the subject matter.
Article III - Board of Directors
Section 1. General Powers. The business and affairs of the savings bank shall
be under the direction of its board of directors. The board of directors shall
annually elect a chairman of the board and a president from among its members
and shall designate, when present, either the chairman of the board or the
president to preside at its meetings.
Section 2. Number and Term. The board of directors shall consist of eight
members, and shall be divided into three classes as nearly equal in number as
possible. The members of each class shall be elected for a term of three years
and until their successors are elected and qualified. One class shall be elected
by ballot annually.
Section 3. Regular Meetings. A regular meeting of the board of directors shall
be held without other notice than this bylaw following the annual meeting of
shareholders. The board of directors may provide, by resolution, the time and
place, for the holding of additional regular meetings without other notice than
such resolution. Directors may participate in a meeting by means of a conference
telephone or similar communications device through which all persons
participating can hear each other at the same time. Participation by such means
shall constitute presence in person for all purposes.
Section 4. Qualification. Each director shall at all times be the beneficial
owner of not less than 100 shares of capital stock of the savings bank unless
the savings bank is a wholly owned subsidiary of a holding company.
Section 5. Special Meetings. Special meetings of the board of directors may be
called by or at the request of the chairman of the board, the president, or one-
third of the directors. The persons authorized to call special meetings of the
board of directors may fix any place, within the savings bank's normal lending
territory, as the place for holding any special meeting of the board of
directors called by such persons.
5
<PAGE>
Members of the board of directors may participate in special meetings by means
of conference telephone or similar communications equipment by which all persons
participating in the meeting can hear each other. Such participation shall
constitute presence in person for all purposes.
Section 6. Notice. Written notice of any special meeting shall be given to each
director at least 24 hours prior thereto when delivered personally or by
telegram or at least five days prior thereto when delivered by mail at the
address at which the director is most likely to be reached. Such notice shall be
deemed to be delivered when deposited in the mail so addressed, with postage
prepaid if mailed, when delivered to the telegraph company if sent by telegram,
or when the savings bank receives notice of delivery if electronically
transmitted. Any director may waive notice of any meeting by a writing filed
with the secretary. The attendance of 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 any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the board of directors need be
specified in the notice of waiver of notice of such meeting.
Section 7. Quorum. A majority of the number of directors fixed by Section 2 of
this Article III shall constitute a quorum for the transaction of business at
any meeting of the board of directors; but if less than such majority is present
at a meeting, a majority of the directors present may adjourn the meeting from
time to time. Notice of any adjourned meeting shall be given in the same manner
as prescribed by Section 5 of this Article III.
Section 8. Manner of Acting. The act of the majority of the directors present
at a meeting at which a quorum is present shall be the act of the board of
directors, unless a greater number is prescribed by regulation of the Office or
by these bylaws.
Section 9. Action Without a Meeting. Any action required or permitted to be
taken by the board of directors at a meeting may be taken without a meeting if a
consent in writing, setting forth the action so taken, shall be signed by all of
the directors.
Section 10. Resignation. Any director may resign at any time by sending a
written notice of such resignation to the home office of the savings bank
addressed to the chairman of the board or the president. Unless otherwise
specified, such resignation shall take effect upon receipt by the chairman of
the board or the president. More than three consecutive absences from regular
meetings of the board of directors, unless excused by resolution of the board of
directors, shall automatically constitute a resignation, effective when such
resignation is accepted by the board of directors.
Section 11. Vacancies. Any vacancy occurring on the board of directors may be
filled by the affirmative vote of a majority of the remaining directors although
less than a quorum of the board of directors. A director elected to fill a
vacancy shall be elected to serve only until the next election of directors by
the shareholders. Any directorship to be filled by reason of an increase in the
number of directors may be filled by election by the
6
<PAGE>
board of directors for a term of office continuing only until the next election
of directors by the shareholders.
Section 12. Compensation. Directors, as such, may receive a stated salary for
their services. By resolution of the board of directors, a reasonable fixed sum,
and reasonable expenses of attendance, if any, may be allowed for attendance at
each regular or special meeting of the board of directors. Members of either
standing or special committees may be allowed such compensation for attendance
at committee meetings as the board of directors may determine.
Section 13. Presumption of Assent. A director of the savings bank who is
present at a meeting of the board of directors at which action on any savings
bank matter is taken shall be presumed to have assented to the action taken
unless his or her dissent or abstention shall be entered in the minutes of the
meeting or unless he or she shall file a written dissent to such action with the
person acting as the secretary of the meeting before the adjournment thereof or
shall forward such dissent by registered mail to the secretary of the savings
bank within five days after the date a copy of the minutes of the meeting is
received. Such right to dissent shall not apply to a director who voted in favor
of such action.
Section 14. Removal of Directors. At a meeting of shareholders called expressly
for that purpose, any director may be removed only for cause by a vote of the
holders or a majority of the shares then entitled to vote at an election of
directors. Whenever the holders of the shares of any class are entitled to elect
one or more directors by the provisions of the charter or supplemental sections
thereto, the provisions of this section shall apply, in respect to the removal
of a director or directors so elected, to the vote of the holders of the
outstanding shares of that class and not to the vote of the outstanding shares
as a whole.
Article IV - Executive and Other Committees
Section 1. Appointment. The board of directors, by resolution adopted by a
majority of the full board, may designate the chief executive officer and two or
more of the other directors to constitute an executive committee. The
designation of any committee pursuant to this Article IV and the delegation of
authority shall not operate to relieve the board of directors, or any director,
of any responsibility imposed by law or regulation.
Section 2. Authority. The executive committee, when the board of directors is
not in session, shall have and may exercise all of the authority of the board of
directors except to the extent, if any, that such authority shall be limited by
the resolution appointing the executive committee; and except also that the
executive committee shall not have the authority of the board of directors with
reference to: the declaration of dividends; the amendment of the charter or
bylaws of the savings bank, or recommending to the shareholders a plan of
merger, consolidation, or conversion; the sale, lease, or other disposition of
all or substantially all of the property and assets of the savings bank
otherwise than in the usual and regular course of its business; a voluntary
dissolution of
7
<PAGE>
the savings bank; a revocation of any of the foregoing; or the approval of a
transaction in which any member of the executive committee, directly or
indirectly, has any material beneficial interest.
Section 3. Tenure. Subject to the provisions of Section 8 of this Article IV,
each member of the executive committee shall hold office until the next regular
annual meeting of the board of directors following his or her designation and
until a successor is designated as a member of the executive committee.
Section 4. Meetings. Regular meetings of the executive committee may be held
without notice at such times and places as the executive committee may fix from
time to time by resolution. Special meetings of the executive committee may be
called by any member thereof upon not less than one day's notice stating the
place, date, and hour of the meeting, which notice may be written or oral. Any
member of the executive committee may waive notice of any meeting and no notice
of any meeting need be given to any member thereof who attends in person. The
notice of a meeting of the executive committee need not state the business
proposed to be transacted at the meeting.
Section 5. Quorum. A majority of the members of the executive committee shall
constitute a quorum for the transaction of business at any meeting thereof, and
action of the executive committee must be authorized by the affirmative vote of
a majority of the members present at a meeting at which a quorum is present.
Section 6. Action Without a Meeting. Any action required or permitted to be
taken by the executive committee at a meeting may be taken without a meeting if
a consent in writing, setting forth the action so taken, shall be signed by all
of the members of the executive committee.
Section 7. Vacancies. Any vacancy in the executive committee may be filled by a
resolution adopted by a majority of the full board of directors.
Section 8. Resignations and Removal. Any member of the executive committee may
be removed at any time with or without cause by resolution adopted by a majority
of the full board of directors. Any member of the executive committee may resign
from the executive committee at any time by giving written notice to the
president or secretary of the savings bank. Unless otherwise specified, such
resignation shall take effect upon its receipt; the acceptance of such
resignation shall not be necessary to make it effective.
Section 9. Procedure. The executive committee shall elect a presiding officer
from its members and may fix its own rules of procedure which shall not be
inconsistent with these bylaws. It shall keep regular minutes of its proceedings
and report the same to the board of directors for its information at the meeting
held next after the proceedings shall have occurred.
Section 10. Other Committees. The board of directors may by resolution establish
an audit, loan, or other committee composed of directors as they may determine
to be
8
<PAGE>
necessary or appropriate for the conduct of the business of the savings bank and
may prescribe the duties, constitution, and procedures thereof.
Article V-Officers
Section 1. Positions. The officers of the savings bank shall be a president,
one or more vice presidents, a secretary, and a treasurer or comptroller, each
of whom shall be elected by the board of directors. The board of directors may
also designate the chairman of the board as an officer. The offices of the
secretary and treasurer or comptroller may be held by the same person and a vice
president may also be either the secretary or the treasurer or comptroller. The
board of directors may designate one or more vice presidents as executive vice
president or senior vice president. The board of directors may also elect or
authorize the appointment of such other officers as the business of the savings
bank may require. The officers shall have such authority and perform such duties
as the board of directors may from time to time authorize or determine. In the
absence of action by the board of directors, the officers shall have such powers
and duties as generally pertain to their respective offices.
Section 2. Election and Term of Office. The officers of the savings bank shall
be elected annually at the first meeting of the board of directors held after
each annual meeting of the shareholders. If the election of officers is not held
at such meeting, such election shall be held as soon thereafter as possible.
Each officer shall hold office until a successor has been duly elected and
qualified or until the officer's death, resignation, or removal in the manner
hereinafter provided. Election or appointment of an officer, employee, or agent
shall not of itself create contractual rights. The board of directors may
authorize the savings bank to enter into an employment contract with any officer
in accordance with regulations of the Office; but no such contract shall impair
the right of the board of directors to remove any officer at any time in
accordance with Section 3 of this Article V.
Section 3. Removal. Any officer may be removed by the board of directors
whenever in its judgment the best interests of the savings bank will be served
thereby, but such removal, other than for cause, shall be without prejudice to
the contractual rights, if any, of the person so removed.
Section 4. Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification, or otherwise may be filled by the board of directors
for the unexpired portion of the term.
Section 5. Remuneration. The remuneration of the officers shall be fixed from
time to time by the board of directors.
Article VI - Contracts, Loans, Checks, and Deposits
Section 1. Contracts. To the extent permitted by regulations of the Office, and
except as otherwise prescribed by these bylaws with respect to certificates for
shares, the board of directors may authorize any officer, employee, or agent of
the savings bank to enter into
9
<PAGE>
any contract or execute and deliver any instrument in the name of and on behalf
of the savings bank. Such authority may be general or confined to specific
instances.
Section 2. Loans. No loans shall be contracted on behalf of the savings bank
and no evidence of indebtedness shall be issued in its name unless authorized by
the board of directors. Such authority may be general or confined to specific
instances.
Section 3. Checks; Drafts. etc. All checks, drafts, or other orders for the
payment of money, notes, or other evidences of indebtedness issued in the name
of the savings bank shall be signed by one or more officers, employees or agents
of the savings bank in such manner as shall from time to time be determined by
the board of directors.
Section 4. Deposits. All funds of the savings bank not otherwise employed shall
be deposited from time to time to the credit of the savings bank in any duly
authorized depositories as the board of directors may select.
Article VII - Certificates for Shares and Their Transfer
Section 1. Certificates for Shares. Certificates representing shares of capital
stock of the savings bank shall be in such form as shall be determined by the
board of directors and approved by the Office. Such certificates shall be signed
by the chief executive officer or by any other officer of the savings bank
authorized by the board of directors, attested by the secretary or an assistant
secretary, and sealed with the corporate seal or a facsimile thereof. The
signatures of such officers upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent or a registrar
other than the savings bank itself or one of its employees. Each certificate for
shares of capital stock shall be consecutively numbered or otherwise identified.
The name and address of the person to whom the shares are issued, with the
number of shares and date of issue, shall be entered on the stock transfer books
of the savings bank. All certificates surrendered to the savings bank for
transfer shall be canceled and no new certificate shall be issued until the
former certificate for a like number of shares has been surrendered and
canceled, except that in the case of a lost or destroyed certificate, a new
certificate may be issued upon such terms and indemnity to the savings bank as
the board of directors may prescribe.
Section 2. Transfer of Shares. Transfer of shares of capital stock of the
savings bank shall be made only on its stock transfer books. Authority for such
transfer shall be given only by the holder of record or by his or her legal
representative, who shall furnish proper evidence of such authority, or by his
or her attorney authorized by a duly executed power of attorney and filed with
the savings bank. Such transfer shall be made only on surrender for cancellation
of the certificate for such shares. The person in whose name shares of capital
stock stand on the books of the savings bank shall be deemed by the savings bank
to be the owner for all purposes.
10
<PAGE>
Article VIII--Fiscal Year
The fiscal year of the savings bank shall end on the thirty-first of December of
each year. The appointment of accountants shall be subject to annual
ratification by the shareholders.
Article IX- Dividends
Subject to the terms of the savings bank's charter and the regulations and
orders of the Office. the board of directors may, from time to time, declare,
and the savings bank may pay, dividends on its outstanding shares of capital
stock.
Article X - Corporate Seal
The board of directors shall provide an savings bank seal which shall be two
concentric circles between which shall be the name of the savings bank. The year
of incorporation or an emblem may appear in the center.
Article XI - Amendments
These bylaws may be amended in a manner consistent with regulations of the
Office and shall be effective after: (i) approval of the amendment by a majority
vote of the authorized board of directors, or by a majority vote of the votes
cast by the shareholders of the savings bank at any legal meeting, and (ii)
receipt of any applicable regulatory approval. When an savings bank fails to
meet its quorum requirements, solely due to vacancies on the board, then the
affirmative vote of a majority of the sitting board will be required to amend
the bylaws.
11
<PAGE>
EXHIBIT 5.1
March 17, 1999
Board of Directors
First Deposit Bancshares, Inc.
8458 Campbellton Street
Douglasville, Georgia 30134-1803
RE: REGISTRATION STATEMENT ON FORM SB-2
Gentlemen:
We have served as special counsel to First Deposit Bancshares, Inc.
(the "Corporation") in connection with the Registration Statement on Form SB-2
to be filed with the Securities and Exchange Commission under the Securities Act
of 1933, as amended (the "Registration Statement"). This opinion is being
delivered to you in connection with such filing at your request. The
Registration Statement relates to shares of common stock of the Corporation (the
"Common Stock") to be issued in connection with the simultaneous conversion of
Douglas Federal Bank, a Federal Savings Bank, from mutual to stock form and
reorganization into the holding company form of ownership as a wholly-owned
subsidiary of the Corporation.
We have reviewed the Corporation's articles of incorporation and
bylaws, each as amended to date, and have examined the originals, or copies
certified or otherwise identified to our satisfaction, of corporate records of
the Corporation, including minute books of the Corporation as furnished to us by
the Corporation, certificates of public officials and of representatives of the
Corporation, statutes and other instruments and documents, as a basis for the
opinion hereinafter expressed. In rendering this opinion, we have relied upon
certificates of public officials and officers of the Corporation with respect to
the accuracy of the factual matters contained in such certificates.
In connection with such review, we have assumed with your permission
(i) that the Registration Statement and all other documents that are the subject
of this opinion or on which this opinion is based have been properly authorized,
executed and delivered by each of the respective parties thereto other than the
Corporation and have been properly executed and delivered by all parties by or
through competent individuals having the legal capacity to do so; (ii) the
genuineness of all signatures; (iii) the authenticity of all documents submitted
to us as originals and the conformity to original documents of all documents
submitted to us as certified or photostatic copies; and (iv) the proper issuance
and accuracy of certificates of public officials and officers and agents of the
Corporation. In rendering this opinion, we assume that the Common Stock will be
offered and sold in the manner described in the Prospectus which is a part of
the Registration Statement.
This opinion is limited to the laws of the State of Georgia, excluding
local laws of the State of Georgia (i.e., the statutes and ordinances, the
administrative decisions and the rules and
<PAGE>
regulations of counties, towns, municipalities and special political
subdivisions of, or authorities or quasi-governmental bodies constituted under
the laws of, the State of Georgia and judicial decisions to the extent they deal
with any of the foregoing), and we are expressing no opinion as to the effect of
the laws of any other jurisdiction.
Based upon the foregoing, it is our opinion that the shares of Common
Stock to be issued pursuant to the Registration Statement have been duly
authorized by all necessary corporate action on the part of the Corporation and
will, when issued and sold as provided for in the Registration Statement, be
validly issued, fully paid and nonassessable.
This opinion letter is delivered solely for your benefit in connection
with the Registration Statement and the transactions provided for therein and
may not be quoted in whole or in part, referred to, filed with any governmental
agency or otherwise used or relied upon by any other person or for any other
purpose without our prior written consent; provided, however, we hereby consent
to your including this opinion as an exhibit to the Registration Statement and
to reference our firm in the Section of the Prospectus entitled "Legal and Tax
Opinions" of the Prospectus.
Very truly yours,
WOMBLE CARLYLE SANDRIDGE & RICE
A Professional Limited Liability Company
By:/s/ Elizabeth O. Derrick
--------------------------------
Elizabeth O. Derrick
EOD /s/ EOD
--------
SLM /s/ SLM
--------
<PAGE>
EXHIBIT 8.1
March 17, 1999
Board of Directors
Douglas Federal Bank
8458 Campbellton Street
Douglasville, Georgia 30134-1803
Re: Certain Federal Tax Consequences of the Conversion
of Douglas Federal Bank from a Federally Chartered
Mutual Savings Bank to a Federally Chartered Stock
Savings Bank and the Issuance of Common Stock of
Douglas Federal Bank, pursuant to a Plan of
Conversion, and the Sale of Holding Company Common
Stock
Dear Ladies and Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the plan of conversion of Douglas Federal Bank, a Federal
Savings Bank (the "Bank") from a federally chartered mutual savings bank to a
federally chartered stock savings bank, the issuance of the Bank's capital stock
to First Deposit Bancshares, Inc., a Georgia corporation, (the "Company" or the
"Holding Company"), and the sale of Holding Company common stock pursuant to the
plan of conversion adopted by the Board of Directors on February 9, 1999
(collectively, the "Plan"or "Conversion").
The proposed transaction is described in the section of this letter
entitled "STATEMENT OF FACTS."
Our opinions are based on the STATEMENT OF FACTS, the representations
described in the section of the letter entitled "REPRESENTATIONS," and our
examination of such corporate records, certificates and other documents as we
have considered necessary or appropriate for this opinion. In such examination,
we have accepted, and not independently verified, the authenticity of all
original documents, the accuracy of all copies, and the genuineness of all
signatures. Unless otherwise noted, section references are to the Internal
Revenue Code of
<PAGE>
Board of Directors
Douglas Federal Bank
March 17, 1999
Page 2
1986 as amended (the "Code") as in effect as of the date of this letter.
Capitalized terms not defined in this letter have the meanings assigned to them
in the Plan of Conversion.
STATEMENT OF FACTS
The Bank is a federally chartered mutual savings bank. As a mutual savings
and loan bank, the Bank has never been authorized to issue stock. Instead, the
proprietary interest in the reserves and undivided profits of the Bank belong to
the deposit account holders of the Bank, hereinafter sometimes referred to as
"depositors." A depositor of the Bank has a right to share, pro rata, with
respect to the withdrawal value of his respective deposit account in any
liquidation proceeds distributed in the event the Bank is ever liquidated. In
addition, a depositor of the Bank is entitled to interest on his account balance
as fixed and paid by the Bank.
In order to provide organizational and economic strength to the Bank, the
Board of Directors has adopted the Plan whereby the Bank will convert into a
federally chartered stock savings bank (the "Converted Bank"), the stock of
which will be held entirely by a newly created Holding Company, First Deposit
Bancshares, Inc. As part of the Conversion, the Bank will issue all its capital
stock to the Holding Company. Holding Company will issue and sell its common
stock ("the Conversion Stock") in accordance with the Plan. The aggregate sales
price of the Conversion Stock will be based on an independent appraiser's
valuation of the estimated pro forma market value of the Common Stock of the
Converted Bank held by Holding Company. The Conversion of the Bank and sale of
the Conversion Stock will be subject to approval by the Office of Thrift
Supervision and the approval of the Voting Members.
As part of the Conversion, the Bank will establish a liquidation account in
an amount equal to its net worth as of the latest practicable date prior to
Conversion. The liquidation account will be maintained by the Bank for the
benefit of the Eligible Account Holders and Supplemental Eligible Account
Holders who continue to maintain their savings accounts at the Bank. Each
Eligible Account Holder and Supplemental Eligible Account Holder will, with
respect to his savings account, hold a related inchoate interest in a portion of
the liquidation account balance, in relation to his savings account balance on
the Eligibility Record Date or the Supplemental Eligibility Record Date or to
such balance as it may be subsequently reduced.
In the unlikely event of a complete liquidation of the Bank (and only in
such event), following all liquidation payments to creditors (including those to
account holders to the extent of their savings accounts) each Eligible Account
Holder and Supplemental Eligible Account Holder shall be entitled to receive a
liquidating distribution from the liquidation account, in the amount of the then
adjusted sub-account balance for his savings account then held, before any
liquidation
<PAGE>
Board of Directors
Douglas Federal Bank
March 17, 1999
Page 3
distribution may be made to any holders of the Bank's capital stock. No merger,
consolidation, purchase of bulk assets with assumption of savings accounts and
other liabilities, or similar transaction with an FDIC institution, in which the
Bank is not the surviving institution, shall be deemed to be a complete
liquidation for this purpose. In such transactions, the liquidation account
shall be assumed by the surviving institution.
REPRESENTATIONS
You have provided the following representations concerning this transaction
which are or will be true and correct as of the effective date of the Plan and
thereafter where applicable:
(a) The fair market value of the withdrawable deposit accounts plus
interests in the liquidation account of the Converted Bank to be
received by Eligible Account Holders and Supplemental Eligible Account
Holders under the Plan of Conversion will be equal to the fair market
value of the withdrawable deposit accounts (plus the related interest
in the residual equity of the Bank) deemed to be surrendered in
exchange therefor.
(b) If an individual's total deposits in the Bank equal or exceed $50 as
of the Eligibility Record Date or Supplemental Eligibility Record
Date, then no amount of that individual's total deposits will be
excluded from participating in the liquidation account. The fair
market value of the deposit accounts of the Bank which have a balance
of less than $100 on the Eligibility Record Date or Supplemental
Eligibility Record Date will be less than 1% of the total fair market
value of all deposit accounts of the Bank.
(c) Immediately following the Conversion, the Eligible Account Holders and
Supplemental Eligible Account Holders of the Bank will own all of the
outstanding interests in the liquidation account and will own such
interest solely by reason of their ownership of deposits in the Bank
immediately before the Conversion.
(d) After the Conversion, the Converted Bank will continue the business of
the Bank in the same manner as prior to the Conversion. The Converted
Bank has no plan or intention and the Holding Company has no plan or
intention to cause the Converted Bank to sell its assets other than in
the ordinary course of business.
(e) The Holding Company has no plan or intention to sell, liquidate or
otherwise dispose of the stock of the Converted Bank.
<PAGE>
Board of Directors
Douglas Federal Bank
March 17, 1999
Page 4
(f) The Holding Company and the Converted Bank have no current plan or
intention to redeem or otherwise acquire any of the Conversion Stock
issued in the Conversion transaction.
(g) Immediately after the Conversion, the Converted Bank will possess the
same assets and liabilities of the Bank immediately prior to the
Conversion, plus the net proceeds from the sale of the Converted
Bank's common stock to the Holding Company and any liability
associated with indebtedness incurred by the Employee Plans in the
acquisition of Common Stock by the Employee Plans.
(h) The Bank, Converted Bank and the Holding Company are corporations
within the meaning of section 7701(a)(3) of the Code.
(i) None of the shares of the Conversion Stock to be purchased by the
depositor-employees of the Bank in the Conversion will be issued or
acquired at a discount. However, shares may be given to certain
Directors and employees as incentive compensation through the Tax
Qualified Employee Stock Benefit Plan. Compensation to be paid to such
Directors and depositor-employees will be commensurate with amounts
paid to third parties bargaining at arm's length for similar services.
(j) The fair market value of the assets of the Bank, which will be
transferred to the Converted Bank in the Conversion, will equal or
exceed the sum of the liabilities of the Bank which will be assumed by
the Converted Bank and any liabilities to which the transferred assets
are subject. Bank has not incurred any liabilities other than in the
ordinary course of business.
(k) No cash or property will be given to Eligible Account Holders,
Supplemental Eligible Account Holders, or others in lieu of (i)
nontransferable subscription rights, or (ii) an interest in the
liquidation account of the Converted Bank.
(l) Depositors will pay the expenses of the Conversion solely applicable
to them, if any. The Holding Company and the Bank will each pay
expenses of the transaction attributable to them and will not pay any
expenses solely attributable to the depositors or to the Holding
Company shareholders.
(m) The exercise price of the subscription rights received by the Bank's
Eligible Account Holders, Supplemental Eligible Account Holders, and
other holders of subscription
<PAGE>
Board of Directors
Douglas Federal Bank
March 17, 1999
Page 5
rights to purchase Holding Company Common Stock will be equal to the
fair market value of the stock of the Holding Company at the time of
the completion of the Conversion as determined by an independent
appraisal.
(n) The Bank was not under the jurisdiction of the Court in any Title 11
or similar case within the meaning of (S) 368(a)(A) of the Internal
Revenue Code (the "Code") at the time of the Conversion.
(o) Compensation pay, if any, to depositor/employees was commensurate with
amounts paid to third parties bargaining at arm's length for similar
services.
(p) The Bank utilized a reserve for bad debts in accordance with Code (S)
593 and, following the Conversion, the Converted Bank shall likewise
utilize a reserve for bad debts in accordance with Code (S) 593
(q) The Holding Company is not an investment company as described in (S)
1.351(c) of the Treasury Regulations.
(r) The Eligible Account holders' proprietary interest in the Bank arose
solely by virtue of the fact that they were account holders in the
Bank.
(s) The Holding Company has no plan or intention to sell or otherwise
dispose of the stock of the Converted Bank received by it in the
transaction.
(t) The transaction did not involve a receivership, foreclosure or similar
proceeding before a federal or state agency involving a financial
institution to which Code (S) 585 or 593 apply.
OPINION
Based solely on the foregoing representations and information and assuming
the Plan occurs in accordance with the Plan, it is our opinion that:
(1) The Conversion of the Bank from a mutual savings and loan bank to a
stock savings and loan bank will be a tax-free reorganization within
the meaning of section 368(a)(1)(F) of the Code (Rev. Rul. 80-105,
1980-1 C.B. 78). Neither the Bank nor the Converted Bank will
recognize gain or loss as a result of the Conversion. The
<PAGE>
Board of Directors
Douglas Federal Bank
March 17, 1999
Page 6
Bank and the Converted Bank shall each be "a party to a
reorganization" within the meaning of section 368(b) of the Code.
(2) No gain or loss will be recognized by the Converted Bank or the
Holding Company on the receipt by the Converted Bank of money from the
Holding Company in exchange for shares of the Converted Bank's capital
stock or by the Holding Company upon the receipt of money from the
sale of its Common Stock (section 1032(a)).
(3) The basis of the deposit accounts in the Converted Bank to be received
by the Eligible Account Holders and Supplemental Eligible Account
Holders will be the same as the basis of their deposit accounts in the
Bank surrendered in exchange therefor (section 1012).
(4) The basis of each Eligible Account Holder's or Supplemental Account
Holder's interest in the liquidation account of the Converted Bank
will be zero (Rev. Rul. 71-233, 1971-1 C.B. 113).
(5) No gain or loss will be recognized by an Eligible Account Holder or
Supplemental Eligible Account Holder on the receipt of an interest in
the liquidation account and/or nontransferable subscription rights to
purchase shares of stock in the Holding Company to the extent the
interest in the liquidation account and the nontransferable
subscription rights received have no fair market value. (We understand
that you have received a letter from Ferguson & Company, Inc.
indicating that the subscription rights have no fair market value. In
various private letter rulings, the Internal Revenue Service has
stated that interests similar to interests in the liquidation account
have no fair market value. Neither the Ferguson & Company letter nor
private letter rulings issued to other taxpayers are binding on the
Service. We express no legal opinion on the fair market value of
liquidation accounts or nontransferable subscription rights or on
whether gain will be recognized if the interests in the liquidation
account or nontransferable subscription rights have value).
(6) Eligible Account Holders and Supplemental Eligible Account Holders
will not realize any taxable income as a result of the exercise by
them of the nontransferable subscription rights (Rev. Rul. 56-572,
1956-2 C.B. 182).
(7) The basis to the stockholders of the Holding Company Common Stock
purchased in the Conversion will be the purchase price paid therefor
(section 1012).
<PAGE>
Board of Directors
Douglas Federal Bank
March 17, 1999
Page 7
SCOPE OF OPINION
Since this letter is rendered in advance of the closing of this
transaction, we have assumed that the transaction will be consummated in
accordance with the Plan, as well as all the information and representations
referred to herein. Any changes in the transaction could cause us to modify our
opinion.
The opinions contained herein are rendered only with respect to the
specific matters discussed herein and we express no opinion with respect to any
other legal, federal, state, local or foreign aspect of these transactions. If
any of the information upon which we have relied is incorrect, or if changes in
the relevant facts occur after the date hereof, our opinion could be affected
thereby. In particular, if the subscription rights are subsequently found to
have a fair market value, income may be recognized by various recipients of the
subscription rights and the Company and/or the Bank may be taxable on the
distribution of the subscription rights.
Moreover, our opinion is based on case law, the Code, Treasury Regulations
thereunder, and Internal Revenue Service rulings and other administrative
guidance as they now exist. These authorities are all subject to change, and
such change may be made with retroactive effect. We can give no assurance that,
after such change, our opinion would not be different. We undertake no
responsibility to update or supplement our opinion. This opinion is not binding
on the Internal Revenue Service and there can be no assurance, and none is
hereby given, that the Internal Revenue Service will not take a position
contrary to one or more of the positions reflected in the foregoing opinion, or
that our opinion will be upheld by the courts if challenged by the Internal
Revenue Service.
We express no opinion as to any state or local income tax consequences of
the Conversion or federal, state, or local income tax consequences of the
formation of the foundation. We understand that the accounting firm of Mauldin &
Jenkins, LLC will be addressing the state tax consequences of the Conversion in
a separate letter.
<PAGE>
Board of Directors
Douglas Federal Bank
March 17, 1999
Page 8
CONSENT
We consent to the inclusion of this opinion as an exhibit to the Form AC
and Form SB-2 Registration Statement of Holding Company and the references to
the summary of this opinion in such Form AC and Form SB-2 Registration
Statement. In addition, we consent to Mauldin & Jenkins, LLC's reliance on this
letter solely for the purpose of issuing an opinion on the Georgia tax
consequences of the Conversion.
Sincerely,
WOMBLE CARLYLE SANDRIDGE & RICE
A Professional Limited Liability Company
By: /s/ Steven B. Drucker
---------------------------
Steven B. Drucker
<PAGE>
EXHIBIT 10.1
EMPLOYEE STOCK OWNERSHIP PLAN
OF
DOUGLAS FEDERAL BANK
EFFECTIVE DATE: JANUARY 1, 1999
<PAGE>
TABLE OF CONTENTS
EMPLOYEE STOCK OWNERSHIP PLAN
OF
DOUGLAS FEDERAL BANK
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SECTION 1. PURPOSE OF PLAN ................................................ 2
---------------
SECTION 2. DEFINITIONS .................................................... 2
-----------
2.1 Account ........................................................ 2
2.2 Accrued benefit ................................................ 3
2.3 Acquisition loan ............................................... 3
2.4 Active participant ............................................. 3
2.5 Adjustment date ................................................ 3
2.6 Affiliated employer ............................................ 4
2.7 Board .......................................................... 4
2.8 Break in Service ............................................... 4
2.9 Code ........................................................... 4
2.10 Committee ...................................................... 4
2.11 Company ........................................................ 4
2.12 Company stock .................................................. 4
2.13 Compensation ................................................... 5
2.14 Computation period ............................................. 6
2.15 Debt ........................................................... 6
2.16 Effective date ................................................. 6
2.17 Eligible employee .............................................. 6
2.18 Employee ....................................................... 7
2.19 Entry date ..................................................... 7
2.20 ERISA .......................................................... 7
2.21 Financed shares ................................................ 8
2.22 Highly compensated participant ................................. 8
2.23 Holding Company ................................................ 8
2.24 Hour of service ................................................ 8
2.25 Leased employee ................................................ 10
2.26 Normal retirement age .......................................... 11
2.27 OBRA '93 ....................................................... 11
2.28 Participant .................................................... 11
2.29 Plan ........................................................... 12
2.30 Plan year ...................................................... 12
2.31 Readily tradable on an established market ...................... 12
2.32 Retire or retirement ........................................... 12
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
2.33 Service ........................................................ 12
2.34 Spouse or surviving spouse ..................................... 12
2.35 Statutory compensation ......................................... 12
2.36 Suspense account ............................................... 13
2.37 Trust or trust fund ............................................ 13
2.38 Trust agreement ................................................ 13
2.39 Trustees ....................................................... 13
2.40 A year of service .............................................. 13
SECTION 3. CONTRIBUTIONS TO THE TRUST AND ALLOCATION THEREOF .............. 14
-------------------------------------------------
3.1 Company contributions .......................................... 14
3.2 Allocation of Company contributions ............................ 15
3.3 Limitations on allocations ..................................... 15
3.4 Employee contributions ......................................... 19
SECTION 4. RETIREMENT; TERMINATION OF SERVICE ............................. 19
----------------------------------
4.1 Normal retirement .............................................. 19
4.2 Delayed retirement ............................................. 19
4.3 Disability retirement .......................................... 20
4.4 Death .......................................................... 20
4.5 Break in service; Termination of service ....................... 20
SECTION 5. PAYMENT OF BENEFITS ............................................ 23
-------------------
5.1 Payment of benefit for reasons other than death ................ 23
5.2 Payment of death benefit ....................................... 23
5.3 Distribution requirements and definitions ...................... 24
5.4 Medium of payment; Put option; Right of first refusal; Valuation
of Company stock ............................................... 25
5.5 Distributions to alternate payees .............................. 29
5.6 Legend ......................................................... 30
5.7 Directions ..................................................... 30
SECTION 6. VESTING ........................................................ 30
-------
6.1 Full Vesting: .................................................. 30
6.2 Vesting schedule: .............................................. 31
6.3 Forfeitures .................................................... 31
6.4 Vesting upon a return to service ............................... 31
6.5 Change in vesting schedule ..................................... 32
SECTION 7. ACQUISITION LOANS .............................................. 32
-----------------
7.1 Terms .......................................................... 32
7.2 Use of proceeds ................................................ 33
7.3 Collateral ..................................................... 33
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
7.4 Available assets; Payments ..................................... 33
7.5 Default ........................................................ 34
7.6 Suspense account; Release of shares ............................ 35
7.7 Obligations of the Trustees .................................... 36
7.8 Obligations of the Company ..................................... 36
7.9 Restrictions on Company stock .................................. 37
SECTION 8. VOTING AND TENDERING OF COMPANY STOCK .......................... 37
-------------------------------------
8.1 Voting ......................................................... 37
8.2 Tendering ...................................................... 39
SECTION 9. ACCOUNTS OF PARTICIPANTS ....................................... 40
------------------------
9.1 General accounts ............................................... 40
9.2 Company stock accounts ......................................... 41
9.3 Cash dividends ................................................. 42
9.4 Rights, warrants and options ................................... 44
9.5 Persons in pay status .......................................... 44
9.6 Allocations following certain sale transactions ................ 45
9.7 Accounting for allocations ..................................... 46
9.8 Diversification ................................................ 47
SECTION 10. ADMINISTRATION BY COMMITTEE .................................... 48
---------------------------
10.1 Membership of Committee ........................................ 48
10.2 Committee officers; Subcommittee ............................... 48
10.3 Committee meetings ............................................. 49
10.4 Transaction of business ........................................ 49
10.5 Committee records .............................................. 49
10.6 Establishment of rules ......................................... 49
10.7 Conflicts of interest .......................................... 49
10.8 Correction of errors ........................................... 50
10.9 Authority to interpret plan .................................... 50
10.10 Third party advisors ........................................... 50
10.11 Compensation of members ........................................ 51
10.12 Committee expenses ............................................. 51
10.13 Indemnification of Committee ................................... 51
SECTION 11. MANAGEMENT OF FUNDS AND AMENDMENT OF PLAN ...................... 52
-----------------------------------------
11.1 Trust fund; Investment purpose ................................. 52
11.2 Fiduciary duties ............................................... 52
11.3 Authority to amend ............................................. 53
11.4 Trust agreement ................................................ 54
11.5 Requirements in writing ........................................ 54
SECTION 12. ALLOCATION OF RESPONSIBILITIES AMONG NAMED FIDUCIARIES ......... 54
------------------------------------------------------
12.1 Duties of named fiduciaries .................................... 54
12.2 Co-fiduciary liability ......................................... 56
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
SECTION 13. BENEFITS NOT ASSIGNABLE; FACILITY OF PAYMENTS .................. 57
---------------------------------------------
13.1 Benefits not assignable ........................................ 57
13.2 Payments to minors and others .................................. 57
SECTION 14. TERMINATION OF PLAN AND TRUST; MERGER OR CONSOLIDATION OF PLAN . 57
--------------------------------------------------------------
14.2 Partial termination ............................................ 58
14.3 Merger or consolidation ........................................ 59
14.4 Protection of benefits ......................................... 59
SECTION 15. COMMUNICATION TO EMPLOYEES ..................................... 59
--------------------------
SECTION 16. CLAIMS PROCEDURE ............................................... 60
----------------
16.1 Filing of a claim for benefits ................................. 60
16.2 Notification to claimant of decision ........................... 60
16.3 Procedure for review ........................................... 61
16.4 Decision on review ............................................. 61
16.5 Action by authorized representative of claimant ................ 61
SECTION 17. PARTIES TO THE PLAN ............................................ 62
-------------------
17.1 Single plan .................................................... 62
17.2 Committee appointment .......................................... 62
17.3 Authority to amend ............................................. 62
SECTION 18. SPECIAL TOP-HEAVY PROVISIONS ................................... 63
----------------------------
18.1 Definitions .................................................... 63
18.2 Top-heavy requirements ......................................... 66
18.3 Adjustments to Limitations on Allocations ...................... 67
SECTION 19. PORTABILITY OF PARTICIPANT ACCOUNTS ............................ 67
-----------------------------------
19.1 Definitions .................................................... 67
19.2 Construction ................................................... 68
SECTION 20. COMPLIANCE WITH THE UNIFORMED SERVICES EMPLOYMENT AND
-----------------------------------------------------
REEMPLOYMENT RIGHTS ACT OF 1994 ................................ 68
-------------------------------
SECTION 21. MISCELLANEOUS PROVISIONS ....................................... 70
------------------------
21.1 Notices ........................................................ 70
21.2 Lost distributees .............................................. 70
21.3 Reliance on data ............................................... 70
21.4 Bonding ........................................................ 71
21.5 Receipt and release for payments ............................... 71
21.6 No guarantee ................................................... 71
21.7 Headings ....................................................... 72
21.8 Continuation of employment ..................................... 72
21.9 Federal and state securities law compliance .................... 72
</TABLE>
iv
<PAGE>
<TABLE>
<S> <C>
21.10 Construction ................................................... 72
</TABLE>
<PAGE>
EMPLOYEE STOCK OWNERSHIP PLAN
OF
DOUGLAS FEDERAL BANK
SECTION 1. PURPOSE OF PLAN:
--------- ---------------
The primary purpose of this plan is to enable participating employees
of the Company to acquire a stock ownership interest in the Holding Company,
thereby permitting such employees to share in the growth and prosperity of the
Company and its affiliated employers, and to accumulate capital for their future
economic security. Consequently, Company contributions to the plan shall be
invested primarily in Company stock. The plan also is designed to provide a
technique of corporate finance to the Company. As such, the plan may borrow
money or otherwise obtain credit to finance the acquisition of Company stock and
may provide a market to facilitate the transfer of Company stock. The plan is a
stock bonus plan intended to be qualified within the meaning of Section 401(a)
of the Code. The plan also contains provisions that permit the plan to function
as a leveraged employee stock ownership plan under Section 4975(e)(7) of the
Code and Section 407(d)(6) of ERISA.
SECTION 2. DEFINITIONS:
--------- -----------
As used in the plan, including Section 1 and this Section 2, and in
the trust agreement, references to one gender shall include the other and,
unless otherwise indicated by the context:
2.1 "ACCOUNT" means the separate account established and maintained
with respect to each participant as described in Section 9. The account is
comprised of the following two subaccounts:
2
<PAGE>
2.1.1 "Company stock account" means the subaccount of the participant
that is credited or debited with Company stock. The portion of a
participant's Company stock account representing shares released from the
suspense account (as defined in Section 2.36) will be allocated in non-
monetary units.
2.1.2 "General account" means the subaccount of the participant that
is credited or debited with cash.
2.2 "ACCRUED BENEFIT" means with respect to each participant the
value of his account as of the applicable adjustment date following adjustment
thereof as provided in Section 9.
2.3 "ACQUISITION LOAN" means a loan described in Section 4975(d)(3)
of the Code and Section 408(b)(3) of ERISA made to the trust by a disqualified
person (as defined in Section 4975(e)(2) of the Code) or a party-in-interest (as
defined in Section 3(14) of ERISA) or a loan made to the trust that is
guaranteed by a disqualified person or party-in-interest, which is used by the
Trustees to finance the acquisition of Company stock or to repay a prior
acquisition loan. Such a loan may include a direct loan of cash to the trust, a
purchase money transaction involving the trust, or an assumption of an
obligation of the trust.
2.4 "ACTIVE PARTICIPANT" means with respect to any plan year a
participant who has a year of service within such plan year and is in service on
the year-end adjustment date or on a leave of absence approved by the Company.
If a participant shall retire from service or die while in service in any plan
year, he shall be treated as an active participant for the plan year in which
such retirement or death shall occur, whether or not he shall have a year of
service within such plan year or actually be in service on the year-end
adjustment date.
2.5 "ADJUSTMENT DATE" means December 31 of each year, commencing
with December 31, 1999, and such other date or dates as the Committee may select
from time to time for special allocations or otherwise. The December 31
adjustment date is sometimes referred to herein as the "year-end adjustment
date."
3
<PAGE>
2.6 "AFFILIATED EMPLOYER" means (i) any corporation that is a
member of a controlled group of corporations (as defined in Section 414(b) of
the Code) which includes the Company; (ii) any trade or business (whether or not
incorporated) that is under common control (as defined in Section 414(c) of the
Code) with the Company; (iii) any organization (whether or not incorporated)
that is a member of an affiliated service group (as defined in Section 414(m) of
the Code) which includes the Company; and (iv) any other entity required to be
aggregated with the Company pursuant to Section 414(o) of the Code.
2.7 "BOARD" means the Board of Directors of the Company, or the
Executive Committee of such Board when acting for the Board.
2.8 "BREAK IN SERVICE" means a plan year after the effective date
in which an employee does not complete more than 500 hours of service and shall
occur at the beginning of such plan year.
2.9 "CODE" means the Internal Revenue Code of 1986, as amended, and
rules and regulations issued thereunder.
2.10 "COMMITTEE" means the administrative Committee provided for in
Section 10.
2.11 "COMPANY" means Douglas Federal Bank, a Federal Savings Bank
with its principal office at Douglasville, Georgia, or any affiliated employer
that agrees to become a party of the plan.
2.12 "COMPANY STOCK" means shares of common stock issued by the
Company, the Holding Company or any other corporation which is a member of the
same controlled group of corporations with the Company (as determined pursuant
to Section 409(l)(4) of the Code) (including fractional shares of such stock)
which are readily tradeable on an established market (as defined in
4
<PAGE>
Section 2.31). If there are no shares of common stock which meet the
requirements of the preceding sentence, the term "Company stock" means shares of
common stock issued by the Company, the Holding Company or any other corporation
which is a member of the same controlled group of corporations with the Company
(as determined pursuant to Section 409(l)(4) of the Code) (including fractional
shares of such stock) which have a combination of voting power and dividend
rights equal to or in excess of (A) that class of common stock of the Company,
the Holding Company or of any other such corporation which has the greatest
voting power, and (B) that class of common stock of the Company, Holding Company
or of any other such corporation which has the greatest dividend rights.
Noncallable preferred stock shall be treated as "Company stock" if such stock is
convertible at any time into stock which constitutes "Company stock" under this
Section 2.12 and if such conversion is at a conversion price which (as of the
date of acquisition by the plan) is reasonable. Under regulations prescribed by
the Secretary of the Treasury, preferred stock shall be treated as noncallable
if after the call there will be a reasonable opportunity for a conversion which
meets the requirements of the preceding sentence.
2.13 "COMPENSATION" means wages, within the meaning of Section
3401(a) of the Code and all other payments of compensation to a participant by
the Company (in the course of the Company's trade or business) for which the
Company is required to furnish the participant a written statement under
Sections 6041(d), 6051(a)(3) and 6052 of the Code, but determined without regard
to any rules that limit the remuneration included in wages based on the nature
or location of the employment or the services performed (such as the exception
for agricultural labor in Section 3401(a)(2) of the Code). Compensation shall
also include amounts contributed by the Company on the participant's behalf
pursuant to a salary reduction agreement which is not includible in his gross
income under Sections 125, 402(e)(3), 402(h)(1)(B) or 403(b) of the Code.
Compensation
5
<PAGE>
shall not, however, include Commissioner's compensation in excess of $32,000.
For purposes of the plan, the annual compensation of a participant shall not
exceed the OBRA '93 annual compensation limit. The OBRA '93 annual compensation
limit is $160,000, as adjusted by the Commissioner for increases in the cost of
living in accordance with Section 401(a)(17)(B) of the Code. The $160,000 limit
shall be hereinafter referred to as the "annual compensation limit." The cost of
living adjustment in effect for a calendar year applies to any period, not
exceeding 12 months, over which compensation is determined (the "determination
period") beginning in each calendar year. If a determination period consists of
fewer than 12 calendar months, the annual compensation limit will be multiplied
by a fraction, the numerator of which is the number of months in the
determination period, and the denominator is 12.
2.14 "COMPUTATION PERIOD" means a 12 consecutive month period, as
follows:
2.14.1 For purposes of plan participation, the computation period
initially shall be the 12 consecutive month period beginning on the date an
employee first completes an hour of service. Thereafter, the computation
period shall be the plan year, beginning with the plan year containing the
first anniversary of the date the employee first completed an hour of
service.
2.14.2 For purposes of years of service, the computation period shall
be the plan year.
2.15 "DEBT" means any borrowing obligation incurred by the Trustees
that is not an acquisition loan.
2.16 "EFFECTIVE DATE" of the plan shall be January 1, 1999.
2.17 "ELIGIBLE EMPLOYEE" means each employee except the following:
(a) An employee included in a unit of employees covered by a
collective bargaining unit that has entered into a bona fide collective
bargaining agreement with the Company that does not specifically provide
for coverage of the employee under the plan, provided that retirement
benefits were the subject of good faith bargaining between the Company and
employee representatives;
6
<PAGE>
(b) An employee who is a nonresident alien and receives no earned
income (within the meaning of Section 911(d)(2) of the Code) from the
Company constituting income from sources within the United States (within
the meaning of Section 861(a)(3) of the Code);
(c) An individual who is deemed to be an employee solely by reason
of being a leased employee; and
(d) An employee who is employed by an affiliated employer which is
not a party to the plan.
See Section 2.28 for provisions governing participation in the plan by an
eligible employee.
2.18 "EMPLOYEE" means, except as otherwise provided herein, an
individual in the service of the Company if the relationship between him and the
Company is the legal relationship of employer and employee. In determining who
is an employee for purposes of the plan, the following provisions shall apply:
2.18.1 Subject to the provisions of Section 3.3.4(c), all employees
of an affiliated employer shall be treated as employees of the Company.
2.18.2 All leased employees shall be treated as employees of the
Company.
2.18.3 An individual who is identified on the books and records of
the Company as other than a common law employee shall not be treated as an
employee for purposes of the plan regardless of a later agency or judicial
determination to the effect that such individual is a common law employee
of the Company.
See Sections 2.17 and 2.28 for provisions governing eligibility of an employee
to become a participant in the plan.
2.19 "ENTRY DATE" means January 1 and July 1 of each plan year,
commencing with January 1, 1999.
2.20 "ERISA" means the Employee Retirement Income Security Act of
1974 (including amendments of the Code affected thereby), as amended, and rules
and regulations issued thereunder.
7
<PAGE>
2.21 "FINANCED SHARES" means shares of Company stock acquired with
the proceeds of an acquisition loan.
2.22 "HIGHLY COMPENSATED PARTICIPANT" means any participant who is
a highly compensated employee. "HIGHLY COMPENSATED EMPLOYEE" means any employee
who:
(i) During the plan year or preceding plan year was at any time a
5 percent owner (as defined in Section 416(i)(1)(B) of the Code); or
(ii) During the preceding plan year received statutory compensation
(as defined in Section 2.35) from the Company and affiliated employers in
excess of $80,000 (as adjusted pursuant to Section 414(q)(1) of the Code)
and was in the top-paid group of employees for such preceding plan year.
For purposes of this Section 2.22, the following provisions shall apply:
2.22.1 An employee who performs service for the Company or any
affiliated employer at any time during a plan year shall be in the top-paid
group of employees for such year if such employee is in the top 20 percent
of the employees of the Company and its affiliated employers ranked on the
basis of statutory compensation paid during such year.
2.22.2 A former employee shall be treated as a highly compensated
employee if he was a highly compensated employee when he separated from
service, or was a highly compensated employee at any time after attaining
age 55.
The determination of who is a highly compensated employee, including the
determination of the number and identity of employees in the top-paid group,
shall be made in accordance with Section 414(q) of the Code.
2.23 "HOLDING COMPANY" means First Deposit Bancshares, Inc., the
holding company of the Company, and any entity which succeeds to the business of
the Holding Company.
2.24 "HOUR OF SERVICE" means the following:
2.24.1 Each hour for which an employee is paid, or entitled to
payment, by the Company or an affiliated employer for the performance of
duties. Each such hour shall be credited to the computation period in which
the duties are performed.
2.24.2 Each hour for which an employee is paid, or entitled to
payment, by the Company or an affiliated employer for a period of time
during which no duties
8
<PAGE>
are performed, irrespective of whether the employment relationship has
terminated, by reason of vacation, holiday, illness, incapacity (including
disability), lay-off, jury duty, military duty or leave of absence. Each
such hour shall be credited to the computation period or periods in which
no duties are performed. In applying this Section 2.24.2, the following
provisions shall apply:
(i) The number of hours to be credited with respect to any
single continuous period (whether or not such period occurs in a
single computation period) for which hours are credited shall be the
lesser of: (a) 501 hours, or (b) the number of hours for which the
employee is paid with respect to such single continuous period;
(ii) No hours shall be credited with respect to payments made
to the employee for the purpose of complying with applicable workers'
compensation, unemployment compensation or disability insurance laws,
or payments made solely to reimburse an employee for medical or
medically related expenses incurred by the employee; and
(iii) An amount paid to an employee by the Company or an
affiliated employer indirectly, such as by a trust, fund or insurer to
which the Company or affiliated employer makes contributions or pays
premiums, shall be deemed to be paid by the Company or affiliated
employer.
2.24.3 Each hour (to the extent not included in Section 2.24.1 or
2.24.2) for which back pay, irrespective of mitigation of damages, has been
either awarded or agreed to by the Company or an affiliated employer. Each
such hour shall be credited to the computation period or periods to which
the award or agreement pertains rather than to the computation period in
which the award, agreement or payment is made.
2.24.4 Each hour for which an employee is not actually in service but
is required to be given credit for service under any law of the United
States, including, but not limited to the Family and Medical Leave Act of
1993 and the Uniformed Services Employment and Reemployment Rights Act of
1994. Each such hour shall be credited to the computation period or periods
for which the employee is required to be given credit for service.
2.24.5 Each hour (to the extent not included in Section 2.24.2) for
which an employee is on a leave of absence approved by the Company.
2.24.6 Solely for the purpose of determining whether an employee has
incurred a break in service, each hour with respect to a period during
which he is absent from work for maternity or paternity reasons which
otherwise would be credited to such employee but for such absence, or if
such hours cannot be
9
<PAGE>
determined, 8 hours of service per day of such absence. For purposes of
this Section 2.24.6, an absence from work for maternity or paternity
reasons means an absence (a) by reason of the pregnancy of the employee;
(b) by reason of the birth of a child of the employee; (c) by reason of the
placement of a child with the employee in connection with the adoption of
such child by such employee; or (d) for purposes of caring for such child
for a period beginning immediately following such birth or placement. The
hours of service credited under this Section 2.24.6 shall be credited with
respect to the computation period in which the absence begins, if necessary
to prevent a break in service in such computation period. In all other
cases, such hours of service shall be credited to the following computation
period. No more than 501 hours of service shall be required to be credited
for maternity or paternity reasons. No credit shall be given under this
Section 2.24.6 unless the employee furnishes to the Committee such timely
information as the Committee reasonably may require to establish that the
absence is for a reason described in this Section 2.24.6 and the number of
days for which there was such an absence.
An employee for whom the Company or an affiliated employer maintains records of
hours for which payment for the performance duties is made shall be credited
with hours of service on the basis of such records. Any other employee shall be
credited with hours of service on the basis of 45 hours for each week if under
this Section 2.24 he would be credited with at least one hour of service for
such week. The provisions of this Section 2.24 shall apply in accordance with
the provisions of United States Department of Labor Regulations Sections
2530.200b-2(b) and (c), which are incorporated herein by reference.
2.25 "LEASED EMPLOYEE" means any individual, other than an employee
of the Company or an affiliated employer (the "recipient employer"), who,
pursuant to an agreement between the recipient employer and any other person
(the "leasing organization"), has performed services for the recipient employer,
or the recipient employer and related persons determined in accordance with
Section 414(n)(6) of the Code, on a substantially full-time basis for a period
of at least one year, and such services are performed under the primary
direction or control of the recipient employer. Contributions or benefits
provided a leased employee by the leasing organization that are attributable to
services performed for the recipient employer shall be treated as provided by
the recipient employer. A leased employee shall not be considered an employee of
the recipient employer if: (a) such individual is covered by a money purchase
pension plan
10
<PAGE>
providing (i) a non-integrated employer contribution of at least 10 percent of
statutory compensation, as defined in Section 2.35 of the plan, (ii) immediate
participation, and (iii) full and immediate vesting; and (b) leased employees do
not constitute more than 20 percent of the recipient employer's non-highly
compensated work force (as defined in Section 414(n)(5)(C)(ii) of the Code).
2.26 "NORMAL RETIREMENT AGE" of a participant means age 65. The
"normal retirement date" of a participant means the year-end adjustment date
coincident with or next following attainment of his normal retirement age.
2.27 "OBRA '93" means the Omnibus Budget Reconciliation Act of 1993.
2.28 "PARTICIPANT" means with respect to any plan year an eligible
employee who has entered the plan and any former employee who has an accrued
benefit under the plan which is not wholly forfeitable for the plan year
pursuant to Section 6. An eligible employee who was in service on the effective
date of the plan shall enter the plan and become a participant on the effective
date if he completes 1,000 or more hours of service during the twelve month
period that ends on December 31, 1998. An eligible employee who has not
otherwise entered the plan shall enter the plan and become a participant on the
entry date coincident with or next following the close of the first computation
period in which he completes 1,000 or more hours of service. For purposes of
applying the foregoing provisions of this Section 2.28, the following special
provisions shall apply:
(i) An eligible employee who is not in service on the date he is
otherwise eligible to enter the plan shall not enter the plan until he
reenters service as an eligible employee, whereupon he shall immediately
enter the plan.
(ii) A participant who terminates service and later reenters service
shall reenter the plan as of the date he reenters service as an eligible
employee, but nothing in this Section 2.28 shall affect computation of
years of service of such participant.
2.29 "PLAN" means the employee stock ownership plan as herein set
out or as duly amended.
11
<PAGE>
2.30 "PLAN YEAR" means the 12-month period ending on December 31 of
each year (including years prior to the effective date).
2.31 "READILY TRADABLE ON AN ESTABLISHED MARKET" means a security
(which may include Company stock) listed on a national securities exchange
registered under Section 6 of the Securities Exchange Act of 1934 or quoted on a
system sponsored by a national securities association registered under Section
15A(b) of the Securities Exchange Act and readily tradable on either such
market.
2.32 "RETIRE" OR "RETIREMENT" means retirement within the meaning of
Section 4.1 (normal retirement), 4.2 (delayed retirement) or 4.3 (disability
retirement).
2.33 "SERVICE" means employment of an individual by the Company as
an employee; provided that unless and to the extent the Company expressly agrees
otherwise, service with an employer (other than the Company) prior to such
employer becoming an affiliated employer shall be disregarded for all purposes
of the plan.
2.34 "SPOUSE" OR "SURVIVING SPOUSE" means, except as otherwise
provided in the plan, the legally married spouse or surviving spouse of a
participant; provided, that a former spouse shall be treated as the spouse or
surviving spouse to the extent provided under a qualified domestic relations
order described in Section 414(p) of the Code.
2.35 "STATUTORY COMPENSATION" means wages, within the meaning of
Section 3401(a) of the Code and all other payments of compensation to a
participant by the Company (in the course of the Company's trade or business)
for which the Company is required to furnish the participant a written statement
under Sections 6041(d), 6051(a)(3) and 6052 of the Code, but determined without
regard to any rules that limit the remuneration included in wages based on the
nature or location of the employment or the services performed (such as the
exception for
12
<PAGE>
agricultural labor in Section 3401(a)(2) of the Code). The statutory
compensation of a participant shall include any elective deferral (as defined in
Section 402(g)(3) of the Code) and any other amount which is contributed or
deferred by the Company at the election of the participant and which is not
includible in the gross income of the participant by reason of Sections 125 or
457 of the Code. For purposes of Section 18, the statutory compensation of a
participant shall be limited to the annual compensation limit set forth in
Section 2.13.
2.36 "SUSPENSE ACCOUNT" means the separate account to which financed
shares are allocated pending release and allocation to the Company stock
accounts of participants, as provided in Sections 7 and 9.
2.37 "TRUST" OR "TRUST FUND" means the trust fund held by the
Trustees under the plan.
2.38 "TRUST AGREEMENT" means the agreement between the Company and
the Trustees, which shall be a part of the plan.
2.39 "TRUSTEES" means the individuals appointed by the Company to
administer the trust.
2.40 A "YEAR OF SERVICE" means the following:
2.40.1 With respect to service prior to the effective date,
uninterrupted service for each full plan year. Service prior to the
effective date shall be taken into account only with respect to employees
in service on such date and only to the extent of an employee's full plan
years of uninterrupted service prior to such date.
2.40.2 With respect to service on or after the effective date, 1,000
or more hours of service during a computation period; provided, that the
following provisions shall apply:
(i) If an employee has a break in service after the effective
date, all years of service prior to such break shall be disregarded
if: (a) he has no vested interest in his accrued benefit at the time
of such break, and (b) the number of his consecutive breaks in service
equals or exceeds 5. For the purpose of determining years
13
<PAGE>
of service prior to such break, any year of service previously
disregarded under this paragraph (i) shall be excluded.
(ii) No year of service following 5 consecutive breaks in
service shall be taken into account in determining the vested
percentage of an employee's accrued benefit that accrued before such
breaks in service.
2.40.3 Years of service shall include any period during which an
employee would have been a leased employee but for the requirement that a
leased employee perform service for the Company, or the Company and related
persons determined in accordance with Section 414(n)(6) of the Code, on a
substantially full-time basis for a period of at least one year.
SECTION 3. CONTRIBUTIONS TO THE TRUST AND ALLOCATION THEREOF:
--------- -------------------------------------------------
3.1 COMPANY CONTRIBUTIONS: Subject to the requirements of Sections
3.3 and 7.8, the Company shall contribute to the trust for each plan year such
amount as the Board shall determine in its discretion. In no event shall the
total contribution for any plan year exceed the maximum amount deductible by the
Company for such year for federal income tax purposes, including any carryover
of excess contributions from one or more prior years. Each contribution to the
plan shall be conditioned on being deductible under Section 404 of the Code. The
initial contribution to the plan shall be conditioned on the plan being
qualified under Section 401(a) of the Code for the plan year for which such
contribution is made. The Company contribution may be made in cash or Company
stock, or partly in cash and partly in Company stock, except to the extent such
contribution is required to be in cash to comply with Section 7.8. Company
contributions for a plan year may be paid during the plan year or following the
plan year on a date not later than the due date for filing the Company's federal
income tax return, including any extension of such due date.
3.2 ALLOCATION OF COMPANY CONTRIBUTIONS: The portion of the Company
contribution for a plan year that is not applied to make principal and interest
payments under an
14
<PAGE>
acquisition loan (the "balance of the Company contribution") shall be allocated
to active participants pursuant to this Section 3.2. Subject to the provisions
of Sections 3.3 and 18, as of each year-end adjustment date the account of each
active participant shall be credited with that proportion of the balance of the
Company contribution for the plan year ending on the year-end adjustment date as
the amount of his compensation with respect to such plan year bears to the total
of the compensation of all active participants with respect to such plan year.
If the balance of the Company contribution consists of cash and Company stock, a
separate allocation under this Section 3.2 shall be made with respect to such
cash and Company stock. Financed shares shall be allocated to the Company stock
accounts of participants according to the method provided in Section 7.6 as the
financed shares are released from the suspense account in the manner provided in
Section 7.6. If an eligible employee becomes a participant during the plan year,
any compensation he receives before he becomes a participant shall be
disregarded for purposes of this Section 3.2
3.3 LIMITATIONS ON ALLOCATIONS: In administering the plan, the
following provisions shall apply:
3.3.1 Subject to the provisions of Sections 3.3.3, 3.3.4 and 3.3.5,
in no event shall the sum of the annual additions (as defined in Section
3.3.4) to the accounts of a participant for any limitation year (as defined
in Section 3.3.4) under this plan and any other defined contribution plan
(as defined in Section 3.3.4) of the Company exceed in the aggregate the
lesser of: (a) $30,000, referred to herein as the "dollar limitation," or
(b) 25 percent of such participant's statutory compensation received during
the limitation year, referred to herein as the "statutory compensation
limitation." The amount of the dollar limitation shall be adjusted in
accordance with the Code to reflect increases in the cost of living. If the
limitations provided in this Section 3.3.1 would be exceeded for any
limitation year with respect to any participant, any required reduction in
the annual addition to his account under this plan shall be made as
provided in Section 3.3.2.
3.3.2 If, as a result of the allocation of forfeitures, an error in
estimating a participant's statutory compensation, or other limited facts
and circumstances, the dollar limitation or the statutory compensation
limitation set forth in Section 3.3.1 would be exceeded for any limitation
year, such excess with respect to a participant for such limitation year
shall be disposed of in the following order:
15
<PAGE>
(i) Any nondeductible employee contributions, if any, and any
gains attributable thereto, to the extent of such excess shall be
returned to the participant.
(ii) If further reductions are necessary, then such
participant's share of the forfeitures for the limitation year shall
be reduced to the extent of such remaining excess; provided, that any
such reduction shall be made first to such participant's share of
forfeitures in cash and then to such participant's share of
forfeitures in Company stock. The amount of the reduction shall be
reallocated among the remaining active participants in the ratio that
each such participant's compensation during the limitation year in
question bears to the aggregate compensation of all such participants
during such limitation year and before any nondeductible employee
contributions or Company contributions for such limitation year are
allocated. If all of the amount of such reduction with respect to the
participant and the amount of any reduction with respect to any other
participant cannot be reallocated without causing the account of each
other participant to exceed the dollar limitation or the statutory
compensation limitation, then such amount shall be credited to a
separate account, designated as the "limitation account."
(iii) If further reductions are necessary, then such
participant's share of the Company contribution for the limitation
year shall be reduced to the extent of such remaining excess;
provided, that any such reduction shall be made first to such
participant's share of the Company contribution made in cash and then
to such participant's share of the Company contribution made in
Company stock. The amount of the reduction shall be reallocated among
the remaining active participants in the ratio that each such
participant's compensation during the limitation year in question
bears to the aggregate compensation of all such participants during
such limitation year and before any nondeductible employee
contributions or Company contributions for such limitation year are
allocated. If all of the amount of such reduction with respect to the
participant and the amount of any reduction with respect to any other
participant cannot be reallocated without causing the account of each
other participant to exceed the dollar limitation or the statutory
compensation limitation, then such amount shall be credited to the
limitation account established pursuant to subparagraph (ii)
immediately preceding.
(iv) The limitation account shall contain the excess amounts of
Company contributions from all limitation years. Such excess amounts
shall be allocated for each succeeding limitation year among the
accounts of active participants in the ratio that each such
16
<PAGE>
participant's compensation for the limitation year in question bears
to the aggregate compensation of all such participants during such
limitation year and before any nondeductible employee contributions or
Company contributions for such year are allocated. The limitation
account shall not share in the valuation of the accounts and the
allocation of earnings. Any earnings attributable to the limitation
account shall be treated as earnings of the trust and allocated to the
accounts as provided in Section 9. The limitation account shall be
adjusted annually for additions thereto and distributions therefrom.
If the plan is terminated, any balance in the limitation account shall
be returned to the Company.
3.3.3 This Section 3.3.3 shall apply with respect to limitation years
beginning prior to January 1, 2000. If at any time a participant is a
participant in the plan and in a defined benefit plan (as defined in
Section 3.3.4) of the Company, in no event shall the sum of the defined
benefit fraction (as defined in this Section 3.3.3) and the defined
contribution fraction (as defined in this Section 3.3.3) for any limitation
year exceed 1.0. For purposes of this Section 3.3.3, and except as
otherwise provided in this Section 3.3, the "defined benefit fraction" for
any limitation year of a defined benefit plan shall be a fraction the
numerator of which is the projected annual benefit of the participant under
the defined benefit plan (as determined as of the close of such limitation
year), and the denominator of which is the lesser of (i) the product of
1.25 and the dollar limitation in effect for defined benefit plans for such
limitation year (referred to herein as the "defined benefit dollar
limitation"), and (ii) the product of 1.4 and 100 percent of the
participant's average annual statutory compensation for the period of 3
consecutive calendar years (or the actual number of consecutive years of
employment with the Company if the participant was employed by the Company
for less than 3 consecutive years) which will produce the highest average
(referred to herein as the "defined benefit statutory compensation
limitation"). The "defined contribution fraction" for any limitation year
of the plan shall be a fraction the numerator of which is the sum of the
annual additions to the participant's accounts under the plan and all other
defined contribution plans maintained by the Company through the close of
such limitation year, and the denominator of which is the sum of the lesser
of (A) or (B) for such limitation year and for each prior limitation year
during which the participant was an employee of the Company (regardless of
whether a plan was in existence during those years), where (A) is the
product of 1.25 and the dollar limitation in effect for such limitation
year (determined without regard to Section 415(c)(6) of the Code), and (B)
is the product of 1.4 and the statutory compensation limitation for the
limitation year. If the limitation provided in this Section 3.3.3 would be
exceeded for any limitation year, the reduction in the sum of the defined
benefit fraction and the defined contribution fraction necessary to comply
with the limitation shall be made in the defined contribution fraction and
any reductions in the annual addition to the account of any participant
shall be made in accordance with Sections 3.3.1 and 3.3.2.
17
<PAGE>
3.3.4 For the purpose of applying the rules of this Section 3.3, the
following provisions shall apply: (a) all defined benefit plans of the
Company shall be considered as a single plan, and all defined contribution
plans of the Company shall be considered as a single plan; (b) "defined
contribution plan" means a plan, including this plan, which provides for an
individual account for each participant and for benefits based solely on
the amount contributed to the participant's account and any income,
expenses, gains and losses, and forfeitures of accounts of other
participants that are allocated to such participant's account; and "defined
benefit plan" means any plan that is not a defined contribution plan;
provided, that only plans described in Section 415(k)(1) of the Code shall
be included within the definition of a defined contribution plan or a
defined benefit plan, as the case may be; (c) any affiliated employer shall
be considered to be the Company; provided, that for purposes of this
Section 3.3, the determination of the members of a controlled group of
employers and employers under common control pursuant to Sections 414(b)
and (c) of the Code shall be made by substituting the phrase "more than 50
percent" for the phrase "at least 80 percent" where it appears in such Code
sections; (d) "projected annual benefit" shall mean the annual normal
retirement benefit payable in the form of a straight life annuity (with no
ancillary benefits) to which a participant would be entitled under the
terms of the defined benefit plan if the following factors are assumed: (i)
the participant will continue employment with the Company until he reaches
social security retirement age (or until his then current age, if he has
previously reached social security retirement age); (ii) the participant's
compensation for the limitation year will remain the same until the date
the participant attains social security retirement age; and (iii) all other
relevant factors used to determine benefits under the defined benefit plan
for the limitation year will remain constant for all future limitation
years; (e) the "limitation year" shall be the plan year; (f) "annual
addition" with respect to any limitation year means the sum of the
following items allocated on behalf of a participant: (i) Company
contributions, including such contributions used to repay an acquisition
loan; (ii) all forfeitures; (iii) nondeductible employee contributions
(nondeductible employee contributions shall be considered made with respect
to a particular plan year if such contributions actually are made by the
participant during such plan year or within 30 days after the close of such
plan year); (iv) amounts allocated to an individual medical account, as
defined in Section 415(l) of the Code, which is part of a defined benefit
plan maintained by the Company; (v) amounts derived from contributions paid
or accrued that are attributable to post-retirement medical benefits
allocated to the separate account of a key employee, as defined in Section
419A(d) of the Code, under a welfare benefit fund, as defined in Section
419(e) of the Code, maintained by the Company; provided, that the following
are not "annual additions": (1) transfers of funds from one qualified plan
to another; (2) rollover contributions (as defined in Sections 402(c),
403(a)(4), 408(d)(3) and 403(b)(8) of the Code); (3) repayments of loans
made to a participant from the plan; (4) repayments of distributions
received by an employee pursuant to Section 411(a)(7)(B) of the Code; (5)
repayments of distributions received by an employee pursuant to Section
411(a)(3)(D) of the Code (mandatory contributions); (6) employee
contributions to a simplified employee pension which are excludible from
gross income under Section 408(k)(6); (7) de-
18
<PAGE>
ductible employee contributions to a qualified plan; and (7) proceeds from
the sale of unallocated Company stock; and (g) notwithstanding anything in
this Section 3.3 to the contrary, the limitations, adjustments and other
requirements prescribed in this Section 3.3 shall at all times comply with
Section 415 of the Code and the regulations thereunder.
3.3.5 If, for any limitation year, no more than one-third of the
Company contribution that is deductible as a principal or interest payment
on an acquisition loan pursuant to the provisions of Section 404(a)(9) of
the Code is allocated to the accounts of highly compensated employees, then
the annual addition for such limitation year shall not include forfeitures
of Company stock acquired with the proceeds of an acquisition loan or
Company contributions that are deductible under Section 404(a)(9)(B) of the
Code as interest payments on an acquisition loan and charged against the
participant's account.
3.4 EMPLOYEE CONTRIBUTIONS: No participant shall be required or
permitted to make contributions to the plan.
SECTION 4. RETIREMENT; TERMINATION OF SERVICE:
--------- ----------------------------------
4.1 NORMAL RETIREMENT: A participant in service may retire from
service at his normal retirement date. Subject to an election made pursuant to
Section 5.1.1, the value of the participant's vested accrued benefit shall be
determined as of the year-end adjustment date which coincides with the
participant's normal retirement date and shall be paid to the participant at
such time and in such manner as provided in Section 5.
4.2 DELAYED RETIREMENT: If a participant remains in service
following his normal retirement date, his delayed retirement date shall be the
date he actually terminates service for reasons other than death. Subject to an
election made pursuant to Section 5.1.1 and the provisions of Section 5.1.2, the
value of the participant's vested accrued benefit shall be determined as of the
year-end adjustment date coincident with or next following the date the
participant terminates service and shall be paid to the participant at such time
and in such manner as provided in Section 5.
4.3 DISABILITY RETIREMENT: If a participant in service suffers
disability, he shall retire as of the date of establishment of his disability
(the "disability retirement date"). Subject to
19
<PAGE>
an election made pursuant to Section 5.1.1 and the provisions of Section 5.3.4,
the value of the disabled participant's vested accrued benefit shall be
determined as of the year-end adjustment date coincident with or next following
the disability retirement date and shall be paid to the participant at such time
and in such manner as provided in Section 5. For purposes of the plan,
"disability" means the participant, because of a physical or mental disability,
is unable to perform the duties of his customary position of employment (or is
unable to engage in any substantial gainful activity) for an indefinite period
which the Committee considers will be of long continued duration. A participant
is also disabled if he incurs a permanent loss or loss of use of a member or
function of the body, or is permanently disfigured, and, as a result thereof,
terminates service. The determination of the existence or nonexistence of
disability shall be made by the Committee in a nondiscriminatory manner pursuant
to medical evidence satisfactory to the Committee. The determination of the
Committee shall be binding and conclusive upon the Company, the participant and
all other interested persons.
4.4 DEATH: If a participant dies, his vested accrued benefit shall
be paid to his beneficiary pursuant to the provisions of Section 5.2.
4.5 BREAK IN SERVICE; TERMINATION OF SERVICE:
4.5.1 If a participant who is not eligible to retire shall not be in
service as of any year-end adjustment date, his vested accrued benefit
shall be determined pursuant to Section 6 as of such year-end adjustment
date. Except as otherwise provided in Sections 4.5.2, 4.5.3, 4.5.4 and 5,
such vested accrued benefit shall be held under the plan for future payment
until the earlier of his normal retirement date or the date of his death,
whereupon it shall be paid to him or his beneficiary, as the case may be,
in the same manner as if he were an active participant at the time of his
normal retirement date or death. The amount of his vested accrued benefit
which shall be held for him under this Section 4.5.1 shall be set aside in
a special account (his "deferred payment account") in which such
participant shall be fully vested at all times. The deferred payment
account shall be adjusted as of each adjustment date
20
<PAGE>
as provided in Section 9 and shall be included in his vested accrued
benefit for purposes of distribution from the plan.
4.5.2 Notwithstanding the provisions of Section 4.5.1, if the vested
accrued benefit of the participant does not exceed $5,000 as of the year-
end adjustment date for the plan year in which he first has a break in
service (the "break in service adjustment date"), then his vested accrued
benefit as of the break in service adjustment date shall be paid to him in
a lump sum as soon as practicable following such adjustment date. The
following provisions shall apply if the participant is not fully vested in
his accrued benefit on his break in service adjustment date:
(i) The portion of his accrued benefit that is not vested in
him shall be forfeited as of his break in service adjustment date
pursuant to Section 6.3.
(ii) If he reenters service and repays to the trust the full
amount received from the trust on or before the earlier of the year-
end adjustment date of the plan year in which he incurs his fifth
consecutive break in service following termination or the fifth
anniversary of the date he reenters service, such repaid amount shall
be credited to his account. Following such repayment, the Trustees
shall credit to his account, on or before the year-end adjustment date
following the date of repayment, the additional amount necessary to
restore his account balance to the balance that existed as of the
break in service adjustment date. Such amount shall be taken from
available forfeitures, if any. If such forfeitures are insufficient
for this purpose, such amount shall be contributed by the Company to
the Trustees on or before such adjustment date.
If a participant terminates service at a time when his vested percentage is
zero and does not reenter service prior to his break in service adjustment
date, he shall be deemed to have received a distribution of such vested
accrued benefit and shall forfeit his accrued benefit pursuant to Section
6.3 as of his break in service adjustment date, but the Company shall
restore such benefit if he reenters service prior to incurring his fifth
consecutive break in service.
4.5.3 Notwithstanding the provisions of Section 4.5.1, and subject to
the provisions of Sections 4.5.4 and 5, a participant who (i) has a vested
accrued benefit in excess of $5,000 as of the break in service adjustment
date, (ii) has incurred 5 consecutive breaks in service and (iii) is not
eligible to retire as of the year-end adjustment date for the plan year in
which his fifth consecutive break in service occurs (the "fifth break in
service adjustment date") may elect to receive his vested accrued benefit
as of the fifth break in service adjustment date. The plan administrator
shall notify the participant of his rights under this Section 4.5.3 no less
21
<PAGE>
than 30 days and no more than 90 days prior to the fifth break in service
adjustment date. Such notification shall include a general description of
the participant's right to elect to receive his vested accrued benefit as
of the fifth break in service adjustment date and the options available to
the participant with respect to the form of payment of his vested accrued
benefit. Such election shall be submitted in writing to the Committee
within the 90 day period ending on the fifth break in service adjustment
date, or, if later, on or before the 30th day after the participant
receives notice of his rights under this Section 4.5.3. Such election shall
be irrevocable on such date, except that such election shall be disregarded
if such participant shall be in service on the date payment of such benefit
is to be made. The vested percentage of the participant's accrued benefit
shall be determined pursuant to the provisions of Section 6 and this
Section 4.5.3 as of the fifth break in service adjustment date. The manner
of payment of the vested accrued benefit shall be determined under Section
5.1, treating for this purpose the fifth break in service adjustment date
as if it were the normal retirement date of the participant.
4.5.4 If a participant becomes entitled to receive a distribution of
his vested accrued benefit pursuant to Section 4.5.2 or 4.5.3, see Section
19 for special rules that allow the participant to elect to have such
distribution transferred directly by the Trustees to the trustee or
custodian of an eligible retirement plan (as defined in Section 19.1.2). If
a distribution is made pursuant to Sections 4.5.2 or 4.5.3 to a participant
before he attains age 55, such participant shall be advised by the plan
administrator that an additional income tax may be imposed in an amount
equal to 10 percent of the portion of the amount so received which is
included in his gross income for such taxable year.
4.5.5 If a distribution is one to which Sections 401(a)(11) and 417
of the Code do not apply, such distribution may commence less than 30 days
after the date the notice required under Section 1.411(a)-11(c) of the
Income Tax Regulations is given, provided that:
(i) the plan administrator clearly informs the participant
that the participant has a right to a period of at least 30 days after
receiving the notice to consider the decision of whether or not to
elect a distribution (and, if applicable, a particular distribution
option), and
(ii) the participant, after receiving the notice, affirmatively
elects a distribution.
22
<PAGE>
SECTION 5. PAYMENT OF BENEFITS:
--------- -------------------
5.1 PAYMENT OF BENEFIT FOR REASONS OTHER THAN DEATH: As of the
close of business of the plan on the year-end adjustment date coincident with or
next following the date a participant retires, or as of such later year-end
adjustment date as the participant elects pursuant to Section 5.1.1, his vested
accrued benefit, determined as of such adjustment date, shall be paid to him in
a lump sum. The following provisions shall apply for purposes of this Section
5.1.
5.1.1 Unless a participant files an election pursuant to this Section
5.1.1 to defer the payment of his vested accrued benefit, such payment must
be made within 60 days following the later of the year-end adjustment date
for the plan year in which the participant: (i) attains normal retirement
age, or (ii) retires or otherwise terminates service. In the event that,
within the applicable 60-day period, the amount of the payment to be made
cannot be determined or the recipient thereof cannot be located after a
reasonable effort has been made to locate him, payment retroactive to the
close of such 60-day period shall be made within 60 days after the amount
has been determined or the recipient located, whichever applies. Subject to
the provisions of Section 5.1.2, prior to the year-end adjustment date as
of which payment of a participant's vested accrued benefit is to be made,
the participant may elect to defer payment thereof to a subsequent year-end
adjustment date, including an adjustment date following the later of (i) or
(ii) above. Such election shall be filed in writing with the Committee
prior to the year-end adjustment date as of which payment of his vested
accrued benefit otherwise would be made. Such election may be revoked or
changed as of any year-end adjustment date between the date filed and the
year-end adjustment date to which payment is deferred by filing a written
revocation or change with the Committee prior to the year-end adjustment
date as of which the revocation or change is to be effective.
5.1.2 A participant's vested accrued benefit must be distributed to
him in a lump sum no later than the participant's required beginning date
(as defined in Section 5.3.6). Following such distribution, the participant
shall be paid the amount of any subsequent allocation to his account as
soon as practicable following the close of the plan year in which such
allocation was made.
5.2 PAYMENT OF DEATH BENEFIT: On the death of a participant, the
following provisions shall apply:
5.2.1 If the participant dies before distribution of his vested
accrued benefit is made, his entire vested accrued benefit (determined
after applying Section 6) shall
23
<PAGE>
be distributed to his beneficiary in a lump sum as of the year-end
adjustment date coincident with or next following the participant's date of
death. For purposes of this Section 5.2.1, if a participant dies following
his termination of service, the vested percentage of his benefit shall not
change because of death.
5.2.2 A participant's beneficiary shall be his surviving spouse, if
any; provided, that if he has no surviving spouse or files a qualified
election (as defined in this Section 5.2.2) with the Committee, the
participant may designate another beneficiary (which may include more than
one person, natural or otherwise, and more than one contingent
beneficiary). A "qualified election" means a beneficiary designation by the
participant on a form provided by the Committee which contains the spouse's
consent to a specific non-spouse beneficiary or beneficiaries and the
spouse's acknowledgment of the effect of such consent. Such beneficiary
designation form shall be signed by the participant's spouse and such
signature shall be witnessed by a representative of the Committee or a
notary public. Consent of the spouse shall not be required if the spouse
cannot be located or other circumstances exist which excuse obtaining
spousal consent under applicable law or regulation. A participant's
qualified election may be revoked at any time by action of the participant
alone, in which case the participant's spouse shall be the beneficiary. Any
other change in beneficiary must be made pursuant to a new qualified
election. If a participant fails to designate a beneficiary (other than his
surviving spouse), the death benefit shall be payable to the participant's
estate. If a beneficiary is entitled to receive a payment from the trust
fund and dies before receiving the payment due him, the payment shall be
made to the contingent beneficiary, or, if there is no contingent
beneficiary, to the estate of the beneficiary. Any beneficiary may disclaim
part or all of any benefit to which he is entitled by filing a written
disclaimer with the Committee at least 10 days before payment of such
benefit is to commence, in a form satisfactory to the Committee and shall
be irrevocable when filed. Any benefit disclaimed shall be payable as if
the beneficiary who filed the disclaimer had died on the date of such
filing.
5.3 DISTRIBUTION REQUIREMENTS AND DEFINITIONS: All distributions
under Section 5 shall be determined and made in accordance with Section
401(a)(9) and 409(o) of the Code, including the minimum distribution incidental
benefit requirement of Section 1.401(a)(9)-2 of the Treasury Regulations, which
are incorporated herein by reference. The following provisions shall apply for
purposes of the distribution requirements:
5.3.1 Notwithstanding any other provision of the plan, if the vested
accrued benefit of a participant does not exceed $5,000 as of the year-end
adjustment date coincident with or next following his date of retirement,
then his vested accrued
24
<PAGE>
benefit shall be paid to him in a lump sum as of such adjustment date
without regard to any election made by the participant or any consent of
the participant.
5.3.2 If the vested accrued benefit of any individual is being held
in the trust for future payment to him, his account shall continue to be
adjusted as of each year-end adjustment date as provided in Section 9.
5.3.3 All rights and benefits, including elections, provided to a
participant shall be subject to the rights afforded to an "alternate payee"
under a "qualified domestic relations order" as those terms are defined in
Section 414(p) of the Code.
5.3.4 Subject to the provisions of Section 14.1, any distribution to
a participant who has a vested accrued benefit which exceeds $5,000 shall
require the participant's consent if such distribution is to be made prior
to the participant's attainment of normal retirement age.
5.3.5 If a participant or his surviving spouse becomes entitled to
receive a distribution pursuant to the provisions of this Section 5, see
Section 19 for special rules that allow the participant or his surviving
spouse, as the case may be, to elect to have such distribution transferred
directly by the Trustees to the trustee or custodian of an eligible
retirement plan (as defined in Section 19.1.2).
5.3.6 A participant's "required beginning date" shall be April 1 of
the later of (A) calendar year following the year in which the participant
attains age 70 1/2 , or (B) the calendar year in which the participant
retires. Notwithstanding the foregoing, the required beginning date of a
participant who is a five percent owner (as defined in Section 416 of the
Code) shall be April 1 of the calendar year following the calendar year in
which the participant attains age 70 1/2.
5.4 MEDIUM OF PAYMENT; PUT OPTION; RIGHT OF FIRST REFUSAL;
VALUATION OF COMPANY STOCK: All payments under the plan to a participant or his
beneficiary, the donees of either, or a person (including an estate or its
distributees) to whom the Company stock passed on ac count of death of the
participant or beneficiary (the "recipient") shall be subject to the following
requirements:
5.4.1 Medium of payment: All payments under the plan shall be made in
cash unless a participant or beneficiary elects payment in Company stock or
partly in cash and partly in Company stock. Any election to receive
payments in the form of Company stock may be made only by the participant
or beneficiary in writing on a form provided by the Committee on or before
the year-end adjustment date as of
25
<PAGE>
which payments are to be made to the recipient. An election shall be
revocable in writing at any time up to such year-end adjustment date, at
which time such election shall be irrevocable. The number of shares of
Company stock, if any, and the amount of cash, if any, distributable to any
recipient shall be determined as of such year-end adjustment date. Any
portion of a payment that would be represented by a fractional share shall
be paid in cash irrespective of an election to receive payment in the form
of Company stock. Notwithstanding anything in this Section 5.4.1 to the
contrary, the right of a participant or beneficiary to elect payment in
Company stock shall be subject to the following rules:
(i) The portion of the participant's account that he
previously elected to reinvest as provided in Section 9.8 (other than
the portion in excess of the limits set forth in Section
401(a)(28)(B)(i) of the Code) shall not be subject to the right of the
participant or beneficiary to elect distribution in shares of Company
stock; and
(ii) If the Company's charter or bylaws restrict the ownership
of substantially all outstanding shares of Company stock to employees
of the Company or to a trust described in Section 401(a) of the Code,
distribution of the Company stock account of a participant who has
terminated service may be made entirely in cash without granting the
participant or beneficiary the right to elect distribution in shares
of Company stock.
5.4.2 Put option: If Company stock is not readily tradable on an
established market or is subject to a trading limitation when distributed,
all Company stock distributed pursuant to Sections 4 and 5 shall be subject
to a "put" option, which is exercisable by the recipient. The put option
shall provide that the recipient may sell all or any part of such Company
stock to the Company on any regular business day within one of two option
periods. The first option period shall be the 60-day period next following
the date distribution of such shares is made to the recipient. The second
option period, which shall apply if the put option is not exercised in the
first option period, shall be the 60-day period next following the year-end
adjustment date for the plan year in which distribution of such Company
stock occurred. Such put option shall be exercised by tendering the Company
stock for sale to the Company within the applicable option period in
accordance with procedures established by the Committee. The sales price
for such Company stock shall be the fair market value thereof determined
pursuant to Section 5.4.4. Notwithstanding the foregoing pro visions of
this Section 5.4.2, the following provisions shall apply:
(i) At the request of the Committee and with the consent of
the Company, the trust may assume the obligation of the Company
26
<PAGE>
to purchase Company stock pursuant to the exercise of any put option.
(ii) The sales price for Company stock sold to the trust or
Company shall be paid in a lump sum within 30 days after exercise of
the put option; provided, that if the accrued benefit of a participant
is distributed as part of a total distribution (as defined in Section
409(h)(5) of the Code), such sales price, at the option of the party
repurchasing the Company stock, may be paid in equal (or substantially
equal) monthly, quarterly or annual installments for a period
beginning not later than 30 days after the exercise of the put option
and not exceeding 5 years. Any deferred portion of the sales price
shall bear a reasonable rate of interest and be adequately secured.
(iii) Either option period shall be extended by any time within
such option period during which a recipient is unable to exer cise the
put option because the Company is prohibited by applicable federal or
state law from fulfilling its obligations hereunder.
(iv) If Company stock that is readily tradable on an
established market without restrictions when distributed ceases to be
readily tradable after distribution and within the applicable option
period, the Company stock shall be subject to the put option for the
remainder of the applicable option period. The Company must notify the
recipient of such Company stock in writing on or before the 10th day
after the date Company stock ceases to be readily tradable on an
established market. The number of days between the 10th day and the
date on which notice actually is given, if later than the 10th day,
shall be added to the duration of the applicable option period. The
notice shall inform the recipient of the terms of the put option.
For purposes of this Section 5.4.2, the term "trading limitation" refers to
a restriction on a security under any federal or state securities law, any
regulation thereunder, or an agreement (other than a right of first refusal
described in Section 5.4.3) affecting the security which would make the
security not as readily tradable as a security not subject to such
restriction.
5.4.3 Right of first refusal: If any recipient shall desire to sell,
transfer (by gift or otherwise), encumber or otherwise dispose of any
Company stock during his lifetime, and the Company stock is not then
readily tradable on an established market, the recipient shall first offer
in writing to the Committee to sell all of such stock to the trust. The
Committee shall communicate such offer to the Trustees and the Company. If
the Committee desires for the trust to purchase all or a part of such
27
<PAGE>
stock, it shall direct the Trustees to carry out such purchase for the
trust. If the trust does not purchase all of such stock within 14 days
after receipt of such offer, the Company may purchase all or a part of such
stock not so purchased within such 14-day period. If the Company does not
purchase all of the stock within such time period, the stock not so
purchased may be sold, transferred, encumbered or otherwise disposed of
free from the restrictions of this Section 5.4.3 for 30 days following the
close of the 14-day period. After the close of such 30-day period, the
restrictions of this Section 5.4.3 again shall apply to any of the Company
stock not so sold, transferred, encumbered or otherwise disposed of. If
any Company stock is encumbered or otherwise disposed of for a temporary
period, and the recipient of such stock under the plan receives all or a
portion of such stock back at or after the close of such temporary period,
such stock again shall be subject to the restrictions of this Section
5.4.3. The purchase price of each share of Company stock purchased
hereunder shall be the fair market value thereof as determined by the
Committee pursuant to Section 5.4.4 but in no event less than the amount of
any good faith (as determined by the Committee) and then outstanding offer
received by the recipient desiring to dispose of the stock (other than an
offer made by the Company or the Trustees). The purchase price of any
Company stock purchased in accordance with this Section 5.4.3 shall be paid
in full in cash at the time of the closing. The closing shall take place at
such time and place agreed upon between the Committee and the recipient,
but not later than 10 days after the Company or the Trustees notify such
recipient of the exercise of the right of first refusal. At the closing,
the recipient shall deliver certificates representing the offered Company
stock duly endorsed in blank for transfer, or with stock powers duly
executed in blank with all required transfer tax stamps attached or
provided for, and the Company or the Trustees shall deliver the purchase
price. Shares of Company stock which are readily tradeable on an
established market at the time the right of first refusal may be exercised
by the Company and the Trustees shall not be subject to the provisions of
this Section 5.4.3.
5.4.4 Valuation of Company stock: Subject to the provisions of
Section 5.4.3, all purchases of Company stock by the trust shall be made at
a price not in excess of fair market value. All sales of Company stock by
the trust shall be made at a price not less than fair market value. Any
sale of Company stock to a disqualified person (as defined in Section
4975(e)(2) of the Code) or a party-in-interest (as defined in Section 3(14)
of ERISA) shall conform to the requirements of Section 408(e) of ERISA. For
all purposes of the plan, the fair market value of Company stock shall be
determined by the Committee in good faith. If there is a generally
recognized market for Company stock, the fair market value shall be either
(i) the price of the Company stock prevailing on a national securities
exchange which is registered under Section 6 of the Securities Exchange Act
of 1934; or (ii) if the Company stock is not traded on such an exchange, a
price not less favorable to the plan than the offering price for the
Company stock established by the current bid and asked prices quoted by
persons independent of the Company and any party-in-interest or
disqualified person. If there is no generally recognized market for
28
<PAGE>
Company stock, the determination of fair market value by the Committee
shall be based on a valuation by an independent appraiser appointed by the
Committee. Such appraiser must meet the requirements of the regulations
prescribed under Section 401(a)(28)(C) of the Code, or, in the absence of
such regulations, requirements similar to the requirements of the
regulations prescribed under Section 170(a)(1) of the Code. In the case of
a transaction between the plan and a disqualified person or a party-in-
interest, fair market value shall be determined as of the date of the
transaction. For all other purposes, fair market value shall be determined
as of the year-end adjustment date coincident with or next preceding the
date of the transaction.
5.4.5 Continuation of rights or put option: The rights and put
option provided in this Section 5 shall be nonterminable and continue to
apply to Company stock purchased with the proceeds of an acquisition loan
or distributed under the plan notwithstanding repayment of an acquisition
loan or any amendment or termination of the plan that causes the plan to
cease to be an employee stock ownership plan within the meaning of Section
4975(e)(7) of the Code.
5.5 DISTRIBUTIONS TO ALTERNATE PAYEES: If the participant's accrued
benefit under the plan shall become subject to any "domestic relations order"
which (i) is a "qualified domestic relations order" within the meaning of
Section 414(p) of the Code, and (ii) requires the immediate distribution in a
single lump sum of the entire portion of the participant's accrued benefit
required to be segregated for the benefit of an alternate payee, then the entire
interest of such alternate payee shall be distributed in a single lump sum as
soon as practicable following the adjustment date coincident with or immediately
following the plan administrator's notification to the participant and the
alternate payee that the domestic relations order is qualified under Section
414(p) of the Code. Such distribution to an alternate payee shall be made even
if the participant has not separated from the service of the Company. Any other
distribution pursuant to a qualified domestic relations order shall not be made
earlier than the participant's termination of service, or his attainment of age
50, if earlier, and only in a manner permitted under Section 5. For purposes of
this Section 5.5, "alternate payee" shall mean any spouse, former spouse, child,
or other dependent of the participant
29
<PAGE>
who is recognized by a domestic relations order as having a right to receive all
or a portion of the accrued benefit payable under the plan with respect to such
participant.
5.6 LEGEND: If recommended by legal counsel for the Company,
certificates representing ownership of Company stock distributed from the plan
shall bear an appropriate legend approved by such counsel to ensure that Company
stock is issued in compliance with all applicable federal and state securities
laws.
5.7 DIRECTIONS: The Committee shall notify the Trustees of a
participant's retirement, death or termination of service and shall direct the
Trustees to make a distribution to the person or persons entitled thereto from
the trust at such time and in such manner as required by the provisions of
Sections 4 and 5.
SECTION 6. VESTING:
--------- -------
6.1 FULL VESTING: The accrued benefit of a participant shall be
fully vested immediately following the first to occur of the following:
6.1.1 Completion of his first hour of service on or after attainment
of normal retirement age;
6.1.2 Disability retirement of the participant;
6.1.3 Death of the participant while in service;
6.1.4 Termination of the plan by the Company, including a termination
of contributions to the plan or a suspension or reduction of such
contributions that amounts in effect to a termination of contributions; and
6.1.5 Completion of 6 or more years of service.
For purposes of this Section 6.1, all years of service shall be taken into
account.
6.2 VESTING SCHEDULE: A participant who is not fully vested in his
accrued benefit as provided in Section 6.1 shall be vested in the following
applicable percentage of his accrued
30
<PAGE>
benefit, depending on the number of his years of service at the time such vested
percentage is determined:
Number of Years Vested
of Service Percentage
---------- ----------
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
6.3 FORFEITURES: A participant who is not fully vested in his
accrued benefit shall forfeit the portion of his accrued benefit which is not
vested as of the year-end adjustment date of the plan year in which the first of
the following occurs: (i) his fifth consecutive break in service; (ii) his
death while not in service; or (iii) his break in service and distribution or
deemed distribution to him of his vested accrued benefit as of his break in
service adjustment date as provided in Section 4.5.2. The forfeited portion of
his accrued benefit shall be combined with amounts forfeited by all other such
participants as of such adjustment date. The aggregate of such forfeitures
shall be applied in the current or succeeding plan year in the manner provided
in Section 9. The portion of a participant's account that is forfeited shall
come first from his general account, and, if such account is depleted, then from
his Company stock account.
6.4 VESTING UPON A RETURN TO SERVICE: If a distribution is made
pursuant to Section 4.5.2 at a time when the participant is not fully vested in
his account and the participant returns to service prior to incurring his fifth
consecutive break in service, the vested amount in such account as of any
subsequent year-end adjustment date prior to the date the participant is fully
vested in such account shall be determined according to the following formula:
X = P [AB + (R) x D)] - (R) x D). For purposes of the formula: X is the vested
amount in the participant's account as
31
<PAGE>
of such adjustment date; P is the vested percentage as of such adjustment date;
AB is the amount in the participant's account as of such adjustment date; D is
the amount of the distribution made pursuant to Section 4.5.2; and R is the
ratio of the amount in his account as of such adjustment date to the amount in
his account as of the participant's break in service adjustment date (as defined
in Section 4.5.2), after subtracting the amount of the distribution made
pursuant to Section 4.6.2.
6.5 CHANGE IN VESTING SCHEDULE: If an amendment to the plan directly
or indirectly affects the determination of a participant's vested percentage,
each participant in service with at least 3 years of service may irrevocably
elect to have his vested percentage determined without regard to such amendment.
The participant may make such election during the period beginning on the date
such amendment is adopted or deemed to be made and ending on the date that is 60
days after the latest of the date (a) such amendment is adopted; (b) such
amendment is effective; or (c) the Committee advises the participant in writing
of such amendment.
SECTION 7. ACQUISITION LOANS:
---------- -----------------
At the direction of the Committee, the Trustees from time to time
shall obtain acquisition loans to finance the acquisition of Company stock or
repay a prior acquisition loan, subject to the following provisions:
7.1 TERMS: An acquisition loan shall be arranged primarily in the
interest of the participants and their beneficiaries, and the terms thereof at
the time of the loan shall be at least as favorable to the trust as the terms of
a comparable loan resulting from arm's length negotiations between independent
parties. The interest rate of the loan may not exceed a reasonable rate of
32
<PAGE>
interest, and the loan shall be for a specific term. The number of years to
maturity under the loan must be definitely ascertainable at all times.
7.2 USE OF PROCEEDS: Within a reasonable time following receipt of
the proceeds of an acquisition loan by the trust, but in no event later than 60
days after the receipt thereof, such proceeds shall be used for one or more of
the following purposes: (i) to acquire Company stock; (ii) to repay the loan;
or (iii) to repay a prior acquisition loan which was made in compliance with the
requirements of this Section 7. Financed shares shall be credited to the
suspense account pending the release and allocation of such shares to the
Company stock accounts of participants as the acquisition loan is repaid.
7.3 COLLATERAL: An acquisition loan shall be without recourse to the
trust. The only assets of the trust that may be given as collateral for an
acquisition loan are the financed shares acquired with the proceeds of the loan
or a prior acquisition loan which was repaid with the proceeds of the current
acquisition loan. Any pledge of financed shares must provide for the release of
such shares in the manner described in Section 7.6 as payments on the
acquisition loan are made by the Trustees. Except as otherwise provided in
Section 18, any such released shares shall be allocated to the Company stock
accounts of participants as provided in Sections 7.6 and 9.2.
7.4 AVAILABLE ASSETS; PAYMENTS: No person entitled to payments with
respect to an acquisition loan shall have any right to assets of the trust
except for: (i) collateral given for the loan; (ii) contributions (other than
in the form of Company stock) made by the Company to meet the obligation to
repay the loan and any investments purchased with such contributions; (iii)
trust earnings attributable to amounts specified in (i) and (ii) immediately
preceding; and (iv) subject to the provisions of Section 9.3, cash dividends
attributable to allocated or unallocated Company stock.
33
<PAGE>
Payments made with respect to an acquisition loan by the trust during any plan
year may not exceed the aggregate of the amounts specified in (ii), (iii) and
(iv) of this Section 7.4 for all plan years decreased by the aggregate of such
payments for all prior plan years. All Company contributions (other than in the
form of Company stock) made during the plan year in which an acquisition loan is
made (whether before or after the date the proceeds of the loan are received)
and thereafter until the acquisition loan is repaid in full, without regard to
whether any such Company contributions have been allocated to the general
accounts of participants, shall be available to meet obligations under the
acquisition loan as such obligations accrue, or prior to the time such
obligations accrue, unless otherwise provided by the Company at the time any
such contributions are made. All trust earnings attributable to investment of
Company contributions, without regard to whether any Company contributions and
earnings have been allocated to the general accounts of participants, and,
subject to the provisions of Section 9.3, all cash dividends attributable to
allocated and unallocated Company stock likewise shall be available for such
purpose. The Trustees shall account separately for the amounts specified in (ii)
and (iii) of this Section 7.4 until the acquisition loan is repaid.
7.5 DEFAULT: In the event of a default by the trust with respect to
an acquisition loan, the value of assets of the trust transferred in
satisfaction of the loan may not exceed the amount of the loan (including
accrued and unpaid interest) with respect to which such default occurred. In
the event the lender is a disqualified person or party-in-interest, a transfer
of trust assets upon default may occur only in the event of failure of the trust
to meet the payment schedule of the loan and only to the extent thereof. No
transfer to a guarantor of a loan may be made pursuant to this Section 7.5.
34
<PAGE>
7.6 SUSPENSE ACCOUNT; RELEASE OF SHARES: Any financed shares
(whether or not used as collateral for an acquisition loan) or other Company
stock used as collateral for an acquisition loan shall be held in the suspense
account pending release and allocation of such shares to the Company stock
accounts of participants as provided in this Section 7.6. The release and
allocation thereof shall be determined by the Committee in the following manner:
7.6.1 If the terms of the acquisition loan provide for annual
payments of principal and interest at a cumulative rate not less rapid at
any time than level annual payments of principal and interest over 10
years, then for each plan year during the duration of the loan the number
of shares of Company stock released from the suspense account shall equal
the number of financed shares held immediately before release in the
current plan year multiplied by a fraction. The numerator of the fraction
shall be the principal paid in such plan year, and the denominator shall be
the sum of the numerator plus the principal to be paid for all future
years. Such years shall be determined without taking into account any
possible extension or renewal period. For purposes of the above
calculation, interest included in any payment shall be disregarded only to
the extent that it would be determined to be interest under standard loan
amortization tables.
7.6.2 If the terms of the acquisition loan do not comply with Section
7.6.1, then for each plan year during the duration of the acquisition loan
the number of shares of Company stock released from the suspense account
shall equal the number of financed shares held immediately before release
for the current plan year multiplied by a fraction. The numerator of the
fraction shall be the sum of principal and interest paid in such plan year,
and the denominator shall be the sum of the numerator plus the principal
and interest to be paid for all future years. Such years shall be
determined without taking into account any possible extension or renewal
period. If interest on any acquisition loan is variable, the interest to
be paid in future years shall be computed by using the interest rate
applicable as of the end of the current plan year. If an acquisition loan
with terms initially complying with Section 7.6.1 later ceases to comply by
reason of a renewal, extension or refinancing of the acquisition loan, then
this Section 7.6.2 shall be applied in determining the shares released upon
payment of any principal or interest after such date.
If the shares of Company stock held in the suspense account include more than
one class of stock, the number of shares of each class to be released for a plan
year must be determined by applying the same fraction to each class. Subject to
the provisions of Sections 9.3.2 and 18, shares of
35
<PAGE>
Company stock released from the suspense account shall be allocated as of the
year-end adjustment date coincident with or next following such release to the
Company stock accounts of active participants in the same manner as the Company
contribution is allocated as provided in Section 3.2; provided, that shares of
Company stock released by reason of the payment of principal or interest on an
acquisition loan from amounts allocated to the general accounts of participants
shall be allocated to the corresponding Company stock accounts of such
participants immediately upon payment.
7.7 OBLIGATIONS OF THE TRUSTEES: The Trustees shall make payments of
principal and interest on an acquisition loan from time to time as directed by
the Committee. Such payments shall be made only from the following: (a)
Company contributions to the trust made to meet the plan's obligation under an
acquisition loan (other than contributions of Company stock), any cash dividends
on Company stock held as collateral for an acquisition loan, and any investments
purchased with such contributions (received both during or prior to the plan
year); (b) the proceeds of a subsequent acquisition loan made to repay a prior
acquisition loan; (c) if there occurs a default under the terms of the
acquisition loan, or upon the sale of Company stock pursuant to a tender offer
or cash merger, or upon the occurrence of such other similar events, the
proceeds of the sale of any Company stock held as collateral for an acquisition
loan; and (d) subject to the provisions of Section 9.3, cash dividends
attributable to allocated and unallocated Company stock. Such contributions and
earnings shall be accounted for separately by the Trustees until the acquisition
loan is repaid.
7.8 OBLIGATIONS OF THE COMPANY: The Company shall contribute in cash
to the trust as and when needed sufficient amounts to enable the trust to pay in
full when due any principal and interest payments on any acquisition loan not
payable from other sources permitted by the plan.
36
<PAGE>
If such contributions are insufficient by reason of the provisions of Section
3.3 to enable the trust to pay principal and interest on such acquisition loan
when due, then upon the Trustees' request the Company may:
(a) Make a loan to the trust as described in Treasury Regulation (S)
54.4975-7(b)(4)(iii) in a sufficient amount to meet such principal and
interest payments. Such new loan shall meet all requirements for an
acquisition loan as described in this Section 7 and be subordinated to any
prior acquisition loan then outstanding. Company stock released as a
result of application of such new loan to payment of the prior acquisition
loan shall be pledged as collateral to secure the new acquisition loan.
Such Company stock shall be released and allocated to the Company stock
accounts of participants in accordance with Section 7.6;
(b) Any other method that is deemed prudent by the Committee and is
permitted by the Code.
In applying (a) or (b) immediately preceding, the Company shall not fail to do
or cause to be done any act or thing which would result in a disqualification of
the plan as an employee stock ownership plan under the Code.
7.9 RESTRICTIONS ON COMPANY STOCK: Notwithstanding repayment of an
acquisition loan or any amendment or termination of the plan that causes it to
cease to be a leveraged employee stock ownership plan within the meaning of
Section 4975(e)(7) of the Code, no Company stock acquired with the proceeds of
an acquisition loan shall be subject to a put, call or other option, or buy-sell
or similar arrangement while such stock is held by and when distributed from the
plan, except as provided in Sections 5.4.1 and 5.4.2.
SECTION 8. VOTING AND TENDERING OF COMPANY STOCK:
---------- -------------------------------------
8.1 VOTING: The following provisions shall apply with respect to the
voting of Company stock held by the trust:
37
<PAGE>
8.1.1 Class of securities: Subject to the provisions of Section
8.1.2, if, as of any record date with respect to Company stock, the Company
stock is a registration-type class of securities (as defined in this
Section 8.1.1), each participant and beneficiary shall be entitled to
direct the Trustees with respect to any corporate matter that involves
voting the Company stock allocated to his Company stock account as of such
record date. If the Company stock is not a registration-type class of
securities on the record date, subject to the provisions of Section 8.1.2,
each participant and beneficiary will generally have no right to direct the
Trustees as to the manner in which shares of Company stock allocated to his
Company stock account will be voted. However, if, as of such record date,
the Company stock is not readily tradeable on an established market and
more than 10 percent of the fair market value of the assets of the trust
constitutes securities (including Company stock) issued by the Company or
the Holding Company, each participant and beneficiary shall be entitled to
direct the Trustees with respect to any corporate matter that involves the
voting of such Company stock with respect to the approval or disapproval of
any corporate merger or consolidation, recapitalization, reclassification,
liquidation, dissolution, sale of substantially all of the assets of a
trade or business, or such similar transaction as the Secretary of the
Treasury may prescribe by regulation. For purposes of this Section 8, the
term registration-type class of securities means a class of securities
required to be registered under Section 12 of the Securities Exchange Act
of 1934 or that would be required to be registered except for the exemption
from registration provided in Section 12(g)(2)(H) of such Act.
8.1.2 Trustees' responsibilities: Except as otherwise provided in
Sections 8.1.1 and 8.1.2, the Trustees shall vote the Company stock held by
the trust on the record date as directed by the Committee.
8.1.3 Voting instructions from participants: If participants and
beneficiaries are entitled to direct the Trustees in voting Company stock
pursuant to Section 8.1.1 or 8.1.2, the Trustees shall vote such Company
stock in accordance with the timely instructions of the respective
participants and beneficiaries. The Trustees shall be responsible for
soliciting and tabulating such votes. Prior to the voting of Company
stock, the Committee shall distribute to each participant and beneficiary
the same information concerning the vote as is furnished by the Company to
its shareholders. If the Company does not furnish any such information at
least 10 days prior to the shareholders meeting, the Committee shall as
soon as practicable provide each participant and beneficiary with an
explanation of those matters that to the best knowledge of the Committee
are to be presented at such meeting for action by shareholders and are
subject to direction by the participant or beneficiary and an appropriate
form on which the participant or beneficiary may direct voting on such
matters. If the Trustees do not receive participant or beneficiary
instructions with respect to any Company stock or such instructions are
38
<PAGE>
not timely received, such stock shall be voted by the Trustees as directed
by the Committee. Instructions received from participants and beneficiaries
by the Trustees shall be held in the strictest confidence and shall not be
divulged or released to any person, including the Committee, or the
officers, directors or employees of the Company.
8.2 TENDERING: The following rules shall apply in the event a tender
offer or exchange offer, including but not limited to a tender offer or exchange
offer within the meaning of the Securities Exchange Act of 1934, as from time to
time amended and in effect (a "tender offer") for the Company stock held by the
trust is commenced by a person or persons:
8.2.1 Independent record keeper; Trustees' responsibilities: In
the event a tender offer for the Company stock held by the trust is
commenced, the functions under the plan applicable to participation of such
Company stock in the tender offer shall be undertaken by the independent
record keeper appointed by the Committee at the time the tender offer is
commenced, and the Committee shall not undertake any record keeping
function under the plan that would serve to violate the confidentiality of
any directions given by the participants or beneficiaries in connection
with the tender offer. The independent record keeper shall use its best
efforts to timely distribute or cause to be distributed to each participant
and beneficiary such information as is being distributed to other
shareholders of the Company in connection with the tender offer. The
Trustees shall have no discretion or authority to sell, exchange or
transfer any of the Company stock held by the trust pursuant to such tender
offer except to the extent, and only to the extent, that the Trustees are
timely directed to do so in writing as follows:
(i) Each participant and beneficiary shall be entitled to direct
the independent record keeper with respect to the sale, exchange or
transfer of the Company stock allocated to his Company stock account.
The independent record keeper shall then instruct the Trustees as to
the number of shares to be tendered, in accordance with the above
directions. The Committee shall instruct the Trustees to follow the
directions of the independent record keeper pursuant to the terms of
the tender offer. Instructions received from participants and
beneficiaries by the independent record keeper shall be held in the
strictest confidence and shall not be divulged or released to any
person including the Committee, or the officers, directors or
employees of the Company.
39
<PAGE>
(ii) The independent record keeper shall instruct the Committee
and the Trustees as to the number of shares for which it did not
receive any instructions or instructions were not timely received.
The Trustees shall tender or not tender such shares of Company stock
and any shares of Company stock that have not been allocated to
participants' accounts as directed by the Committee.
8.2.2 Records: Following any tender offer that has resulted in the
sale or exchange or any shares of Company stock held by the trust, the
independent record keeper to which responsibility has been transferred
shall continue to maintain on a confidential basis a record of the Company
stock account of each participant or beneficiary to whose account shares of
Company stock were allocated at any time during such offer, until complete
distribution of such Company stock accounts. The record keeper shall keep
confidential any instructions that it may receive from participants or
beneficiaries relating to the tender offer.
SECTION 9. ACCOUNTS OF PARTICIPANTS:
--------- ------------------------
The Committee shall establish and maintain a Company stock account and
a general account with respect to each participant. The assets of the general
accounts and any unallocated assets other than Company stock (or rights attached
thereto) are referred to herein as the "general fund." The Committee shall
maintain records from which can be determined the portion of each general
account that at any time is available to meet obligations under an acquisition
loan in accordance with Section 7 and the portion not so available. The
Committee also shall establish and maintain a limitation account and a deferred
payment account if such accounts are required pursuant to Sections 3.3 and
4.5.1. Assets of the trust under the plan shall be valued at fair market value
as of each year-end adjustment date.
9.1 GENERAL ACCOUNTS: Subject to the provisions of Section 7, as of
each adjustment date the amount in each participant's general account as of the
preceding adjustment date (the "basic credit") shall be adjusted in the
following order:
40
<PAGE>
9.1.1 There shall be debited (i) the distributions made from the
general account since the next preceding adjustment date to or for the
benefit of the participant, and (ii) the cash applied since the next
preceding adjustment date to the purchase of Company stock for the Company
stock account of the participant.
9.1.2 There shall be credited (i) cash dividends payable with respect
to Company stock then allocated to the Company stock account of the
participant to the extent such dividends are not distributed to
participants or applied to pay principal or interest on an acquisition loan
pursuant to Section 9.3, and (ii) the cash proceeds from the sale of any
Company stock then allocated to the Company stock account of the
participant.
9.1.3 There shall be credited or debited that portion of the net
income or net loss of the general fund since the next preceding adjustment
date that the basic credit bears to the total of all the basic credits so
adjusted. The net income or net loss of the general fund shall be
ascertained by the Trustees and means the profits and income actually
realized and received, less the losses and expenses actually incurred and
paid, plus any net increase or minus any net decrease in the fair market
value of the assets of the general fund not actually realized and received
or incurred and paid. Net income or net loss of the general fund shall not
include Company contributions or any increase or decrease in the fair
market value of Company stock. Any cash dividends on unallocated Company
stock and trust earnings attributable to the investment of financed shares,
to the extent any such dividends and trust earnings are not applied to pay
principal or interest on an acquisition loan pursuant to Section 9.3, shall
be included as net income of the general fund. The determination of the
net income or net loss of the general fund shall not take into account any
interest paid by the trust on an acquisition loan. In ascertaining fair
market value, the expenses of liquidation shall not be taken into account.
9.1.4 There shall be debited the amount of his general account
forfeited pursuant to Section 6.3. Subject to the provisions of Sections
4.5.2 and 18.2.3, the forfeited amount shall be combined with amounts
forfeited from the general accounts of all other participants, and the
aggregate of such forfeitures shall be reallocated among the general
accounts of active participants in the same manner as the Company
contribution is allocated as provided in Section 3.2.
9.1.5 There shall be credited that portion of the balance of the
Company contribution (other than contributions of Company stock) for the
current plan year allocated to the participant as provided in Section 3.2.
9.1.6 There shall be debited the amount (if any) of the participant's
share of any cash applied to the payment of principal and interest on an
acquisition loan provided that only that portion of the participant's
general account which is available
41
<PAGE>
to meet obligations under an acquisition loan shall be used to pay
principal or interest on an acquisition loan.
9.2 COMPANY STOCK ACCOUNTS: Subject to the provisions of Section 6,
as of each adjustment date the number of shares allocated to the Company stock
account of each participant shall be adjusted in the following order:
9.2.1 There shall be debited any Company stock distributed or sold
from the Company stock account since the preceding adjustment date.
9.2.2 There shall be credited any Company stock purchased with cash
expended from the participant's general account, any stock dividends on
Company stock allocated to the participant's Company stock account, and any
additional shares of Company stock issued in connection with a stock split
or similar transaction since the preceding adjustment date with respect to
Company stock allocated to the participant's Company stock account.
9.2.3 There shall be debited any Company stock forfeited pursuant to
Section 6.3 since the preceding adjustment date. Subject to the provisions
of Sections 4.5.2 and 18.2.3, the forfeited shares shall be combined with
the shares forfeited by all other participants, and the aggregate of such
forfeited shares shall be reallocated among the Company stock accounts of
active participants in the same manner as the Company contribution is
allocated as provided in Section 3.2.
9.2.4 There shall be credited any Company stock (including fractional
shares) contributed by the Company for the current plan year and allocated
to the participant as provided in Section 3.2.
9.2.5 There shall be credited any Company stock released from the
suspense account and allocated with respect to the current plan year to the
Company stock account of the participant in accordance with Sections 7.6
and 9.3, and any rights, warrants or options allocated to the Company stock
account of the participant in accordance with Section 9.4.
9.3 CASH DIVIDENDS: The Committee in its discretion may direct that
cash dividends on shares of Company stock allocated to the Company stock account
of a participant shall be distributed or applied as follows:
9.3.1 Paid by the Company directly to the participant; or
42
<PAGE>
9.3.2 Paid by the Company to the Trustees and either:
(i) Paid by the Trustees to the participant within 90 days
after the close of the plan year in which the dividends are received
by the Trustees;
(ii) Allocated to the general account of the participant
pursuant to Section 9.1.2; or
(iii) Applied by the Trustees to pay principal or interest on
any then outstanding acquisition loan. Notwithstanding the provisions
of Section 7.6, the Company stock to be released from the suspense
account as a result of such payment shall be allocated to
participants' Company stock accounts as follows:
(A) First, there shall be allocated to each
participant's Company stock account that number of shares of
Company stock so released which equals the amount of the cash
dividends payable with respect to each such participant divided
by the fair market value per share of the Company stock as of the
year-end adjustment date coincident with or next preceding the
dividend payment date; and
(B) Second, the balance of the shares of Company stock
so released, if any, shall be allocated among the participants'
Company stock accounts in accordance with the provisions of
Section 7.6.
In no event shall less than the number of shares of Company stock
having a fair market value equal to the dividends attributable to
allocable shares used to release encumbered shares be allocated to
participants' Company stock accounts under this subparagraph (iii).
Cash dividends on Company stock not allocated to Company stock accounts shall be
applied, as directed by the Committee, to pay principal or interest on an
acquisition loan used to acquire such unallocated Company stock, or retained in
the trust fund as income of the general fund and allocated to the general
accounts of participants pursuant to Section 9.1.3. Cash dividends on
unallocated Company stock applied to pay principal or interest on an acquisition
loan shall be in lieu of
43
<PAGE>
Company contributions made to meet the plan's obligation under an acquisition
loan, and any shares released as a result of such application shall be allocated
to the Company stock accounts of participants in accordance with the provision
of Section 7.6. Notwithstanding the provisions of this Section 9.3, cash
dividends on Company stock acquired on or after the effective date of the plan
(whether or not allocated to the Company stock accounts of participants) may
only be applied to pay principal or interest on an acquisition loan used to
acquire such Company stock. All directions by the Committee in this Section 9.3
shall be filed with the Company and the Trustees at least 10 days before the
payment date of the first cash dividend to which the direction relates.
Notwithstanding the provisions of Section 9.1.2, any payment of cash dividends
held in the trust fund pending distribution to participants or application to
the payment of an acquisition loan shall be held in the general fund but shall
not be allocated to the general accounts of participants. Any net income or net
loss on such cash dividends shall be allocated to participants pursuant to
Section 9.1.3.
9.4 RIGHTS, WARRANTS AND OPTIONS: Rights, warrants and options to
acquire Company stock distributed with respect to allocated Company stock of a
participant shall be credited to his Company stock account and exercised, sold
or retained in such account as directed by the Committee. The Company stock
received in connection with the exercise of a right, warrant or option shall be
allocated to his Company stock account, and the amount expended in connection
with such exercise shall be debited from his general account, pursuant to
Sections 9.1 and 9.2. If any such right, warrant or option is sold, the
proceeds of sale shall be treated as a cash dividend received with respect to
Company stock allocated to a participant's Company stock account. Rights,
warrants and options to acquire Company stock with respect to unallocated
Company stock shall be net income of the general fund and shall be exercised as
directed by the Committee. If any such
44
<PAGE>
rights, warrants or options are sold prior to allocation thereof to the Company
stock account of a participant, the proceeds from such sale shall be net income
of the general fund.
9.5 PERSONS IN PAY STATUS: If the account of a participant or
beneficiary (a "person in pay status") is distributable, such account shall be
further adjusted as of the applicable year-end adjustment date, after applying
the provisions of Sections 9.1 through 9.4, to the extent necessary to reflect
the medium of payment of his account determined pursuant to Section 5.4, as
follows:
9.5.1 To the extent additional Company stock is required to be
allocated to his Company stock account, shares shall be withdrawn from the
Company stock accounts of participants other than persons in pay status.
The number of shares withdrawn from the Company stock account of each such
participant shall bear the same proportion to the total withdrawn with
respect to all such participants as the number of shares of Company stock
allocated to each such participant's account as of such adjustment date
bears to the total number of shares of Company stock then allocated to the
accounts of such participants. Shares of Company stock shall be withdrawn
from Company stock accounts in inverse order from the order in which such
shares previously were credited to the Company stock accounts. If Company
stock is withdrawn from the Company stock account of a participant pursuant
to this Section 9.5.1, the fair market value as of such adjustment date of
the shares so withdrawn shall be credited to such participant's general
account, and the general account of the person in pay status shall be
debited by the fair market value of such shares.
9.5.2 To the extent that Company stock is required to be withdrawn
from his Company stock account, shares shall be withdrawn therefrom and
allocated to the Company stock accounts of participants other than persons
in pay status. The number of shares allocated to the Company stock account
of each such participant shall bear the same proportion to the total
reallocated with respect to all such participants as the value of his
general account as of such adjustment date bears to the total value of all
general accounts of such participants. Shares of Company stock shall be
withdrawn from the Company stock account of the person in pay status in
inverse order from the order in which such shares previously were credited
to such Company stock account. If Company stock is allocated to the
Company stock accounts of participants pursuant to this Section 9.5.2, the
fair market value as of such adjustment date of the shares allocated shall
be debited to such participant's
45
<PAGE>
general account, and the general account of the person in pay status shall
be credited with an amount equal to the fair market value of such shares.
9.6 ALLOCATIONS FOLLOWING CERTAIN SALE TRANSACTIONS: Notwithstanding
any other provision of this Section 9, in the event of the sale of Company stock
to the plan in a transaction described in Section 1042 of the Code, no portion
of the Company stock purchased by the trust in such transaction shall be
allocated during the nonallocation period (as defined in Section 9.6) to or for
the benefit of any participant who is: (i) the seller of such Company stock;
(ii) a member of the family of the seller of such Company stock (as defined in
Section 267(c)(4) of the Code); or (iii) any other person who owns (after
application of Section 318(a) of the Code) more than 25 percent in value of any
class of outstanding employer securities of the Company or Holding Company
(within the meaning of Section 409(l) of the Code). For purposes of this
Section 9.6, "nonallocation period" means the period beginning on the date of a
sale of Company stock described in this Section 9.6 and ending on the later of:
(i) the date which is 10 years after the date of such sale; or (ii) the date of
the allocation attributable to the final payment of any acquisition loan
incurred in connection with such sale. The restrictions of this Section 9.6
shall at all times be construed and enforced in accordance with the requirements
of Section 409(n) of the Code and the Treasury Regulations thereunder.
9.7 ACCOUNTING FOR ALLOCATIONS: Accounting procedures for the
purpose of making the allocations, valuations and adjustments to participants'
accounts as provided in this Section 9 shall be adopted by the Committee.
Except as provided in Treasury Regulation (S) 54.4975-11(d), Company stock
acquired by the plan shall be accounted for as provided under Section 1.402(a)-
1(b)(2)(ii) of the Treasury Regulations and allocations of Company stock shall
be made
46
<PAGE>
separately for each class of stock. The Committee shall keep adequate
records of the cost basis of all shares of Company stock allocated to each
participant's Company stock account. The Committee shall keep separate records
of financed shares and Company contributions (and any earnings thereon) made for
the purpose of enabling the trust to repay an acquisition loan. From time to
time, the Committee may modify the accounting procedures for the purpose of
achieving equitable and nondiscriminatory allocations among the accounts of
participants in accordance with the general concepts of the plan and the
provisions of this Section 9. Annual valuations of trust assets shall be made
at fair market value.
9.8 DIVERSIFICATION:
9.8.1 Notwithstanding any other provision of the plan or
trust to the contrary, each participant (including a participant
separated from service) who has attained age 55 and has been a
participant for at least 10 plan years (a "qualified
participant") may elect to direct the investment of not more than
25 percent (in whole multiples of one percent) of the total
number of shares of Company stock that have ever been allocated
to his Company stock account, less the Company stock previously
subject to an election under this Section 9.8. In the election
year in which the participant may make his last diversification
election, the preceding sentence shall apply by substituting "50
percent" for "25 percent." Such election shall be made in writing
to the Committee on a form provided by the Committee during the
90-day period next following each year-end adjustment date (the
"annual election period") during the qualified election period
(as defined in this Section 9.8.1). Such election may be revoked
or changed at any time during the annual election period by
filing a written revocation or change prior to the end of such
period. The "qualified election period" means the 6 consecutive
plan year period beginning with the first plan year in which the
participant is first a qualified participant. The Committee shall
direct the Trustees to distribute or transfer the Company stock
account of a qualified participant pursuant to his valid and
timely election as soon as possible after receipt of such
election, but in any event within 90 days after the close of each
annual election period within the qualified election period.
Notwithstanding the foregoing, if the fair market value
(determined as of the year-end adjustment date next preceding the
date of commencement of the applicable annual election period) of
the Company stock allocated to the Company stock account of the
qualified participant which is subject to a diversification
election under this Section 9.8.1 is
47
<PAGE>
less than $500, the qualified participant shall not be entitled
to make the diversification election otherwise provided under
this Section 9.8.1.
9.8.2 The diversification election of a qualified
participant may be satisfied within 90 days after the end of the
annual election period by any of the following options:
(i) Investment of the amount subject to
the diversification election among one or more of
three investment options (other than Company
stock) provided by the Trustees from time to time.
The Committee shall provide a written description
of the investment options to the qualified
participant within a reasonable time prior to the
commencement of the qualified election period. The
participant shall not be entitled to receive
Company stock as provided in Section 5.4 with
respect to the portion of any distribution to the
participant that is invested pursuant to this
subparagraph (i).
(ii) Conversion to cash of the Company
stock in the Company stock account of the
participant subject to the diversification
election and transfer to another qualified defined
contribution plan of the Company that accepts such
transfers; provided, that the transferee plan
permits at least three participant-directed
investment options (other than Company stock). Any
such transfer must comply with Sections 414(l),
411(d)(6) and 401(a)(11) of the Code.
9.8.3 The Committee shall determine which of the options
described in Section 9.8.2 shall be offered to qualified
participants. In addition, the Committee shall adopt appropriate
rules and procedures to implement the provisions of this Section
9.8.
SECTION 10. ADMINISTRATION BY COMMITTEE:
---------- ---------------------------
10.1 MEMBERSHIP OF COMMITTEE: The Committee shall consist of not
less than 3 nor more than 5 individuals appointed by the Board to serve at the
pleasure of the Board. Any member of the Committee may resign, and his
successor, if any, shall be appointed by the Board. The Committee shall be
responsible for the general administration and interpretation of the plan and
for carrying out its provisions except to the extent all or any of such
obligations specifically are
48
<PAGE>
imposed on the Trustees or the Board. The chairman of the Committee shall be the
plan administrator and agent for service of legal process on the plan.
10.2 COMMITTEE OFFICERS; SUBCOMMITTEE: The members of the
Committee shall elect a chairman and may elect an acting chairman. They also
shall elect a secretary and may elect an acting secretary, either of whom may
but need not be a member of the Committee. The Committee may appoint from its
membership such subcommittees with such powers as the Committee determines and
may authorize one or more of its members or any agent to execute or deliver any
instrument or make any payment on behalf of the Committee.
10.3 COMMITTEE MEETINGS: The Committee shall hold such meetings
upon such notice, at such places, and at such intervals as it from time to time
determines. Notice of meetings shall not be required if waived in writing by
all members of the Committee at the time in office or if all such members are
present at the meeting.
10.4 TRANSACTION OF BUSINESS: A majority of the members of the
Committee at the time in office shall constitute a quorum for the transaction of
business. All resolutions or other actions taken by the Committee at any
meeting shall be by vote of a majority of those present and entitled to vote at
any such meeting. Resolutions may be adopted or other action taken without a
meeting upon written consent thereto signed by all members of the Committee.
10.5 COMMITTEE RECORDS: The Committee shall maintain full and
complete records of its deliberations and decisions. The minutes of its
proceedings shall be conclusive proof of the facts of the operation of the plan.
The records of the Committee shall contain all relevant data pertaining to
individual participants and their rights under the plan and in the trust fund.
49
<PAGE>
10.6 ESTABLISHMENT OF RULES: Subject to the limitations of the
plan and ERISA, the Committee from time to time may establish rules or bylaws
for the administration of the plan and the transaction of its business.
10.7 CONFLICTS OF INTEREST: No individual member of the
Committee shall have any right to vote or decide on any matter relating solely
to himself or any of his rights or benefits under the plan (except that such
member may sign unanimous written consent to resolutions adopted or other action
taken without a meeting), except for elections as to payment of benefits
pursuant to Sections 4 and 5, and diversification elections pursuant to Section
9.8.
10.8 CORRECTION OF ERRORS: The Committee may correct errors and,
so far as practicable, may adjust any benefit or credit or payment accordingly.
The Committee in its discretion may waive any notice requirement in the plan;
provided that a waiver of a requirement to notify the Trustees shall be made
only with the consent of the Trustees. A waiver of a notice in one or more
cases shall not be a waiver of notice in any other case. Any power or authority
the Committee has discretion to exercise under the plan shall be exercised in a
nondiscriminatory manner.
10.9 AUTHORITY TO INTERPRET PLAN: Subject to objective plan
terms and the claims procedure set forth in Section 16, the Committee and the
plan administrator shall have the duty and discretionary authority to interpret
and construe the provisions of the plan and decide any dispute which may arise
regarding the rights of participants hereunder, including the discretionary
authority to interpret the plan and to make determinations as to eligibility for
participation and benefits under the plan. Interpretations and determinations
by the Committee and plan administrator shall apply uniformly to all persons
similarly situated and shall be binding and conclusive upon all interested
persons. Such interpretations and determinations shall only be set aside if the
Committee and the
50
<PAGE>
plan administrator are found to have acted arbitrarily and capriciously in
interpreting and construing the provisions of the plan.
10.10 THIRD PARTY ADVISORS: The Committee may engage an attorney,
accountant, qualified appraiser or any other technical advisor on matters
regarding the operation of the plan and to perform such other duties as may be
required in connection therewith. The Committee may employ such clerical and
related personnel as it deems requisite or desirable in carrying out the
provisions of the plan. From time to time, but no less frequently than
annually, the Committee shall review the financial condition of the plan and
determine the financial and liquidity needs of the plan as required by ERISA.
The Committee shall communicate such needs to the Company and to the Trustees so
that the funding policy and investment policy may be coordinated appropriately
to meet such needs.
10.11 COMPENSATION OF MEMBERS: No member of the Committee shall
receive any fee or compensation for his services as such.
10.12 COMMITTEE EXPENSES: The Committee shall be entitled to
reimbursement out of the trust fund for its reasonable expenses properly and
actually incurred in the performance of its duties in the administration of the
plan; provided, that the Company, in the discretion of the Board, may pay such
expenses.
10.13 INDEMNIFICATION OF COMMITTEE: To the maximum extent
permitted by ERISA, no member of the Committee shall be personally liable by
reason of any contract or other instrument executed by him or on his behalf as a
member of the Committee or for any mistake of judgment made in good faith. The
Company shall indemnify and hold harmless, directly from its own assets
(including the proceeds of any insurance policy the premiums for which are paid
from
51
<PAGE>
the Company's assets), each member of the Committee and each other officer,
employee or director of the Company to whom any duty or power relating to the
administration or interpretation of the plan shall be delegated or allocated
against any unreimbursed or uninsured cost or expense (including any sum paid in
settlement of a claim with the prior written approval of the Board) arising out
of any act or omission to act in connection with the plan, unless arising out of
such person's own fraud, bad faith, willful misconduct or gross negligence.
SECTION 11. MANAGEMENT OF FUNDS AND AMENDMENT OF PLAN:
---------- -----------------------------------------
11.1 TRUST FUND; INVESTMENT PURPOSE: All assets of the plan shall
be held in the trust for the exclusive benefit of participants and their
beneficiaries. Such assets shall be administered as a trust fund to provide for
the payment of benefits as provided in the plan to participants or their
successors in interest out of the income and principal of the trust. The plan is
an employee stock ownership plan described in Section 4975(e)(7) of the Code
designed to invest primarily in Company stock and a stock bonus plan intended to
be qualified within the meaning of Section 401(a) of the Code. See Section 7 of
the plan and Section 2.3 of the trust agreement for provisions relating to the
purchase and sale of Company stock by the trust.
11.2 FIDUCIARY DUTIES: All fiduciaries with respect to the plan
(as defined in ERISA) shall discharge their duties as such solely in the
interest of the participants and their successors in interest and (i) for the
exclusive purposes of providing benefits to participants and their successors in
interest and defraying reasonable expenses of administering the plan as provided
in Section 10.12 of the plan and Section 2.8 of the trust agreement, (ii) with
the care, skill, prudence and diligence under the circumstances then prevailing
that a prudent person acting in a like capacity and familiar with such matters
would use in the conduct of an enterprise of like character and with
52
<PAGE>
like aims, and (iii) in accordance with the plan and trust agreement, except to
the extent such documents are inconsistent with the then applicable federal
laws relating to fiduciary responsibility. The trust fund shall be used for the
exclusive benefit of participants and their beneficiaries and to pay
administrative expenses of the plan and trust to the extent not paid by the
Company. No portion of the trust fund ever shall revert or inure to the benefit
of the Company (except as otherwise provided in Sections 11 and 3.3.2(iv)).
Notwithstanding the foregoing provisions of this Section 11.2, the following
provisions apply:
11.2.1 If the plan receives an adverse determination with
respect to the initial qualification of the plan under Section
401(a) of the Code, on written request of the Company, the
Trustees shall return to the Company the amount of such
contribution (increased by earnings attributable thereto and
reduced by losses attributable thereto) within one year after the
date that qualification of the plan is denied; provided, that the
application for the determination is made by the time prescribed
by law for filing the Company's federal income tax return for the
taxable year in which the plan is adopted or such later date as
the Secretary of the Treasury may prescribe;
11.2.2 On written request of the Company, the Trustees
shall return a contribution to the extent the deduction is
disallowed under Section 404 of the Code (reduced by losses
attributable thereto, but not increased by earnings attributable
thereto) to the Company within one year after the date the
deduction is disallowed; and
11.2.3 If a contribution or any portion thereof is made by
the Company by a mistake of fact, on written request of the
Company, the Trustees shall return the contribution or such
portion (reduced by losses attributable thereto, but not
increased by earnings attributable thereto) to the Company within
one year after the date of payment to the Trustees.
11.3 AUTHORITY TO AMEND: The Board, acting on behalf of the
Company, shall have the right, subject to the provisions of any outstanding debt
or acquisition loan, at any time and from time to time to amend or terminate the
plan and trust, including the trust agreement entered into under the plan;
provided, that no such amendment may alter the duties, responsibilities or
liabilities of the Trustees unless the Trustees consent thereto in writing. No
amendment to the plan
53
<PAGE>
shall be effective to the extent it has the effect of reducing a participant's
accrued benefit. For purposes of this Section 11.3, a plan amendment that has
the effect of decreasing a participant's accrued benefit or eliminating an
optional form of benefit with respect to benefits attributable to service before
the amendment shall be treated as reducing an accrued benefit. Furthermore, if
the vesting schedule of the plan is amended, in the case of an employee who is a
participant as of the later of the date such amendment is adopted or the date it
becomes effective the vested percentage (determined as of such date) of such
employee's right to his Company derived accrued benefit shall not be less than
his vested percentage computed under Section 6 of the plan without regard to
such amendment. See Section 14 for provisions regarding termination of the plan.
11.4 TRUST AGREEMENT: The Company and the Trustees shall enter
an appropriate trust agreement for the administration of the trust under the
plan. The trust agreement shall contain such powers and reservations as to
investment, reinvestment, control and disbursement of the funds of the trust,
and such other provisions not inconsistent with the provisions of the plan and
its nature and purposes, as shall be agreed on and set forth therein. Such
agreement shall provide that the Board may remove one or more of the Trustees at
any time upon reasonable notice, that the Trustees may resign at any time upon
reasonable notice, and on such removal or resignation the Board may designate
one or more successor trustees.
11.5 REQUIREMENTS IN WRITING: All requests, directions,
requisitions and instructions of the Committee to the Trustees shall be in
writing and signed by such person or persons as shall be designated by the
Committee.
SECTION 12. ALLOCATION OF RESPONSIBILITIES AMONG NAMED FIDUCIARIES:
---------- ------------------------------------------------------
54
<PAGE>
12.1 DUTIES OF NAMED FIDUCIARIES: The named fiduciaries with
respect to the plan and the fiduciary duties and other responsibilities
allocated to each, which shall be carried out in accordance with the other
applicable terms and provisions of the plan, shall be as follows:
12.1.1 Board:
(i) To amend the plan, subject to the provisions
of any outstanding debt or acquisition loan;
(ii) To appoint and remove members of the
Committee;
(iii) To appoint and remove the Trustees under the
plan;
(iv) To determine the amount to be contributed to
the plan each year by the Company; and
(v) To terminate the plan, subject to the
provisions of any outstanding debt or acquisition loan.
12.1.2 Committee:
(i) To interpret the provisions of the plan and
determine the rights of participants under the plan, except
to the extent otherwise provided in Section 16 relating to
the claims procedure;
(ii) To administer the plan in accordance with its
terms, except to the extent powers to administer the plan
specifically are delegated to another named fiduciary or
other person or persons as provided in the plan;
(iii) To account for the interests of participants
in the plan;
(iv) To direct the Trustees to incur acquisition
loans to finance the acquisition of Company stock or repay a
prior acquisition loan to the extent provided in Section 7
of the plan and Section 2.4 of the trust agreement;
(v) To direct the Trustees in the voting and
tendering of Company stock held by the trust to the extent
provided in Section 8 of the plan and Section 2.3 of the
trust agreement;
55
<PAGE>
(vi) To direct the Trustees in the purchase and
sale of Company stock for the trust, subject to the
provisions of Section 2.3 of the trust agreement;
(vii) To direct the Trustees in the distribution of
trust assets; and
(viii) To determine the fair market value of Company
stock and to appoint an independent appraiser as provided in
Section 5.4.4.
12.1.3 Plan Administrator:
(i) To file such reports as may be required to
the United States Department of Labor, the Internal Revenue
Service and any other government agency to which reports may
be required to be submitted from time to time;
(ii) To comply with requirements of the law for
disclosure of plan provisions and other information relating
to the Plan to participants and other interested parties;
and
(iii) To administer the claims procedure to the
extent provided in Section 16.
12.1.4 Trustees:
(i) To invest and reinvest trust assets, subject
to the requirements of the plan and trust agreement with
respect to investing in Company stock;
(ii) To make distributions to plan participants as
directed by the Committee;
(iii) To render annual accountings to the Company
as provided in Section 3 of the trust agreement;
(iv) To incur and to repay acquisition loans in
accordance with Section 7 of the plan and Section 2.4 of the
trust agreement;
(v) To vote and tender the Company stock held by
the trust in accordance with Section 8 of the plan and
Section 2.3 of the trust agreement; and
(vi) Otherwise to hold, administer and control the
assets of the trust as provided in the plan and trust
agreement.
56
<PAGE>
12.2 CO-FIDUCIARY LIABILITY: Except as otherwise provided in
ERISA, a named fiduciary shall not be responsible or liable for any act or
omission of another named fiduciary with respect to fiduciary responsibilities
allocated to such other named fiduciaries. A named fiduciary of the plan shall
be responsible and liable only for its own acts or omissions with respect to
fiduciary duties specifically allocated to it and designated as its
responsibility.
SECTION 13. BENEFITS NOT ASSIGNABLE; FACILITY OF PAYMENTS:
---------- ---------------------------------------------
13.1 BENEFITS NOT ASSIGNABLE: Except as otherwise provided in
Sections 5.3.3 and 5.5, no portion of the accrued benefit of any participant
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge. Any attempt so to anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge the same shall be
void. No portion of such accrued benefit shall be payable in any manner to any
assignee, receiver or trustee, liable for a participant's debts, contracts,
liabilities, engagements or torts, or subject to any legal process to levy upon
or attach. Notwithstanding the foregoing, an offset to a participant's accrued
benefit against an amount that the participant is ordered or required to pay the
plan with respect to a judgment, order, or decree issued, or a settlement
entered into, on or after August 5, 1997, shall be permitted in accordance with
Code Sections 401(a)(13)(C) and (D).
13.2 PAYMENTS TO MINORS AND OTHERS: If any individual entitled to
receive a payment under the plan shall be physically, mentally or legally
incapable of receiving or acknowledging receipt of such payment, the Committee,
upon the receipt of satisfactory evidence of his incapacity and satisfactory
evidence that another person or institution is maintaining him and that no
guardian or committee has been appointed for him, may cause the payment
otherwise
57
<PAGE>
payable to him to be made to such person or institution so maintaining him.
Payment to such person or institution shall be in full satisfaction of all
claims by or through the participant to the extent of the amount thereof.
SECTION 14. TERMINATION OF PLAN AND TRUST; MERGER OR CONSOLIDATION
---------- ------------------------------------------------------
OF PLAN:
- -------
14.1 COMPLETE TERMINATION: In the event of termination of the plan,
subject to the provisions of Section 7.8, all Company contributions shall cease
and no additional participants shall enter the plan. The assets under the plan
shall thereupon vest (that is, become nonforfeitable) in the participants,
beneficiaries or other successors in interest, as their interests may appear.
The vested benefit of each such individual shall be held in the plan for
distribution in accordance with the provisions of Sections 4 and 5; provided,
that the Committee in its discretion may provide for liquidation of the trust
and distribution to the participants of their vested accrued benefits in cash or
Company stock, as provided in Section 5. If upon termination the plan does not
offer an annuity option (purchased from a commercial provider) and neither the
Company nor any affiliated employer maintains another defined contribution plan
(other than an employee stock ownership plan as defined in Section 4975(e)(7) of
the Code), the participant's accrued benefit may, without the participant's
consent, be distributed to the participant. However, if the Company or any
affiliated employer maintains another defined contribution plan (other than an
employee stock ownership plan as defined in Section 4975(e)(7) of the Code), the
participant's accrued benefit may, without the participant's consent, be
transferred to such other plan if the participant does not consent to an
immediate distribution. For purposes of the plan, a termination of Company
contributions or a suspension or reduction of such contributions amounting in
effect to a termination of contributions
58
<PAGE>
shall be a termination of the plan. See Section 11.3 for provisions regarding
the Board's authority to terminate the plan.
14.2 PARTIAL TERMINATION: In the event of a partial termination
of the plan, the pro visions of Section 14.1 regarding a complete termination
shall apply in determining interests and rights of the participants and their
beneficiaries with respect to whom the partial termination occurs and to the
portion of the trust fund allocable to such participants and beneficiaries.
14.3 MERGER OR CONSOLIDATION: In the event of any merger or
consolidation of the plan with any other plan, or a transfer of assets or
liabilities of the plan to any other plan (which merged, consolidated or
transferee plan is referred to in this Section 14.3 as the "successor plan"),
the amount each participant would receive if the successor plan (and this plan,
if he has any interest remaining therein) were terminated immediately after the
merger, consolidation or transfer shall be equal to or greater than the amount
he would have received if this plan (and the successor plan, if he had any
interest therein immediately prior to the merger, consolidation or transfer)
were terminated immediately preceding the merger, consolidation or transfer.
14.4 PROTECTION OF BENEFITS: No termination, partial termination,
merger or consolidation, or transfer of assets of the plan shall reduce a
participant's accrued benefit or eliminate an optional form of distribution. For
purposes of this Section 14.4, a termination, partial termination, merger or
consolidation, or transfer of assets of the plan that has the effect of
decreasing a participant's accrued benefit or eliminating an optional form of
benefit with respect to benefits attributable to service before the amendment
shall be treated as reducing an accrued benefit.
59
<PAGE>
SECTION 15. COMMUNICATION TO EMPLOYEES:
---------- --------------------------
The Company shall communicate the principal terms of the plan to the
participants and beneficiaries in accordance with the requirements of ERISA.
The Company shall make available for inspection by participants and their
beneficiaries during reasonable hours, at the principal office of the Company
and such other places as may be required by ERISA, a copy of the plan, trust
agreement and such other documents as may be required by ERISA.
SECTION 16. CLAIMS PROCEDURE:
---------- ----------------
The following claims procedure shall apply with respect to the plan:
16.1 FILING OF A CLAIM FOR BENEFITS: If a participant or
beneficiary (the "claimant") believes he is entitled to benefits under the plan
that are not being paid to him or accrued for his benefit, he may file a written
claim therefor with the plan administrator. If the plan administrator is the
claimant, all actions required to be taken by the plan administrator pursuant to
this Section 16 shall be taken instead by another member of the Committee
designated by the Committee.
16.2 NOTIFICATION TO CLAIMANT OF DECISION: Within 90 days after
receipt of a claim by the plan administrator, or within 180 days if special
circumstances require an extension of time, the plan administrator shall notify
the claimant of his decision with regard to the claim. In the event of special
circumstances requiring an extension of time, a written notice of the extension
shall be furnished to the claimant prior to commencement of the extension,
setting forth the special circumstances and the date by which the decision
will be furnished. If such claim is wholly or partially denied, notice thereof
shall be in writing worded in a manner calculated to be understood by the
claimant and shall set forth: (i) the specific reason or reasons for the denial;
(ii) specific reference to pertinent plan provisions on which the denial is
based; (iii) a description of any additional
60
<PAGE>
material or information necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary; and (iv) an
explanation of the procedure for review of the denial. If the plan administrator
fails to notify the claimant of the decision in timely manner, the claim shall
be deemed denied as of the close of the initial 90-day period (or of the
extension period, if applicable).
16.3 PROCEDURE FOR REVIEW: Within 60 days following receipt by
the claimant of notice denying his claim in whole or in part, or, if such notice
is not given, within 60 days following the latest date on which such notice
timely could have been given, the claimant may appeal denial of the claim by
filing a written application for review with the Committee. Following such
request for review, the Committee shall fully and fairly review the decision
denying the claim. Prior to the decision of the Committee, the claimant shall
be given an opportunity to review pertinent documents and submit issues and
comments in writing.
16.4 DECISION ON REVIEW: The decision on review of a claim
denied in whole or in part by the plan administrator shall be made in the
following manner:
16.4.1 Within 60 days following receipt by the Committee of
the request for review, or within 120 days if special
circumstances require an extension of time, the Committee shall
notify the claimant in writing of its decision with regard to the
claim. In the event of special circumstances requiring an
extension of time, written notice of the extension shall be
furnished to the claimant prior to the commencement of the
extension. If the decision on review is not furnished in a timely
manner, the claim shall be deemed denied as of the close of the
initial 60-day period (or of the extension period, if
applicable).
16.4.2 The decision on review of a claim that is denied in
whole or in part shall set forth specific reasons for the
decision written in a manner calculated to be understood by the
claimant and shall cite the pertinent plan provisions on which
the decision is based.
16.4.3 The decision of the Committee shall be final and
conclusive.
61
<PAGE>
16.5 ACTION BY AUTHORIZED REPRESENTATIVE OF CLAIMANT: All actions
set forth in this Section 16 to be taken by the claimant may be taken by a
representative of the claimant duly authorized by him to act on his behalf on
such matters. The plan administrator and the Committee may require such evidence
as either reasonably deems necessary or advisable of the authority of any such
representative to act.
SECTION 17. PARTIES TO THE PLAN:
---------- -------------------
Any affiliated employer that desires to become a party to the plan and
trust agreement may do so by separate written agreement with Douglas Federal
Bank and the Trustees. The provisions of this Section 17 shall apply to all
parties to the plan except as otherwise expressly provided herein or in such
separate agreement.
17.1 SINGLE PLAN: As used in the plan and in the trust agreement,
except as otherwise specifically set forth herein, the term "Company" shall mean
each party to the plan and trust agreement. The plan and trust agreement shall
apply as a single plan with respect to all parties as if there were only one
employer-party. Service for purposes of the plan shall be interchangeable among
employer-parties to the plan and shall not be deemed to be interrupted or
terminated by the transfer at any time of an employee from the service of one
employer-party to the service of another employer-party. Except to the extent
otherwise specifically provided in the plan, service with any employer-party
prior to the earlier of (i) the date such party became an affiliated employer,
or (ii) the date such employer-party became a party to the plan, shall be
disregarded for all purposes of the plan.
62
<PAGE>
17.2 COMMITTEE APPOINTMENT: The Committee as designated by the
Board of Directors of Douglas Federal Bank shall be the Committee with respect
to all other employers which are or may be parties to the plan.
17.3 AUTHORITY TO AMEND: Notwithstanding any other provisions of
the plan, the Board of Directors of Douglas Federal Bank shall have authority to
amend the plan and trust agreement as applied to Douglas Federal Bank and each
other party to the plan, and the proper officers of each party to the plan shall
be authorized to execute all documents and take all other actions as shall be
deemed necessary or advisable to effectuate and carry out any such amendment as
applied to such party. The plan as applied to each employer-party may be
terminated only by the Board of Directors of each such employer-party.
SECTION 18. SPECIAL TOP-HEAVY PROVISIONS:
---------- ----------------------------
The following provisions shall apply and supersede any conflicting
provision in the plan with respect to any plan year in which the plan is
determined to be top-heavy (as described in Section 18.1.5):
18.1 DEFINITIONS: The following definitions shall apply for
purposes of this Section 18:
18.1.1 "Company" means the Company and its affiliated
employers.
18.1.2 "Determination date" means the last day of the
preceding plan year, or in the case of the first plan year, the
last day of such plan year.
18.1.3 "Key employee" means any employee or former employee
(and any beneficiary of such employee) who at any time during the
determination period is an officer of the Company if such
individual's annual statutory compensation exceeds 50 percent of
the dollar limitation under Section 415(b)(1)(A) of the Code; an
owner (or considered an owner under Section 318 of the Code) of
one of the 10 largest interests in the Company if such
individual's statutory compensation exceeds
63
<PAGE>
100 percent of the dollar limitation under Section 415(c)(1)(A)
of the Code; a 5 percent owner of the Company; or a one percent
owner of the Company who has an annual statutory compensation of
more than $160,000. Annual statutory compensation means statutory
compensation as defined in Section 2.35. The determination period
shall be the plan year containing the determination date and the
preceding 4 plan years. The determination of who is a key
employee shall be made in accordance with Section 416(i)(1) of
the Code. "Non-key employee" means any employee or former
employee who is not a key employee.
18.1.4 "Permissive aggregation group" means the required
aggregation group and any other plan or plans of the Company
which, when considered as a group with the required aggregation
group, would continue to satisfy the requirements of Sections
401(a)(4) and 410 of the Code.
18.1.5 "Required aggregation group" means (a) each
qualified plan of the Company in which at least one key employee
participates or participated at any time during the determination
period (regardless of whether the plan has terminated), and (b)
any other qualified plan of the Company that enables a plan
described in (a) to meet the requirements of Sections 401(a)(4)
or 410 of the Code.
18.1.6 "Top-heavy plan" means the plan if any of the
following conditions exists:
(i) The top-heavy ratio for the plan
exceeds 60 percent, and the plan is not part of
any required aggregation group or permissive
aggregation group.
(ii) The plan is a part of a required
aggregation group but not part of a permissive
aggregation group, and the top-heavy ratio for
such group exceeds 60 percent.
(iii) The plan is a part of a required
aggregation group and part of a permissive
aggregation group, and the top-heavy ratio for the
permissive aggregation group exceeds 60 percent.
18.1.7 "Top-heavy ratio" means the following:
(i) If the Company maintains one or more
defined contribution plans (including any
simplified employee pension plan) and has not
maintained any defined benefit plan which during
the 5-year period ending on the determination
date(s) has or has had accrued benefits, the top-
heavy ratio for the plan alone or for the required
or permissive aggregation group, as appropriate,
shall be a
64
<PAGE>
fraction the numerator of which is the sum of the
account balances of all key employees as of the
determination date(s), including any part of any
account balance distributed in the 5-year period
ending on the determination date(s), and the
denominator of which is the sum of all account
balances including any part of any account balance
distributed in the 5-year period ending on the
determination date(s), both computed in accordance
with Section 416 of the Code. Both the numerator
and denominator of the top-heavy ratio shall be
increased to reflect any contribution not actually
made as of the determination date but which is
required to be taken into account on such date
under Section 416 of the Code.
(ii) If the Company maintains one or more
defined contribution plans (including any
simplified employee pension plan) and maintains or
has maintained one or more defined benefit plans
which during the 5-year period ending on the
determination date(s) has or has had any accrued
benefits, the top-heavy ratio for any required or
permissive aggregation group, as appropriate,
shall be a fraction the numerator of which is the
sum of account balances under the aggregated
defined contribution plan or plans for all key
employees, determined in accordance with paragraph
(i) above, and the present value of accrued
benefits under the aggregated defined benefit plan
or plans for all key employees as of the
determination date(s), and the denominator of
which is the sum of the account balances under the
aggregated defined contribution plan or plans for
all participants, determined in accordance with
paragraph (i) above, and the present value of
accrued benefits under the defined benefit plan or
plans for all participants as of the determination
date(s), all determined in accordance with Section
416 of the Code. The accrued benefits under a
defined benefit plan in both the numerator and
denominator of the top-heavy ratio shall be
increased for any distribution of an accrued
benefit made in the 5-year period ending on the
determination date.
(iii) For purposes of paragraphs (i) and
(ii) above, the value of account balances and the
present value of accrued benefits shall be
determined as of the most recent valuation date
that falls within or ends with the 12-month period
ending on the determination date, except as
provided in Section 416 of the Code for the first
and second plan years of a defined benefit plan.
The present value of accrued benefits shall be
determined with reference to the actuarial
assumptions for the defined benefit plans under
which such accrued benefits are held, and as if
the participant voluntarily terminated
65
<PAGE>
service as of such valuation date. The account
balances and accrued benefits of a participant who
(a) is not a key employee but was a key employee
in a prior year, or (b) is not credited with at
least one hour of service with any employer
maintaining the plan at any time during the 5-year
period ending on the determination date shall be
disregarded. Calculation of the top-heavy ratio
and the extent to which distributions, rollovers,
and transfers are taken into account shall be made
in accordance with Section 416 of the Code.
Deductible employee contributions shall not be
taken into account for purposes of computing the
top-heavy ratio. When aggregating plans, the value
of account balances and accrued benefits shall be
calculated with reference to determination dates
that fall within the same calendar year. The
accrued benefit of a participant other than a key
employee shall be determined under (1) the method,
if any, that uniformly applies for accrual
purposes under all defined benefit plans
maintained by the Company, or (2) if there is no
such method, as if such benefit accrued not more
rapidly than the slowest accrual rate permitted
under the fractional rule of Section 411(b)(1)(C)
of the Code.
18.1.8 "Valuation date" means the year-end adjustment date
as defined in Section 2.5.
18.2 TOP-HEAVY REQUIREMENTS: Notwithstanding any other provision
of the plan, the plan must satisfy the following requirements for any plan year
in which it is a top-heavy plan:
18.2.1 Minimum allocation requirements: Except as otherwise
provided in (a) and (b) below, the Company contributions and
forfeitures allocated on behalf of any participant who is not a
key employee shall not be less than the lesser of 3 percent of
such participant's statutory compensation or, if the Company has
no defined benefit plan that designates this plan to satisfy
Section 416 of the Code, the largest percentage of Company
contributions and forfeitures allocated on behalf of any key
employee for the year. The minimum allocation shall be determined
without regard to any social security contribution. The minimum
allocation shall be made even though, under other plan
provisions, the participant otherwise is not entitled to receive
an allocation or would receive a lesser allocation for the year,
because of (i) the participant's failure to complete 1,000 hours
of service (or any equivalent provided in the plan); (ii) the
participant's failure to make mandatory employee contributions to
the plan; or (iii) compensation less than a stated amount. The
provisions of this Section 18.2.1 shall not apply to: (a) any
participant who was not employed by the Company on the last day
of the plan year; or (b) any participant to the extent such
participant is covered under any other plan or plans of the
66
<PAGE>
Company that provide that the minimum allocation or benefit
requirement applicable to top-heavy plans shall be met in the
other plan or plans. The minimum allocation required (to the
extent required to be nonforfeitable under Section 416(b) of the
Code) shall not be forfeitable under Section 411(a)(3)(B) or
411(a)(3)(D) of the Code. Notwithstanding the foregoing, if the
Company maintains any other defined contribution plan, the
Company shall provide a minimum allocation under one such plan
equal to 3 percent of statutory compensation for each non-key
employee who is entitled to a minimum allocation under each of
the plans.
18.2.2 Minimum vesting requirements: For any plan year in
which this plan is top-heavy, the vesting schedule set forth in
Section 6.2 shall continue to apply to the plan.
18.2.3 Forfeitures: Notwithstanding any other provision of
the plan to the contrary, with respect to any top-heavy plan year
that portion of a participant's accrued benefit forfeited
pursuant to Section 6.3 shall be combined with amounts so
forfeited by all other participants as of the applicable
adjustment date described in Section 6.3, and the aggregate of
such forfeitures shall be applied in the current or succeeding
plan year to reduce the amount of the Company contribution which
the Company is otherwise obligated to make pursuant to this
Section 18 and Section 3, and such applied forfeitures shall be
treated for all purposes of the plan as Company contributions.
18.3 ADJUSTMENTS TO LIMITATIONS ON ALLOCATIONS: This Section 18.3
shall apply with respect to limitation years beginning prior to January 1, 2000.
Notwithstanding the provisions of Section 3.3.3, if, during any limitation year
in which this plan is top-heavy, a participant is a participant in the plan and
in a defined benefit plan of the Company, the denominator of the participant's
defined contribution fraction and defined benefit fraction shall be determined
by substituting "1.0" for "1.25" each place that it appears in Section 3.3.3.
67
<PAGE>
SECTION 19. PORTABILITY OF PARTICIPANT ACCOUNTS:
---------- ------------------------------------
Notwithstanding any provision of the plan to the contrary that would
otherwise limit a distributee's election under this Section 19, a distributee
may elect, at the time and in the manner prescribed by the plan administrator,
to have any portion of an eligible rollover distribution paid directly to an
eligible retirement plan specified by the distributee in a direct rollover.
19.1 DEFINITIONS: The following definitions shall apply for
purposes of this Section 19:
19.1.1. "Eligible rollover distribution" means any
distribution of all or any portion of the balance to the credit
of the distributee, except that an eligible rollover distribution
does not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently than
annually) made for the life (or life expectancy) of the
distributee or the joint lives (or joint life expectancies) of
the distributee and the distributee's designated beneficiary, or
for a specified period of ten years or more; any distribution to
the extent such distribution is required under Section 401(a)(9)
of the Code; and the portion of any distribution that is not
includible in gross income (determined without regard to the
exclusion for net unrealized appreciation with respect to
employer securities).
19.1.2. "Eligible retirement plan" means an individual
retirement account described in Section 408(a) of the Code, an
individual retirement annuity described in Section 408(b) of the
Code, an annuity plan described in Section 403(a) of the Code, or
a qualified trust described in Section 401(a) of the Code, that
accepts the distributee's eligible rollover distribution.
However, in the case of an eligible rollover distribution to the
surviving spouse, an eligible retirement plan is an individual
retirement account or individual retirement annuity.
19.1.3. "Distributee" means an employee or former employee.
In addition, the employee's or former employee's surviving spouse
and the employee's or former employee's spouse or former spouse
who is the alternate payee under a qualified domestic relations
order, as defined in Section 414(p) of the Code, are distributees
with regard to the interest of the spouse or former spouse.
19.1.4. "Direct rollover" means a payment by the plan to
the eligible retirement plan specified by the distributee.
68
<PAGE>
19.2 CONSTRUCTION: Notwithstanding anything contained in this
Section 19 to the contrary, the provisions of this Section 19 shall at all times
be construed and enforced according to the requirements of Section 401(a)(31) of
the Code and the Treasury Regulations thereunder, as the same may be amended
from time to time.
SECTION 20. COMPLIANCE WITH THE UNIFORMED SERVICES EMPLOYMENT AND
-----------------------------------------------------
REEMPLOYMENT RIGHTS ACT OF 1994:
-------------------------------
The following special provisions of this Section 20 shall apply to an
employee or participant who is reemployed in accordance with the reemployment
provisions of the Uniformed Services Employment and Reemployment Rights Act of
1994 ("USERRA") following a period of qualifying military service (as determined
under USERRA):
(a) Each period of qualifying military service served by an employee
or participant shall, upon such reemployment, be deemed to constitute
service with the Company for all purposes of the plan, including
determining the participant's vested percentage in his accrued benefit.
(b) The Company shall make a Company contribution to the plan on
behalf of the participant upon the participant's reemployment following his
period of qualifying military service, in the amount that would have been
made on behalf of such participant had the participant been employed during
the period of qualifying military service.
(c) The Company shall not (i) credit earnings to a participant's
account with respect to any Company contribution before such contribution
is actually made,
69
<PAGE>
or (ii) make up any allocation of forfeitures, with respect to the period
of qualifying military service.
(d) For all purposes under the plan, including the Company's
liability for making contribution on behalf of a reemployed participant as
described above, the participant shall be treated as having received
compensation from the Company based on the rate of compensation the
participant would have received during the period of qualifying military
service, or if that rate is not reasonably certain, on the basis of the
participant's average rate of compensation during the 12-month period
immediately preceding such period.
(e) With respect to any Company contributions made in accordance
with the foregoing provisions of this Section 20:
(i) such contributions shall not be subject to any
otherwise applicable limitation under Code Section 404(a) or
415, and shall not be taken into account in applying such
limitations to other participants or Company contributions
under the plan or any other plan, with respect to the year
in which such contributions are made, and such contributions
shall be subject to these limitations only with respect to
the year to which such contributions relate and only in
accordance with Section 414(a) of the Code; and
(ii) the plan shall not be treated as failing to meet
the requirements of Code Sections 401(a)(4), 410(b) or 416
by reason of such contributions.
SECTION 21. MISCELLANEOUS PROVISIONS:
---------- ------------------------
21.1 NOTICES: Each participant who is not in service and each
beneficiary shall be responsible for furnishing the plan administrator with his
current address for mailing notices, reports and benefit payments. Any notice
required or permitted to be given to such participant or beneficiary shall be
deemed given if directed to such address and mailed by first class mail. If any
70
<PAGE>
check mailed to such address is returned as undeliverable to the addressee,
mailing of checks shall be suspended until the participant or beneficiary
furnishes the proper address. This provision shall not require the mailing of
any notice or notification otherwise permitted to be given by posting or other
publication.
21.2 LOST DISTRIBUTEES: A benefit shall be deemed forfeited if
the plan administrator is unable after a reasonable period of time to locate the
participant or beneficiary to whom payment is due; provided, that such benefit
shall be reinstated if a claim is made by or on behalf of the participant or
beneficiary for the forfeited benefit. The amount of any such forfeiture shall
be reallocated to participants as provided in Section 9.
21.3 RELIANCE ON DATA: The Company, Committee, Trustees and plan
administrator may rely on any data provided by a participant or beneficiary,
including representations as to age, health and marital status. Such
representations shall be binding on any party seeking to claim a benefit through
a participant, and the Company, Committee, Trustees and plan administrator shall
have no obligation to inquire into the accuracy of any representation made at
any time by a participant or beneficiary.
21.4 BONDING: Each fiduciary, except a bank or an insurance
company, shall be bonded for each plan year to the extent required by ERISA.
The bond shall provide protection to the plan against any loss by reason of acts
of fraud or dishonesty by the fiduciary alone or in connivance with others. The
cost of the bond shall be an expense of the trust and shall be paid by the
Trustees, subject to the provisions of Section 10.12 of the plan and Section 2.8
of the trust agreement.
21.5 RECEIPT AND RELEASE FOR PAYMENTS: Each participant by
participating in the plan conclusively shall be deemed to agree to look solely
to the assets held under the trust for
71
<PAGE>
payment of any benefit to which such participant may be entitled by reason of
such participation. Any payment made from the plan to or with respect to any
participant or beneficiary, or pursuant to a disclaimer by a beneficiary, shall
be in full satisfaction of all claims hereunder against the plan, Company and
all fiduciaries with respect to the plan to the extent of such payment. As a
condition precedent to payment, the recipient of any payment from the plan may
be required by the Committee, to execute a receipt and release with respect
thereto in such form as is acceptable to the Committee.
21.6 NO GUARANTEE: Except with respect to the Company's guarantee
of an acquisition loan, the Trustees, Committee and Company do not in any way
guarantee the trust fund from loss or depreciation, nor do they guarantee the
payment of any money or other assets from the trust fund that may be or become
due to any person. Nothing herein contained shall give any participant or
beneficiary an interest in any specific part of the trust fund, except for an
interest in Company stock allocated to the Company stock account of a
participant, or any other interest except the right to receive benefits from the
trust fund in accordance with the provision of the plan and trust.
21.7 HEADINGS: The headings and subheadings of the plan are
inserted for convenience of reference and shall be ignored in any construction
of the provisions hereof.
21.8 CONTINUATION OF EMPLOYMENT: The establishment of the plan
shall not confer any legal or other right on any employee or any person for
continuation of employment, nor shall it interfere with the right of the Company
to discharge any employee or deal with him without regard to the effect thereof
under the plan.
21.9 FEDERAL AND STATE SECURITIES LAW COMPLIANCE:
72
<PAGE>
21.9.1 If so directed by the Committee, each participant or
beneficiary shall, prior to the transfer of Company stock to such
participant or beneficiary, execute and deliver an agreement
acceptable to the Committee certifying his intent to hold such
stock for investment and containing such other representations
and agreements relating to the Company stock as the Committee
reasonably may request.
21.9.2 The Committee shall take all necessary steps to
comply with applicable registration or other requirements of
federal or state securities laws from which no exemption is
available.
21.10 CONSTRUCTION: The provisions of the plan shall be construed
and enforced according to the laws of the State of Georgia, except to the extent
such laws are superseded by the provisions of ERISA.
73
<PAGE>
IN WITNESS WHEREOF, the Employee Stock Ownership Plan of Douglas
Federal Bank is, by authority of the Board of Directors of the Company, executed
in behalf of the Company, as of the ________ day of _____________, 1999.
DOUGLAS FEDERAL BANK
By:_______________________________
President
Attest:
________________________________
Secretary
[Corporate Seal]
74
<PAGE>
EXHIBIT 10.2
PROPOSED FORM OF
1999 STOCK OPTION AND INCENTIVE PLAN
OF
FIRST DEPOSIT BANCSHARES, INC.
<PAGE>
1999 STOCK OPTION AND INCENTIVE PLAN
OF
FIRST DEPOSIT BANCSHARES, INC.
1. PURPOSE OF THE PLAN.
The purpose of this Plan is to advance the interests of the Company through
providing select key Employees and Directors of the Bank, the Company, and their
Affiliates with the opportunity to acquire Shares. By encouraging such stock
ownership, the Company seeks to attract, retain and motivate the best available
personnel for positions of substantial responsibility and to provide additional
incentives to Directors and key Employees of the Company or any Affiliate to
promote the success of the business.
2. DEFINITIONS.
As used herein, the following definitions shall apply.
(a) "Affiliate" shall mean any "parent corporation" or "subsidiary
corporation" of the Company, as such terms are defined in Section 424(e) and
(f), respectively, of the Code.
(b) "Agreement" shall mean a written agreement entered into in accordance
with Paragraph 5(c).
(c) "Awards" shall mean, collectively, Options, unless the context clearly
indicates a different meaning.
(d) "Bank" shall mean Douglas Federal Bank, a Federal Savings Bank.
(e) "Board" shall mean the Board of Directors of the Company.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(g) "Committee" shall mean not only the Stock Option Committee appointed
by the Board in accordance with Paragraph 5(a) hereof, but also the Board.
(h) "Common Stock" shall mean the common stock of the Company.
(i) "Company" shall mean First Deposit Bancshares, Inc.
(j) "Continuous Service" shall mean the absence of any interruption or
termination of service as an Employee or Director of the Company or an
Affiliate. Continuous Service shall not be considered interrupted in the case
of sick leave, military leave or any other leave of absence approved by the
Company, in the case of transfers between payroll locations of the Company or
<PAGE>
between the Company, an Affiliate or a successor, or in the case of a Director's
performance of services in an emeritus or advisory capacity.
(k) "Date of Conversion" shall mean the date of the conversion of the Bank
from mutual to stock form.
(l) "Director" shall mean any member of the Board, and any member of the
board of directors of an Affiliate whose members the Board has by resolution
designated as being eligible for participation in this Plan.
(m) "Disability" shall mean a physical or mental condition, which in the
sole and absolute discretion of the Committee, is reasonably expected to be of
indefinite duration and to substantially prevent a Participant from fulfilling
his or her duties or responsibilities to the Company or an Affiliate.
(n) "Effective Date" shall mean the date specified in Paragraph 13 hereof.
(o) "Employee" shall mean any person employed by the Company, the Bank, or
an Affiliate.
(p) "Exercise Price" shall mean the price per Optioned Share at which an
Option may be exercised.
(q) "ISO" shall mean an option to purchase Common Stock which meets the
requirements set forth in the Plan, and which is intended to be and is
identified as an "incentive stock option" within the meaning of Section 422 of
the Code.
(r) "Market Value" shall mean the fair market value of the Common Stock, as
determined under Paragraph 8(b) hereof.
(s) "Non-Employee Director" shall have the meaning provided in Rule 16b-3.
(t) "Non-ISO" means an option to purchase Common Stock which meets the
requirements set forth in the Plan but which is not intended to be and is not
identified as an ISO.
(u) "Option" means an ISO and/or a Non-ISO.
(v) "Optioned Shares" shall mean Shares subject to an Award granted
pursuant to this Plan.
(w) "OTS Award Limitations" shall mean the following percentage
limitations, determined with respect to the total Shares reserved for Awards
under this Plan: 25% for total
-2-
<PAGE>
Awards to any particular Employee; 5% for total Awards to any particular non-
Employee Director; and 30% for total Awards to the non-Employee Directors as a
group.
(x) "Participant" shall mean any person who receives an Award pursuant to
the Plan.
(y) "Plan" shall mean this First Deposit Bancshares, Inc. 1999 Stock
Option and Incentive Plan.
(z) "Rule 16b-3" shall mean Rule 16b-3 of the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended.
(aa) "Share" shall mean one share of Common Stock.
(bb) "Year of Service" shall mean a full twelve-month period, measured from
the date of an Award and each annual anniversary of that date, during which a
Participant has not terminated Continuous Service for any reason.
3. TERM OF THE PLAN AND AWARDS.
(a) Term of the Plan. The Plan shall continue in effect for a term of ten
years from the Effective Date, unless sooner terminated pursuant to Paragraph 15
hereof. No Award shall be granted under the Plan after ten years from the
Effective Date.
(b) Term of Awards. The term of each Award granted under the Plan shall be
established by the Committee, but shall not exceed ten years; provided, however,
that in the case of an Employee who owns Shares representing more than 10% of
the outstanding Common Stock at the time an ISO is granted, the term of such ISO
shall not exceed five years.
4. SHARES SUBJECT TO THE PLAN.
Except as otherwise required under Paragraph 10, the aggregate number of
Shares deliverable pursuant to Awards shall not exceed ________ Shares, which
equals 10% of the Shares issued by the Company in connection with the Bank's
conversion from mutual to stock form ("Conversion"). Such Shares may either be
authorized but unissued Shares, Shares held in treasury, or Shares held in a
grantor trust created by the Company. [IF THE PLAN IS ADOPTED MORE THAN ONE
YEAR AFTER THE DATE OF CONVERSION, THIS LIMITATION MAY BE MODIFIED.] If any
Awards should expire, become unexercisable, or be forfeited for any reason
without having been exercised, the Optioned Shares shall, unless the Plan shall
have been terminated, be available for the grant of additional Awards under the
Plan.
-3-
<PAGE>
5. ADMINISTRATION OF THE PLAN.
(a) Appointment of the Committee. The Plan shall be administered by the
Committee. Members of the Committee shall serve at the pleasure of the Board.
In the absence at any time of a duly appointed Committee, the Plan shall be
administered by the Board. The Committee shall include no fewer than the
minimum number of Non-Employee Directors as may be required by Rule 16b-3.
(b) Powers of the Committee. Except as limited by the express provisions
of the Plan or by resolutions adopted by the Board, the Committee shall have
sole and complete authority and discretion (i) to select Participants and grant
Awards, (ii) to determine the form and content of Awards to be issued in the
form of Agreements under the Plan, (iii) to interpret the Plan, (iv) to
prescribe, amend and rescind rules and regulations relating to the Plan, and (v)
to make other determinations necessary or advisable for the administration of
the Plan. The Committee shall have and may exercise such other power and
authority as may be delegated to it by the Board from time to time. A majority
of the entire Committee shall constitute a quorum and the action of a majority
of the members present at any meeting at which a quorum is present, or acts
approved in writing by a majority of the Committee without a meeting, shall be
deemed the action of the Committee.
(c) Agreement. Each Award shall be evidenced by a written agreement
containing such provisions as may be approved by the Committee. Each such
Agreement shall constitute a binding contract between the Company and the
Participant, and every Participant, upon acceptance of such Agreement, shall be
bound by the terms and restrictions of the Plan and of such Agreement. The
terms of each such Agreement shall be in accordance with the Plan, but each
Agreement may include such additional provisions and restrictions determined by
the Committee, in its discretion, provided that such additional provisions and
restrictions are not inconsistent with the terms of the Plan. In particular,
the Committee shall set forth in each Agreement (i) the Exercise Price of an
Option, (ii) the number of Shares subject to the Award, and its expiration date,
(iii) the manner, time, and rate (cumulative or otherwise) of exercise or
vesting of such Award, and (iv) the restrictions, if any, to be placed upon such
Award, or upon Shares which may be issued upon exercise of such Award. The
Chairman of the Committee and such other Directors and officers as shall be
designated by the Committee are hereby authorized to execute Agreements on
behalf of the Company and to cause them to be delivered to the recipients of
Awards.
(d) Effect of the Committee's Decisions. All decisions, determinations,
and interpretations of the Committee shall be final and conclusive on all
persons affected thereby.
(e) Indemnification. In addition to such other rights of indemnification
as they may have, the members of the Committee shall be indemnified by the
Company in connection with any claim, action, suit or proceeding relating to any
action taken or failure to act under or in connection with the Plan or any
Award, granted hereunder to the full extent provided for under the Company's
governing instruments with respect to the indemnification of Directors.
-4-
<PAGE>
6. GRANT OF OPTIONS TO EMPLOYEES.
(a) General Rule. Only Employees shall be eligible to receive Awards. In
selecting those Employees to whom Awards will be granted and the number of
shares covered by such Awards, the Committee shall consider the position, duties
and responsibilities of the eligible Employees, the value of their services to
the Company and its Affiliates, and any other factors the Committee may deem
relevant. Notwithstanding the foregoing, the Committee shall automatically make
the Awards specified in Paragraphs 6(b) and 7 hereof, and (ii) no Employee or
non-Employee Director shall receive Options in excess of the OTS Award
Limitations. [THE OTS AWARD LIMITATIONS MAY BE MODIFIED OR REMOVED IF THE PLAN
IS ADOPTED MORE THAN ONE YEAR AFTER THE DATE OF CONVERSION.]
(b) Automatic Grants to Employees. On the Effective Date, each of the
following Employees shall receive an Option (in the form of an ISO, to the
extent permissible under the Code) to purchase the number of Shares listed below
(but not to exceed the OTS Award Limitations), at an Exercise Price per Share
equal to the Market Value of a Share on the Effective Date; provided that such
grant shall not be made to an Employee whose Continuous Service terminates on or
before the Effective Date:
Percentage of Shares
Participant Reserved under Paragraph 4(a)
----------- -----------------------------
With respect to each of the above-named Participants, the Option granted to the
Participant hereunder (i) shall vest in accordance with the general rule set
forth in Paragraph 9(a) of the Plan, (ii) shall have a term of ten years from
the Effective Date, and (iii) shall be subject to the general rule set forth in
Paragraph 9(c) with respect to the effect of a Participant's termination of
Continuous Service on the Participant's right to exercise his Options.
(c) Special Rules for ISOs. The aggregate Market Value, as of the date the
Option is granted, of the Shares with respect to which ISOs are exercisable for
the first time by an Employee during any calendar year (under all incentive
stock option plans, as defined in Section 422 of the Code, of the Company or any
present or future Affiliate of the Company) shall not exceed $100,000.
Notwithstanding the foregoing, the Committee may grant Options in excess of the
foregoing limitations, in which case Options granted in excess of such
limitation shall be Non-ISOs.
7. GRANTS OF OPTIONS TO NON-EMPLOYEE DIRECTORS
(a) Automatic Grants. Notwithstanding any other provisions of this Plan,
each Director who is not an Employee but is a Director on the Effective Date
shall receive, on said date, Non-ISOs
-5-
<PAGE>
to purchase a number of Shares listed below (but not to exceed the OTS Award
Limitations), at an Exercise Price per Share equal to the Market Value of a
Share on the Effective Date; provided that such grant shall not be made to a
Non-Employee Director whose Continuous Service terminates on or before the
Effective Date:
Percentage of Shares
Participant Reserved under Paragraph 4(a)
----------- -----------------------------
[THE OTS AWARD LIMITATIONS MAY BE MODIFIED OR REMOVED IF THE PLAN IS ADOPTED
MORE THAN ONE YEAR AFTER THE DATE OF CONVERSION.]
(b) Terms of Exercise. Options received under the provisions of this
Paragraph (i) shall become exercisable in accordance with Paragraph 9(a) of the
Plan, and (ii) may be exercised from time to time by written notice of intent to
exercise the Option with respect to all or a specified number of the Optioned
Shares, and payment to the Company (contemporaneously with the delivery of such
notice), in cash, in Common Stock, or a combination of cash and Common Stock, of
the amount of the Exercise Price for the number of the Optioned Shares with
respect to which the Option is then being exercised. Each such notice and
payment shall be delivered, or mailed by prepaid registered or certified mail,
addressed to the Treasurer of the Company at the Company's executive offices. A
Director who exercises Options pursuant to this Paragraph may satisfy all
applicable federal, state and local income and employment tax withholding
obligations, in whole or in part, by irrevocably electing to have the Company
withhold shares of Common Stock, or to deliver to the Company shares of Common
Stock that he already owns, having a value equal to the amount required to be
withheld; provided that to the extent not inconsistent herewith, such election
otherwise complies with those requirements of Paragraphs 8 and 18 hereof.
Options granted under this Paragraph shall have a term of ten years;
provided that Options granted under this Paragraph shall expire one year after
the date on which a Director terminates Continuous Service on the Board for a
reason other than death, but in no event later than the date on which such
Options would otherwise expire. In the event of such Director's death during
the term of his directorship, Options granted under this Paragraph shall become
immediately exercisable, and may be exercised within two years from the date of
his death by the personal representatives of his estate or person or persons to
whom his rights under such Option shall have passed by will or by laws of
descent and distribution, but in no event later than the date on which such
Options would otherwise expire. In the event of such Director's Disability
during his or her directorship, the Director's Option shall become immediately
exercisable, and such Option may be exercised within one year of the termination
of directorship due to Disability, but not later than the date that the Option
would otherwise expire. Unless otherwise inapplicable or inconsistent with the
provisions of this Paragraph, the Options to be granted to Directors hereunder
shall be subject to all other provisions of this Plan.
-6-
<PAGE>
(c) Effect of the Committee's Decisions. The Committee's determination
whether a Participant's Continuous Service has ceased, and the effective date
thereof, shall be final and conclusive on all persons affected thereby.
8. EXERCISE PRICE FOR OPTIONS.
(a) Limits on Committee Discretion. The Exercise Price as to any
particular Option shall not be less than 100% of the Market Value of the
Optioned Shares on the date of grant. In the case of an Employee who owns
Shares representing more than 10% of the Company's outstanding Shares of Common
Stock at the time an ISO is granted, the Exercise Price shall not be less than
110% of the Market Value of the Optioned Shares at the time the ISO is granted.
[IF THE PLAN IS ADOPTED MORE THAN ONE YEAR AFTER THE DATE OF CONVERSION, THE
COMMITTEE MAY HAVE THE DISCRETION TO SET THE EXERCISE PRICE FOR A NON-ISO AT A
LESS THAN MARKET VALUE.]
(b) Standards for Determining Exercise Price. If the Common Stock is
listed on a national securities exchange (including the NASDAQ National Market
System) on the date in question, then the Market Value per Share shall be the
average of the highest and lowest selling price on such exchange on such date,
or if there were no sales on such date, then the Exercise Price shall be the
mean between the bid and asked price on such date. If the Common Stock is
traded otherwise than on a national securities exchange on the date in question,
then the Market Value per Share shall be the mean between the bid and asked
price on such date, or, if there is no bid and asked price on such date, then on
the next prior business day on which there was a bid and asked price. If no
such bid and asked price is available, then the Market Value per Share shall be
its fair market value as determined by the Committee, in its sole and absolute
discretion.
9. EXERCISE OF OPTIONS.
(a) Generally. Each Option shall become exercisable with respect to twenty
percent (20%) of the Optioned Shares upon the Participant's completion of each
of five Years of Service, provided that an Option shall become fully (100%)
exercisable immediately upon termination of the Participant's Continuous Service
due to the Participant's Disability or death. An Option may not be exercised
for a fractional Share. [IF THE PLAN IS ADOPTED MORE THAN ONE YEAR AFTER THE
DATE OF CONVERSION, THE FOREGOING LIMITATIONS ON VESTING AND THE ACCELERATION OF
VESTING MAY BE REMOVED.]
(b) Procedure for Exercise. A Participant may exercise Options, subject to
provisions relative to its termination and limitations on its exercise, only by
(1) written notice of intent to exercise the Option with respect to a specified
number of Shares, and (2) payment to the Company (contemporaneously with
delivery of such notice) in cash, in Common Stock, or a combination of cash and
Common Stock, of the amount of the Exercise Price for the number of Shares with
respect to which the Option is then being exercised. Each such notice (and
payment where required) shall be delivered, or mailed by prepaid registered or
certified mail, addressed to the Treasurer of the
-7-
<PAGE>
Company at its executive offices. Common Stock utilized in full or partial
payment of the Exercise Price for Options shall be valued at its Market Value at
the date of exercise, and may consist of Shares subject to the Option being
exercised.
(c) Period of Exercisability. Except to the extent otherwise provided in
the terms of an Agreement, an Option may be exercised by a Participant only
while he is an Employee and has maintained Continuous Service from the date of
the grant of the Option, or within one year after termination of such Continuous
Service (but not later than the date on which the Option would otherwise
expire), except if the Employee's Continuous Service terminates by reason of:
(1) "Just Cause" which for purposes hereof shall have the meaning set
forth in any unexpired employment or severance agreement between the
Participant and the Bank and/or the Company (and, in the absence of
any such agreement, shall mean termination because of the Employee's
personal dishonesty, incompetence, willful misconduct, breach of
fiduciary duty involving personal profit, intentional failure to
perform stated duties, willful violation of any law, rule or
regulation (other than traffic violations or similar offenses) or
final cease-and-desist order), then the Participant's rights to
exercise such Option shall expire on the date of such termination; or
(2) death, then to the extent that the Participant would have been
entitled to exercise the Option immediately prior to his death, such
Option of the deceased Participant may be exercised within two years
from the date of his death (but not later than the date on which the
Option would otherwise expire) by the personal representatives of his
estate or person or persons to whom his rights under such Option shall
have passed by will or by laws of descent and distribution.
(d) Effect of the Committee's Decisions. The Committee's determination
whether a Participant's Continuous Service has ceased, and the effective date
thereof, shall be final and conclusive on all persons affected thereby.
10. EFFECT OF CHANGES IN COMMON STOCK SUBJECT TO THE PLAN.
(a) Recapitalizations; Stock Splits, Etc. The number and kind of shares
reserved for issuance under the Plan, and the number and kind of shares subject
to outstanding Awards, and the Exercise Price thereof, shall be proportionately
adjusted for any increase, decrease, change or exchange of Shares for a
different number or kind of shares or other securities of the Company which
results from a merger, consolidation, recapitalization, reorganization,
reclassification, stock dividend, split-up, combination of shares, or similar
event in which the number or kind of shares is changed without the receipt or
payment of consideration by the Company.
(b) Transactions in which the Company is Not the Surviving Entity. In the
event of (i) the liquidation or dissolution of the Company, (ii) a merger or
consolidation in which the Company
-8-
<PAGE>
is not the surviving entity, or (iii) the sale or disposition of all or
substantially all of the Company's assets (any of the foregoing to be referred
to herein as a "Transaction"), all outstanding Awards, together with the
Exercise Prices thereof, shall be equitably adjusted for any change or exchange
of Shares for a different number or kind of shares or other securities which
results from the Transaction.
(c) Special Rule for ISOs. Any adjustment made pursuant to subparagraphs
(a) or (b) hereof shall be made in such a manner as not to constitute a
modification, within the meaning of Section 424(h) of the Code, of outstanding
ISOs.
(d) Conditions and Restrictions on New, Additional, or Different Shares or
Securities. If, by reason of any adjustment made pursuant to this Paragraph, a
Participant becomes entitled to new, additional, or different shares of stock or
securities, such new, additional, or different shares of stock or securities
shall thereupon be subject to all of the conditions and restrictions which were
applicable to the Shares pursuant to the Award before the adjustment was made.
(e) Other Issuances. Except as expressly provided in this Paragraph, the
issuance by the Company or an Affiliate of shares of stock of any class, or of
securities convertible into Shares or stock of another class, for cash or
property or for labor or services either upon direct sale or upon the exercise
of rights or warrants to subscribe therefor, shall not affect, and no adjustment
shall be made with respect to, the number, class, or Exercise Price of Shares
then subject to Awards or reserved for issuance under the Plan.
(f) Certain Special Dividends. The Exercise Price of shares subject to
outstanding Awards shall be proportionately adjusted upon the payment of a
special large and nonrecurring dividend that has the effect of a return of
capital to the stockholders, except that this subparagraph (f) shall not apply
to any dividend which is paid to the Participant pursuant to Paragraph 7(b) or
9(b) hereof.
11. NON-TRANSFERABILITY OF AWARDS.
Awards may not be sold, pledged, assigned, hypothecated, transferred
or disposed of in any manner other than by will or by the laws of descent and
distribution. Notwithstanding the foregoing, or any other provision of this
Plan, a Participant who holds Awards may transfer such Awards (but not ISOs) to
his or her spouse, lineal ascendants, lineal descendants, or to a duly
established trust for the benefit of one or more of these individuals. Awards
so transferred may thereafter be transferred only to the Participant who
originally received the grant or to an individual or trust to whom the
Participant could have initially transferred the Awards pursuant to this
Paragraph 11. Awards which are transferred pursuant to this Paragraph 11 shall
be exercisable by the transferee according to the same terms and conditions as
applied to the Participant.
-9-
<PAGE>
12. TIME OF GRANTING AWARDS.
The date of grant of an Award shall, for all purposes, be the later of
the date on which the Committee makes the determination of granting such Award,
and the Effective Date. Notice of the determination shall be given to each
Participant to whom an Award is so granted within a reasonable time after the
date of such grant.
13. EFFECTIVE DATE.
The Plan shall become effective immediately upon its approval by a
favorable vote of stockholders owning at least a majority of the total votes
eligible to be cast at a duly called meeting of the Company's stockholders held
in accordance with applicable laws, provided that the Plan shall not be
submitted for such approval within the six-month period after the Bank
completes its mutual-to-stock conversion. No Awards may be made prior to
approval of the Plan by the stockholders of the Company.
14. MODIFICATION OF AWARDS.
At any time, and from time to time, the Board may authorize the
Committee to direct execution of an instrument providing for the modification of
any outstanding Award, provided no such modification shall confer on the holder
of said Award any right or benefit which could not be conferred on him by the
grant of a new Award at such time, or impair the Award without the consent of
the holder of the Award.
15. AMENDMENT AND TERMINATION OF THE PLAN.
The Board may from time to time amend the terms of the Plan and, with
respect to any Shares at the time not subject to Awards, suspend or terminate
the Plan. No amendment, suspension or termination of the Plan shall, without
the consent of any affected holders of an Award, alter or impair any rights or
obligations under any Award theretofore granted.
16. CONDITIONS UPON ISSUANCE OF SHARES.
(a) Compliance with Securities Laws. Shares of Common Stock shall not be
issued with respect to any Award unless the issuance and delivery of such Shares
shall comply with all relevant provisions of law, including, without limitation,
the Securities Act of 1933, as amended, the rules and regulations promulgated
thereunder, any applicable state securities law, and the requirements of any
stock exchange upon which the Shares may then be listed.
(b) Special Circumstances. The inability of the Company to obtain approval
from any regulatory body or authority deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder shall relieve
the Company of any liability in respect of the non-issuance or sale of such
Shares. As a condition to the exercise of an Option, the Company
-10-
<PAGE>
may require the person exercising the Option to make such representations and
warranties as may be necessary to assure the availability of an exemption from
the registration requirements of federal or state securities law.
(c) Committee Discretion. The Committee shall have the discretionary
authority to impose in Agreements such restrictions on Shares as it may deem
appropriate or desirable, including but not limited to the authority to impose a
right of first refusal or to establish repurchase rights or both of these
restrictions.
17. RESERVATION OF SHARES.
The Company, during the term of the Plan, will reserve and keep
available a number of Shares sufficient to satisfy the requirements of the Plan.
18. WITHHOLDING TAX.
The Company's obligation to deliver Shares upon exercise of Options
shall be subject to the Participant's satisfaction of all applicable federal,
state and local income and employment tax withholding obligations. The
Committee, in its discretion, may permit the Participant to satisfy the
obligation, in whole or in part, by irrevocably electing to have the Company
withhold Shares, or to deliver to the Company Shares that he already owns,
having a value equal to the amount required to be withheld. The value of the
Shares to be withheld, or delivered to the Company, shall be based on the Market
Value of the Shares on the date the amount of tax to be withheld is to be
determined. As an alternative, the Company may retain, or sell without notice, a
number of such Shares sufficient to cover the amount required to be withheld.
19. NO EMPLOYMENT OR OTHER RIGHTS.
In no event shall an Employee's or Director's eligibility to
participate or participation in the Plan create or be deemed to create any legal
or equitable right of the Employee, Director, or any other party to continue
service with the Company, the Bank, or any Affiliate of such corporations.
Except to the extent provided in Paragraphs 6(b) and 7(a), no Employee or
Director shall have a right to be granted an Award or, having received an Award,
the right to again be granted an Award. However, an Employee or Director who
has been granted an Award may, if otherwise eligible, be granted an additional
Award or Awards.
20. GOVERNING LAW.
The Plan shall be governed by and construed in accordance with the
laws of the State of Geogia, except to the extent that federal law shall be
deemed to apply.
-11-
<PAGE>
EXHIBIT 10.3
PROPOSED FORM OF
1999 MANAGEMENT RECOGNITION PLAN
OF
FIRST DEPOSIT BANCSHARES, INC.
<PAGE>
MANAGEMENT RECOGNITION PLAN
OF
FIRST DEPOSIT BANCSHARES, INC.
ARTICLE I
ESTABLISHMENT OF THE PLAN
1.01 The Company hereby establishes this Plan upon the terms and
conditions hereinafter stated.
1.02 Through acceptance of their appointment to the Committee, each member
of the Committee hereby accepts his or her appointment hereunder upon the terms
and conditions hereinafter stated.
ARTICLE II
PURPOSE OF THE PLAN
2.01 The purpose of the Plan is to reward and retain personnel of
experience and ability in key positions of responsibility by providing Employees
and Directors of the Company, the Bank, and their Affiliates with a proprietary
interest in the Company, and as compensation for their past contributions to the
Bank, and as an incentive to make such contributions in the future.
ARTICLE III
DEFINITIONS
The following words and phrases when used in this Plan with an initial
capital letter, shall have the meanings set forth below unless the context
clearly indicates otherwise. Wherever appropriate, the masculine pronoun shall
include the feminine pronoun and the singular shall include the plural.
3.01 "Affiliate" shall mean any "parent corporation" or "subsidiary
corporation" of the Company, as such terms are defined in Section 424(e) and
(f), respectively, of the Internal Revenue Code of 1986, as amended.
3.02 "Bank" means Douglas Federal Bank, a Federal Savings Bank.
3.03 "Beneficiary" means the person or persons designated by a Participant
to receive any benefits payable under the Plan in the event of such
Participant's death. Such person or persons shall be designated in writing on
forms provided for this purpose by the Committee and may be changed from time to
time by similar written notice to the Committee. In the absence of a written
designation, the Beneficiary shall be the Participant's surviving spouse, if any
or if none, his estate.
-1-
<PAGE>
3.04 "Board" means the Board of Directors of the Company.
3.05 "Committee" means the Management Recognition Plan Committee appointed
by the Board pursuant to Article IV hereof.
3.06 "Common Stock" means shares of the common stock of the Company.
3.07 "Company" means First Deposit Bancshares, Inc.
3.08 "Continuous Service" shall mean the absence of any interruption or
termination of service as an Employee or Director of the Company or an
Affiliate. Continuous Service shall not be considered interrupted in the case of
sick leave, military leave or any other leave of absence approved by the Company
in the case of transfers between payroll locations of the Company or between the
Company, an Affiliate or a successor, or in the case of a Director's performance
of services in an emeritus or advisory capacity.
3.09 "Date of Conversion" means the date of the conversion of the Bank
from mutual to stock form.
3.10 "Director" means a member of the Board, and any member of the board
of directors of an Affiliate whose members the Board has by resolution
designated as being eligible for participation in this Plan.
3.11 "Disability" shall mean a physical or mental condition, which in the
sole and absolute discretion of the Committee, is reasonably expected to be of
indefinite duration and to substantially prevent a Participant from fulfilling
his or her duties or responsibilities to the Company or an Affiliate.
3.12 "Effective Date" means the date on which the Plan first becomes
effective, as determined under Section 8.07 hereof.
3.13 "Employee" means any person who is employed by the Company or an
Affiliate.
3.14 "Non-Employee Director" shall have the meaning provided in Rule 16b-3
of the General Rules and Regulations under the Securities Exchange Act of 1934,
as amended.
3.15 "OTS Award Limitations" shall mean the following percentage
limitations, determined with respect to the total shares reserved for awards
under this Plan: 25% for total Plan Share Awards to any particular Employee; 5%
for total Plan Share Awards to any particular non-Employee Director; and 30% for
total Plan Share Awards to the Non-Employee Directors as a group.
3.16 "Participant" means an Employee or Director who holds a Plan Share
Award.
-2-
<PAGE>
3.17 "Plan" means this First Deposit Bancshares, Inc. Management
Recognition Plan.
3.18 "Plan Shares" means shares of Common Stock held in the Trust which
are awarded or issuable to a Participant pursuant to the Plan.
3.19 "Plan Share Award" means a right granted under this Plan to receive
Plan Shares.
3.20 "Plan Share Reserve" means the shares of Common Stock held by the
Trustee pursuant to Sections 5.02 and 5.03.
3.21 "Trust" and "Trust Agreement" mean that agreement entered into
pursuant to the terms hereof between the Company and the Trustee, and "Trust"
means the trust created thereunder.
3.22 "Trustee" means that person(s) or entity appointed by the Board
pursuant to the Trust Agreement to hold legal title to the Plan assets for the
purposes set forth herein.
3.23 "Year of Service" shall mean a full twelve-month period, measured
from the date of a Plan Share Award and each annual anniversary of that date,
during which a Participant's Continuous Service has not terminated for any
reason.
ARTICLE IV
ADMINISTRATION OF THE PLAN
4.01 ROLE AND POWERS OF THE COMMITTEE. The Plan shall be administered and
interpreted by the Committee. The Committee shall include no fewer than the
minimum number of Non-Employee Directors as may be required by Rule 16b-3. In
the absence at any time of a duly appointed Committee, the Plan shall be
administered by those members of the Board who are Non-Employee Directors, and
by the Board if there are less than two Non-Employee Directors.
The Committee shall have all of the powers allocated to it in this
and other Sections of the Plan. Except as limited by the express provisions of
the Plan or by resolutions adopted by the Board, the Committee shall have sole
and complete authority and discretion (i) to make Plan Share Awards to such
Employees as the Committee may select, (ii) to determine the form and content of
Plan Share Awards to be issued under the Plan, (iii) to interpret the Plan, (iv)
to prescribe, amend and rescind rules and regulations relating to the Plan, and
(v) to make other determinations necessary or advisable for the administration
of the Plan. The Committee shall have and may exercise such other power and
authority as may be delegated to it by the Board from time to time. Subject to
Section 4.02, the interpretation and construction by the Committee of any
provisions of the Plan or of any Plan Share Award granted hereunder shall be
final and binding. The Committee shall act by vote or written consent of a
majority of its members, and shall report its actions and decisions with respect
to the Plan to the Board at appropriate times, but in no event less than one
time per calendar year. The Committee may recommend to the Board one or more
persons or entity to act as Trustee(s) in accordance with the provisions of this
Plan and the Trust.
-3-
<PAGE>
4.02 ROLE OF THE BOARD. The members of the Committee shall be appointed or
approved by, and will serve at the pleasure of, the Board. The Board may in its
discretion from time to time remove members from, or add members to, the
Committee. The Board shall have all of the powers allocated to it in this and
other Sections of the Plan, may take any action under or with respect to the
Plan which the Committee is authorized to take, and may reverse or override any
action taken or decision made by the Committee under or with respect to the
Plan, provided, however, that the Board may not revoke any Plan Share Award
already made or impair a participant's vested rights under a Plan Share Award.
Members of the Board who are eligible for or who have been granted Plan Share
Awards (other than pursuant to Section 6.04) may not vote on any matters
affecting the administration of the Plan or the grant of Plan Shares or Plan
Share Awards (although such members may be counted in determining the existence
of a quorum at any meeting of the Board during which actions with regard thereto
are taken). Further, with respect to all actions taken by the Board in regard to
the Plan, such action shall be taken by a majority of the Board where such a
majority of the directors acting in the matter are Non-Employee Directors.
4.03 LIMITATION ON LIABILITY. No member of the Board or the Committee or
the Trustee(s) shall be liable for any determination made in good faith with
respect to the Plan or any Plan Shares or Plan Share Awards granted under it. If
a member of the Board or the Committee or any Trustee is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative, by
reason of anything done or not done by him in such capacity under or with
respect to the Plan, the Company shall indemnify such member, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him or her in connection with such action,
suit or proceeding if he or she acted in good faith and in a manner he or she
reasonably believed to be in the best interests of the Company and its
Affiliates and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
ARTICLE V
CONTRIBUTIONS; PLAN SHARE RESERVE
5.01 AMOUNT AND TIMING OF CONTRIBUTIONS. The Board shall determine the
amounts (or the method of computing the amounts) to be contributed by the
Company to the Trust, provided that the Bank may also make contributions to the
Trust. Such amounts shall be paid to the Trustee at the time of contribution. No
contributions to the Trust by Employees shall be permitted.
5.02 INVESTMENT OF TRUST ASSETS; MAXIMUM PLAN SHARE AWARDS. The Trustee
shall invest Trust assets only in accordance with the Trust Agreement, and the
Committee shall not make Plan Share Awards with respect to a number of Plan
Shares that is more than 4% of the number of shares of Common Stock that are
sold on the Date of Conversion. [IF THE PLAN IS ADOPTED MORE THAN ONE YEAR AFTER
THE DATE OF CONVERSION, THIS LIMIT MAY BE MODIFIED.]
-4-
<PAGE>
5.03 EFFECT OF ALLOCATIONS, RETURNS AND FORFEITURES UPON PLAN SHARE
RESERVES. Upon the allocation of Plan Share Awards under Section 6.02, the Plan
Share Reserve shall be reduced by the number of Shares subject to the Awards so
allocated. Any Shares subject or attributable to an Award which may not be
earned because of a forfeiture by the Participant pursuant to Section 7.01 shall
be added to the Plan Share Reserve.
ARTICLE VI
ELIGIBILITY; ALLOCATIONS
6.01 ELIGIBILITY. Except as otherwise provided in Section 6.04 hereof, the
Committee shall make Plan Share Awards only to Employees. In selecting those
Employees to whom Plan Share Awards will be granted and the number of shares
covered by such Awards, the Committee shall consider the position, duties and
responsibilities of the eligible Employees, the value of their services to the
Company and its Affiliates, and any other factors the Committee may deem
relevant. Notwithstanding the foregoing, (i) the Committee shall automatically
make the Plan Share Awards specified in Sections 6.04 and 6.05 hereof; and (ii)
no Employee or non-Employee Director shall receive Plan Share Awards in excess
of the OTS Award Limitations. [THE OTS AWARD LIMITATIONS MAY BE MODIFIED OR
REMOVED IF THE PLAN IS ADOPTED MORE THAN ONE YEAR AFTER THE DATE OF CONVERSION.]
6.02 ALLOCATIONS. The Committee will determine which Employees and
Directors will be granted discretionary Plan Share Awards, and the number of
Shares covered by each Plan Share Award, provided that in no event shall any
Awards be made which will violate the governing instruments of the Bank or its
Affiliates or any applicable federal or state law or regulation. In the event
Plan Shares are forfeited for any reason or additional shares of Common Stock
are purchased by the Trustee, the Committee may, from time to time, determine
which of the Employees referenced in Section 6.01 above will be granted
additional Plan Share Awards to be awarded from the forfeited or acquired Plan
Shares.
6.03 FORM OF ALLOCATION. As promptly as practicable after a determination
is made pursuant to Section 6.02 that a Plan Share Award is to be made, the
Committee shall notify the Participant in writing of the grant of the Award, the
number of Plan Shares covered by the Award, and the terms upon which the Plan
Shares subject to the Award may be earned. The date on which the Committee so
notifies the Participant shall be considered the date of grant of the Plan Share
Awards. The Committee shall maintain records as to all grants of Plan Share
Awards under the Plan.
6.04 AUTOMATIC GRANTS TO NON-EMPLOYEE DIRECTORS. Notwithstanding any other
provisions of this Plan, each Director who is not an Employee but is a Director
on the Effective Date shall receive, on said date, a Plan Share Award for the
number of Plan Shares listed below (but not to exceed the OTS Award
Limitations), provided that such award shall not be made to an individual who is
not an Non-Employee Director on the Effective Date:
Non-Employee Director Shares Subject to Plan Share Award
-5-
<PAGE>
Plan Share Awards received under the provisions of this Section shall become
vested and nonforfeitable according to the general rules set forth in
subsections (a), and (b) of Section 7.01, and the Committee shall have no
discretion to alter or accelerate said vesting requirements. Unless otherwise
inapplicable or inconsistent with the provisions of this Section, the Plan Share
Awards to be granted hereunder shall be subject to all other provisions of this
Plan.
6.05 AUTOMATIC GRANTS TO EMPLOYEES. On the Effective Date, each of the
following individuals shall receive a Plan Share Award for the number of Plan
Shares listed below (but not to exceed the OTS Award Limitations), provided that
such award shall not be made to an individual who is not an Employee on the
Effective Date:
Employee Shares Subject to Plan Share Award
-------- ----------------------------------
Plan Share Awards received under the provisions of this Section shall become
vested and nonforfeitable according to the general rules set forth in
subsections (a) and (b) of Section 7.01, and the Committee shall have no
discretion to alter said vesting requirements. Unless otherwise inapplicable or
inconsistent with the provisions of this Section, the Plan Share Awards to be
granted hereunder shall be subject to all other provisions of this Plan.
6.06 ALLOCATIONS NOT REQUIRED. Notwithstanding anything to the contrary in
Sections 6.01 and 6.02, but subject to Sections 6.04 and 6.05, no Employee or
Director shall have any right or entitlement to receive a Plan Share Award
hereunder, such Awards being at the total discretion of the Committee, nor shall
any Employees or Directors as a group have such a right. The Committee may, with
the approval of the Board (or, if so directed by the Board) return all Common
Stock in the Plan Share Reserve to the Company at any time, and cease issuing
Plan Share Awards.
ARTICLE VII
EARNINGS AND DISTRIBUTION OF PLAN SHARES; VOTING RIGHTS
7.01 EARNING PLAN SHARES; FORFEITURES.
(a) GENERAL RULES. Twenty percent (20%) of the Plan Shares subject to
a Plan Share Award shall be earned and become nonforfeitable by a
Participant upon his or her completion of each of five Years of
Service.
-6-
<PAGE>
(b) EXCEPTION FOR TERMINATIONS DUE TO DEATH OR DISABILITY.
Notwithstanding the general rule contained in Section 7.01(a) above,
all Plan Shares subject to a Plan Share Award held by a Participant
whose service with the Company or an Affiliate terminates due to the
Participant's death or Disability, shall be deemed earned as of the
Participant's last day of service with the Company or an Affiliate and
shall be distributed as soon as practicable thereafter.
[IF THE PLAN IS ADOPTED MORE THAN ONE YEAR AFTER THE DATE OF CONVERSION, THE
FOREGOING LIMITATIONS ON VESTING AND THE ACCELERATION OF VESTING MAY BE
REMOVED.]
7.02 ACCRUAL OF DIVIDENDS. Whenever Plan Shares are paid to a Participant
or Beneficiary under Section 7.03, such Participant or Beneficiary shall also be
entitled to receive, with respect to each Plan Share paid, an amount equal to
any cash dividends (including special large and nonrecurring dividends,
including one that has the effect of a return of capital to the Company's
stockholders) and a number of shares of Common Stock equal to any stock
dividends, declared and paid with respect to a share of Common Stock between the
date the relevant Plan Share Award was initially granted to such Participant and
the date the Plan Shares are being distributed. There shall also be distributed
an appropriate amount of net earnings, if any, of the Trust with respect to any
cash dividends so paid out.
7.03 DISTRIBUTION OF PLAN SHARES.
(a) TIMING OF DISTRIBUTIONS: GENERAL RULE. Except as provided in
subsections (c), and (d) below, the Trustee shall distribute Plan
Shares and accumulated cash from dividends and interest to the
Participant or his Beneficiary, as the case may be, as soon as
practicable after they have been earned. No fractional shares shall be
distributed.
(b) FORM OF DISTRIBUTION. The Trustee shall distribute all Plan
Shares, together with any shares representing stock dividends, in the
form of Common Stock. One share of Common Stock shall be given for
each Plan Share earned. Payments representing cash dividends (and
earnings thereon) shall be made in cash.
(c) WITHHOLDING. The Trustee shall withhold from any cash payment
made under this Plan sufficient amounts to cover any applicable
withholding and employment taxes, and if the amount of such cash
payment is not sufficient, the Trustee shall require the Participant
or Beneficiary to pay to the Trustee the amount required to be
withheld as a condition of delivering the Plan Shares. The Trustee
shall pay over to the Company or Affiliate which employs or employed
such Participant any such amount withheld from or paid by the
Participant or Beneficiary.
-7-
<PAGE>
(d) TIMING: EXCEPTION FOR 10% SHAREHOLDERS. Notwithstanding
Subsections (a) and (b) above, no Plan Shares may be distributed prior
to the date which is five (5) years from the Date of Conversion to the
extent the Participant or Beneficiary, as the case may be, would after
receipt of such Shares own in excess of ten percent (10%) of the
issued and outstanding shares of Common Stock unless such action is
approved in advance by a majority vote of non-employee Directors of
the Board. To the extent this limitation would delay the date on which
a Participant receives Plan Shares, the Participant may elect to
receive from the Trust, in lieu of such Plan Shares, the cash
equivalent thereof. Any Plan Shares remaining undistributed solely by
reason of the operation of this Subsection (d) shall be distributed to
the Participant or his Beneficiary on the date which is five years
from the Date of Conversion.
(e) REGULATORY EXCEPTIONS. No Plan Shares shall be distributed unless
and until all of the requirements of all applicable law and regulation
shall have been fully complied with, including the receipt of approval
of the Plan by the stockholders of the Company by such vote, if any,
as may be required by applicable law and regulations.
7.04 VOTING OF PLAN SHARES. All shares of Common Stock held by the Trust
(whether or not subject to a Plan Share Award) shall be voted by the Trustee in
the same proportion as the trustee of the Company's Employee Stock Ownership
Plan votes Common Stock held in the trust associated therewith, and in the
absence of any such voting, shall be voted in the manner directed by the Board.
7.05 DEFERRAL ELECTIONS BY PARTICIPANTS. WHICH GROUP SHALL INCLUDE MEMBERS
OF THE BOARD.
(a) ELECTIONS TO DEFER. At any time prior to 120 days prior to the
date on which a Participant becomes vested in any shares subject to
his or her Plan Share Award, a Participant who is a member of a select
group of management or highly compensated employees (within the
meaning of the Employees' Retirement Income Security Act of 1974,
which group shall include members of the Board), may irrevocably
elect, on the form attached hereto as Exhibit "A" (the "Election
Form"), to defer the receipt of all or a percentage of the Plan Shares
that would otherwise be transferred to the Participant upon the
vesting of such award (the "Deferred Shares").
(b) RECORDKEEPING; HOLDING OF DEFERRED SHARES. The Committee shall
establish and maintain an individual account in the name of each
Participant who files an Election Form for the purpose of tracking
deferred earnings attributable to cash dividends paid on Deferred
Shares (the "Cash Account"). On the last day of each fiscal year of
the Company, the Committee shall credit to the Participant's Cash
Account earnings on the balance of the Cash Account at a rate equal to
the
-8-
<PAGE>
dividend-adjusted total return on Common Stock, as determined from
time to time by the Committee in its sole discretion. The Trustees
shall hold each Participant's Deferred Shares and Deferred Earnings in
the Trust until distribution is required pursuant to the election set
forth in the Participant's Election Form.
(c) DISTRIBUTIONS OF DEFERRED SHARES. The Trustee shall distribute a
Participant's Deferred Shares and Deferred Earnings in accordance with
the Participant's Election Form. All distributions made by the Company
and/or the Trustees pursuant to elections made hereunder shall be
subject to applicable federal, state, and local tax withholding and to
such other deductions as shall at the time of such payment be required
under any income tax or other law, whether of the United States or any
other jurisdiction, and, in the case of payments to a beneficiary, the
delivery to the Committee and/or Trustees of all necessary waivers,
qualifications and other documentation. Within 90 days after receiving
notice of a Participant's death, the Trustee shall distribute any
balance of the Participant's Deferred Shares and Deferred Earnings to
the Participant's designated beneficiary, if living, or if such
designated beneficiary is deceased or the Participant failed to
designate a beneficiary, to the Participant's estate. If, on the other
hand, a Participant's Continuous Service terminates for a reason other
than the Participant's death, Disability, early retirement, or normal
retirement, the Participant's Deferred Shares and Deferred Earnings
shall be distributed to the Participant in a lump sum occurring as
soon as reasonably practicable. The distribution provisions of a
Participant's Election Form shall become irrevocable on the date that
occurs (i) one year before the Participant's termination of Continuous
Service for a reason other than death, and (ii) on the Participant's
death if that terminates the Participant's Continuous Service.
(d) HARDSHIP WITHDRAWALS. Notwithstanding any other provision of the
Plan or a Participant's Election Form, in the event the Participant
suffers an unforeseeable emergency hardship within the contemplation
of this paragraph, the Participant may apply to the Committee for an
immediate distribution of all or a portion of his Deferred Shares and
Deferred Earnings. The hardship must result from a sudden and
unexpected illness or accident of the Participant or a dependent of
the Participant, casualty loss of property, or other similar
conditions beyond the control of the Participant. Examples of purposes
which are not considered hardships include post-secondary school
expenses or the desire to purchase a residence. In no event will a
distribution be made to the extent the hardship could be relieved
through reimbursement or compensation by insurance or otherwise, or by
liquidation of the Participant's nonessential assets to the extent
such liquidation would not itself cause a severe financial hardship.
The amount of any distribution hereunder shall be limited to the
amount necessary to relieve the Participant's financial hardship. The
determination of whether a Participant has a qualifying hardship and
the amount which qualifies for distribution, if any, shall be made by
the Committee in its sole
-9-
<PAGE>
discretion. The Committee may require evidence of the purpose and
amount of the need, and may establish such application or other
procedures as it deems appropriate.
(e) RIGHTS TO DEFERRED SHARES AND EARNINGS. A Participant may not
assign his or her claim to Deferred Shares and Deferred Earnings
during his or her lifetime, except in accordance with Section 8.03 of
this Plan. A Participant's right to Deferred Shares and Deferred
Earnings shall at all times constitute an unsecured promise of the
Company to pay benefits as they come due. The right of the Participant
or his or her beneficiary to receive benefits hereunder shall be
solely an unsecured claim against the general assets of the Company.
Neither the Participant nor his or her beneficiary shall have any
claim against or rights in any specific assets or other fund of the
Company, and any assets in the Trust shall be deemed general assets of
the Company.
ARTICLE VIII
MISCELLANEOUS
8.01 ADJUSTMENTS FOR CAPITAL CHANGES.
(a) RECAPITALIZATIONS; STOCK SPLITS, ETC. The number and kind of
shares which may be purchased under the Plan, and the number and kind
of shares subject to outstanding Plan Share Awards, shall be
proportionately adjusted for any increase, decrease, change or
exchange of shares of Common Stock for a different number or kind of
shares or other securities of the Company which results from a merger,
consolidation, recapitalization, reorganization, reclassification,
stock dividend, split-up, combination of shares, or similar event in
which the number or kind of shares is changed without the receipt or
payment of consideration by the Company.
(b) TRANSACTIONS IN WHICH THE COMPANY IS NOT THE SURVIVING ENTITY. In
the event of (i) the liquidation or dissolution of the Company, (ii) a
merger or consolidation in which the Company is not the surviving
entity, or (iii) the sale or disposition of all or substantially all
of the Company's assets (any of the foregoing to be referred to herein
as a "Transaction"), all outstanding Plan Share Awards shall be
adjusted for any change or exchange of shares of Common Stock for a
different number or kind of shares or other securities which results
from the Transaction.
(c) CONDITIONS AND RESTRICTIONS ON NEW, ADDITIONAL, OR DIFFERENT
SHARES OR SECURITIES. If, by reason of any adjustment made pursuant to
this Section, a Participant becomes entitled to new, additional, or
different shares of stock or securities, such new, additional, or
different shares of stock or securities shall thereupon be subject to
all of the conditions and restrictions
-10-
<PAGE>
which were applicable to the shares pursuant to the Plan Share Award
before the adjustment was made. In addition, the Committee shall have
the discretionary authority to impose on the Shares subject to Plan
Share Awards to Employees such restrictions as the Committee may deem
appropriate or desirable, including but not limited to a right of
first refusal, or repurchase option, or both of these restrictions.
(d) OTHER ISSUANCES. Except as expressly provided in this Section,
the issuance by the Company or an Affiliate of shares of stock of any
class, or of securities convertible into shares of Common Stock or
stock of another class, for cash or property or for labor or services
either upon direct sale or upon the exercise of rights or warrants to
subscribe therefor, shall not affect, and no adjustment shall be made
with respect to, the number or class of shares of Common Stock then
subject to Plan Share Awards or reserved for issuance under the Plan.
8.02 AMENDMENT AND TERMINATION OF PLAN. The Board may, by resolution, at
any time amend or terminate the Plan; provided that no amendment or termination
of the Plan shall, without the written consent of a Participant, impair any
rights or obligations under a Plan Share Award theretofore granted to the
Participant.
The power to amend or terminate the Plan in accordance with this
Section 8.02 shall include the power to direct the Trustee to return to the
Company all or any part of the assets of the Trust, including shares of Common
Stock held in the Plan Share Reserve. However, the termination of the Trust
shall not affect a Participant's right to earn Plan Share Awards and to receive
a distribution of Common Stock relating thereto, including earnings thereon, in
accordance with the terms of this Plan and the grant by the Committee or the
Board.
8.03 NONTRANSFERABILITY. Plan Share Awards may not be sold, pledged,
assigned, hypothecated, transferred or disposed of in any manner other than by
will or by the laws of descent and distribution. Notwithstanding the foregoing,
or any other provision of this Plan, a Participant who holds Plan Share Awards
may transfer such Awards to his or her spouse, lineal ascendants, lineal
descendants, or to a duly established trust for the benefit of one or more of
these individuals. Plan Share Awards so transferred may thereafter be
transferred only to the Participant who originally received the grant or to an
individual or trust to whom the Participant could have initially transferred the
Awards pursuant to this Section 8.03. Plan Share Awards which are transferred
pursuant to this Section 8.03 shall be exercisable by the transferee according
to the same terms and conditions as applied to the Participant.
8.04 NO EMPLOYMENT OR OTHER RIGHTS. Neither the Plan nor any grant of a
Plan Share Award or Plan Shares hereunder nor any action taken by the Trustee,
the Committee or the Board in connection with the Plan shall create any right,
either express or implied, on the part of any Employee or Director to continue
in the service of the Company, the Bank, or an Affiliate thereof.
-11-
<PAGE>
8.05 VOTING AND DIVIDEND RIGHTS. No Participant shall have any voting or
dividend rights or other rights of a stockholder in respect of any Plan Shares
covered by a Plan Share Award prior to the time said Plan Shares are actually
distributed to him.
8.06 GOVERNING LAW. The Plan and Trust shall be governed and construed
under the laws of the State of Georgia to the extent not preempted by Federal
law.
8.07 EFFECTIVE DATE. The Plan shall become effective immediately upon its
approval by a favorable vote of stockholders of the Company who own at least a
majority of the total votes eligible to be cast at a duly called meeting of the
Company's stockholders held in accordance with applicable laws, provided that
the Plan shall not be submitted for such approval within the six-month period
after the Date of Conversion. In no event shall Plan Share Awards be made prior
to the Effective Date.
8.08 TERM OF PLAN. This Plan shall remain in effect until the earlier of
(i) termination by the Board, or (ii) the distribution of all assets of the
Trust. Termination of the Plan shall not affect any Plan Share Awards previously
granted, and such Awards shall remain valid and in effect until they have been
earned and paid, or by their terms expire or are forfeited.
8.09 TAX STATUS OF TRUST. It is intended that (i) the Trust associated with
the Plan be treated as a grantor trust of the Company under the provisions of
Section 671 et seq. of the Code, as the same may be amended from time to time,
and (ii) that in accordance with Revenue Procedure 92-65 (as the same may be
amended from time to time), Participants have the status of general unsecured
creditors of the Company, the Plan constitutes a mere unfunded promise to make
benefit payments in the future, the Plan is unfunded for tax purposes and for
purposes of Title I of the Employee Retirement Income Security Act of 1974, as
amended, and the Trust has been and will continue to be maintained in conformity
with Revenue Procedure 92-64 (as the same may be amended from time to time).
-12-
<PAGE>
EXHIBIT 10.4
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 17th day of June, 1999, between Douglas
Federal Bank, FSB (the "Bank"), a federal savings bank chartered by the United
States, and First Deposit Bancshares, Inc. (the "Holding Company"), the holding
company of the Bank (the Bank and the Holding Company shall collectively be
referred to as the "Employers"), and ALPHA A. FOWLER, JR., a resident of the
State of Georgia (the "Employee").
R E C I T A L S :
The Employers desire to employ the Employee as the Chairman and Chief
Executive Officer of the Bank and as the Vice Chairman of the Holding Company
and the Employee desires to accept such employment.
In consideration of the above premises and the mutual agreements
hereinafter set forth, and other true and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereby agree as follows:
1. DEFINITIONS. Whenever used in this Agreement, the following terms and
-----------
their variant forms will have the meaning set forth below:
1.1 "Agreement" means this Agreement and any exhibits incorporated herein
together with any amendments hereto made in the manner described in this
Agreement.
1.2 "Affiliate" means any business entity which controls, is controlled
by, or is under common control with the Holding Company or the Bank.
1.3 "Area" means the geographic area within a radius of 20 miles of any
existing office or facility maintained by the Employers. It is the express
intent of the parties that the Area as defined herein is the area where the
Employee performs or performed services on behalf of the Employers under this
Agreement as of, or within a reasonable time prior to, the termination of the
Employee's employment hereunder.
1.4 "Boards" means the boards of directors of the Employers.
1.5 "Business of the Employers" means the business conducted by the
Employers, which, in the case of the Bank, is community banking and, in the case
of the Holding Company, is acting as a bank holding company.
1.6 "Cause" means, any of the following events or conduct preceding a
termination of employment initiated by the Employers:
<PAGE>
(a) any act that constitutes, on the part of the Employee, fraud,
dishonesty, bad faith or a felony toward the Employers;
(b) the willful violation by the Employee of any law, rule or
regulation (other than traffic violations or similar offenses) or
final cease and desist order;
(c) the Employee's entering into any transaction or contractual
relationship with any third party or diverting any business
opportunity from the Employers (other than on behalf of the
Employers or with the prior written consent of the Board) or the
Employee's breach of any other fiduciary duty involving personal
profit; provided, however, that in the case of this subsection
(c), such conduct will not constitute Cause unless the Board
delivers to the Employee notice setting forth (1) the conduct
deemed to qualify as Cause, (2) reasonable remedial action that
might remedy such objection, and (3) a reasonable time (not less
than thirty (30) days) within which the Employee may take such
remedial action, and the Employee has not taken the specified
remedial action with the specified reasonable time;
(d) the Employee breaches the covenants contained in Sections 5, 6, 7
or 8 hereof;
(e) conduct by the Employee that results in removal from the
Employee's position as an officer or employee of the Employers
pursuant to a written order by any regulatory agency with
authority or jurisdiction over the Employers, including, without
limitation, the removal or prohibition from being involved in the
affairs of the Employers by an order issued under Section 8(e)(3)
or (g)(1) of the Federal Deposit Insurance Act;
(f) immoderate use or addiction to alcohol or any controlled
substance to the visible and perceptive detriment to the
performance of the Employee's duties, responsibilities and
representation of the Bank in the community or the failure of the
Employee to act in a moral and upright manner consistent with
generally accepted standards applicable to other persons in
Douglas County, Georgia, occupying similar positions of
employment; provided, however, that in the case of this
subsection (f), such conduct will not constitute Cause unless
either Board delivers to the Employee notice setting forth (1)
the conduct deemed to qualify as Cause, (2) reasonable remedial
action that might remedy such objection, and (3) a reasonable
time (not less than thirty (30) days) within which the Employee
may take such remedial action, and the Employee has not taken the
specified remedial action with the specified reasonable time; or
(g) the Employee's incompetence, willful misconduct or material
breach of this Agreement.
1.7 "Company Information" means Confidential Information and Trade
Secrets.
-2-
<PAGE>
1.8 "Confidential Information" means data and information relating to the
Business of the Employers (which does not rise to the status of a Trade Secret)
which is or has been disclosed to the Employee or of which the Employee became
aware as a consequence of or through the Employee's relationship to the
Employers and which has value to the Employers and is not generally known to its
competitors. Confidential Information does not include any data or information
that has been voluntarily disclosed to the public by the Employers (except where
such public disclosure has been made by the Employee without authorization) or
that has been independently developed and disclosed by others, or that otherwise
enters the public domain through lawful means.
1.9 "Change in Control" means any one of the following events first to
occur after the completion of the initial public offering of the common stock of
the Holding Company:
(a) the acquisition by any person or persons acting in concert of the
then outstanding voting securities of either the Bank or the
Holding Company, if, after the transaction, the acquiring person
(or persons) owns, controls or holds with power to vote twenty-
five percent (25%) or more of any class of voting securities of
the Bank or the Holding Company, as the case may be, or such
other transaction as may be described under 12 C.F.R. Section
225.41(b)(1) or any successor thereto;
(b) within any twelve-month period (beginning on or after the
Effective Date) the persons who were directors of either the Bank
or the Holding Company immediately before the beginning of such
twelve-month period (the "Incumbent Directors") cease to
constitute at least a majority of such board of directors;
provided that any director who was not a director as of the
Effective Date will be deemed to be an Incumbent Director if that
director was elected to such board of directors by, or on the
recommendation of or with the approval of, at least two-thirds of
the directors who then qualified as Incumbent Directors; and
provided further that no director whose initial assumption of
office is in connection with an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Securities Exchange Act of 1934) relating
to the election of directors will be deemed to be an Incumbent
Director;
(c) the approval by the stockholders of either the Bank or the
Holding Company of a reorganization, merger or consolidation,
with respect to which persons who were the stockholders of either
the Bank or the Holding Company, as the case may be, immediately
prior to such reorganization, merger or consolidation do not,
immediately thereafter, own more than fifty percent (50%) of the
combined voting power entitled to vote in the election of
directors of the reorganized, merged or consolidated company's
then outstanding voting securities; or
-3-
<PAGE>
(d) the sale, transfer or assignment of all or substantially all of
the assets of the Holding Company or the Bank to any third party.
1.10 "Effective Date" means June 17, 1999.
1.11 "Good Reason" means, any of the following events or conduct preceding
a termination of employment initiated by the Employee:
(a) a material diminution in the powers, responsibilities or duties
of the Employee hereunder;
(b) the failure of the board of directors of the Bank to elect the
Employee as the Chairman and Chief Executive Officer of the Bank
or the failure of the board of directors of the Holding Company
to elect the Employee as the Vice Chairman of the Holding
Company;
(c) a material breach of the terms of this Agreement by the
Employers; or
(d) the failure of the Boards to nominate the Employee for re-
election following expiration of each of the Employee's terms of
service on the Boards that arise during the Term (as defined
below).
provided, however, that no termination of employment which is triggered by any
conduct or event described in this Section 1.11 shall not constitute a
termination of employment for Good Reason unless the Employee has first provided
the Employers with the opportunity to cure the event or conduct by giving the
Employers a written notice describing in sufficient detail the Employee's belief
that a Good Reason exists and the Employee defers resigning until the expiration
of a thirty (30) day cure period, beginning with the date such notice is
received by the Employers.
1.12 "Permanent Disability" means the total inability of the Employee to
perform the Employee's duties under this Agreement for a period of ninety (90)
consecutive days as certified by a physician chosen by the Employers and
reasonably acceptable to the Employee.
1.13 "Trade Secrets" means information including, but not limited to,
technical or nontechnical data, formulas, patterns, compilations, programs,
devices, methods, techniques, drawings, processes, financial data, financial
plans, product plans or lists of actual or potential customers or suppliers
which:
(a) derives economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its
disclosure or use; and
-4-
<PAGE>
(b) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
2. DUTIES.
------
2.1 The Employee is employed as the Chairman and Chief Executive Officer
of the Bank and the Vice Chairman of the Holding Company, subject to the
direction of the Board or its designee, must perform and discharge well and
faithfully the duties which may be assigned to him from time to time by the
Employers in connection with the conduct of its business. The duties and
responsibilities of the Employee shall be those customarily applicable to
similarly situated executives of community banks and bank holding companies.
2.2 In addition to the duties and responsibilities generally or
specifically assigned to the Employee pursuant to Section 2.1 hereof, the
Employee must:
(a) devote substantially all of the Employee's time, energy and skill
during regular business hours to the performance of the duties of
the Employee's employment (reasonable vacations and reasonable
absences due to illness excepted) and faithfully and
industriously perform such duties;
(b) diligently follow and implement all management policies and
decisions communicated to him by the Boards; and
(c) timely prepare and forward to the Boards all reports and
accounting as may be requested of the Employee.
2.3 Without the approval of the Boards, the Employee must devote the
Employee's entire business time, attention and energies to the Business of the
Employers and must not, during the term of this Agreement, be engaged (whether
or not during normal business hours) in any other business or professional
activity, whether or not such activity is pursued for gain, profit or other
pecuniary advantage; but this will not be construed as preventing the Employee
from:
(a) investing the Employee's personal assets in businesses which are
not in competition with the Business of the Employers and which
will not require any services on the part of the Employee in
their operation or affairs and in which the Employee's
participation is solely that of an investor;
(b) purchasing securities in any corporation whose securities are
regularly traded provided that such purchase will not result in
him collectively owning beneficially at any time five percent
(5%) or more of the equity securities of any business in
competition with the Business of the Employers; and
-5-
<PAGE>
(c) participating in civic and professional affairs and organizations
and conferences, preparing or publishing papers or books or
teaching so long as the Boards approve of such activities prior
to the Employee's engaging in them.
2.4 Directorship. Employee will also be appointed to and serve as a
------------
member of the Boards.
3. TERM AND TERMINATION.
--------------------
3.1 Term. The term of this Agreement will initially be set at three (3)
----
years; provided, however, that, subject to review and approval by the Boards,
this Agreement may be extended for an additional twelve (12) months upon written
agreement of the Employers and the Employee thirty (30) days before the end of
the original three-year term (as so calculated, the "Term").
3.2 Termination. The employment of the Employee under this Agreement may
be terminated prior to the expiration of the Term only as follows, subject to
the conditions set forth below:
3.2.1 By the Employers:
(a) for Cause at any time, upon written notice to the Employee,
in which event the Employers will have no further
obligation to the Employee except for the payment of any
amounts due and owing under Section 4 on the effective date
of the termination; or
(b) without Cause or upon the Permanent Disability of Employee
at any time, provided that the Employers gives the Employee
sixty (60) days' prior written notice of its intent to
terminate, in which event the Employers will be required to
make the termination payments under Section 3.7.
3.2.2 By the Employee:
(a) for Good Reason at any time, in which event the Employers
will be required to make the termination payments under
Section 3.7; or
(b) without Good Reason or upon the Permanent Disability of the
Employee, provided that the Employee gives the Employers
sixty (60) days' prior written notice of the Employee's
intent to terminate, in which event the Employers will have
no further obligation to the Employee, except for the
payment of any amounts due and owing under Section 4
through the effective date of the termination.
-6-
<PAGE>
3.2.3 By the Employee within six (6) months following a Change in
Control; provided that the Employee gives at least thirty (30)
days' prior written notice to the Employers of the Employee's
intention to terminate this Agreement with such resignation to
be effective immediately, in which event the Employers will be
required to make a termination payment under Section 3.7.
3.2.4 At any time upon mutual, written agreement of the parties, in
which event the Employers will have no further obligation to
the Employee, except for the payment of any amounts due and
owing under Section 4 through the effective date of termination
unless otherwise set forth in the written agreement.
3.2.5 Immediately upon the Employee's death, in which event the
Employers will have no further obligation to the Employee
except for the payment of any amounts due and owing under
Section 4 on the effective date of termination.
3.3 Effect of Termination. Termination of the employment of the Employee
---------------------
pursuant to Section 3.2 will be without prejudice to any right or claim which
may have previously accrued hereunder to either the Employee or the Employers
and will not terminate, alter, supersede or otherwise affect the terms and
covenants and the rights and duties prescribed in this Agreement.
3.4 Suspension With Pay. Nothing contained herein will preclude the
-------------------
Employers from releasing the Employee of the Employee's normal duties and
suspending Employee, with pay, during the pendency of any investigation or
examination to determine whether or not Cause exists for termination of the
Employee.
3.5 Suspension Without Pay. If the Employee is suspended and/or
----------------------
temporarily prohibited from participating in the conduct of the Employers'
affairs by a notice served under Section 8(e)(3) or (g)(1) of the Federal
Deposit Insurance Act, the Employers' obligations under this Agreement will be
suspended as of the date of service thereof, unless stayed by appropriate
proceedings. If the charges in such notice are dismissed, the Employers may in
its discretion:
(a) pay the Employee all or part of the compensation withheld while
its contract obligations were suspended; and/or
(b) reinstate (in whole or in part) any of its obligations which were
suspended.
3.6 Other Regulatory Requirements. If the Bank is in default, as defined
-----------------------------
in Section (3)(x)(1) of the Federal Deposit Insurance Act, all obligations under
this Agreement will terminate as the date of such default, but no vested rights
of the Employee will be affected. Further, all obligations under this Agreement
will be terminated, except to the extent determined that continuation of the
Agreement is necessary for the continued operation of the Bank:
-7-
<PAGE>
(a) by the Director of the Office of Thrift Supervision (the
"Director") or his or her designee, at the time the FDIC enters
into an agreement to provide assistance to or on behalf of the
Bank under the authority of the Federal Deposit Insurance Act; or
(b) by the Director or his or her designee, at the time the Director
or his or her designee approves a supervisory merger to resolve
problems relating to the operation of the Bank or when the Bank
is determined by the Director to be in an unsafe or unsound
condition.
Any rights of the Employee already accrued under this Agreement, however,
will not be affected by such action.
3.7 Termination Payments. In the event this Agreement is terminated by
--------------------
the Employers pursuant to Section 3.2.1(b) or by the Employee pursuant to
Sections 3.2.2(a) or 3.2.3, then commencing with the first payroll date
immediately following the effective date of such termination, the Employers will
pay to the Employee as severance pay and liquidated damages an amount equal to
the Average Monthly Compensation (as defined below) for a period equal to the
remaining Term. Any amounts payable pursuant to this Section 3.7 will be paid at
the same frequency as the Employee's then Base Salary (as defined in Section
4.1(a)) is paid. As used herein, the term "Average Monthly Compensation" means
the quotient determined by dividing (a) the greater of (i) the Employee's then
Base Salary, or (ii) the highest average of Base Salary and Incentive
Compensation as described in Section 4.1(b) occurring in the most recent three
(3) consecutive twelve-month periods during which the Employee was employed by
the Employers (or if the Employers has been employed for fewer periods, such
lesser number of periods) immediately prior to the effective date of the
Agreement's termination, by (b) twelve (12).
Notwithstanding any other provisions to this Agreement to the contrary, if
the aggregate of the payments provided for in this Agreement and other payments
and benefits which the Employee has the right to receive from the Employers (the
"Total Payments") would constitute a "parachute payment", as defined in Section
280G(b)(2) of the Internal Revenue Code, the Employee shall receive the Total
Payments unless (x) the after-tax amount that would be retained by the Employee
(after taking into account all federal, state and local income taxes payable by
the Employee and the amount of any excise taxes payable by the Employee under
Section 4999 of the Internal Revenue Code that would be payable by the Employee
(the "Excise Taxes")) if the Employee were to receive the Total Payments has a
lesser aggregate value than (y) the after-tax amount that would be retained by
the Employee (after taking into account all federal, state and local income
taxes payable by the Employee) if the Employee were to receive the Total
Payments reduced to the largest amount as would result in no portion of the
Total Payments being subject to Excise Taxes (the "Reduced Payments"), in which
case the Employee shall be entitled only to the Reduced Payments. If the
Employee is to receive the Reduced Payments, the Employee shall be entitled to
determine which of the Total Payments, and the relative portions of each, are to
be reduced.
-8-
<PAGE>
4. COMPENSATION AND BENEFITS.
-------------------------
4.1 Compensation. The Employee will receive the following salary and
------------
benefits:
(a) Base Salary. During the Term, the Employee will receive from
-----------
Employers a base salary at the rate of $58,300 per annum, payable
in substantially equal installments in accordance with the Bank's
regular payroll practices ("Base Salary"). The Employee's Base
Salary shall be allocated among and be reflected upon the books
and records of the Bank and the Holding Company as determined by
the Boards. The Employee's Base Salary will be reviewed by the
Boards annually, and the Employee will be entitled to receive
annually an increase in such amount, if any, as may be determined
by the Boards.
(b) Incentive Compensation. In addition to Employee's Base Salary
----------------------
under Section 4.1(a), the Employee will also be entitled to
participate in such other bonus, incentive and other executive
compensation programs as are made available to senior management
of the Employers from time to time. The bonus amounts which may
be payable to the Employee pursuant to this Section 4.1(b) is
referred to herein as "Incentive Compensation".
4.2 Business Expenses; Memberships. The Employers specifically agrees to
------------------------------
reimburse the Employee for (a) reasonable business (including travel) expenses
incurred by the Employee in the performance of the Employee's duties hereunder,
as approved from time to time by the Board, and (b) the dues and business
related expenditures, including initiation fees, associated with membership in
professional associations which are commensurate with the Employee's position;
provided, however, that the Employee must, as a condition of reimbursement,
submit verification of the nature and amount of such expenses in accordance with
reimbursement policies from time to time adopted by the Employers and in
sufficient detail to comply with rules and regulations promulgated by the
Internal Revenue Service.
4.3 Vacation. On a non-cumulative basis, the Employee will be entitled to
--------
vacation in each year of this Agreement in accordance with the Bank's vacation
policy as then in effect, during which the Employee's Base Salary will be paid
in full.
4.4 Benefits. In addition to the Base Salary and Incentive Compensation,
--------
the Employee will be entitled to such benefits as may be available from time to
time for executives of the Employers similarly situated to the Employee. All
such benefits will be awarded and administered in accordance with the Employers'
standard policies and practices. Such benefits may include, by way of example
only, profit-sharing plans, retirement, life and disability insurance benefits
and such other benefits as the Employers deems appropriate.
-9-
<PAGE>
4.5 Withholding. The Employers may deduct from each payment of
-----------
compensation hereunder all amounts required to be deducted and withheld in
accordance with applicable federal and state income, FICA and other withholding
requirements.
5. COMPANY INFORMATION.
-------------------
5.1 Ownership of Information. All Company Information received or
------------------------
developed by the Employee while employed by the Employers will remain the sole
and exclusive property of the Employers.
5.2 Obligations of the Employee. The Employee agrees (a) to hold Company
---------------------------
Information in strictest confidence, and (b) not to use, duplicate, reproduce,
distribute, disclose or otherwise disseminate Company Information or any
physical embodiments thereof and may in no event take any action causing or fail
to take any action necessary in order to prevent any Company Information from
losing its character or ceasing to qualify as Confidential Information or a
Trade Secret. In the event that the Employee is required by law to disclose any
Company Information, the Employee will not make such disclosure unless (and then
only to the extent that) the Employee has been advised by independent legal
counsel that such disclosure is required by law and then only after prior
written notice is given to the Employers when the Employee becomes aware that
such disclosure has been requested and is required by law. This Section 5 will
survive the termination of this Agreement with respect to Confidential
Information for so long as it remains Confidential Information, but for no
longer than three (3) years following termination of this Agreement, and this
Section 5 will survive termination of this Agreement with respect to Trade
Secrets for so long as is permitted by the then-current Georgia Trade Secrets
Act of 1990, O.C.G.A. (S)(S) 10-1-760 through 10-1-767.
5.3 Delivery upon Request or Termination. Upon request by the Employers,
------------------------------------
and in any event upon termination of employment with the Employers, the Employee
will promptly deliver to the Employers all property belonging to the Employers,
including without limitation all Company Information then in the Employee's
possession or control.
6. NON-COMPETITION. The Employee agrees that during the Term hereunder and,
---------------
in the event of the Employee's termination of employment for any reason,
thereafter for a period equal to the greater of (a) twelve (12) months; or (b)
the period during which the Employee is to be paid monthly termination payments,
if any, in accordance with Section 3.7 hereof, the Employee will not (except on
behalf of or with the prior written consent of the Employers), within the Area,
either directly or indirectly, on the Employee's own behalf or in the service or
on behalf of others, as a principal, partner, officer, director, manager,
supervisor, administrator, consultant, executive employee or in any other
capacity which involves duties and responsibilities similar to those undertaken
for the Employers, engage in any business which is the same as or essentially
the same as the Business of the Employers.
-10-
<PAGE>
7. NON-SOLICITATION OF CUSTOMERS. The Employee agrees that during the Term
-----------------------------
hereunder and, in the event of the Employee's termination of employment for any
reason, thereafter for a period equal to the greater of (a) twelve (12) months;
or (b) the period during which the Employee is to be paid monthly termination
payments, if any, in accordance with Section 3.7 hereof, the Employee will not
(except on behalf of or with the prior written consent of the Employers), within
the Area, on the Employee's own behalf or in the service or on behalf of others,
solicit, divert or appropriate or attempt to solicit, divert or appropriate,
directly or by assisting others, any business from any of the Employers'
customers, including actively sought prospective customers, with whom the
Employee has or had material contact during the last two (2) years of the
Employee's employment, for purposes of providing products or services that are
competitive with those provided by the Employers.
8. NON-SOLICITATION OF EMPLOYEES. The Employee agrees that during the Term
-----------------------------
hereunder and, in the event of the Employee's termination of employment for any
reason, thereafter for a period equal to the greater of (a) twelve (12) months;
or (b) the period during which the Employee is to be paid monthly termination
payments, if any, in accordance with Section 3.7 hereof, the Employee will not,
within the Area, on the Employee's own behalf or in the service or on behalf of
others, solicit, recruit or hire away or attempt to solicit, recruit or hire
away, directly or by assisting others, any employee of the Employers or its
Affiliates, whether or not such employee is a full-time employee or a temporary
employee of the Employers or its Affiliates and whether or not such employment
is pursuant to written agreement and whether or not such employment is for a
determined period or is at will.
9. REMEDIES. The Employee agrees that the covenants contained in Sections 5
--------
through 8 of this Agreement are of the essence of this Agreement; agrees that
each of the covenants is reasonable and necessary to protect the business,
interests and properties of the Employers; represents that his experience and
abilities are such that the existence or enforcement of these covenants will not
prevent him from earning an adequate livelihood and/or will not cause an undue
burden to himself or his family; and agrees that irreparable loss and damage
will be suffered by the Employers should the Employee breach any of the
covenants. Therefore, the Employee agrees and consents that, in addition to all
the remedies provided by law or in equity, the Employers will be entitled to a
temporary restraining order and temporary and permanent injunctions to prevent a
breach or contemplated breach of any of the covenants. The Employers and the
Employee agree that all remedies available to the Employers or the Employee, as
applicable, will be cumulative.
10. SEVERABILITY. The parties agree that each of the provisions included in
------------
this Agreement is separate, distinct and severable from the other provisions of
this Agreement and that the invalidity or unenforceability of any Agreement
provision will not affect the validity or enforceability of any other provision
of this Agreement. Further, if any provision of this Agreement is ruled invalid
or unenforceable by a court of competent jurisdiction because of a conflict
between the provision and any applicable law or public policy, the provision
will be redrawn to make the provision consistent with and valid and enforceable
under the law or public policy.
-11-
<PAGE>
11. NO SET-OFF BY THE EMPLOYEE. The existence of any claim, demand, action or
--------------------------
cause of action by the Employee against the Employers, or any Affiliate of the
Employers, whether predicated upon this Agreement or otherwise, will not
constitute a defense to the enforcement by the Employers of any of its rights
hereunder.
12. NOTICE. All notices and other communications required or permitted under
------
this Agreement will be in writing and, if mailed by prepaid first-class
mail or certified mail, return receipt requested, will be deemed to have
been received on the earlier of the date shown on the receipt or three (3)
business days after the postmarked date thereof. In addition, notices
hereunder may be delivered by hand, facsimile transmission or overnight
courier, in which event the notice will be deemed effective when delivered
or transmitted. All notices and other communications under this Agreement
must be given to the parties hereto at the following addresses:
(i) If to the Employers, to it at:
8458 Campbellton Street
Douglasville, Georgia 30134-1803
Attn: Chairman, Compensation Committee
(ii) If to the Employee, to the Employee at:
P.O. Box 866
Douglasville, Georgia 30133
13. ASSIGNMENT. Neither party hereto may assign or delegate this Agreement or
----------
any of its rights and obligations hereunder without the written consent of the
other party hereto.
14. WAIVER. A waiver by the Employers of any breach of this Agreement by the
------
Employee will not be effective unless in writing, and no waiver will operate or
be construed as a waiver of the same or another breach on a subsequent occasion.
15. ARBITRATION. Any controversy or claim arising out of or relating to this
-----------
Agreement, or the breach thereof, will be settled by binding arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. The decision of the arbitration panel will be final and binding on
the parties, and judgment upon the award rendered by the arbitration panel may
be entered by any court having jurisdiction thereof.
-12-
<PAGE>
16. ATTORNEYS' FEES. In the event that the parties have complied with this
---------------
Agreement with respect to arbitration of disputes and litigation ensues between
the parties concerning the enforcement of an arbitration award and the Employee
must employ separate legal counsel, the Employers shall advance to the Employee,
within thirty (30) days after receiving copies of invoices submitted by
Employee, any and all reasonable attorneys' fees and expenses incurred with
preparing, investigating and litigating such action, proceeding or suit. The
Employee must reimburse the Employers for any and all advances that exceed the
first $5,000 advanced to the Employee for such legal expenses only if and to the
extent that a final decision by a court of competent jurisdiction has determined
that the Employee is not entitled to receive any amounts due or to enforce any
of the rights under this Agreement.
17. APPLICABLE LAW. This Agreement will be construed and enforced under and in
--------------
accordance with the laws of the State of Georgia. The parties agree that any
appropriate state court located in Douglas County, Georgia, will have
jurisdiction of any case or controversy arising under or in connection with this
Agreement and will be a proper forum in which to adjudicate such case or
controversy. The parties consent to the jurisdiction of such courts.
18. INTERPRETATION. Words importing the singular form shall include the plural
--------------
and vice versa. The terms "herein", "hereunder", "hereby", "hereto", "hereof"
and any similar terms refer to this Agreement. Any captions, titles or headings
preceding the text of any article, section or subsection herein are solely for
convenience of reference and will not constitute part of this Agreement or
affect its meaning, construction or effect.
19. ENTIRE AGREEMENT. Except for any rights the Employee may have under any
----------------
employee benefit plans maintained by the Employers for employees generally and
any rights the Employee may have under the First Deposit Bancshares, Inc. 1999
Stock Option and Incentive Plan and the First Deposit Bancshares, Inc.
Management Recognition Plan, this Agreement embodies the entire and final
agreement of the parties on the subject matter stated in the Agreement. No
amendment or modification of this Agreement will be valid or binding upon the
Employers or the Employee unless made in writing and signed by both parties. All
prior understandings and agreements relating to the subject matter of this
Agreement are hereby expressly terminated.
20. RIGHTS OF THIRD PARTIES. Nothing herein expressed is intended to or will
-----------------------
be construed to confer upon or give to any person, firm or other entity, other
than the parties hereto and their permitted assigns, any rights or remedies
under or by reason of this Agreement.
21. SURVIVAL. The obligations of the Employee pursuant to Sections 5, 6, 7, 8
--------
and 9 will survive the termination of the employment of the Employee hereunder
for the period designated under each of those respective sections.
22. JOINT AND SEVERAL. The obligation of the Bank and the Holding Company to
-----------------
Employee hereunder will be joint and several.
-13-
<PAGE>
IN WITNESS WHEREOF, the Employers and the Employee have executed and
delivered this Agreement as of the date first shown above.
THE EMPLOYERS:
DOUGLAS FEDERAL BANK, FSB
By:_____________________________________________
Name:________________________________________
Title:_______________________________________
FIRST DEPOSIT BANCSHARES, INC.
By:_____________________________________________
Name:________________________________________
Title:_______________________________________
THE EMPLOYEE:
________________________________________________
-14-
<PAGE>
EXHIBIT 10.5
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 17th day of June, 1999, between Douglas
Federal Bank, FSB (the "Bank"), a federal savings bank chartered by the United
States, and First Deposit Bancshares, Inc. (the "Holding Company"), the holding
company of the Bank (the Bank and the Holding Company shall collectively be
referred to as the "Employers"), and J. DAVID HIGGINS, a resident of the State
of Georgia (the "Employee").
R E C I T A L S:
The Employers desire to employ the Employee as the President of the Bank
and as President and Chief Executive Officer of the Holding Company and the
Employee desires to accept such employment.
In consideration of the above premises and the mutual agreements
hereinafter set forth, and other true and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereby agree as follows:
1. DEFINITIONS. Whenever used in this Agreement, the following terms and
-----------
their variant forms will have the meaning set forth below:
1.1 "Agreement" means this Agreement and any exhibits incorporated herein
together with any amendments hereto made in the manner described in this
Agreement.
1.2 "Affiliate" means any business entity which controls, is controlled
by, or is under common control with the Holding Company or the Bank.
1.3 "Area" means the geographic area within a radius of 20 miles of any
existing office or facility maintained by the Employers. It is the express
intent of the parties that the Area as defined herein is the area where the
Employee performs or performed services on behalf of the Employers under this
Agreement as of, or within a reasonable time prior to, the termination of the
Employee's employment hereunder.
1.4 "Boards" means the boards of directors of the Employers.
1.5 "Business of the Employers" means the business conducted by the
Employers, which, in the case of the Bank, is community banking and, in the case
of the Holding Company, is acting as a bank holding company.
1.6 "Cause" means, any of the following events or conduct preceding a
termination of employment initiated by the Employers:
<PAGE>
(a) any act that constitutes, on the part of the Employee, fraud,
dishonesty, bad faith or a felony toward the Employers;
(b) the willful violation by the Employee of any law, rule or
regulation (other than traffic violations or similar offenses) or
final cease and desist order;
(c) the Employee's entering into any transaction or contractual
relationship with any third party or diverting any business
opportunity from the Employers (other than on behalf of the
Employers or with the prior written consent of the Board) or the
Employee's breach of any other fiduciary duty involving personal
profit; provided, however, that in the case of this subsection
(c), such conduct will not constitute Cause unless the Board
delivers to the Employee notice setting forth (1) the conduct
deemed to qualify as Cause, (2) reasonable remedial action that
might remedy such objection, and (3) a reasonable time (not less
than thirty (30) days) within which the Employee may take such
remedial action, and the Employee has not taken the specified
remedial action with the specified reasonable time;
(d) the Employee breaches the covenants contained in Sections 5, 6, 7
or 8 hereof;
(e) conduct by the Employee that results in removal from the
Employee's position as an officer or employee of the Employers
pursuant to a written order by any regulatory agency with
authority or jurisdiction over the Employers including, without
limitation, the removal or prohibition from being involved in the
affairs of the Employers by an order issued under Section
(8)(e)(3) or (g)(1) of the Federal Deposit Insurance Act;
(f) immoderate use or addiction to alcohol or any controlled
substance to the visible and perceptive detriment to the
performance of the Employee's duties, responsibilities and
representation of the Bank in the community or the failure of the
Employee to act in a moral and upright manner consistent with
generally accepted standards applicable to other persons in
Douglas County, Georgia, occupying similar positions of
employment; provided, however, that in the case of this
subsection (f), such conduct will not constitute Cause unless
either Board delivers to the Employee notice setting forth (1)
the conduct deemed to qualify as Cause, (2) reasonable remedial
action that might remedy such objection, and (3) a reasonable
time (not less than thirty (30) days) within which the Employee
may take such remedial action, and the Employee has not taken the
specified remedial action with the specified reasonable time; or
(g) the Employee's incompetence, willful misconduct or material
breach of this Agreement.
1.7 "Company Information" means Confidential Information and Trade
Secrets.
1.8 "Confidential Information" means data and information relating to the
Business of the Employers (which does not rise to the status of a Trade Secret)
which is or has been disclosed
-2-
<PAGE>
to the Employee or of which the Employee became aware as a consequence of or
through the Employee's relationship to the Employers and which has value to the
Employers and is not generally known to its competitors. Confidential
Information does not include any data or information that has been voluntarily
disclosed to the public by the Employers (except where such public disclosure
has been made by the Employee without authorization) or that has been
independently developed and disclosed by others, or that otherwise enters the
public domain through lawful means.
1.9 "Change in Control" means any one of the following events first to
occur after the completion of the initial public offering of the common stock of
the Holding Company:
(a) the acquisition by any person or persons acting in concert of the
then outstanding voting securities of either the Bank or the
Holding Company, if, after the transaction, the acquiring person
(or persons) owns, controls or holds with power to vote twenty-
five percent (25%) or more of any class of voting securities of
the Bank or the Holding Company, as the case may be, or such
other transaction as may be described under 12 C.F.R. Section
225.41(b)(1) or any successor thereto;
(b) within any twelve-month period (beginning on or after the
Effective Date) the persons who were directors of either the Bank
or the Holding Company immediately before the beginning of such
twelve-month period (the "Incumbent Directors") cease to
constitute at least a majority of such board of directors;
provided that any director who was not a director as of the
Effective Date will be deemed to be an Incumbent Director if that
director was elected to such board of directors by, or on the
recommendation of or with the approval of, at least two-thirds of
the directors who then qualified as Incumbent Directors; and
provided further that no director whose initial assumption of
office is in connection with an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Securities Exchange Act of 1934) relating
to the election of directors will be deemed to be an Incumbent
Director;
(c) the approval by the stockholders of either the Bank or the
Holding Company of a reorganization, merger or consolidation,
with respect to which persons who were the stockholders of either
the Bank or the Holding Company, as the case may be, immediately
prior to such reorganization, merger or consolidation do not,
immediately thereafter, own more than fifty percent (50%) of the
combined voting power entitled to vote in the election of
directors of the reorganized, merged or consolidated company's
then outstanding voting securities; or
(d) the sale, transfer or assignment of all or substantially all of
the assets of the Holding Company or the Bank to any third party.
-3-
<PAGE>
1.10 "Effective Date" means June 17, 1999.
1.11 "Good Reason" means, any of the following events or conduct preceding
a termination of employment initiated by the Employee:
(a) a material diminution in the powers, responsibilities or duties
of the Employee hereunder;
(b) the failure of the board of directors of the Bank to elect the
Employee as the President of the Bank or the failure of the board
of directors of the Holding Company to elect the Employee as the
President and Chief Executive Officer of the Holding Company;
(c) a material breach of the terms of this Agreement by the
Employers; or
(d) the failure of the Boards to nominate the Employee for re-
election following expiration of each of the Employee's terms of
service on the Boards that arise during the Term (as defined
below).
provided, however, that no termination of employment which is triggered by any
conduct or event described in this Section 1.11 shall not constitute a
termination of employment for Good Reason unless the Employee has first provided
the Employers with the opportunity to cure the event or conduct by giving the
Employers a written notice describing in sufficient detail the Employee's belief
that a Good Reason exists and the Employee defers resigning until the expiration
of a thirty (30) day cure period, beginning with the date such notice is
received by the Employers.
1.12 "Permanent Disability" means the total inability of the Employee to
perform the Employee's duties under this Agreement for a period of ninety (90)
consecutive days as certified by a physician chosen by the Employers and
reasonably acceptable to the Employee.
1.13 "Trade Secrets" means information including, but not limited to,
technical or nontechnical data, formulas, patterns, compilations, programs,
devices, methods, techniques, drawings, processes, financial data, financial
plans, product plans or lists of actual or potential customers or suppliers
which:
(a) derives economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its
disclosure or use; and
(b) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
2. DUTIES.
------
-4-
<PAGE>
2.1 The Employee is employed as the President and Chief Executive Officer
of the Bank and the President of the Holding Company, subject to the direction
of the Board or its designee, must perform and discharge well and faithfully the
duties which may be assigned to him from time to time by the Employers in
connection with the conduct of its business. The duties and responsibilities of
the Employee shall be those customarily applicable to similarly situated
executives of community banks and bank holding companies.
2.2 In addition to the duties and responsibilities generally or
specifically assigned to the Employee pursuant to Section 2.1 hereof, the
Employee must:
(a) devote substantially all of the Employee's time, energy and skill
during regular business hours to the performance of the duties of
the Employee's employment (reasonable vacations and reasonable
absences due to illness excepted) and faithfully and
industriously perform such duties;
(b) diligently follow and implement all management policies and
decisions communicated to him by the Boards; and
(c) timely prepare and forward to the Boards all reports and
accounting as may be requested of the Employee.
2.3 Without the approval of the Boards, the Employee must devote the
Employee's entire business time, attention and energies to the Business of the
Employers and must not, during the term of this Agreement, be engaged (whether
or not during normal business hours) in any other business or professional
activity, whether or not such activity is pursued for gain, profit or other
pecuniary advantage; but this will not be construed as preventing the Employee
from:
(a) investing the Employee's personal assets in businesses which are
not in competition with the Business of the Employers and which
will not require any services on the part of the Employee in
their operation or affairs and in which the Employee's
participation is solely that of an investor;
(b) purchasing securities in any corporation whose securities are
regularly traded provided that such purchase will not result in
him collectively owning beneficially at any time five percent
(5%) or more of the equity securities of any business in
competition with the Business of the Employers; and
(c) participating in civic and professional affairs and organizations
and conferences, preparing or publishing papers or books or
teaching so long as the Boards approve of such activities prior
to the Employee's engaging in them.
-5-
<PAGE>
2.4 Directorship. Employee will also be appointed to and serve as a
------------
member of the Boards.
3. TERM AND TERMINATION.
--------------------
3.1 Term. The term of this Agreement will initially be set at three (3)
----
years; provided, however, that, subject to review and approval by the Boards,
this Agreement may be extended for an additional twelve (12) months upon written
agreement of the Employers and the Employee thirty (30) days before the end of
the original three-year term (as so calculated, the "Term").
3.2 Termination. The employment of the Employee under this Agreement may
be terminated prior to the expiration of the Term only as follows, subject to
the conditions set forth below:
3.2.1 By the Employers:
(a) for Cause at any time, upon written notice to the
Employee, in which event the Employers will have no
further obligation to the Employee except for the payment
of any amounts due and owing under Section 4 on the
effective date of the termination; or
(b) without Cause or upon the Permanent Disability of
Employee at any time, provided that the Employers gives
the Employee sixty (60) days' prior written notice of its
intent to terminate, in which event the Employers will be
required to make the termination payments under Section
3.7.
3.2.2 By the Employee:
(a) for Good Reason at any time, in which event the Employers
will be required to make the termination payments under
Section 3.7; or
(b) without Good Reason or upon the Permanent Disability of
the Employee, provided that the Employee gives the
Employers sixty (60) days' prior written notice of the
Employee's intent to terminate, in which event the
Employers will have no further obligation to the
Employee, except for the payment of any amounts due and
owing under Section 4 through the effective date of the
termination.
3.2.3 By the Employee within six (6) months following a Change in
Control; provided that the Employee gives at least thirty (30)
days' prior written notice to the Employers of the Employee's
intention to terminate this Agreement
-6-
<PAGE>
with such resignation to be effective immediately, in which
event the Employers will be required to make a termination
payment under Section 3.7.
3.2.4 At any time upon mutual, written agreement of the parties, in
which event the Employers will have no further obligation to
the Employee, except for the payment of any amounts due and
owing under Section 4 through the effective date of termination
unless otherwise set forth in the written agreement.
3.2.5 Immediately upon the Employee's death, in which event the
Employers will have no further obligation to the Employee
except for the payment of any amounts due and owing under
Section 4 on the effective date of termination.
3.3 Effect of Termination. Termination of the employment of the Employee
---------------------
pursuant to Section 3.2 will be without prejudice to any right or claim which
may have previously accrued hereunder to either the Employee or the Employers
and will not terminate, alter, supersede or otherwise affect the terms and
covenants and the rights and duties prescribed in this Agreement.
3.4 Suspension With Pay. Nothing contained herein will preclude the
-------------------
Employers from releasing the Employee of the Employee's normal duties and
suspending Employee, with pay, during the pendency of any investigation or
examination to determine whether or not Cause exists for termination of the
Employee.
3.5 Suspension Without Pay. If the Employee is suspended and/or
----------------------
temporarily prohibited from participating in the conduct of the Employers'
affairs by a notice served under Section 8(e)(3) or (g)(1) of the Federal
Deposit Insurance Act, the Employers' obligations under this Agreement will be
suspended as of the date of service thereof, unless stayed by appropriate
proceedings. If the charges in such notice are dismissed, the Employers may in
its discretion:
(a) pay the Employee all or part of the compensation withheld while
its contract obligations were suspended; and/or
(b) reinstate (in whole or in part) any of its obligations which
were suspended.
3.6 Other Regulatory Requirements. If the Bank is in default, as defined
-----------------------------
in Section (3)(x)(1) of the Federal Deposit Insurance Act, all obligations under
this Agreement will terminate as the date of such default, but no vested rights
of the Employee will be affected. Further, all obligations under this Agreement
will be terminated, except to the extent determined that continuation of the
Agreement is necessary for the continued operation of the Bank:
(a) by the Director of the Office of Thrift Supervision (the
"Director") or his or her designee, at the time the FDIC enters
into an agreement to provide assistance to or on behalf of the
Bank under the authority of the Federal Deposit Insurance Act;
or
-7-
<PAGE>
(b) by the Director or his or her designee, at the time the
Director or his or her designee approves a supervisory merger
to resolve problems relating to the operation of the Bank or
when the Bank is determined by the Director to be in an unsafe
or unsound condition.
Any rights of the Employee already accrued under this Agreement, however,
will not be affected by such action.
3.7 Termination Payments. In the event this Agreement is terminated by
--------------------
the Employers pursuant to Section 3.2.1(b) or by the Employee pursuant to
Sections 3.2.2(a) or 3.2.3, then commencing with the first payroll date
immediately following the effective date of such termination, the Employers will
pay to the Employee as severance pay and liquidated damages an amount equal to
the Average Monthly Compensation (as defined below) for a period equal to the
remaining Term. Any amounts payable pursuant to this Section 3.7 will be paid at
the same frequency as the Employee's then Base Salary (as defined in Section
4.1(a)) is paid. As used herein, the term "Average Monthly Compensation" means
the quotient determined by dividing (a) the greater of (i) the Employee's then
Base Salary, or (ii) the highest average of Base Salary and Incentive
Compensation as described in Section 4.1(b) occurring in the most recent three
(3) consecutive twelve-month periods during which the Employee was employed by
the Employers (or if the Employers has been employed for fewer periods, such
lesser number of periods) immediately prior to the effective date of the
Agreement's termination, by (b) twelve (12).
Notwithstanding any other provisions to this Agreement to the contrary, if
the aggregate of the payments provided for in this Agreement and other payments
and benefits which the Employee has the right to receive from the Employers (the
"Total Payments") would constitute a "parachute payment", as defined in Section
280G(b)(2) of the Internal Revenue Code, the Employee shall receive the Total
Payments unless (x) the after-tax amount that would be retained by the Employee
(after taking into account all federal, state and local income taxes payable by
the Employee and the amount of any excise taxes payable by the Employee under
Section 4999 of the Internal Revenue Code that would be payable by the Employee
(the "Excise Taxes")) if the Employee were to receive the Total Payments has a
lesser aggregate value than (y) the after-tax amount that would be retained by
the Employee (after taking into account all federal, state and local income
taxes payable by the Employee) if the Employee were to receive the Total
Payments reduced to the largest amount as would result in no portion of the
Total Payments being subject to Excise Taxes (the "Reduced Payments"), in which
case the Employee shall be entitled only to the Reduced Payments. If the
Employee is to receive the Reduced Payments, the Employee shall be entitled to
determine which of the Total Payments, and the relative portions of each, are to
be reduced.
4. COMPENSATION AND BENEFITS.
-------------------------
4.1 Compensation. The Employee will receive the following salary and
------------
benefits:
-8-
<PAGE>
(a) Base Salary. During the Term, the Employee will receive from
-----------
Employers a base salary at the rate of $86,900 per annum,
payable in substantially equal installments in accordance with
the Bank's regular payroll practices ("Base Salary"). The
Employee's Base Salary shall be allocated among and be
reflected upon the books and records of the Bank and the
Holding Company as determined by the Boards. The Employee's
Base Salary will be reviewed by the Boards annually, and the
Employee will be entitled to receive annually an increase in
such amount, if any, as may be determined by the Boards.
(b) Incentive Compensation. In addition to Employee's Base Salary
----------------------
under Section 4.1(a), the Employee will also be entitled to
participate in such other bonus, incentive and other executive
compensation programs as are made available to senior
management of the Employers from time to time. The bonus
amounts which may be payable to the Employee pursuant to this
Section 4.1(b) is referred to herein as "Incentive
Compensation".
4.2 Business Expenses; Memberships. The Employers specifically agrees to
------------------------------
reimburse the Employee for (a) reasonable business (including travel) expenses
incurred by the Employee in the performance of the Employee's duties hereunder,
as approved from time to time by the Board, and (b) the dues and business
related expenditures, including initiation fees, associated with membership in
professional associations which are commensurate with the Employee's position;
provided, however, that the Employee must, as a condition of reimbursement,
submit verification of the nature and amount of such expenses in accordance with
reimbursement policies from time to time adopted by the Employers and in
sufficient detail to comply with rules and regulations promulgated by the
Internal Revenue Service.
4.3 Vacation. On a non-cumulative basis, the Employee will be entitled to
--------
vacation in each year of this Agreement in accordance with the Bank's vacation
policy as then in effect, during which the Employee's Base Salary will be paid
in full.
4.4 Benefits. In addition to the Base Salary and Incentive Compensation,
--------
the Employee will be entitled to such benefits as may be available from time to
time for executives of the Employers similarly situated to the Employee. All
such benefits will be awarded and administered in accordance with the Employers'
standard policies and practices. Such benefits may include, by way of example
only, profit-sharing plans, retirement, life and disability insurance benefits
and such other benefits as the Employers deems appropriate.
4.5 Withholding. The Employers may deduct from each payment of
-----------
compensation hereunder all amounts required to be deducted and withheld in
accordance with applicable federal and state income, FICA and other withholding
requirements.
5. COMPANY INFORMATION.
-------------------
-9-
<PAGE>
5.1 Ownership of Information. All Company Information received or
------------------------
developed by the Employee while employed by the Employers will remain the sole
and exclusive property of the Employers.
5.2 Obligations of the Employee. The Employee agrees (a) to hold Company
---------------------------
Information in strictest confidence, and (b) not to use, duplicate, reproduce,
distribute, disclose or otherwise disseminate Company Information or any
physical embodiments thereof and may in no event take any action causing or fail
to take any action necessary in order to prevent any Company Information from
losing its character or ceasing to qualify as Confidential Information or a
Trade Secret. In the event that the Employee is required by law to disclose any
Company Information, the Employee will not make such disclosure unless (and then
only to the extent that) the Employee has been advised by independent legal
counsel that such disclosure is required by law and then only after prior
written notice is given to the Employers when the Employee becomes aware that
such disclosure has been requested and is required by law. This Section 5 will
survive the termination of this Agreement with respect to Confidential
Information for so long as it remains Confidential Information, but for no
longer than three (3) years following termination of this Agreement, and this
Section 5 will survive termination of this Agreement with respect to Trade
Secrets for so long as is permitted by the then-current Georgia Trade Secrets
Act of 1990, O.C.G.A. (S)(S) 10-1-760 through 10-1-767.
5.3 Delivery upon Request or Termination. Upon request by the Employers,
------------------------------------
and in any event upon termination of employment with the Employers, the Employee
will promptly deliver to the Employers all property belonging to the Employers,
including without limitation all Company Information then in the Employee's
possession or control.
6. NON-COMPETITION. The Employee agrees that during the Term hereunder and,
---------------
in the event of the Employee's termination of employment for any reason,
thereafter for a period equal to the greater of (a) twelve (12) months; or (b)
the period during which the Employee is to be paid monthly termination payments,
if any, in accordance with Section 3.7 hereof, the Employee will not (except on
behalf of or with the prior written consent of the Employers), within the Area,
either directly or indirectly, on the Employee's own behalf or in the service or
on behalf of others, as a principal, partner, officer, director, manager,
supervisor, administrator, consultant, executive employee or in any other
capacity which involves duties and responsibilities similar to those undertaken
for the Employers, engage in any business which is the same as or essentially
the same as the Business of the Employers.
7. NON-SOLICITATION OF CUSTOMERS. The Employee agrees that during the Term
-----------------------------
hereunder and, in the event of the Employee's termination of employment for any
reason, thereafter for a period equal to the greater of (a) twelve (12) months;
or (b) the period during which the Employee is to be paid monthly termination
payments, if any, in accordance with Section 3.7 hereof, the Employee will not
(except on behalf of or with the prior written consent of the Employers), within
the Area, on the Employee's own behalf or in the service or on behalf of others,
solicit, divert or appropriate or attempt to solicit, divert or appropriate,
directly or by assisting others, any business from any of the Employers'
customers, including actively sought prospective customers, with whom
-10-
<PAGE>
the Employee has or had material contact during the last two (2) years of the
Employee's employment, for purposes of providing products or services that are
competitive with those provided by the Employers.
8. NON-SOLICITATION OF EMPLOYEES. The Employee agrees that during the Term
-----------------------------
hereunder and, in the event of the Employee's termination of employment for any
reason, thereafter for a period equal to the greater of (a) twelve (12) months;
or (b) the period during which the Employee is to be paid monthly termination
payments, if any, in accordance with Section 3.7 hereof, the Employee will not,
within the Area, on the Employee's own behalf or in the service or on behalf of
others, solicit, recruit or hire away or attempt to solicit, recruit or hire
away, directly or by assisting others, any employee of the Employers or its
Affiliates, whether or not such employee is a full-time employee or a temporary
employee of the Employers or its Affiliates and whether or not such employment
is pursuant to written agreement and whether or not such employment is for a
determined period or is at will.
9. REMEDIES. The Employee agrees that the covenants contained in Sections 5
--------
through 8 of this Agreement are of the essence of this Agreement; agrees that
each of the covenants is reasonable and necessary to protect the business,
interests and properties of the Employers; represents that his experience and
abilities are such that the existence or enforcement of these covenants will not
prevent him from earning an adequate livelihood and/or will not cause an undue
burden to himself or his family; and agrees that irreparable loss and damage
will be suffered by the Employers should the Employee breach any of the
covenants. Therefore, the Employee agrees and consents that, in addition to all
the remedies provided by law or in equity, the Employers will be entitled to a
temporary restraining order and temporary and permanent injunctions to prevent a
breach or contemplated breach of any of the covenants. The Employers and the
Employee agree that all remedies available to the Employers or the Employee, as
applicable, will be cumulative.
10. SEVERABILITY. The parties agree that each of the provisions included in
------------
this Agreement is separate, distinct and severable from the other provisions of
this Agreement and that the invalidity or unenforceability of any Agreement
provision will not affect the validity or enforceability of any other provision
of this Agreement. Further, if any provision of this Agreement is ruled invalid
or unenforceable by a court of competent jurisdiction because of a conflict
between the provision and any applicable law or public policy, the provision
will be redrawn to make the provision consistent with and valid and enforceable
under the law or public policy.
11. NO SET-OFF BY THE EMPLOYEE. The existence of any claim, demand, action or
--------------------------
cause of action by the Employee against the Employers, or any Affiliate of the
Employers, whether predicated upon this Agreement or otherwise, will not
constitute a defense to the enforcement by the Employers of any of its rights
hereunder.
12. NOTICE. All notices and other communications required or permitted under
------
this Agreement will be in writing and, if mailed by prepaid first-class
mail or certified mail, return receipt requested, will be deemed to have
been received on the earlier of the date shown on the
-11-
<PAGE>
receipt or three (3) business days after the postmarked date thereof. In
addition, notices hereunder may be delivered by hand, facsimile
transmission or overnight courier, in which event the notice will be deemed
effective when delivered or transmitted. All notices and other
communications under this Agreement must be given to the parties hereto at
the following addresses:
(i) If to the Employers, to it at:
8458 Campbellton Street
Douglasville, Georgia 30134-1803
Attn: Chairman, Compensation Committee
(ii) If to the Employee, to the Employee at:
216 Canterbury Walk
Bremen, Georgia 30110
13. ASSIGNMENT. Neither party hereto may assign or delegate this Agreement or
----------
any of its rights and obligations hereunder without the written consent of the
other party hereto.
14. WAIVER. A waiver by the Employers of any breach of this Agreement by the
------
Employee will not be effective unless in writing, and no waiver will operate or
be construed as a waiver of the same or another breach on a subsequent occasion.
15. ARBITRATION. Any controversy or claim arising out of or relating to this
-----------
Agreement, or the breach thereof, will be settled by binding arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. The decision of the arbitration panel will be final and binding on
the parties, and judgment upon the award rendered by the arbitration panel may
be entered by any court having jurisdiction thereof.
16. ATTORNEYS' FEES. In the event that the parties have complied with this
---------------
Agreement with respect to arbitration of disputes and litigation ensues between
the parties concerning the enforcement of an arbitration award and the Employee
must employ separate legal counsel, the Employers shall advance to the Employee,
within thirty (30) days after receiving copies of invoices submitted by
Employee, any and all reasonable attorneys' fees and expenses incurred with
preparing, investigating and litigating such action, proceeding or suit. The
Employee must reimburse the Employers for any and all advances that exceed the
first $5,000 advanced to the Employee for such legal expenses only if and to the
extent that a final decision by a court of competent jurisdiction has determined
that the Employee is not entitled to receive any amounts due or to enforce any
of the rights under this Agreement.
-12-
<PAGE>
17. APPLICABLE LAW. This Agreement will be construed and enforced under and in
--------------
accordance with the laws of the State of Georgia. The parties agree that any
appropriate state court located in Douglas County, Georgia, will have
jurisdiction of any case or controversy arising under or in connection with this
Agreement and will be a proper forum in which to adjudicate such case or
controversy. The parties consent to the jurisdiction of such courts.
18. INTERPRETATION. Words importing the singular form shall include the plural
--------------
and vice versa. The terms "herein", "hereunder", "hereby", "hereto", "hereof"
and any similar terms refer to this Agreement. Any captions, titles or headings
preceding the text of any article, section or subsection herein are solely for
convenience of reference and will not constitute part of this Agreement or
affect its meaning, construction or effect.
19. ENTIRE AGREEMENT. Except for any rights the Employee may have under any
----------------
employee benefit plans maintained by the Employers for employees generally and
any rights the Employee may have under the First Deposit Bancshares, Inc. 1999
Stock Option and Incentive Plan and the First Deposit Bancshares, Inc.
Management Recognition Plan, this Agreement embodies the entire and final
agreement of the parties on the subject matter stated in the Agreement. No
amendment or modification of this Agreement will be valid or binding upon the
Employers or the Employee unless made in writing and signed by both parties.
All prior understandings and agreements relating to the subject matter of this
Agreement are hereby expressly terminated.
20. RIGHTS OF THIRD PARTIES. Nothing herein expressed is intended to or will
-----------------------
be construed to confer upon or give to any person, firm or other entity, other
than the parties hereto and their permitted assigns, any rights or remedies
under or by reason of this Agreement.
21. SURVIVAL. The obligations of the Employee pursuant to Sections 5, 6, 7, 8
--------
and 9 will survive the termination of the employment of the Employee hereunder
for the period designated under each of those respective sections.
22. JOINT AND SEVERAL. The obligation of the Bank and the Holding Company to
-----------------
Employee hereunder will be joint and several.
IN WITNESS WHEREOF, the Employers and the Employee have executed and
delivered this Agreement as of the date first shown above.
THE EMPLOYERS:
DOUGLAS FEDERAL BANK, FSB
By:______________________________________
Name:_______________________________
Title:______________________________
-13-
<PAGE>
[SIGNATURES CONTINUED ON FOLLOWING PAGE]
-14-
<PAGE>
FIRST DEPOSIT BANCSHARES, INC.
By:______________________________________
Name:_______________________________
Title:______________________________
THE EMPLOYEE:
_________________________________________
-15-
<PAGE>
EXHIBIT 10.6
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 17th day of June, 1999, between Douglas
Federal Bank, FSB (the "Bank"), a federal savings bank chartered by the United
States, and First Deposit Bancshares, Inc. (the "Holding Company"), the holding
company of the Bank (the Bank and the Holding Company shall collectively be
referred to as the "Employers"), and JOHN L. KING, a resident of the State of
Georgia (the "Employee").
R E C I T A L S:
The Employers desire to employ the Employee as the Senior Vice President
and Chief Financial Officer of the Bank and as Senior Vice President and Chief
Financial Officer of the Holding Company and the Employee desires to accept such
employment.
In consideration of the above premises and the mutual agreements
hereinafter set forth, and other true and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereby agree as follows:
1. DEFINITIONS. Whenever used in this Agreement, the following terms and
-----------
their variant forms will have the meaning set forth below:
1.1 "Agreement" means this Agreement and any exhibits incorporated herein
together with any amendments hereto made in the manner described in this
Agreement.
1.2 "Affiliate" means any business entity which controls, is controlled
by, or is under common control with the Holding Company or the Bank.
1.3 "Area" means the geographic area within a radius of 20 miles of any
existing office or facility maintained by the Employers. It is the express
intent of the parties that the Area as defined herein is the area where the
Employee performs or performed services on behalf of the Employers under this
Agreement as of, or within a reasonable time prior to, the termination of the
Employee's employment hereunder.
1.4 "Boards" means the boards of directors of the Employers.
1.5 "Business of the Employers" means the business conducted by the
Employers, which, in the case of the Bank, is community banking and, in the case
of the Holding Company, is acting as a bank holding company.
<PAGE>
1.6 "Cause" means, any of the following events or conduct preceding a
termination of employment initiated by the Employers:
(a) any act that constitutes, on the part of the Employee, fraud,
dishonesty, bad faith or a felony toward the Employers;
(b) the willful violation by the Employee of any law, rule or
regulation (other than traffic violations or similar offenses) or
final cease and desist order;
(c) the Employee's entering into any transaction or contractual
relationship with any third party or diverting any business
opportunity from the Employers (other than on behalf of the
Employers or with the prior written consent of the Board) or the
Employee's breach of any other fiduciary duty involving personal
profit; provided, however, that in the case of this subsection
(c), such conduct will not constitute Cause unless the Board
delivers to the Employee notice setting forth (1) the conduct
deemed to qualify as Cause, (2) reasonable remedial action that
might remedy such objection, and (3) a reasonable time (not less
than thirty (30) days) within which the Employee may take such
remedial action, and the Employee has not taken the specified
remedial action with the specified reasonable time;
(d) the Employee breaches the covenants contained in Sections 5,6,7
or 8 hereof;
(e) conduct by the Employee that results in removal from the
Employee's position as an officer or employee of the Employers
pursuant to a written order by any regulatory agency with
authority or jurisdiction over the Employers including, without
limitation, the removal or prohibition from being involved in the
affairs of the Employers by an order issued under Section
(8)(e)(3) or (g)(1) of the Federal Deposit Insurance Act;
(f) immoderate use or addiction to alcohol or any controlled
substance to the visible and perceptive detriment to the
performance of the Employee's duties, responsibilities and
representation of the Bank in the community or the failure of the
Employee to act in a moral and upright manner consistent with
generally accepted standards applicable to other persons in
Douglas County, Georgia, occupying similar positions of
employment; provided, however, that in the case of this
subsection (f), such conduct will not constitute Cause unless
either Board delivers to the Employee notice setting forth (1)
the conduct deemed to qualify as Cause, (2) reasonable remedial
action that might remedy such objection, and (3) a reasonable
time (not less than thirty (30) days) within which the Employee
may take such remedial action, and the Employee has not taken the
specified remedial action with the specified reasonable time; or
(g) the Employee's incompetence, willful misconduct, or material
breach of this Agreement.
-2-
<PAGE>
1.7 "Company Information" means Confidential Information and Trade
Secrets.
1.8 "Confidential Information" means data and information relating to the
Business of the Employers (which does not rise to the status of a Trade Secret)
which is or has been disclosed to the Employee or of which the Employee became
aware as a consequence of or through the Employee's relationship to the
Employers and which has value to the Employers and is not generally known to its
competitors. Confidential Information does not include any data or information
that has been voluntarily disclosed to the public by the Employers (except where
such public disclosure has been made by the Employee without authorization) or
that has been independently developed and disclosed by others, or that otherwise
enters the public domain through lawful means.
1.9 "Change in Control" means any one of the following events first to
occur after the completion of the initial public offering of the common stock of
the Holding Company:
(a) the acquisition by any person or persons acting in concert or the
then outstanding voting securities of either the Bank of the
Holding Company, if, after the transaction, the acquiring person
(or persons) owns, controls or holds with power to vote twenty-
five percent (25%) or more of any class of voting securities of
the Bank or the Holding Company, as the case may be, or such
other transaction as may be described under 12 C.F.R. Section
225.41(b)(1) or any successor thereto;
(b) within any twelve-month period (beginning on or after the
Effective Date) the persons who were directors of either the Bank
or the Holding Company immediately before the beginning of such
twelve-month period (the "Incumbent Directors") cease to
constitute at least a majority of such board of directors;
provided that any director who was not a director as of the
Effective Date will be deemed to be an Incumbent Director if that
director was elected to such board of directors by, or on the
recommendation of or with the approval of, at least two-thirds of
the directors who then qualified as Incumbent Directors; and
provided further that no director whose initial assumption of
office is in connection with an actual or threatened election
contest (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Securities Exchange Act of 1934) relating
to the election of directors will be deemed to be an Incumbent
Director;
(c) the approval by the stockholders of either the Bank or the
Holding Company of a reorganization, merger or consolidation,
with respect to which persons who were the stockholders of either
the Bank or the Holding Company, as the case may be, immediately
prior to such reorganization, merger or consolidation do not,
immediately thereafter, own more than fifty percent (50%) of the
combined voting power entitled to vote in the election of
-3-
<PAGE>
directors of the reorganized, merged or consolidated company's then
outstanding voting securities; or
(d) the sale, transfer or assignment of all substantially all of the
assets of the Holding Company or the Bank to any third party.
1.10 "Effective Date" means June 17th, 1999.
1.11 "Good Reason" means, any of the following events or conduct preceding a
termination of employment initiated by the Employee:
(a) a material diminution in the powers, responsibilities or duties of
the Employee hereunder;
(b) the failure of the board of directors of the Bank to elect the
Employee as the Senior Vice President and Chief Financial Officer
of the Bank or failure of the board of directors of the Holding
Company to elect the Employee as the Senior Vice President and
Chief Financial Officer of the Holding Company;
(c) a material breach of the terms of this Agreement by the Employers;
or
(d) the failure of the Boards to nominate the Employee for re-election
following expiration of each of the Employee's terms of service on
the Boards that arise during the Term (as defined below).
provided, however, that no termination of employment which is triggered by any
conduct or event described in this Section 1.11 shall not constitute a
termination of employment for Good Reason unless the Employee has first provided
the Employers with the opportunity to cure the event or conduct by giving the
Employers a written notice describing in sufficient detail the Employee's belief
that a Good Reason exists and the Employee defers resigning until the
expiration of a thirty (30) day cure period, beginning with the date such notice
is received by the Employers.
1.12 "Permanent Disability" means the total inability of the Employee to
perform the Employee's duties under this Agreement for a period of ninety (90)
consecutive days as certified by a physician chosen by the Employers and
reasonably acceptable to the Employee.
1.13 "Trade Secrets" means information including, but not limited to,
technical or nontechnical data, formulas, patterns, compilations, programs,
devices, methods, techniques, drawings, processes, financial data, financial
plans, product plans or lists of actual or potential customers or suppliers
which:
-4-
<PAGE>
(a) derives economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its
disclosure or use; and
(b) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy.
2. DUTIES.
-------
2.1 The Employee is employed as the Senior Vice President and Chief
Financial Officer of the Bank and the Senior Vice President and Chief Financial
Officer of the Holding Company, subject to the direction of the Board or its
designee, must perform and discharge well and faithfully the duties which may be
assigned to him from time to time by the Employers in connection with the
conduct of its business. The duties and responsibilities of the Employee shall
be those customarily applicable to similarly situated executives of community
banks and bank holding companies.
2.2 In addition to the duties and responsibilities generally or specifically
assigned to the Employee pursuant to Section 2.1 hereof, the Employee must:
(a) devote substantially all of the Employee's time, energy and skill
during regular business hours to the performance of the duties of
the Employee's employment (reasonable vacations and reasonable
absences due to illness excepted) and faithfully and industriously
perform such duties;
(b) diligently follow and implement all management policies and
decisions communicated to him by the Boards; and
(c) timely prepare and forward to the Boards all reports and accounting
as may be requested of the Employee.
2.3 Without the approval of the Boards, the Employee must devote the
Employee's entire business time, attention and energies to the Business of the
Employers and must not, during the term of this Agreement, be engaged (whether
or not during normal business hours) in any other business or professional
activity, whether or not such activity is pursued for gain, profit or other
pecuniary advantage; but this will not be construed as preventing the Employee
from:
(a) investing the Employee's personal assets in businesses which are
not in competition with the Business of the Employers and which
will not require any services on the part of the Employee in their
operation or affairs and in which the Employee's participation is
solely that of an investor;
-5-
<PAGE>
(b) purchasing securities in any corporation whose securities are
regularly traded provided that such purchase will not result in
him collectively owning beneficially at any time five percent
(5%) or more of the equity securities of any business in
competition with the Business of the Employers; and
(c) participating in civic and professional affairs and organizations
and conferences, preparing or publishing papers or books or
teaching so long as the Boards approve of such activities prior
to the Employee's engaging in them.
2.4 Directorship. Employee will also be appointed to and serve as a
------------
member of the Boards.
3. TERM AND TERMINATION.
--------------------
3.1 Term. The term of this Agreement will initially be set at three (3)
----
years; provided, however, that, subject to review and approval by the Boards,
this Agreement may be extended for an additional twelve (12) months upon written
agreement of the Employers and the Employee thirty (30) days before the end of
the original three-year term (as so calculated, the "Term").
3.2 Termination. The employment of the Employee under this Agreement may
be terminated prior to the expiration of the Term only as follows, subject to
the conditions set forth below:
3.2.1 By the Employers:
(a) for Cause at any time, upon written notice to the
Employee, in which event the Employers will have no
further obligation to the Employee except for the
payment of any amounts due and owing under Section 4 on
the effective date of the termination; or
(b) without Cause or upon Permanent Disability of Employee
at any time, provided that the Employers gives the
Employee sixty (60) days' prior written notice of its
intent to terminate, in which event the Employers will
be required to make the termination payments under
Section 3.7.
3.2.2 By the Employee:
(a) for Good Reason at any time, in which event the
Employers will be required to make the termination
payments under Section 3.7; or
-6-
<PAGE>
(b) without Good Reason or upon the Permanent Disability of
the Employee, provided that the Employee gives the
Employers sixty (60) days' prior written notice of the
Employee's intent to terminate, in which event the
Employers will have no further obligation to the
Employee, except for the payment of any amounts due and
owing under Section 4 through the effective date of the
termination.
3.2.3 By the Employee within six (6) months following a Change in
Control; provided that the Employee gives at least thirty
(30) days' prior written notice to the Employers of the
Employee's intention to terminate this Agreement with such
resignation to be effective immediately, in which event the
Employers will be required to make a termination payment
under Section 3.7.
3.2.4 At any time upon mutual, written agreement of the parties,
in which event the Employers will have no further obligation
to the Employee, except for the payment of any amounts due
and owing under Section 4 through the effective date of
termination unless otherwise set forth in the written
agreement.
3.2.5 Immediately upon Employee's death, in which event the
Employers will have no further obligation to the Employee
except for the payment of any amounts due and owing under
Section 4 on the effective date of termination.
3.3 Effect of Termination. Termination of the employment of the Employee
---------------------
pursuant to Section 3.2 will be without prejudice to any right or claim which
may have previously accrued hereunder to either the Employee or the Employers
and will not terminate, alter, supersede or otherwise affect the terms and
covenants and the rights and duties prescribed in this Agreement.
3.4 Suspension With Pay. Nothing contained herein will preclude the
-------------------
Employers from releasing the Employee of the Employee's normal duties and
suspending Employee, with pay, during the pendency of any investigation or
examination to determine whether or not Cause exists for termination of the
Employee.
3.5 Suspension Without Pay. If the Employee is suspended and/or
----------------------
temporarily prohibited from participating in the conduct of the Employers'
affairs by a notice served under Section 8(e)(3) or (g)(1) of the Federal
Deposit Insurance Act, the Employers' obligations under this Agreement will be
suspended as of the date of service thereof, unless stayed by appropriate
proceedings. If the charges in such notice are dismissed, the Employers may in
its discretion:
(a) pay the Employee all or part of the compensation withheld while
its contract obligations were suspended; and/or
(b) reinstate (in whole or in part) any of its obligations which were
suspended.
-7-
<PAGE>
3.6 Other Regulatory Requirements. If the Bank is in default, as defined
-----------------------------
in Section (3)(x)(1) of the Federal Deposit Insurance Act, all obligations under
this Agreement will terminate as the date of such default, but no vested rights
of the Employee will be affected. Further, all obligations under this Agreement
will be terminated, except to the extent determined that continuation of the
Agreement is necessary for the continued operation of the Bank.
(a) by the Director of the Office of Thrift Supervision (the
"Director") or his or her designee, at the time the FDIC enters
into an agreement to provide assistance to or on behalf of the
Bank under the authority of the Federal Deposit Insurance Act; or
(b) by the Director or his or her designee, at the time the Director
or his or her designee approves a supervisory merger to resolve
problems relating to the operation of the Bank or when the Bank
is determined by the Director to be in an unsafe or unsound
condition.
Any rights of the Employee already accrued under this Agreement, however,
will not be affected by such action.
3.7 Termination Payments. In the event this Agreement is terminated by the
--------------------
Employers pursuant to Section 3.2.1(b) or by the Employee pursuant to Sections
3.2.2(a) or 3.2.3, then commencing with the first payroll date immediately
following the effective date of such termination, the Employers will pay to the
Employee as severance pay and liquidated damages an amount equal to the Average
Monthly Compensation (as defined below) for a period equal to the remaining
Term. Any amounts payable pursuant to this Section 3.7 will be paid at the same
frequency as the Employee's then Base Salary (as defined in Section 4.1(a)) is
paid. As used herein, the term "Average Monthly Compensation" means the quotient
determined by dividing (a) the greater of (i) the Employee's then Base Salary,
or (ii) the highest average of Base Salary and Incentive Compensation as
described in Section 4.1(b) occurring in the most recent three (3) consecutive
twelve-month periods during which the Employee was employed by the Employers (or
if the Employers has been employed for fewer periods, such lesser number of
periods) immediately prior to the effective date of the Agreement's termination,
by (b) twelve (12).
Notwithstanding any other provisions to this Agreement to the contrary, if
the aggregate of the payments provided for in this Agreement and other payments
and benefits which the Employee has the right to receive from the Employers (the
"Total Payments") would constitute a "parachute payment", as defined in Section
280G(b)(2) of the Internal Revenue Code, the Employee shall receive the Total
Payments unless (x) the after-tax amount that would be retained by the Employee
(after taking into account all federal, state and local income taxes payable by
the Employee and the amount of any excise taxes payable by the Employee under
Section 4999 of the Internal Revenue Code that would be payable by the Employee
(the "Excise Taxes")) if the Employee were to receive the Total Payments has a
lesser aggregate value than (y) the after-tax amount that would be retained by
the Employee (after taking into account all federal, state and local income
taxes payable by the
-8-
<PAGE>
Employee) if the Employee were to receive the Total Payments reduced to the
largest amount as would result in no portion of the Total Payments being
subject to Excise Taxes (the "Reduced Payments"), in which case the Employee
shall be entitled only to the Reduced Payments. If the Employee is to receive
the Reduced Payments, the Employee shall be entitled to determine which of the
Total Payments, and the relative portions of each, are to be reduced.
4. COMPENSATION AND BENEFITS.
-------------------------
4.1 Compensation. The Employee will receive the following salary and
------------
benefits:
(a) Base Salary. During the Term, the Employee will receive from
-----------
Employers a base salary at the rate of $75,000 per annum, payable
in substantially equal installments in accordance with the Bank's
regular payroll practices ("Base Salary"). The Employee's Base
Salary shall be allocated among and be reflected upon the books
and records of the Bank and the Holding Company as determined by
the Boards. The Employee's Base Salary will be reviewed by the
Boards annually, and the Employee will be entitled to receive
annually an increase in such amount, if any, as may be determined
by the Boards.
(b) Incentive Compensation. In addition to Employee's Base Salary
----------------------
under Section 4.1(a), the Employee will also be entitled to
participate in such other bonus, incentive and other executive
compensation programs as are made available to senior management
of the Employers from time to time. The bonus amounts which may
be payable to the Employee pursuant to this Section 4.1(b) is
referred to herein as "Incentive Compensation".
4.2 Business Expenses; Memberships. The Employers specifically agrees to
------------------------------
reimburse the Employee for (a) reasonable business (including travel) expenses
incurred by the Employee in the performance of the Employee's duties hereunder,
as approved from time to time by the Board, and (b) the dues and business
related expenditures, including initiation fees, associated with membership in
professional associations which are commensurate with the Employee's position;
provided, however, that the Employee must, as a condition of reimbursement,
submit verification of the nature and amount of such expenses in accordance with
reimbursement policies from time to time adopted by the Employers and in
sufficient detail to comply with rules and regulations promulgated by the
Internal Revenue Service.
4.3 Vacation. On a non-cumulative basis, the Employee will be entitled to
--------
vacation in each year of this Agreement in accordance with the Bank's vacation
policy as then in effect, during which the Employee's Base Salary will be paid
in full.
4.4 Benefits. In addition to the Base Salary and Incentive Compensation,
--------
the Employee will be entitled to such benefits as may be available from time to
time for executives of the Employers similarly situated to the Employee. All
such benefits will be awarded and administered
-9-
<PAGE>
in accordance with the Employers' standard policies and practices. Such benefits
may include, by way of example only, profit-sharing plans, retirement, life and
disability insurance benefits and such other benefits as the Employers deems
appropriate.
4.5 Withholding. The Employers may deduct from each payment of
-----------
compensation hereunder all amounts required to be deducted and withheld in
accordance with applicable federal and state income, FICA and other withholding
requirements.
5. COMPANY INFORMATION
-------------------
5.1 Ownership of Information. All Company Information received or
------------------------
developed by the Employee while employed by the Employers will remain the sole
and exclusive property of the Employers.
5.2 Obligations of the Employee. The Employee agrees (a) to hold Company
---------------------------
Information in strictest confidence, and (b) not to use, duplicate, reproduce,
distribute, disclose or otherwise disseminate Company Information or any
physical embodiments thereof and may in no event take any action causing or fail
to take any action necessary in order to prevent any Company Information from
losing its character or ceasing to qualify as Confidential Information or a
Trade Secret. In the event that the Employee is required by law to disclose any
Company Information, the Employee will not make such disclosure unless (and then
only to the extent that) the Employee has been advised by independent legal
counsel that such disclosure is required by law and then only after prior
written notice is given to the Employers when the Employee becomes aware that
such disclosure has been requested and is required by law. This Section 5 will
survive the termination of this Agreement with respect to Confidential
Information for so long as it remains Confidential Information, but for no
longer than three (3) years following termination of this Agreement, and this
Section 5 will survive termination of this Agreement with respect to Trade
Secrets for so long as is permitted by the then-current Georgia Trade Secrets
Act of 1990, O.C.G.A. (S)(S) 10-1-760 through 10-1-767.
5.3 Delivery upon Request or Termination. Upon request by the Employers,
------------------------------------
and in any event upon termination of employment with the Employers, the Employee
will promptly deliver to the Employers all property belonging to the Employers,
including without limitation all Company Information then in the Employee's
possession or control.
6. NON-COMPETITION. The Employee agrees that during the Term hereunder and, in
---------------
the event of the Employee's termination of employment for any reason, thereafter
for a period equal to the greater of (a) twelve (12) months; or (b) the period
during which the Employee is to be paid monthly termination payments, if any, in
accordance with Section 3.7 hereof, the Employee will not (except on behalf of
or with the prior written consent of the Employers), within the Area, either
directly or indirectly, on the Employee's own behalf or in the service or on
behalf of others, as a principal, partner, officer, director, manager,
supervisor, administrator, consultant, executive employee or in any other
capacity which involves duties and responsibilities similar to those
-10-
<PAGE>
undertaken for the Employers, engaged in any business which is the same as or
essentially the same as the Business of the Employers.
7. NON-SOLICITATION OF CUSTOMERS. The Employee agrees that during the Term
---------------------------
hereunder and, in the event of the Employee's termination of employment for any
reason, thereafter for a period equal to the greater of (a) twelve (12) months;
or, (b) the period during which the Employee is to be paid monthly termination
payments, if any, in accordance with Section 3.7 hereof, the Employee will not
(except on behalf of or with the prior written consent of the Employers), within
the Area, on the Employee's own behalf or in the service or in behalf of others,
solicit, divert or appropriate or attempt to solicit, divert or appropriate,
directly or by assisting others, any business from any of the Employers'
customers, including actively sought prospective customers, with whom the
Employee has or had material contact during the last two (2) years of the
Employee's employment, for purposes of providing products or services that are
competitive with those provided by the Employers.
8. NON-SOLICITATION OF EMPLOYEES. The Employee agrees that during the Term
-----------------------------
hereunder and, in the event of the Employee's termination of employment for any
reason, thereafter for a period equal to the greater of (a) twelve (12) months;
or (b) the period during which the Employee is to be paid monthly termination
payments, if any, in accordance with Section 3.7 hereof, the Employee will not,
within the Area, on the Employee's own behalf or in the service or on behalf of
others, solicit, recruit or hire away or attempt to solicit, recruit or hire
away, directly or by assisting others, any employee of the Employers or its
Affiliates, whether or not such employee is a full-time employee or a temporary
employee of the Employers or its Affiliates and whether or not such employment
is pursuant to written agreement and whether or not such employment is for a
determined period or is at will.
9. REMEDIES. The Employee agrees that the covenants contained in Section 5
--------
through 8 of this Agreement are of the essence of this Agreement; agrees that
each of the covenants is reasonable and necessary to protect the business,
interests and properties of the Employers; represents that his experience and
abilities are such that the existence or enforcement of these covenants will
not prevent him from earning an adequate livelihood and/or will not cause an
undue burden to himself or his family; and agrees that irreparable loss and
damage will be suffered by the Employers should the Employee breach any of the
covenants. Therefore, the Employee agrees and consents that, in addition to all
the remedies provides by law or in equity, the Employers will be entitled to a
temporary restraining order and temporary and permanent injunctions to prevent a
breach or contemplated breach of any of the covenants. The Employers and the
Employee agree that all remedies available to the Employers or the Employee, as
applicable, will be cumulative.
10. SEVERABILITY. The parties agree that each of the provisions included in
------------
this Agreement is separate, distinct and severable from the other provisions of
this Agreement and that the invalidity or unenforceability of any Agreement
provision will not affect the validity or unenforceability of any other
provision of this Agreement. Further, if any provision of this Agreement is
ruled invalid or unenforceable by a court of competent jurisdiction because of a
conflict between the provision and
-11-
<PAGE>
any applicable law or public policy, the provision will be redrawn to make the
provision consistent with and valid and enforceable under the law or public
policy.
11. NO SET-OFF BY THE EMPLOYEE. The existence of any claim, demand, action or
--------------------------
cause of action by the Employee against the Employers, or any Affiliate of the
Employers, whether predicated upon this Agreement or otherwise, will not
constitute a defense to the enforcement by the Employers of any of its rights
hereunder.
12. NOTICE. All notices and other communications required or permitted under
------
this Agreement will be in writing and, if mailed by prepaid first-class
mail or certified mail, return receipt requested, will be deemed to have
been received on the earlier of the date shown on the receipt or three (3)
business days after the postmarked date thereof. In addition, notices
hereunder may be delivered by hand, facsimile transmission or overnight
courier, in which event the notice will be deemed effective when delivered
or transmitted. All notices and other communications under this Agreement
must be given to the parties at the following addresses:
(i) If to the Employers, to it at:
8458 Campbellton Street
Douglasville, Georgia, 30134-1803
Attn: Chairman, Compensation Committee
(ii) If to the Employee, to the Employee at:
4090 Lakeland Hills Drive
Douglasville, Georgia 30134
13. ASSIGNMENT. Neither party hereto may assign or delegate this Agreement or
----------
any of its rights and obligations hereunder without the written consent of the
other party hereto.
14. WAIVER. A waiver by the Employers of any breach of this Agreement by the
------
Employee will not be effective unless in writing, and no waiver will operate or
be construed as a waiver of the same or another breach on a subsequent occasion.
15. ARBITRATION. Any controversy or claim arising out of or relating to this
-----------
Agreement, or the breach thereof, will be settled by binding arbitration in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association. The decision of the arbitration panel will be final and binding on
the parties, and judgment upon the award rendered by the arbitration panel may
be entered by any court having jurisdiction thereof.
-12-
<PAGE>
16. ATTORNEYS' FEES. In the event that the parties have complied with this
---------------
Agreement with respect to arbitration of disputes and litigation ensues between
the parties concerning the enforcement of an arbitration award and the Employee
must employ separate legal counsel, the Employers shall advance to the Employee,
within thirty (30) days after receiving copies of invoices submitted by
Employee, any and all reasonable attorneys' fees and expenses incurred with
preparing, investigating and litigating such action, proceeding or suit. The
Employee must reimburse the Employers for any and all advances that exceed the
first $5,000 advanced to the Employee for such legal expenses only if and to the
extent that a final decision by a court of competent jurisdiction has determined
that the Employee is not entitled to receive any amounts due or to enforce any
of the rights under this Agreement.
17. APPLICABLE LAW. This Agreement will be construed and enforced under and in
--------------
accordance with the laws of the State of Georgia. The parties agree that any
appropriate state court located in Douglas County, Georgia, will have
jurisdiction of any case or controversy arising under or in connection with this
Agreement and will be a proper forum in which to adjudicate such case or
controversy. The parties consent to the jurisdiction of such courts.
18. INTERPRETATION. Words importing the singular form shall include the plural
--------------
and vice versa. The terms "herein", "hereunder", "hereby", "hereto", "hereof"
and any similar terms refer to this Agreement. Any captions, titles or headings
preceding the text of any article, section or subsection herein are solely for
convenience of reference and will not constitute part of this Agreement or
affect its meaning, construction or effect.
19. ENTIRE AGREEMENT. Except for any rights the Employee may have under any
----------------
employee benefit plans maintained by the Employers for employees generally and
any rights the Employee may have under the First Deposit Bancshares, Inc. 1999
Stock Option and Incentive Plan and the First Deposit Bancshares, Inc.
Management Recognition Plan, this Agreement embodies the entire and final
agreement of the parties on the subject matter stated in the Agreement. No
amendment or modification of this Agreement will be valid or binding upon the
Employers or the Employee unless made in writing and signed by both parties. All
prior understandings and agreements relating to the subject matter of this
Agreement are hereby expressly terminated.
20. RIGHTS OF THIRD PARTIES. Nothing herein expressed is intended to or will be
-----------------------
construed to confer upon or give to any person, firm or other entity, other than
the parties hereto and their permitted assigns, any rights or remedies under or
by reason of this Agreement.
21. SURVIVAL. The obligations of the Employee pursuant to Sections 5, 6, 7, 8
--------
and 9 will survive the termination of the employment of the Employee hereunder
for the period designated under each of those respective sections.
22. JOINT AND SEVERAL. The obligation of the Bank and the Holding Company to
-----------------
Employee hereunder will be joint and several.
-13-
<PAGE>
IN WITNESS WHEREOF, the Employers and the Employee have executed and
delivered this Agreement as of the date first shown above.
THE EMPLOYERS:
DOUGLAS FEDERAL BANK, FSB
By:______________________________
Name:_________________________
Title:________________________
FIRST DEPOSIT BANCSHARES, INC.
By:______________________________
Name:_________________________
Title:________________________
THE EMPLOYEE:
_________________________________
-14-
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use of our report, dated February 12, 1999,
relating to the consolidated financial statements of Douglas Federal Bank, FSB
and subsidiary for the two years ended December 31, 1998, included in this
Registration Statement on Form SB-2. We also consent to the reference to our
Firm under the caption "Experts" in the Prospectus.
/s/ Mauldin & Jenkins, LLC
Atlanta, Georgia
February 17, 1999
<PAGE>
EXHIBIT 23.3
March 17, 1999
Board of Directors
Douglas Federal Bank, FSB
8458 Campbellton Street
Douglasville, Georgia 30134
Directors:
We hereby consent to the use of our firm's name in the Form AC Application
for Conversion of Douglas Federal Bank, FSB, Douglasville, Georgia, and any
amendments thereto, and in the Form SB-2 Registration Statement of First Deposit
Bancshares, Inc. and any amendments thereto. We also hereby consent to the
inclusion of, summary of, and references to our Appraisal Report and our opinion
concerning subscription rights in such filings including the Prospectus of First
Deposit Bancshares, Inc.
Robin L. Fussell
Principal
<PAGE>
EXHIBIT 24.1
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Alpha A. Fowler, Jr. and J. David Higgins, and
each of them, as his true and lawful attorneys-in-fact and agent with full power
of substitution and resubstitution, for them and in their name, place and stead,
in any and all capacities to sign any or all amendments to the Application for
Conversion by Douglas Federal Bank, a Federal Savings Bank, and the Form SB-2
Registration Statement by First Deposit Bancshares, Inc. and any amendments
thereto, and to file the same, with all exhibits thereto, and other documents in
connection therewith, with the Office of Thrift Supervision of the Department of
the Treasury (the "OTS") or the U.S. Securities and Exchange Commission,
respectively, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and necessary
to be done as fully to all intents and purposes as they might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or their substitute or substitutes may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of Part 563b of the OTS Rules and Regulations
and the Securities Act of 1933, as amended, and any rules and regulations
promulgated thereunder, the foregoing Power of Attorney prepared in conjunction
with the Application for Conversion and the Registration Statement has been duly
signed by the following persons in the capacities and on the dates indicated.
Name Date
---- ----
February 26, 1999
/s/ Alpha A. Fowler, Jr.
- ----------------------------
Alpha A. Fowler, Jr., Chairman and Chief Executive
Officer (principal executive officer), and Chairman
and Chief Executive Officer of Douglas Federal Bank,
a Federal Savings Bank
February 26, 1999
/s/ J. David Higgins
- ----------------------------
J. David Higgins, President and Director, and President and
Director of Douglas Federal Bank, a Federal Savings Bank
February 26, 1999
/s/ John L. King
- ----------------------------
John L. King, Chief Financial Officer, Vice President and
Director (principal accounting and financial officer), and
Vice President, Controller and Director of Douglas Federal
Bank, a Federal Savings Bank
February 26, 1999
/s/ Mac C. Abercrombie, Jr.
- ----------------------------
Mac C. Abercrombie, Jr., Director, and Director of Douglas
Federal Bank, a Federal Savings Bank
February 26, 1999
/s/ Danny A. Belyeu
- ----------------------------
Danny A. Belyeu, Director, and Director of Douglas Federal
Bank, a Federal Savings Bank
<PAGE>
February 26, 1999
/s/ Carlton H. Boyd
- ----------------------------
Carlton H. Boyd, Director, and Director of Douglas Federal
Bank, a Federal Savings Bank
February 26, 1999
/s/ Joseph H. Fowler
- ----------------------------
Joseph H. Fowler, Director, and Director of Douglas Federal
Bank, a Federal Savings Bank
February 26, 1999
/s/ John B. Zellars
- ----------------------------
John B. Zellars, Director, and Director of Douglas Federal
Bank, a Federal Savings Bank
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
DECEMBER 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 12-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> DEC-31-1998 DEC-31-1997
<CASH> 873 993
<INT-BEARING-DEPOSITS> 6,683 4,671
<FED-FUNDS-SOLD> 715 65
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 3,707 2,666
<INVESTMENTS-CARRYING> 1,042 4,374
<INVESTMENTS-MARKET> 1,071 4,405
<LOANS> 84,377 75,295
<ALLOWANCE> 1,000 866
<TOTAL-ASSETS> 100,892 91,600
<DEPOSITS> 85,686 75,877
<SHORT-TERM> 0 6,000
<LIABILITIES-OTHER> 544 813
<LONG-TERM> 5,000 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 9,662 8,910
<TOTAL-LIABILITIES-AND-EQUITY> 100,892 91,600
<INTEREST-LOAN> 6,570 6,181
<INTEREST-INVEST> 362 346
<INTEREST-OTHER> 230 160
<INTEREST-TOTAL> 7,162 6,687
<INTEREST-DEPOSIT> 3,921 3,545
<INTEREST-EXPENSE> 4,226 3,783
<INTEREST-INCOME-NET> 2,936 2,904
<LOAN-LOSSES> 108 60
<SECURITIES-GAINS> 274 0
<EXPENSE-OTHER> 2,408 2,221
<INCOME-PRETAX> 1,185 1,035
<INCOME-PRE-EXTRAORDINARY> 1,185 1,035
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 780 650
<EPS-PRIMARY> 0 0
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 3.21 3.41
<LOANS-NON> 983 1,082
<LOANS-PAST> 0 0
<LOANS-TROUBLED> 0 0
<LOANS-PROBLEM> 0 0
<ALLOWANCE-OPEN> 866 784
<CHARGE-OFFS> (1) 0
<RECOVERIES> 27 22
<ALLOWANCE-CLOSE> 1,000 866
<ALLOWANCE-DOMESTIC> 1,000 866
<ALLOWANCE-FOREIGN> 0 0
<ALLOWANCE-UNALLOCATED> 0 0
</TABLE>
