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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 9, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
(Exact Name of Registrant as Specified in its Charter)
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GEORGIA 6025 58-1458268
(State or other Jurisdiction of (Primary Standard Industrial (I.R.S. Employer
Incorporation or Organization) Classification Code Number) Identification No.)
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40 NORTH MAIN STREET
STATESBORO, GEORGIA 30458
(912) 764-6611
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
JAMES E. HODGES
PRESIDENT AND CHIEF EXECUTIVE OFFICER
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
40 NORTH MAIN STREET
STATESBORO, GEORGIA 30458
(912) 764-6611
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
WITH COPIES TO:
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WALTER G. MOELING, IV NEIL E. GRAYSON, ESQ.
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP NELSON, MULLINS, RILEY & SCARBOROUGH, L.L.P.
SUITE 1600 SUITE 1400
191 PEACHTREE STREET, N.E. 999 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30303 ATLANTA, GEORGIA 30309
(404) 572-6600 (404) 817-6000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF SECURITIES TO THE
PUBLIC: As soon as practicable after this Registration Statement becomes
effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) 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 this form is a post-effective amendment filed pursuant to Rule 462(d)
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. [ ] ---------------------
CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM PROPOSED MAXIMUM
OF SECURITIES AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED(1) PER UNIT OFFERING PRICE(2) REGISTRATION FEE
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Common Stock, $1.00 par value 877,211 N/A $7,865,769 $2,187
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(1) This Registration Statement covers the maximum number of shares of the
common stock of the Registrant which is expected to be issued in connection
with the Merger.
(2) Pursuant to Rule 457(f)(2), the registration fee was computed on the basis
of the aggregate book value of the common stock of Wayne Bancorp, Inc. to be
exchanged in the Merger.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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WAYNE BANCORP, INC.
818 S. First Street
Jesup, Georgia 31545
, 1999
To the Shareholders of
Wayne Bancorp, Inc
I am pleased to invite you to attend a Special Meeting of the shareholders
of Wayne Bancorp, Inc. to be held at Wayne Bancorp, Inc.'s main office, located
at 818 S. First Street, Jesup, Georgia 31545, on 1999, at ,
local time.
At the Special Meeting, you will be asked to consider and vote on the
merger agreement between Wayne Bancorp, Inc. and First Banking Company of
Southeast Georgia. The merger agreement provides that Wayne Bancorp, Inc. will
merge into First Banking Company of Southeast Georgia, and Wayne National Bank,
a wholly-owned subsidiary of Wayne Bancorp, Inc., will become a wholly-owned
subsidiary of First Banking Company of Southeast Georgia. As a result of the
merger, each outstanding share of common stock of Wayne Bancorp, Inc. (except
for shares held by Wayne Bancorp, Inc., First Banking Company of Southeast
Georgia, or their subsidiaries, and shares held by shareholders of Wayne
Bancorp, Inc. who exercise their dissenters' rights) will be exchanged for
1.57024 shares of First Banking Company of Southeast Georgia common stock. First
Banking Company of Southeast Georgia will pay shareholders of Wayne Bancorp,
Inc. cash instead of issuing fractional shares.
Your Board believes that the merger will have many benefits. We believe
that the combined company will have greater financial strength and greater
opportunity and flexibility to expand and diversify. Your Board of Directors
unanimously approved the merger agreement and recommends that you approve the
merger agreement. Consummation of the merger is subject to certain conditions,
including approval of the merger agreement by the affirmative vote by holders of
a majority of the outstanding voting stock of Wayne Bancorp, Inc. and approval
of the merger by various regulatory agencies.
The accompanying Proxy Statement/Prospectus provides detailed information
about the proposed merger. You should read this entire document carefully. You
can also get information about First Banking Company of Southeast Georgia and
Wayne Bancorp, Inc. from the Securities and Exchange Commission.
Whether or not you plan to attend the Special Meeting, you are urged to
complete, sign, and promptly return the enclosed proxy card. If you attend the
Special Meeting, you may vote in person if you wish, even if you previously have
returned your proxy card. The proposed merger with First Banking Company of
Southeast Georgia is a significant step for Wayne Bancorp, Inc. and your vote on
this matter is of great importance.
ON BEHALF OF THE BOARD OF DIRECTORS, I STRONGLY URGE YOU TO VOTE FOR
APPROVAL OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREIN BY
MARKING THE ENCLOSED PROXY CARD "FOR" ITEM ONE.
We look forward to seeing you at the Special Meeting.
Sincerely,
Douglas R. Harper
Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION HAS APPROVED OF THE SECURITIES TO BE ISSUED UNDER THIS PROXY
STATEMENT/PROSPECTUS OR DETERMINED WHETHER THIS PROXY STATEMENT/PROSPECTUS IS
ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SECURITIES OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS OR DEPOSIT ACCOUNTS OR
OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND THEY ARE NOT INSURED BY
THE FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND OR ANY OTHER
GOVERNMENT AGENCY.
This Proxy Statement/Prospectus is dated , 1999.
<PAGE> 3
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION OR MAKE ANY
REPRESENTATION ABOUT THE MERGER OR OUR COMPANIES THAT DIFFERS FROM, OR ADDS TO,
THE INFORMATION IN THE PROXY STATEMENT/ PROSPECTUS OR IN DOCUMENTS THAT ARE
PUBLICLY FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THEREFORE, IF ANYONE
DOES GIVE YOU DIFFERENT OR ADDITIONAL INFORMATION, YOU SHOULD NOT RELY ON IT.
THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS SPEAKS ONLY AS
OF ITS DATE UNLESS THE INFORMATION SPECIFICALLY INDICATES THAT ANOTHER DATE
APPLIES.
INFORMATION IN THIS PROXY STATEMENT/PROSPECTUS ABOUT FIRST BANKING COMPANY
OF SOUTHEAST GEORGIA HAS BEEN SUPPLIED BY FIRST BANKING COMPANY OF SOUTHEAST
GEORGIA, AND INFORMATION ABOUT WAYNE BANCORP, INC. AND ITS SUBSIDIARY HAS BEEN
SUPPLIED BY WAYNE BANCORP, INC.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
Each company makes forward-looking statements that are subject to risks and
uncertainties in this document. First Banking Company of Southeast Georgia's
public documents also contain forward-looking statements. More specifically,
First Banking's current report on Form 8-K filed on January 4, 1999, pertaining
to the merger of First Banking and Wayne includes forward-looking statements
about possible or assumed future results of operations or the performance of
First Banking Company of Southeast Georgia after the merger of Wayne Bancorp,
Inc. When we use words such as "believes," "anticipates," "expects," "intends,"
"targeted," and similar expressions, we are making forward-looking statements.
Many possible events or factors could affect the financial results and
performance of each of our companies. This could cause results or performances
to differ materially from those expressed in our forward-looking statements.
You should consider these risks when you vote on the merger. These possible
events or factors include the following:
(1) our cost savings from the merger are less than we expect, or we could be
unable to obtain those cost savings as soon as we expect;
(2) we could lose more deposits, customers, or business than we expect;
(3) competition in the banking industry could increase significantly;
(4) our restructuring costs could be higher than we expect or our operating
costs after the merger could be greater than we expect;
(5) technological changes and systems integration could be harder to make or
more expensive than we expect;
(6) changes in the interest rate environment could reduce our margins;
(7) general economic or business conditions could be worse than we expect;
(8) legislative or regulatory changes could occur which adversely affect our
business;
(9) changes could occur in business conditions and inflation;
(10) changes could occur in the securities markets; and
(11) we could have more trouble obtaining regulatory approvals for the merger
than we expect.
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PROPOSED MERGER OF WAYNE BANCORP, INC. WITH
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD , 1999
Wayne Bancorp, Inc. ("Wayne") will hold a Special Meeting of shareholders
at the main office of Wayne, located at 818 S. First Street, Jesup, Georgia
31545, on , , 1999, at , local time, to
vote on:
(1) Agreement and Plan of Merger, dated as of November 30, 1998 (the
"Merger Agreement"), between Wayne and First Banking Company of Southeast
Georgia ("First Banking"). The Merger Agreement provides that Wayne will
merge with First Banking. Each outstanding share of Wayne common stock at
the effective time of the merger will be exchanged for 1.57024 shares of
First Banking common stock, as more fully described in the accompanying
Proxy Statement/Prospectus. A copy of the Merger Agreement is attached to
the accompanying Proxy Statement/Prospectus as Appendix A.
(2) Any other business as may come properly before the Special
Meeting, or any adjournments or postponements.
Only shareholders who hold their stock at the close of business on
, 1999, will be entitled to notice of and to vote at the Special
Meeting or any adjournment or postponement thereof. Approval of the Merger
Agreement and the transactions contemplated therein requires the affirmative
vote of a majority of the issued and outstanding shares of Wayne common stock.
The Board of Directors of Wayne unanimously recommends that shareholders
vote FOR approval of the Merger Agreement.
BY ORDER OF THE BOARD OF DIRECTORS
Douglas R. Harper
Chief Executive Officer
Jesup, Georgia
, 1999
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE,
DATE, AND SIGN THE ENCLOSED FORM OF PROXY AND PROMPTLY RETURN IT IN THE ENCLOSED
POSTAGE PAID RETURN ENVELOPE IN ORDER TO ENSURE THAT YOUR SHARES WILL BE
REPRESENTED AT THE SPECIAL MEETING.
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EACH SHAREHOLDER HAS THE RIGHT TO DISSENT FROM THE MERGER AGREEMENT AND
DEMAND PAYMENT OF THE FAIR VALUE OF HIS SHARES IN CASH IF THE MERGER IS
CONSUMMATED. THE RIGHT OF ANY SHAREHOLDER TO RECEIVE SUCH PAYMENT IS CONTINGENT
UPON STRICT COMPLIANCE WITH THE REQUIREMENTS OF TITLE 14 CHAPTER 2, ARTICLE 13
OF THE GEORGIA BUSINESS CORPORATION CODE. THE FULL TEXT OF TITLE 14, CHAPTER 2,
ARTICLE 13, THAT DESCRIBES THE RIGHT TO DISSENT IS INCLUDED AS APPENDIX B TO THE
ACCOMPANYING PROXY STATEMENT/PROSPECTUS. SEE "DESCRIPTION OF
MERGER -- DISSENTERS' RIGHTS" IN THE ACCOMPANYING PROXY STATEMENT/PROSPECTUS,
PAGE 25.
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TABLE OF CONTENTS
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PAGE
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SUMMARY.....................................................
THE COMPANIES.............................................
THE MERGER................................................
OUR REASONS FOR THE MERGER................................
RECOMMENDATION TO WAYNE SHAREHOLDERS......................
RECORD DATE FOR SPECIAL SHAREHOLDER MEETING...............
VOTE REQUIRED.............................................
WHAT WAYNE SHAREHOLDERS WILL RECEIVE......................
REGULATORY APPROVALS......................................
CONDITIONS TO THE MERGER..................................
TERMINATION OF THE MERGER AGREEMENT.......................
DISSENTERS' RIGHTS........................................
INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER THAT ARE
DIFFERENT FROM YOURS...................................
IMPORTANT FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER...
FAIRNESS OPINION..........................................
ACCOUNTING TREATMENT OF THE MERGER........................
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS...............
COMPARATIVE MARKET PRICES OF COMMON STOCK.................
DIVIDENDS AFTER THE MERGER................................
LISTING OF FIRST BANKING COMMON STOCK.....................
COMPARATIVE PER SHARE DATA................................
SELECTED FINANCIAL DATA...................................
SELECTED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL
DATA...................................................
RISK FACTORS................................................
THERE IS LIMITED MARKET FOR SHARES OF FIRST BANKING COMMON
STOCK..................................................
THERE ARE RESTRICTIONS ON FIRST BANKING'S ABILITY TO PAY
DIVIDENDS..............................................
FIRST BANKING IS SUBJECT TO EXTENSIVE GOVERNMENTAL
REGULATION.............................................
THE FINANCIAL INSTITUTION INDUSTRY IS VERY COMPETITIVE....
MANAGEMENT OF FIRST BANKING HOLDS A LARGE PORTION OF FIRST
BANKING COMMON STOCK...................................
FIRST BANKING'S ARTICLES OF INCORPORATION AND BYLAWS MAY
PREVENT TAKEOVER BY ANOTHER COMPANY....................
FIRST BANKING AND WAYNE COULD EXPERIENCE PROBLEMS,
EXPENSES OR LIABILITIES RELATING TO YEAR 2000 ISSUES...
MEETING OF WAYNE SHAREHOLDERS...............................
DATE, PLACE, TIME, AND PURPOSE............................
RECORD DATE, VOTING RIGHTS, REQUIRED VOTE, AND
REVOCABILITY OF PROXIES................................
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PAGE
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DESCRIPTION OF THE MERGER...................................
GENERAL...................................................
BACKGROUND OF AND REASONS FOR THE MERGER..................
OPINION OF WAYNE'S FINANCIAL ADVISOR......................
EFFECTIVE DATE OF THE MERGER..............................
DISTRIBUTION OF FIRST BANKING CERTIFICATES................
CONDITIONS TO CONSUMMATION OF THE MERGER..................
REGULATORY APPROVALS......................................
WAIVER, AMENDMENT, AND TERMINATION........................
DISSENTERS' RIGHTS........................................
CONDUCT OF BUSINESS PENDING THE MERGER....................
MANAGEMENT AND OPERATIONS AFTER THE MERGER; INTERESTS OF
CERTAIN PERSONS IN THE MERGER..........................
CERTAIN FEDERAL INCOME TAX CONSEQUENCES...................
ACCOUNTING TREATMENT......................................
EXPENSES AND FEES.........................................
RESALES OF FIRST BANKING COMMON STOCK.....................
DESCRIPTION OF FIRST BANKING COMMON STOCK...................
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS..............
AUTHORIZED CAPITAL STOCK..................................
BOARD OF DIRECTORS........................................
REMOVAL OF DIRECTORS......................................
VOTE REQUIRED FOR SHAREHOLDER APPROVAL....................
SPECIAL MEETING OF SHAREHOLDERS...........................
COMPARATIVE MARKET PRICES AND DIVIDENDS.....................
BUSINESS OF WAYNE...........................................
GENERAL...................................................
COMPETITION...............................................
EMPLOYEES.................................................
MANAGEMENT STOCK OWNERSHIP................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS....................
BUSINESS OF FIRST BANKING...................................
GENERAL...................................................
COMPETITION...............................................
EMPLOYEES.................................................
LOAN PORTFOLIO............................................
CREDIT UNDERWRITING AND MONITORING........................
DIRECTORS AND EXECUTIVE OFFICERS..........................
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION OF FIRST BANKING.............................
CERTAIN TRANSACTIONS AND BUSINESS RELATIONSHIPS...........
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION................
SHAREHOLDER PROPOSALS.......................................
EXPERTS.....................................................
LEGAL MATTERS...............................................
OTHER MATTERS...............................................
WHERE YOU CAN FIND MORE INFORMATION ABOUT FIRST BANKING AND
WAYNE.....................................................
INDEX TO FIRST BANKING DATA.................................
INDEX TO WAYNE FINANCIAL DATA...............................
APPENDIX A AGREEMENT AND PLAN OF MERGER................. A-1
APPENDIX B DISSENTERS' RIGHTS........................... B-1
APPENDIX C FAIRNESS OPINION............................. C-1
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SUMMARY
This summary highlights selected information from this Proxy
Statement/Prospectus. Because this is a summary, it does not contain all of the
information that may be important to you. You should read the entire Proxy
Statement/Prospectus and its appendices carefully before you decide to vote.
THE COMPANIES (Page 40 for Wayne, Page 61 for First Banking)
WAYNE BANCORP, INC.
818 S. First Street
Jesup, Georgia 31545
(912) 427-2267
Wayne is a bank holding company headquartered in Jesup, Georgia. Wayne is
the sole shareholder of Wayne National Bank. Wayne National Bank has one banking
office and offers a broad range of banking and banking-related services. As of
September 30, 1998, Wayne's total assets were approximately $47 million,
deposits were approximately $40 million, and shareholders' equity was
approximately $7 million.
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
40 North Main Street
Statesboro, Georgia 30458
(912) 764-6611
First Banking is a bank holding company headquartered in Statesboro,
Georgia. First Banking is the sole shareholder of the following depository
institutions: First Bulloch Bank & Trust Company, Metter Banking Company, and
First National Bank of Effingham. Through its subsidiaries, First Banking offers
a full array of retail banking services through ten offices in Statesboro,
Metter, Springfield and Rincon, Georgia. As of September 30, 1998, First
Banking's total assets were approximately $378 million, deposits were
approximately $317 million, and shareholders' equity was approximately $44
million.
THE MERGER (Page 14)
The Merger Agreement provides for the acquisition of Wayne by First Banking
through the merger of Wayne into First Banking.
A copy of the Merger Agreement is included as Appendix A to this Proxy
Statement/Prospectus. We encourage you to read the Merger Agreement since it is
the legal document that governs the merger.
OUR REASONS FOR THE MERGER (Page 14)
The Wayne Board of Directors unanimously approved the Merger Agreement. In
deciding to approve the Merger Agreement, the Wayne Board of Directors
considered a number of factors, including:
1. The current and prospective economic and competitive environment facing
financial institutions;
2. The Wayne Board's review of alternatives to the merger;
3. The business, operations, earnings, and financial condition, including
the capital levels and asset quality, of First Banking on both an
historical and prospective basis;
1
<PAGE> 9
4. The geographic and business fit of First Banking and Wayne;
5. First Banking's decentralized style of management, which would enable Wayne
to maintain its name, its Wayne County community bank image, and its
responsiveness to its customers;
6. The terms of the Merger Agreement and the opinion of Stevens & Company that
the terms of the Merger Agreement were fair to the shareholders of Wayne
from a financial point of view;
7. The financial advice rendered by Stevens & Company;
8. The expectation that the merger would be tax-free for federal income tax
purposes for Wayne's shareholders (other than with respect to cash received
in the merger, including any cash paid in lieu of fractional shares);
9. The liquidity of First Banking's common stock; and
10. The strong likelihood that regulatory approval for the merger would be
obtained.
The First Banking Board of Directors believes that the merger is in the
best interests of First Banking and its shareholders. The First Banking Board of
Directors unanimously approved the Merger Agreement. In deciding to approve the
Merger Agreement and the issuance of shares of First Banking common stock to
Wayne shareholders in the merger, the First Banking Board of Directors
considered a number of factors, including:
1. The financial condition of Wayne;
2. The likelihood of regulators approving the merger without undue conditions
or delay;
3. The financial and nonfinancial terms of the merger; and
4. The compatibility and the community bank orientation of First Banking and
Wayne.
The Boards of Directors of Wayne and First Banking believe that the merger
will result in a company with expanded opportunities for profitable growth and
that the combined resources and capital of Wayne and First Banking will provide
greater ability to compete in the changing and competitive financial services
industry.
RECOMMENDATION TO WAYNE SHAREHOLDERS (Page 16)
The Wayne Board believes that the merger of Wayne and First Banking is in
the best interests of Wayne and Wayne's shareholders. The Wayne Board
unanimously recommends that you vote FOR approval of the Merger Agreement.
WAYNE SPECIAL SHAREHOLDER MEETING (Page 12)
The Special Meeting will be held at the main office of Wayne, located at
818 S. First Street, Jesup, Georgia, on , , 1999, at
, local time. The Wayne Board of Directors is soliciting proxies
for use at the Special Meeting of Wayne shareholders. At the Special Meeting the
Wayne Board of Directors will ask the Wayne shareholders to vote on a proposal
to approve the merger of Wayne into First Banking.
RECORD DATE FOR SPECIAL SHAREHOLDER MEETING (Page 13)
You may vote at the Special Meeting if you owned Wayne common stock as of
the close of business on , 1999. You will have one vote for each share
of Wayne common stock you owned on , 1999. You can revoke your proxy
at any time prior to the vote at the Special Meeting.
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VOTE REQUIRED (Page 13)
In order to approve the merger, shareholders holding a majority of the
outstanding shares of Wayne common stock must approve the Merger Agreement. As
of the Wayne record date, all directors and executive officers of Wayne as a
group (12 persons) could vote approximately 279,468 shares of Wayne common
stock, constituting approximately 50% of the total number of shares of Wayne
common stock outstanding at that date. The Wayne directors and executive
officers have committed to vote their shares of Wayne common stock in favor of
the merger. First Banking holds no shares of Wayne common stock.
WHAT WAYNE SHAREHOLDERS WILL RECEIVE (Page 14)
As a result of the merger, First Banking will pay Wayne shareholders
1.57024 shares of First Banking common stock for each share of Wayne common
stock that they own. Wayne shareholders will not receive fractional shares.
Instead, they will receive a check in payment for any fractional shares based on
the market value of First Banking common stock. The market value is determined
by the last sale price of First Banking common stock on the Nasdaq National
Market (as reported by The Wall Street Journal) on the last trading day before
the merger becomes effective.
Once the merger is complete, First Banking's transfer agent will mail to
you materials and instructions for you to exchange your Wayne stock certificates
for First Banking stock certificates.
WAYNE SHAREHOLDERS SHOULD NOT SEND IN THEIR STOCK CERTIFICATES UNTIL THEY
ARE INSTRUCTED TO DO SO AFTER THE MERGER.
REGULATORY APPROVALS (Page 23)
We cannot complete the merger until we receive approval of Board of
Governors of the Federal Reserve System (the "Federal Reserve") and the Georgia
Department of Banking and Finance (the "GDBF"). First Banking and Wayne filed
applications with the Federal Reserve and GDBF seeking approval of the merger.
It is possible that the Federal Reserve or GDBF approvals will impose conditions
or restrictions that First Banking or Wayne believes materially and adversely
affect the economic or business benefits of the merger.
CONDITIONS TO THE MERGER (Page 22)
The completion of the merger depends upon First Banking and Wayne
satisfying a number of conditions, including:
1. Wayne shareholders must approve the Merger Agreement;
2. First Banking and Wayne must receive a legal opinion confirming the
tax-free nature of the merger;
3. First Banking and Wayne must receive a letter from First Banking's
independent accountants stating that the merger will qualify for
pooling-of-interests accounting treatment; and
4. First Banking and Wayne must receive all required regulatory approvals
and any waiting periods required by law must have passed.
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TERMINATION OF THE MERGER AGREEMENT (Page 24)
Either First Banking or Wayne can terminate the Merger Agreement without
completing the merger if, among other things, any of the following occurs:
1. The merger is not completed by April 30, 1999;
2. The shareholders of Wayne do not approve the merger; or
3. The other party breaches or materially fails to comply with any of its
representations or warranties or obligations under the Merger Agreement.
In certain instances, including a breach of representation, warranty,
covenant or agreement or failure of the Wayne shareholders to approve the Merger
Agreement, either First Banking or Wayne will be required to pay the other party
the lesser of $100,000 or actual costs of the other party incurred in connection
with the merger. If the merger is not consummated, First Banking will continue
to operate as a bank holding company under its present management and Wayne will
continue to operate as a bank holding company under its present management.
DISSENTERS' RIGHTS (Page 25 and Appendix B)
The Georgia Business Corporation Code (the "Georgia Code") provides that a
Wayne shareholder may receive cash for the "fair value" of his or her shares if
the Wayne shareholder does not vote in favor of the merger and complies with
certain notice requirements and other procedures. If you wish to dissent, you
must follow specific procedures to exercise the right to dissent or the right to
dissent may be lost. The procedures to exercise dissenters' rights are described
in this Proxy Statement/Prospectus and the provisions of the Georgia Code that
describe the procedures are attached as Appendix B.
INTERESTS OF OFFICERS AND DIRECTORS IN THE MERGER THAT ARE DIFFERENT FROM YOURS
(Page 30)
Certain members of Wayne's management and Board of Directors have interests
in the merger that are different from your interests. The Merger Agreement
states that, as a condition to completing the merger, First Banking and Douglas
R. Harper, President of Wayne, will execute an Employment Agreement. The
Employment Agreement provides that Mr. Harper will serve as President and Chief
Executive Officer of Wayne National Bank. The Merger Agreement also provides
that J. Ashley Dukes, Chairman of the Board of Wayne, will be appointed to the
Board of Directors of First Banking when the merger is complete.
The Merger Agreement also states that First Banking will indemnify the
Wayne directors and officers. First Banking has also agreed to provide the
officers and employees of Wayne with certain employee benefits that First
Banking already provides to its officers and employees. The First Banking and
Wayne Boards of Directors were aware of these interests and considered them when
approving the Merger Agreement.
IMPORTANT FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER (Page 31)
We expect that First Banking, Wayne and their shareholders will not
recognize any gain or loss for U.S. federal income tax purposes in the merger,
except in connection with any cash that Wayne shareholders receive instead of
fractional shares. Both companies have received a legal opinion that this will
be the case. This legal opinion is filed as an exhibit to the Registration
Statement of which this Proxy Statement/Prospectus is a part. The opinion will
not bind the Internal Revenue Service, which could take a different view. This
tax treatment will not apply to any Wayne shareholder who exercises dissenters'
rights. Determining the actual tax consequences of the merger to you as an
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<PAGE> 12
individual taxpayer can be complicated. The tax treatment will depend on your
specific situation and many variables not within our control. You should consult
your own tax advisor for a full understanding of the merger's tax consequences.
FAIRNESS OPINION (Page 18)
Wayne hired Stevens & Company ("Stevens") to act as its financial advisor
in connection with the merger. Stevens is a financial consulting and investment
banking firm that specializes in community bank transactions. Stevens will
receive a fee for its services, a significant portion of which is contingent
upon consummation of the merger. Stevens has given Wayne its written opinion
that the merger is fair to the shareholders from a financial point of view. Its
opinion is attached as Appendix C.
ACCOUNTING TREATMENT OF THE MERGER (Page 33)
First Banking and Wayne intend for the merger to be accounted for as a
"pooling-of-interests," which means that, for accounting and financial reporting
purposes, we will treat Wayne and First Banking as if they had always been one
company. First Banking has the right not to complete the merger if it does not
receive a letter from First Banking's independent public accountants that the
merger will qualify as a "pooling-of-interests."
CERTAIN DIFFERENCES IN SHAREHOLDERS' RIGHTS (Page 35)
The rights of First Banking shareholders differ from the rights of Wayne
shareholders in certain important respects, some of which constitute additional
anti-takeover provisions provided for in First Banking's governing documents.
COMPARATIVE MARKET PRICES OF COMMON STOCK (Page 38)
First Banking common stock is traded in the over-the-counter market and
quoted on the Nasdaq National Market under the symbol "FBCG." On October 20,
1998, the last day prior to public announcement of the merger between First
Banking and Wayne, the last reported sale price per share of First Banking
common stock on the Nasdaq National Market was $25.125.
On January 8, 1999, there were 951 shareholders of record of Wayne common
stock. No established trading market for Wayne common stock exists. Because
transactions in Wayne common stock are infrequent and because such transactions
are not reported on an exchange or other organized trading system, Wayne does
not have reliable data regarding recent trading activity in Wayne common stock.
On , 1999, the latest practicable date prior to the mailing of
this Proxy Statement/ Prospectus, the last reported sale price per share of
First Banking common stock on the Nasdaq National Market was $ . The
resulting equivalent pro forma price per share of Wayne common stock was
$ . The equivalent per share price of a share of Wayne common stock at
each specified date represents the closing sale price of a share of First
Banking common stock on that date multiplied by the exchange ratio of 1.57024.
There can be no assurance as to what the market price of First Banking common
stock will be if and when the merger is consummated.
5
<PAGE> 13
DIVIDENDS AFTER THE MERGER (Page 38)
Wayne paid its first annual dividend in the first quarter of 1998. First
Banking has paid regular cash dividends every quarter since 1990. Although First
Banking currently plans to continue to pay quarterly cash dividends, First
Banking cannot assure you that it will always pay dividends.
LISTING OF FIRST BANKING COMMON STOCK (Page 23)
First Banking will list the shares of First Banking common stock to be
issued in connection with the merger on the Nasdaq National Market.
RISK FACTORS (Page 11)
In determining whether to approve the Merger Agreement, you should consider
the various risks associated with an investment in First Banking common stock.
These risks include:
(1) There is a limited market for First Banking common stock;
(2) there are restrictions on First Banking's ability to pay dividends;
(3) First Banking is subject to extensive governmental regulations;
(4) the financial industry is very competitive;
(5) management of First Banking holds a large portion of First Banking
common stock;
(6) First Banking's Articles of Incorporation and Bylaws may prevent
takeover by another company; and
(7) First Banking and Wayne could experience problems, expenses or
liability relating to the Year 2000.
COMPARATIVE PER SHARE DATA
The following table shows certain data relating to income, cash dividends,
and book value on (1) an historical basis for First Banking and Wayne; (2) an
unaudited pro forma combined basis per share of First Banking and Wayne common
stock, giving effect to the merger; and (3) an equivalent pro forma basis per
share of Wayne common stock, giving effect to the merger. The Wayne and First
Banking pro forma combined information and the Wayne pro forma equivalent
information give effect to the merger on a pooling-of-interests accounting basis
and reflects the exchange ratio of 1.57024 shares of First Banking common stock
for each share of Wayne common stock. This data should be read in conjunction
with the unaudited pro forma condensed financial statements and the separate
historical financial statements of First Banking and Wayne and notes thereto
included elsewhere in this Proxy Statement/Prospectus. You should not rely on
the pro forma information as being indicative of the historical results that we
would have achieved or the future results we will achieve after the merger.
<TABLE>
<CAPTION>
AS OF AND FOR THE
----------------------------------------------
NINE MONTHS ENDED YEAR ENDED DECEMBER 31,
------------------ ------------------------
SEPTEMBER 30, 1998 1997 1996 1995
------------------ ------ ----- -----
<S> <C> <C> <C> <C>
Net Income Per Common and Potential Common
Share -- Basic
First Banking historical................... 0.93 1.16 1.10 1.00
Wayne historical........................... 1.79 2.58 2.19 1.33
First Banking and Wayne pro forma
combined(1)............................. 0.96 1.22 1.14 0.99
Wayne pro forma equivalent(2).............. 1.51 1.92 1.79 1.55
</TABLE>
6
<PAGE> 14
<TABLE>
<CAPTION>
AS OF AND FOR THE
----------------------------------------------
NINE MONTHS ENDED YEAR ENDED DECEMBER 31,
------------------ ------------------------
SEPTEMBER 30, 1998 1997 1996 1995
------------------ ------ ----- -----
<S> <C> <C> <C> <C>
Net Income Per Common and Potential Common
Share -- Diluted
First Banking historical................... 0.93 1.16 1.10 1.00
Wayne historical........................... 1.64 2.35 1.99 1.22
First Banking and Wayne pro forma
combined (1)............................ 0.95 1.21 1.12 0.98
Wayne pro forma equivalent(2).............. 1.49 1.90 1.76 1.54
Dividends Declared Per Common Share
Outstanding at Period End
First Banking historical................... 0.39 0.47 0.38 0.31
Wayne historical........................... -- 0.25 -- --
First Banking and Wayne pro forma combined
(1)(4).................................. 0.39 0.47 0.38 0.31
Wayne pro forma equivalent (3)............. 0.61 0.74 0.60 0.49
Book Value Per Common Share Outstanding at
the Period End
First Banking historical (5)............... 9.33 8.72 -- --
Wayne historical (5)....................... 15.66 14.23 -- --
First Banking and Wayne pro forma combined
(1)..................................... 9.38(6) 8.77 -- --
Wayne pro forma equivalent (2)............. 14.73 13.77 -- --
</TABLE>
- ---------------
(1) Represents the pro forma combined information of First Banking and Wayne as
if the merger was consummated at the beginning of the period and was
accounted for as a pooling-of-interests.
(2) Represents the pro forma combined per common share amounts multiplied by the
exchange ratio of 1.57024 shares of First Banking common stock for each
share of Wayne common stock.
(3) Represents historical dividends declared per share by First Banking
multiplied by the exchange ratio of 1.57024 shares of First Banking common
stock for each share of Wayne common stock.
(4) Represents historical dividends paid by First Banking, as it is assumed that
First Banking will not change its dividend policy as a result of the merger.
(5) Historical book value per share is computed by dividing shareholders' equity
by the number of shares of common stock outstanding at the end of each
period.
(6) First Banking and Wayne anticipate that they will incur combined direct
transaction costs estimated to be $265,000 associated with the Merger, of
which approximately $154,000 has been charged to operations in total for
First Banking and Wayne in the fourth quarter of 1998 and the remainder will
be charged to operations as incurred in 1999. The pro forma book value per
share data gives effect to such estimated costs resulting in a $185,000
charge, net of tax, as if such costs had been incurred as of September 30,
1998. These costs are not included in the pro forma income per share data.
See "Pro Forma Financial Information."
SELECTED FINANCIAL DATA
The following tables present certain selected historical financial
information for First Banking and Wayne and are derived from the consolidated
financial statements (and related notes) of First Banking and Wayne contained in
or incorporated by reference to this Proxy Statement/Prospectus. This
information is only a summary and should be read in conjunction with each
company's historical
7
<PAGE> 15
financial statements (and related notes), and other financial information
concerning First Banking and Wayne contained in or incorporated by reference to
this Proxy Statement/Prospectus.
Interim unaudited data for the nine month periods ended September 30, 1998
and 1997 of First Banking and Wayne reflect, in the opinion of the respective
managements of First Banking and Wayne, all adjustments (consisting only of
normal recurring adjustments) necessary for a fair presentation of such
information. Results for the nine month period ended September 30, 1998 is not
necessarily indicative of results which may be expected for any other interim
period or for the year as a whole.
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AS OF AND FOR
THE NINE MONTHS
ENDED SEPTEMBER 30, AS OF AND FOR THE YEAR ENDED DECEMBER 31,
--------------------------- ------------------------------------------
1998 1997 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
FIRST BANKING ONLY
Interest Income.............. $ 24,299,289 $ 23,402,485 $ 31,462,731 $ 30,567,977 $ 27,447,803
Interest Expense............. 11,100,750 10,909,186 14,635,093 14,407,335 12,418,044
------------ ------------ ------------ ------------ ------------
Net Interest Income........ 13,198,539 12,493,299 16,827,638 16,160,642 15,029,759
Provision for Loan Losses.... 660,253 737,285 932,285 694,911 859,300
------------ ------------ ------------ ------------ ------------
Net Interest Income After
Provision................ 12,538,286 11,756,014 15,895,353 15,465,731 14,170,459
Non-Interest Income.......... 2,298,320 2,090,682 2,934,843 2,539,412 2,329,914
Non-Interest Expense......... 8,714,805 8,130,247 11,107,605 10,430,664 9,841,705
------------ ------------ ------------ ------------ ------------
Income Before Income Taxes... 6,121,801 5,716,449 7,722,591 7,574,479 6,658,668
Provision for Income Taxes... 1,737,942 1,707,804 2,258,707 2,400,517 1,952,700
------------ ------------ ------------ ------------ ------------
Net Income................. $ 4,383,859 $ 4,008,645 $ 5,463,884 $ 5,173,962 $ 4,705,968
============ ============ ============ ============ ============
Net Income Per Common and
Potential Common Share:
Basic...................... $ 0.93 $ 0.85 $ 1.16 $ 1.10 $ 1.00
Diluted.................... 0.93 0.85 1.16 1.10 1.00
Cash Dividends:
Declared................... $ 1,824,673 $ 1,643,565 $ 2,207,930 $ 1,699,119 $ 1,274,321
Per Share Outstanding at
Period End (1)........... 0.39 0.35 0.47 0.38 0.31
Book Value at Period End --
Per Share and Outstanding
at Period End (1)........ $ 9.33 $ 8.50 $ 8.72 $ 7.96 $ 7.27
Weighted Average Common and
Potential Common Shares
Outstanding:
Basic (1).................. 4,702,866 4,690,525 4,691,164 4,690,769 4,690,961
Diluted (1)................ 4,715,008 4,691,715 4,694,695 4,690,769 4,690,961
Total Assets................. $378,487,238 $377,190,604 $411,222,876 $384,035,982 $350,366,037
Other Borrowed Money......... 11,153,016 8,960,149 9,418,343 10,917,951 7,324,447
<CAPTION>
AS OF AND FOR THE YEAR ENDED DECEMBER 31,
---------------------------
1994 1993
------------ ------------
<S> <C> <C>
FIRST BANKING ONLY
Interest Income.............. $ 21,319,846 $ 19,192,984
Interest Expense............. 8,271,364 7,557,384
------------ ------------
Net Interest Income........ 13,048,482 11,635,600
Provision for Loan Losses.... 632,073 726,768
------------ ------------
Net Interest Income After
Provision................ 12,416,409 10,908,832
Non-Interest Income.......... 2,330,957 2,265,727
Non-Interest Expense......... 9,256,325 8,459,465
------------ ------------
Income Before Income Taxes... 5,491,041 4,715,094
Provision for Income Taxes... 1,658,918 1,340,865
------------ ------------
Net Income................. $ 3,832,123 $ 3,374,229
============ ============
Net Income Per Common and
Potential Common Share:
Basic...................... $ 0.82 $ 0.72
Diluted.................... 0.82 0.72
Cash Dividends:
Declared................... $ 998,227 $ 798,582
Per Share Outstanding at
Period End (1)........... 0.24 0.19
Book Value at Period End --
Per Share and Outstanding
at Period End (1)........ $ 6.24 $ 5.95
Weighted Average Common and
Potential Common Shares
Outstanding:
Basic (1).................. 4,691,186 4,691,186
Diluted (1)................ 4,691,186 4,691,186
Total Assets................. $296,510,542 $264,499,807
Other Borrowed Money......... 4,629,876 819,323
</TABLE>
- ---------------
(1) The book value per share, cash dividends, and average shares outstanding
reflect the 8-for-5 stock split effected in the form of a 60% stock dividend
effective May 15, 1995, the five-for-four stock split effected in the form
of a 25% stock dividend effective June 30, 1997, the five-for-four stock
split effected in the form of a 25% stock dividend effective May 29, 1998,
and the acquisition of Effingham Bank.
8
<PAGE> 16
SUMMARY CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AS OF AND FOR
THE NINE MONTHS
ENDED SEPTEMBER 30, AS OF AND FOR THE YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
WAYNE ONLY
Interest Income............... $ 2,959,036 $ 2,649,029 $ 3,621,079 $ 3,053,953 $ 2,458,153 $ 1,843,583 $ 1,455,777
Interest Expense.............. 1,069,836 944,512 1,300,994 1,065,545 1,028,414 692,489 534,135
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Interest Income......... 1,889,200 1,704,517 2,320,085 1,988,408 1,429,739 1,151,094 921,642
Provision for Loan Losses..... 135,000 108,000 154,000 90,000 -- -- 15,000
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Interest Income
After Provision........... 1,754,200 1,596,517 2,166,085 1,898,408 1,429,739 1,151,094 906,642
Non-Interest Income........... 528,119 436,235 629,921 568,901 508,048 450,152 480,872
Non-Interest Expense.......... 1,099,715 1,014,687 1,357,913 1,272,510 1,214,310 1,209,657 1,152,453
----------- ----------- ----------- ----------- ----------- ----------- -----------
Income Before Income Taxes.... 1,182,604 1,018,065 1,438,093 1,194,799 723,477 391,589 235,061
Provision for Income Taxes.... 363,080 288,221 412,763 366,651 225,668 134,448 80,345
----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Income.................... $ 819,524 $ 729,844 $ 1,025,330 $ 828,148 $ 497,809 $ 257,141 $ 154,716
=========== =========== =========== =========== =========== =========== ===========
Net Income Per Common and
Potential Common Share:
Basic....................... $ 1.79 $ 1.85 $ 2.58 $ 2.19 $ 1.33 $ 0.69 $ 0.42
Diluted..................... 1.64 1.63 2.35 1.99 1.22 0.69 0.42
Cash Dividends:
Declared.................... -- -- 114,722 -- -- -- --
Per Share Outstanding at
Period End................ -- -- 0.25 -- -- -- --
Book Value at Year End --
Per Share Outstanding at
Period End................ $ 15.66 $ 13.99 $ 14.23 $ 12.25 $ 10.15 $ 8.50 $ 7.89
Weighted Average Common and
Potential Common Shares
Outstanding:
Basic....................... 457,931 394,763 397,245 377,786 374,660 370,230 370,230
Diluted..................... 500,231 447,568 436,947 415,620 406,535 370,230 370,230
Total Assets.................. $47,271,382 $41,346,906 $51,058,542 $43,234,750 $37,650,768 $33,484,280 $23,075,246
Other Borrowed Money.......... -- -- -- -- -- -- --
</TABLE>
9
<PAGE> 17
SELECTED CONDENSED CONSOLIDATED PRO FORMA FINANCIAL DATA
The following selected unaudited pro forma financial data is derived from
the unaudited pro forma condensed financial statements which give effect to the
merger as of the dates and for the periods indicated, assuming the merger is
accounted for as a pooling-of-interests. This information should be read in
conjunction with the unaudited pro forma financial information appearing
elsewhere in this Proxy Statement/Prospectus. You should not rely on the pro
forma information as being indicative of the historical results that we would
have achieved or the future results we will achieve after the merger. For
purposes of the pro forma condensed balance sheet data, First Banking's
consolidated balance sheet at September 30, 1998 has been combined with Wayne's
balance sheet at that date and has been adjusted to reflect $185,000 (net of
tax) of estimated costs of the transaction. For purposes of the pro forma
condensed statement of income data, First Banking's consolidated results of
operations for each of the fiscal years ended December 31, 1997, 1996 and 1995
and for the nine month period ended September 30, 1998 have been combined with
Wayne's results of operations for each of those periods respectively.
SELECTED PRO FORMA FINANCIAL DATA
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
FOR THE NINE DECEMBER 31,
MONTHS ENDED ---------------------------------------
SEPTEMBER 30, 1998 1997 1996 1995
------------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
EARNINGS DATA
Interest Income.................. $27,258,325 $35,083,810 $33,621,930 $29,905,956
Interest Expense................. 12,170,586 15,936,087 15,472,880 13,446,458
----------- ----------- ----------- -----------
Net Interest Income.............. 15,087,739 19,147,723 18,149,050 16,459,498
Provision for Loan Losses........ 795,253 1,086,285 784,911 859,300
Non-interest Income.............. 2,826,439 3,564,764 3,108,313 2,837,962
Non-interest Expense............. 9,814,520 12,465,518 11,703,174 11,056,015
Income Taxes..................... 2,101,022 2,671,470 2,767,168 2,178,368
----------- ----------- ----------- -----------
Net Income....................... $ 5,203,383 $ 6,489,214 $ 6,002,110 $ 5,203,777
=========== =========== =========== ===========
Net Income per Common and
Potential Common Share
Basic............................ $ 0.96 $ 1.22 $ 1.14 $ 0.99
Diluted.......................... 0.95 1.21 1.12 0.98
</TABLE>
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1998
------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA
Total assets......... $425,758,620
Federal funds sold... 10,965,000
Investment
securities........ 79,152,180
Loans, net........... 285,021,179
Deposits............. 357,189,304
Other borrowings..... 11,153,016
Stockholders'
equity............ 50,870,222
DIVIDEND DATA
Cash dividends
declared.......... $ 1,824,673
Dividends per
share............. 0.39
</TABLE>
10
<PAGE> 18
RISK FACTORS
In deciding whether to approve the Merger Agreement, you should consider
the various risks associated with an investment in First Banking common stock,
including, but not limited to, the following:
THERE IS A LIMITED MARKET FOR SHARES OF FIRST BANKING COMMON STOCK
While First Banking common stock is listed and traded on the Nasdaq
National Market, there has only been limited trading activity of First Banking
common stock. The average daily trading volume of First Banking common stock
over the nine-month period ending September 30, 1998 was approximately 1,059
shares, and on some days the trading volume for shares of First Banking common
stock was zero. First Banking does not anticipate that First Banking's
acquisition of Wayne will cause any significant change in the trading of First
Banking common stock.
THERE ARE RESTRICTIONS ON FIRST BANKING'S ABILITY TO PAY DIVIDENDS
First Banking must comply with Georgia corporate law and rules and
regulations of bank regulators before it can pay any dividends. The Board of
Directors of First Banking must authorize First Banking to pay any dividends and
First Banking must have sufficient funds to pay dividends. First Banking's only
sources of income are dividends and other payments that the subsidiaries of
First Banking make to First Banking. Certain statutes and regulations restrict
the ability of First Banking's subsidiaries to pay dividends to First Banking.
FIRST BANKING IS SUBJECT TO EXTENSIVE GOVERNMENTAL REGULATION
First Banking, Wayne, and their respective subsidiaries are currently
subject to extensive governmental regulation. First Banking and Wayne, as bank
holding companies, are primarily regulated by the Federal Reserve. First Bulloch
Bank & Trust Company and Metter Banking Company are primarily regulated by the
Federal Deposit Insurance Corporation ("FDIC") and the GDBF. First National Bank
of Effingham and Wayne National Bank are primarily regulated by the Office of
the Comptroller of the Currency (the "OCC") and the FDIC. The federal and state
bank regulators of these entities have the ability, should the situation
require, to place significant regulatory and operational restrictions upon First
Banking and its subsidiaries. Any restrictions that the federal and state bank
regulators impose could affect the profitability of First Banking and its
subsidiaries.
THE FINANCIAL INSTITUTION INDUSTRY IS VERY COMPETITIVE
First Banking and its subsidiaries compete directly with financial
institutions that are well established. Many of First Banking's competitors have
significantly greater resources and lending limits than First Banking and its
subsidiaries. As a result of those greater resources, the large financial
institutions that First Banking competes with may be able to provide a broader
range of services to their customers than First Banking and may be able to
afford newer and more sophisticated technology than First Banking. The long-term
success of First Banking will be dependent on the ability of First Banking's
subsidiaries to compete successfully with other financial institutions in their
service areas.
11
<PAGE> 19
MANAGEMENT OF FIRST BANKING HOLDS A LARGE PORTION OF FIRST BANKING COMMON STOCK
The directors and executive officers of First Banking beneficially own
approximately 885,000 shares of First Banking common stock, or approximately 19%
of the total outstanding shares of First Banking. As a result, First Banking's
management has significant control of First Banking.
FIRST BANKING'S ARTICLES OF INCORPORATION AND BYLAWS MAY PREVENT TAKEOVER BY
ANOTHER COMPANY
First Banking's Articles of Incorporation and Bylaws divide the Board of
Directors of First Banking into three classes, as nearly equal in size as
possible, with staggered three-year terms. One class is elected each year. The
classification of the Board of Directors could have the effect of making it more
difficult for a company to acquire control of First Banking. First Banking is
also subject to provisions of the Georgia Code and the First Banking Articles of
Incorporation which relate to business combinations with interested
shareholders.
FIRST BANKING AND WAYNE COULD EXPERIENCE PROBLEMS, EXPENSES OR LIABILITIES
RELATING TO YEAR 2000 ISSUES
It is possible that First Banking's and Wayne's current computer systems,
software products or other business systems, or those of First Banking's or
Wayne's suppliers or customers, will not always accept input of, store,
manipulate and output dates in the years 1999, 2000 or thereafter without error
or interruption. First Banking and Wayne have conducted reviews of their
business systems, including their computer systems, to attempt to identify ways
in which problems in correctly processing date information could affect their
systems. In addition, First Banking and Wayne are requesting assurances from all
software vendors from which they have purchased or from which they may purchase
or license software that the software will correctly process all date
information at all times. First Banking and Wayne are querying their customers
and suppliers about their progress in identifying and addressing problems that
their computer systems will face in correctly processing date information as the
year 2000 approaches and is reached. However, First Banking and Wayne cannot
assure that First Banking and Wayne will identify all date-handling problems in
their business systems before any problems occur, or that First Banking and
Wayne will be able to successfully remedy problems that are discovered. The
expenses of First Banking's and Wayne's efforts to identify and address such
problems, or the expenses or liabilities to which First Banking and Wayne may
experience as a result of Year 2000 problems, could have a material adverse
effect on First Banking's results of operations and financial condition.
MEETING OF WAYNE SHAREHOLDERS
DATE, PLACE, TIME, AND PURPOSE
The Wayne Board of Directors is sending you this Proxy Statement/Prospectus
in connection with the solicitation by the Wayne Board of Directors of proxies
for use at the Special Meeting. At the Special Meeting, the Wayne Board of
Directors will ask you to vote on a proposal to approve the Merger Agreement.
Wayne will pay the costs associated with the solicitation of proxies for the
Special Meeting. The Special Meeting will be held at the main office of Wayne,
located at 818 S. First Street, Jesup, Georgia, on , ,
1999 at , local time.
12
<PAGE> 20
RECORD DATE, VOTING RIGHTS, REQUIRED VOTE, AND REVOCABILITY OF PROXIES
Wayne has set the close of business on , 1999, as the Wayne
Record Date for determining holders of outstanding shares of Wayne common stock
entitled to notice of and to vote at the Special Meeting. Only holders of Wayne
common stock of record on the books of Wayne at the close of business on the
Wayne Record Date are entitled to notice of and to vote at the Special Meeting.
As of the Wayne Record Date, there were 558,648 shares of Wayne common stock
issued and outstanding and entitled to vote at the Special Meeting, which shares
were held by 951 holders of record. First Banking holds no shares of Wayne
common stock.
Wayne shareholders are entitled to one vote for each share of Wayne common
stock owned on the Wayne Record Date. The vote required for the approval of the
Merger Agreement is a majority of the issued and outstanding shares of Wayne
common stock entitled to vote at the Special Meeting. Consequently, with respect
to the proposal to approve the Merger Agreement, abstentions and broker
non-votes will be counted as part of the base number of votes to be used in
determining if the proposal has received the requisite number of base votes for
approval. Thus, an abstention or a broker non-vote will have the same effect as
a vote "against" such proposal.
The designated proxy holder will vote shares of Wayne common stock, if such
proxies are properly executed, received in time and not revoked, in accordance
with the instructions on the proxies. IF THE PROXY DOES NOT CONTAIN INSTRUCTIONS
OF HOW TO VOTE, THE PROXY HOLDERS WILL VOTE FOR APPROVAL OF THE MERGER
AGREEMENT. ADDITIONALLY, IF YOU DO NOT INCLUDE INSTRUCTIONS WITH YOUR PROXY, THE
PROXY HOLDER WILL USE HIS OR HER DISCRETION TO VOTE ON ANY OTHER MATTER WHICH
MAY PROPERLY COME BEFORE THE SPECIAL MEETING. FURTHER, IF YOU DO NOT INCLUDE
INSTRUCTIONS WITH YOUR PROXY ABOUT HOW TO VOTE AT THE SPECIAL MEETING, YOU WILL
NOT BE ENTITLED TO ASSERT DISSENTERS' RIGHTS. SEE "DESCRIPTION OF
MERGER -- DISSENTERS' RIGHTS." If necessary, the proxy holder may vote in favor
of a proposal to adjourn the Special Meeting in order to permit further
solicitation of proxies in the event there are not sufficient votes to approve
the proposal at the time of the Special Meeting. No proxy that is voted against
the approval of the Merger Agreement will be voted in favor of an adjournment of
the Special Meeting in order to permit further solicitation of proxies.
- --------------------------------------------------------------------------------
FAILURE EITHER TO VOTE BY PROXY OR IN PERSON AT THE SPECIAL MEETING WILL HAVE
THE EFFECT OF A VOTE CAST AGAINST APPROVAL OF THE MERGER AGREEMENT.
- --------------------------------------------------------------------------------
A Wayne shareholder who has given a proxy may revoke it at any time prior
to its exercise at the Special Meeting by (1) giving written notice of
revocation to the President of Wayne, (2) properly submitting to Wayne a duly
executed proxy bearing a later date, or (3) attending the Special Meeting and
voting in person. All written notices of revocation and other communications
with respect to revocation of proxies should be addressed as follows: Wayne
Bancorp, Inc., 818 S. First Street, Jesup, Georgia 35145; Attention: Douglas
Harper, President.
As of the Wayne Record Date, all directors and executive officers of Wayne
as a group (12 persons) were entitled to vote 279,488 shares of Wayne common
stock, constituting approximately 50% of the total number of shares of Wayne
common stock outstanding at that date, and have committed to vote their shares
of Wayne common stock in favor of the Merger Agreement. As of the Wayne Record
Date, First Banking held no shares of Wayne common stock. See "BUSINESS OF
WAYNE -- Management Stock Ownership."
13
<PAGE> 21
DESCRIPTION OF THE MERGER
The following information describes certain aspects of the merger. This
description is not complete and is qualified in its entirety by reference to the
Appendices hereto, including the Merger Agreement, which is attached as Appendix
A to this Proxy Statement/Prospectus and incorporated herein by reference. All
shareholders are urged to read the Appendices in their entirety.
GENERAL
Upon consummation of the merger, Wayne will merge with and into First
Banking. First Banking will survive the merger and the separate existence of
Wayne will cease. On the effective date of the merger, each share of Wayne
common stock then issued and outstanding (excluding shares held by Wayne, First
Banking, or their respective subsidiaries, in each case other than shares held
in a fiduciary capacity or in satisfaction of debts previously contracted, and
excluding shares held by Wayne shareholders who perfect their dissenters'
rights) will be converted into and exchanged for the right to receive 1.57024
shares of First Banking common stock (the "Exchange Ratio").
First Banking will not adjust the Exchange Ratio based on changes in the
market value of First Banking common stock before the effective date of the
merger. The market value of the First Banking common stock to be received by
shareholders of Wayne who do not properly perfect their dissenters' rights may
vary significantly between the date of this Proxy Statement/Prospectus and the
effective date of the merger. Because consummation of the merger is subject to
satisfaction of various conditions, including receipt of necessary regulatory
approvals, the merger may not be consummated until a substantial period of time
following the Special Meeting. During the time between the date of the Special
Meeting and the effective date of the merger, shareholders of Wayne who do not
properly perfect their dissenters' rights or sell their shares of Wayne common
stock before the effective date of the merger will be subject to the risk of a
decline in the market value of First Banking common stock.
First Banking will not issue fractional shares. Instead, First Banking will
pay cash (without interest) in lieu of any fractional share to which any Wayne
shareholder would otherwise be entitled upon consummation of the merger. First
Banking will calculate the cash value of any fractional shares as the amount
equal to the fractional part of a share of First Banking common stock multiplied
by the last sale price of First Banking common stock on the Nasdaq National
Market (as reported by The Wall Street Journal or, if not reported thereby, any
other authoritative source selected by First Banking) on the last trading day
preceding the effective date of the merger.
As of the Wayne Record Date, Wayne had 558,648 shares of Wayne common stock
issued and outstanding. Based on the number of shares of Wayne common stock
outstanding on the Wayne Record Date and the Exchange Ratio of 1.57024, it is
anticipated that upon consummation of the merger, First Banking would issue
approximately 877,211 shares of First Banking common stock to holders of Wayne
common stock. Accordingly, First Banking would then have issued and outstanding
approximately 5,592,630 shares of First Banking common stock based on the number
of shares of First Banking common stock issued and outstanding on the Wayne
Record Date. Following the merger, and assuming no exercise of dissenters'
rights, the current shareholders of Wayne will beneficially own approximately
16% of the First Banking common stock.
BACKGROUND OF AND REASONS FOR THE MERGER
Background of the Merger. Wayne National Bank commenced business on
September 26, 1990, pursuing a general commercial and retail community banking
business in the Wayne County area. From the outset, the Board of Directors and
management has pursued a strategy of enhancing
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shareholder value by focusing on profitability and asset quality. Although the
Board of Directors of Wayne pursued its strategic plan with a bias toward
remaining independent, the Board recognized that its strategy would make Wayne
National Bank an attractive merger candidate for a financial institution seeking
to enter Wayne County and southeast Georgia.
In mid 1998, after being approached by representatives of another bank
holding company about a possible acquisition of Wayne, the Board appointed a
committee composed of the Chairman of the Board and two outside directors to
review the company's strategic alternatives. The alternatives the committee
considered included remaining independent and growing internally and potential
combinations with other financial institutions that share Wayne's commitment to
community banking. Over the next several months, the committee held informal
discussions with a number of community bank holding companies, including First
Banking, about a potential business combination with Wayne. None of the other
community bank holding companies ever presented a formal written offer to Wayne,
and the committee discontinued discussions with these institutions because the
range of values contemplated in their informal discussions were lower than those
discussed with First Banking.
The committee continued in discussions with First Banking into October
1998. On October 12, 1998, the Board engaged Stevens as its financial advisor to
assist in the consideration of suitable merger candidates and in the
negotiations with First Banking.
On October 19, 1998, the President and Chief Executive Officer of First
Banking, James E. Hodges, met with Wayne's Board to discuss First Banking's
history, its mission to build a financial services company comprised of
autonomous community banks, and its interest in a merger with Wayne. At that
meeting, First Banking delivered a written merger proposal, in the form of a
letter of intent, to Wayne's Board. The proposal contemplated a merger of Wayne
into First Banking in which the shareholders of Wayne would receive for each
share of Wayne common stock the right to receive 1.55 shares of First Banking's
common stock. The Wayne common stock would then be valued at $40.30 per share,
based on a current market value for First Banking stock of $26.00 per share. The
Board reviewed First Banking's proposal with its financial advisor and legal
counsel at this meeting. After much discussion, the Board voted to accept the
letter of intent, which was subsequently signed by all members of the Board,
subject to First Banking allowing the payment by Wayne to its shareholders of a
regular annual cash dividend before consummation of the merger.
Following the execution of the letter of intent, the parties conducted
additional due diligence on each other and negotiated the definitive Merger
Agreement. Wayne's Board met to discuss the Merger Agreement on three additional
occasions during this time, on November 9, November 16, and November 19, 1998.
As a result of these negotiations with First Banking, the parties agreed to
increase the exchange ratio to 1.57024 per share and set Wayne's 1998 annual
dividend at approximately $.27 per share. At the conclusion of the November 19
Board meeting, following presentations by management and Wayne's legal counsel,
the Board determined that the Merger Agreement was in the best interests of the
Wayne shareholders, as well as the customers and employees of Wayne and the
community served by Wayne, and unanimously approved the merger and authorized
execution of the Merger Agreement by Wayne.
The Board of Directors of First Banking met on October 20, 1998, to discuss
the Merger proposal. After review of the matters considered by the Board of
Directors of First Banking, the Board of Directors of First Banking authorized
the President and Chief Executive Officer of First Banking to take the
appropriate actions necessary to execute the Merger Agreement in substantially
the form approved by the Board.
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The Merger Agreement was executed as of November 30, 1998. First Banking
and Wayne each conducted a due diligence review of the material financial,
operating and legal information relating to the other party.
Wayne's Reasons for the Merger and Recommendation of Directors. In
reaching its determination that the Merger Agreement is fair to, and in the best
interests of, Wayne and its shareholders, the Wayne Board considered a number of
factors. The Wayne Board did not assign any specific or relative weight to the
factors in its consideration. The material factors considered by the Wayne Board
included the following:
(1) The current and prospective economic environment facing financial
institutions, and the competitive pressures in the financial services
industry in general and the banking industry in particular;
(2) The Wayne Board's review of alternatives to the merger (including
the alternatives of potential transactions with other merger partners,
remaining independent and growing internally, remaining independent for a
period of time and then selling or merging the company, and growing through
future acquisitions), the range of possible values to Wayne's shareholders
attainable through implementation of such alternatives, and the timing and
likelihood of actually implementing such alternatives and receiving such
values;
(3) A review of (a) the business, operations, earnings, and financial
condition, including the capital levels and asset quality, of First Banking
on both an historical and prospective basis; (b) the geographic and
business fit of First Banking and Wayne; and (c) First Banking's
decentralized style of management, which would enable Wayne to maintain its
name, its Wayne County community bank image, and its responsiveness to its
customers;
(4) The terms of the Merger Agreement, including the per share
Exchange Ratio, the ability of Wayne to terminate the Merger Agreement
under certain circumstances, and the condition that Wayne shall have
received the opinion of Stevens that the terms of the Merger Agreement are
fair to the shareholders of Wayne from a financial point of view;
(5) The financial advice rendered by Stevens regarding the terms of
the merger, including its opinion that the Exchange Ratio was fair to
Wayne's shareholders from a financial point of view, and the Wayne Board's
review of the methodology and appropriateness of the assumptions used by
the Board in its analysis of the fairness of the Exchange Ratio;
(6) The expectation that the merger would be tax-free for federal
income tax purposes for Wayne's shareholders (other than with respect to
cash received in the merger, including any cash paid in lieu of fractional
shares);
(7) The determination of the Wayne Board that the merger would result
in increased liquidity to Wayne's shareholders who would, in the merger,
receive in exchange for Wayne common stock shares of First Banking common
stock that are traded on the Nasdaq National Market; and
(8) The strong likelihood that regulatory approval for the merger will
be obtained.
While each member of the Wayne Board of Directors individually considered
the foregoing and other factors, the Board of Directors did not collectively
assign any specific or relative weights to the factors considered and did not
make any determination with respect to any individual factor. The Wayne Board of
Directors collectively made its determination with respect to the merger based
on the unanimous conclusion reached by its members, in light of the factors that
each of them consider as appropriate, that the merger is in the best interests
of the Wayne shareholders.
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The terms of the merger, including the Exchange Ratio, were the result of
arm's-length negotiations between representatives of Wayne and representatives
of First Banking. Based upon its consideration of the foregoing factors, the
Board of Directors of Wayne approved the Merger Agreement and the merger as
being in the best interests of Wayne and its shareholders. THE WAYNE BOARD OF
DIRECTORS RECOMMENDS THAT WAYNE SHAREHOLDERS VOTE FOR APPROVAL OF THE MERGER
AGREEMENT.
First Banking's Reasons for the Merger. First Banking's management has
consistently explored opportunities that would further First Banking's goal of
building a strong presence in Georgia through a network of community banks. The
First Banking Board of Directors evaluated the financial, legal and market
considerations relating to the merger. In reaching its conclusion that the
Merger Agreement is in the best interests of First Banking and its shareholders,
the First Banking Board of Directors carefully considered the following material
factors:
(1) the information presented to the directors by the management of
First Banking concerning the business, operations, earnings, asset quality,
and financial condition of Wayne, including the composition of the earning
assets portfolio of Wayne;
(2) the financial terms of the merger, including the relationship of
the value of the consideration issuable in the merger to the market value,
tangible book value, and earnings per share of Wayne common stock;
(3) the nonfinancial terms of the merger, including the treatment of
the merger as a tax-free exchange of Wayne common stock for First Banking
common stock for federal income tax purposes;
(4) the likelihood of the merger being approved by applicable
regulatory authorities without undue conditions or delay;
(5) the opportunity for reducing the noninterest expense of the
operations of Wayne and the ability of the operations of Wayne after the
effective date of the merger to contribute to the earnings of First
Banking;
(6) the attractiveness of the Wayne franchise, the market position of
Wayne in Jesup, the compatibility of the franchise of Wayne with the
operations of First Banking and the ability of Wayne to contribute to the
business strategy of First Banking;
(7) the compatibility of the community bank orientation of the
operations of Wayne to that of First Banking; and
(8) the opportunity to leverage the infrastructure of First Banking.
While each member of the First Banking Board of Directors individually
considered the foregoing and other factors, the Board of Directors did not
collectively assign any specific or relative weights to the factors considered
and did not make any determination with respect to any individual factor. The
First Banking Board of Directors collectively made its determination with
respect to the merger based on the unanimous conclusion reached by its members,
in light of the factors that each of them consider as appropriate, that the
merger is in the best interests of the First Banking shareholders.
The terms of the merger, including the Exchange Ratio, were the result of
arm's-length negotiations between representatives of Wayne and representatives
of First Banking. Based upon its consideration of the foregoing factors, the
Board of Directors of First Banking approved the Merger Agreement and the merger
as being in the best interests of First Banking and its shareholders.
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OPINION OF WAYNE'S FINANCIAL ADVISOR
Wayne retained Stevens to act as financial advisor in connection with the
merger. Stevens is a financial consulting and investment banking firm that
specializes in community bank transactions. Wayne selected Stevens as its
financial advisor on the basis of Stevens' experience and expertise in
transactions similar to the merger, prior experience with First Banking and
knowledge of the history of Wayne.
As part of this engagement, Stevens agreed to render to Wayne's Board an
opinion with respect to the fairness to the shareholders of the consideration to
be received in the merger from a financial point of view. The amount of such
consideration was determined pursuant to negotiations between Wayne and First
Banking and not pursuant to recommendations of Stevens. No limitations were
imposed by Wayne on Stevens with respect to the investigations made or
procedures followed in rendering its opinion. On December 14, 1998, Stevens
delivered to Wayne a letter confirming the consideration to be received as fair
from a financial point of view.
THE FULL TEXT OF STEVENS WRITTEN OPINION TO THE BOARD OF WAYNE, ATTACHED IN
THE APPENDIX OF THE PROXY STATEMENT/ PROSPECTUS, IS INCORPORATED HEREIN BY
REFERENCE. THE FOLLOWING SUMMARY OF STEVENS' OPINION IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION. THE FULL TEXT SHOULD BE
READ CAREFULLY AND IN ITS ENTIRETY. STEVENS' OPINION DOES NOT CONSTITUTE A
RECOMMENDATION TO ANY SHAREHOLDER OF HOW SUCH SHAREHOLDER SHOULD VOTE ON THE
PROPOSED TRANSACTION. THE FAIRNESS OPINION WAS BASED UPON INFORMATION AVAILABLE
TO STEVENS AS OF THE DATE THE OPINION WAS RENDERED.
In rendering its opinion, Stevens has, among other things: (i) reviewed
certain publicly available financial and other data with respect to First
Banking, including financial statements for the past five years, Wayne's audited
financial statements for the past five years, and certain other relevant
financial and operating records of Wayne and First Banking; (ii) reviewed the
Merger Agreement; (iii) reviewed certain historical market prices and trading
volumes of First Banking common stock as reported by the Nasdaq National Market,
as well as the historical and current market for Wayne's common stock; (iv)
considered the financial terms, to the extent publicly available, of selected
recent acquisitions of financial institutions which Stevens deemed to be
comparable, in whole or in part, to the merger; (v) analyzed the business
prospects of Wayne and First Banking, and the economies of their respective
markets; (vi) reviewed with management of Wayne alternative merger prospects;
(vii) inquired about and discussed the Agreement and other matters related
thereto with Wayne's counsel; and (viii) performed such other analyses and
examinations as Stevens deemed appropriate.
In connection with this review, Stevens assumed and relied on the accuracy
and completeness of the financial and other information provided to it by Wayne
and First Banking. Stevens did not assume any obligations independently to
verify the foregoing information and relied on its being accurate and complete
in all material respects. With respect to the financial forecasts for Wayne and
First Banking provided to Stevens by each company's management, Stevens assumed
for purposes of its opinion that such forecasts were reasonably prepared on
bases reflecting the best available estimates and judgments of each company's
management at the time of preparation of the future financial performance of
each company. Stevens also assumed that the forecasts provided by each company's
management provided a reasonable basis upon which Stevens could form its
opinion. In addition, such forecasts were based upon numerous variables and
assumptions that are inherently uncertain, including, without limitation,
factors related to general economic and competitive conditions. Accordingly,
actual results could vary significantly from those set forth in this opinion.
Stevens assumes no responsibility for such forecasts.
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In connection with the preparation of this review, Stevens also assumed
that the merger would be consummated in a manner that complies in all respects
with the applicable provisions of the Exchange Act and all other applicable
federal and state statutes, rules, and regulations. In addition, Stevens assumed
that the merger would be consummated in accordance with the terms described in
the Merger Agreement without any amendments and without waiver by either company
of any of the conditions to its respective obligations thereunder.
Stevens did not assume responsibility for making an independent appraisal,
evaluation, or physical inspection of any of the assets or liabilities
(contingent or otherwise) of Wayne or First Banking, nor was Stevens furnished
with any such appraisals. Stevens' opinion is based on economic, monetary,
market, and other conditions in effect as of December 14, 1998. Although
subsequent developments may affect that opinion, Stevens did not assume any
obligation to update, revise, or reaffirm the opinion.
This summary reflects the material analyses performed by Stevens but does
not purport to be a complete description of the analyses performed by Stevens.
The evaluation of the fairness, from a financial point of view, of the
consideration to be received in the merger was to some extent a subjective one
based on the experience and judgment of Stevens and not merely the result of
mathematical analysis of financial data. The preparation of a fairness opinion
involves determination of the most appropriate factors to be considered as well
as relevant methods of financial analysis and the application of those factors
and methods to the particular circumstances, and, therefore, such an opinion is
not readily susceptible to summary description. Stevens believes that its
analyses must be considered as a whole and that selecting only portions of the
analyses and factors considered by Stevens could create an incomplete view of
the process underlying Stevens' opinion. In addition, Stevens may have given
various factors more or less weight than others and may have deemed various
assumptions more or less probable than other assumptions. In its analysis,
Stevens incorporated numerous assumptions with respect to business, market,
monetary and economic conditions, industry performance, and other matters, many
of which are beyond Wayne's and First Banking's control. Any estimates contained
in Stevens' analyses are not necessarily indicative of future results or values,
which may be significantly more or less favorable than such estimates. Such
estimates were prepared solely as part of Stevens' analysis of the fairness to
Wayne's shareholders of the consideration to be paid in the merger.
The following is a brief summary of analyses performed by Stevens in
connection with its opinion dated December 14, 1998.
SUMMARY OF PROPOSAL. Stevens reviewed the terms of the proposed
transaction as reflected in the Merger Agreement, including the terms of the
Exchange Ratio. Based on a 90-day average trading price of First Banking at
$26.00, the Exchange Ratio of 1.57024 on the shares of Wayne's common stock
would have a value of $40.83.
Stevens assumed that all outstanding warrants, stock options, stock
appreciation rights, or stock awards granted by Wayne would be exercised prior
to the Effective Date, bringing the total outstanding shares of Wayne common
stock at the Effective Date to 558,648 shares.
POSSIBLE VALUE OF WAYNE IN A SALE OF CONTROL. In determining the potential
value per share of Wayne's common stock if Wayne were sold to an alternative
purchaser, Stevens reviewed the historical results of Wayne and examined certain
projections. Stevens computed the value of Wayne based on a multiple of 19.59
times estimated 1998 earnings and a multiple of 2.90 times Wayne's shareholders'
equity. Based on this analysis, Stevens calculated an expected value to Wayne's
shareholders in a sale of control transaction of $42.49 on book, and $39.18 on
earnings, for an average of $40.83.
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NET PRESENT VALUE. The investment or earnings value of any bank's stock is
an estimate of the present value of the future benefits, usually earnings, cash
flow, or dividends, which will accrue to the stock. Stevens calculated an
earnings value using an annual future earnings stream over a period of time of
not less than ten years and an appropriate capitalization rate (the net present
value discount rate). The computations were based on an analysis of the banking
industry, the economic and competitive situations in Wayne's market area, and
the current financial condition and historical levels of growth and earnings.
Using a net present value discount rate of 10%, the net present value would be
$18.74 per share and is not considered fully reflective of the Bank's value.
DIVIDEND CAPACITY. Stevens' analysis also considered the dividend stream
that would be afforded following the merger. Given the rapid growth of Wayne and
the emphasis on expanding into new markets, Stevens concluded that there would
be more limited dividend income for Wayne as an independently owned company.
Stevens noted that based on the stated Exchange Ratio and current dividend of
First Banking, if the merger had been completed on January 1, 1998, $0.52 per
share would have been paid in dividends by First Banking to the former
shareholders of Wayne, or a total of $456,150 for the year. In contrast, Wayne
shareholders received a dividend of approximately $0.27 per share, or a total of
$152,000, for the year-ended December 31, 1998.
ANALYSIS OF SELECTED OTHER BANK MERGERS. Stevens reviewed in excess of
fifty mergers involving transactions in the southeastern portion of the United
States. Thirteen transactions were highlighted as being similar to that of the
merger. Stevens calculated the prices paid in these mergers as multiples of both
earnings and book value. Stevens also reviewed other data in connection with
each of these mergers, including the amount of total assets, return on equity,
and return on assets of the selling institutions. Stevens then compared this
data to that of Wayne, and to the value to be received by the shareholders of
Wayne in the merger.
The comparison yielded values based on a multiple of the latest months
earnings per share ranging from a low of 10.30 to a high of 25.50 times
earnings, with the average being 19.59 times earnings. The ratio of price to
book value, in this analysis, ranged from 1.58 to 3.93 times with the average
being 2.90 times. Based on a 90-day average trading price of First Banking at
$26.00, and the Exchange Ratio, Wayne common shares would be valued at 2.79
times book, and 20.41 times earnings.
Stevens also analyzed the value that the merger with First Banking would
add in terms of (i) liquidity; (ii) capital required to continue the growth
patterns of Wayne; and (iii) the ability of senior management of Wayne to
complement that of First Banking as they further expand in the state of Georgia.
With respect to liquidity, First Banking is traded on Nasdaq National Market,
with an average daily volume of approximately 1,000 shares. Stevens concluded
that Wayne and the present management of Wayne are key factors in First
Banking's ability to grow their banking franchise, especially in southeastern
Georgia.
There was no one company or transaction used in the above analysis as a
comparison that is identical to Wayne, First Banking, or the merger.
Accordingly, an analysis of the results of the foregoing necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the companies and other facts that could affect the
public trading of the companies to which they are being compared. Mathematical
analysis (such as determining an average or median) is not, in itself, a
meaningful method of using comparable comparative data. Analysis must also be
given to the consolidation issues within the services industry.
Stevens will receive a fee for its services, a significant portion of which
is contingent upon the consummation of the merger. Wayne has agreed to pay
Stevens a fee equal to one quarter of one per cent (.25) of the value of the
total transaction. Of this amount, $15,000 is due upon delivery of a
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written fairness opinion and the remaining fee is due only upon successful
consummation of the merger. The fee is not contingent on the conclusions reached
in the opinion of Stevens. In addition, Wayne will pay Stevens an amount equal
to 4% of the difference between the value of the offer proposed by First Banking
at the time of Stevens' engagement (based on an exchange ratio of 1.5385) and
the value of the final transaction that is consummated.
The foregoing description of Stevens' opinion is qualified in its entirety
by reference to the full text of such opinion which is attached hereto as
Appendix C.
EFFECTIVE DATE OF THE MERGER
Subject to the conditions to the obligations of the parties to effect the
merger, the effective date of the merger will occur on the date and at the time
that the Secretary of State of the State of Georgia declares the certificate of
Merger effective. Unless Wayne and First Banking otherwise agree in writing, and
subject to the conditions to the obligations of First Banking and Wayne to
effect the merger, the parties will use their reasonable efforts to cause the
effective date of the merger to occur on the fifth business day following the
last to occur of (1) the effective date (including expiration of any applicable
waiting period) of the last required consent of any regulatory authority having
authority over and approving or exempting the merger, and (2) the date on which
the shareholders of Wayne approve the Merger Agreement.
First Banking and Wayne cannot assure you that they can obtain the
necessary shareholder and regulatory approvals or that they can or will satisfy
other conditions precedent to the merger. Wayne and First Banking anticipate
that they will satisfy all conditions to consummation of the merger so that the
merger can be completed during the first quarter of 1999. However, delays in the
consummation of the merger could occur.
The Board of Directors of either Wayne or First Banking generally may
terminate the Merger Agreement if the merger is not consummated by April 30,
1999, unless the failure to consummate by that date is the result of a breach of
the Merger Agreement by the party seeking termination. See "-- Conditions to
Consummation of the Merger" and "-- Waiver, Amendment, and Termination."
DISTRIBUTION OF FIRST BANKING CERTIFICATES
Promptly after the effective date of the merger, First Banking will mail
appropriate transmittal materials and instructions for use in exchanging Wayne
certificates for First Banking certificates representing shares of First Banking
common stock to each holder of record of a Wayne certificate or certificates
which, immediately prior to the effective date of the merger, represented
outstanding shares of Wayne common stock.
HOLDERS OF WAYNE COMMON STOCK SHOULD NOT SEND IN THEIR WAYNE CERTIFICATES
UNTIL THEY RECEIVE THE APPROPRIATE TRANSMITTAL MATERIALS AND INSTRUCTIONS.
First Banking's Exchange Agent will issue and mail to each holder of Wayne
common stock (other than shares as to which holders have perfected dissenters'
rights) a First Banking certificate or certificates representing the number of
shares of First Banking common stock to which such holder is entitled after the
Exchange Agent receives the Wayne certificates and properly completed
transmittal materials. The Exchange Agent will also send Wayne shareholders a
check for the amount to be paid in lieu of any fractional shares (without
interest), and all undelivered dividends or distributions in respect of such
shares (without interest thereon).
After the effective date of the merger, to the extent permitted by law,
holders of Wayne common stock of record as of the effective date of the merger
will be entitled to vote at any meeting
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of First Banking shareholders the number of whole shares of First Banking common
stock into which their shares of Wayne common stock have been converted,
regardless of whether such shareholders have surrendered their Wayne
certificates. Whenever First Banking declares a dividend or other distribution
on First Banking common stock, the record date for which is at or after the
effective date of the merger, the declaration will include dividends or other
distributions on all shares issuable pursuant to the Merger Agreement. First
Banking will not pay any dividend or other distribution payable after the
effective date of the merger with respect to First Banking common stock to the
holder of any unsurrendered Wayne certificate until the holder duly surrenders
such Wayne certificate. Upon surrender of such Wayne certificate, however, both
the First Banking certificate, together with all undelivered dividends or other
distributions (without interest) and any undelivered cash payments to be paid in
lieu of fractional shares (without interest), will be delivered and paid with
respect to each share represented by such Wayne certificate. In no event will
the holder of any surrendered Wayne certificate be entitled to receive interest
on any cash to be issued to such holder. In no event will First Banking or the
Exchange Agent be liable to any holder of Wayne common stock for any amounts
paid or property delivered in good faith to a public official pursuant to any
applicable abandoned property, escheat, or similar law.
After the effective date of the merger, no transfers of shares of Wayne
common stock on Wayne's stock transfer books will be recognized. If Wayne
certificates are presented for transfer after the effective date of the merger,
they will be canceled and exchanged for the shares of First Banking common stock
and a check for the amount due in lieu of fractional shares, if any.
After the effective date of the merger, holders of Wayne certificates will
have no rights with respect to the shares of Wayne common stock other than the
right to surrender such Wayne certificates and receive in exchange the shares of
First Banking common stock, if any, to which such holders are entitled. After
the effective date of the merger, holders of Wayne certificates who have
complied with the rules and regulations of the Georgia Code relating to
dissenters' rights still have the right to perfect their dissenters' rights.
If a Wayne shareholder wishes to have a First Banking certificate issued in
a name other than that in which the Wayne certificate surrendered for exchange
is issued, the surrendered Wayne certificate shall be properly endorsed and
otherwise in proper form for transfer. The person requesting such exchange must
affix any requisite stock transfer tax stamps to the Wayne certificates
surrendered, provide funds for the purchase of any stock transfer tax stamps, or
establish to the exchange agent's satisfaction that such taxes are not payable.
CONDITIONS TO CONSUMMATION OF THE MERGER
Consummation of the merger is subject to various conditions, including:
(1) approval of the Merger Agreement by the shareholders of Wayne as
required by any law or by the provisions of any governing instruments of
Wayne;
(2) receipt of certain regulatory approvals required for consummation
of the merger (see "-- Regulatory Approvals");
(3) receipt of all consents required for consummation of the merger or
for the preventing of any default under any contract or permit which, if
not obtained or made, is reasonably likely to have, individually or in the
aggregate, a material adverse effect;
(4) the absence of any law or order or any action taken by any court,
governmental, or regulatory authority prohibiting, restricting, or making
illegal the consummation of the transactions contemplated by the Merger
Agreement;
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(5) the Registration Statement being declared effective and the
receipt of all necessary SEC and state approvals relating to the issuance
or trading of the shares of First Banking common stock issuable pursuant to
the Merger Agreement;
(6) approval of the shares of First Banking common stock issuable
pursuant to the Merger Agreement for listing on the Nasdaq National Market;
(7) Douglas R. Harper shall have negotiated a mutually satisfactory
employment relationship with First Banking;
(8) receipt of an opinion of Powell, Goldstein, Frazer & Murphy LLP
regarding the qualification of the merger as a tax-free reorganization (see
"-- Certain Federal Income Tax Consequences");
(9) the accuracy, as of the date of the Merger Agreement and as of the
effective date of the merger, of the representations and warranties of
Wayne and First Banking as set forth in the Merger Agreement;
(10) the performance of all agreements and the compliance with all
covenants of Wayne and First Banking as set forth in the Merger Agreement;
(11) receipt by First Banking of a letter from Deloitte & Touche LLP
to the effect the merger will qualify for pooling-of-interests accounting
treatment; and
(12) satisfaction of certain other conditions, including the receipt
of certain agreements of the affiliates of Wayne, the execution of certain
claims letters by the directors and officers of Wayne, the receipt of
certain opinion letters from counsel for First Banking and counsel for
Wayne, and receipt of various certificates from the officers of Wayne and
First Banking.
We cannot assure you when or whether all of the conditions precedent to the
merger can or will be satisfied or waived by the party permitted to do so. If
the merger is not effected on or before April 30, 1999, the Merger Agreement may
be terminated and the merger abandoned by either Wayne or First Banking, unless
the failure to consummate the merger by that date is the result of a breach of
the Merger Agreement by the party seeking termination. See "-- Waiver,
Amendment, and Termination."
REGULATORY APPROVALS
The merger may not be consummated in the absence of the receipt of the
requisite regulatory approvals. THERE CAN BE NO ASSURANCE THAT SUCH REGULATORY
APPROVALS WILL BE OBTAINED OR AS TO THE TIMING OF ANY SUCH APPROVALS. There also
can be no assurance that any such approvals will not impose conditions or be
restricted in a manner (including requirements relating to the raising of
additional capital or the disposition of assets) which in the reasonable
judgment of the Board of Directors of First Banking or Wayne would so materially
adversely impact the economic or business benefits of the transactions
contemplated by the Merger Agreement that, had such condition or requirement
been known, either of First Banking or Wayne would not, in its reasonable
judgment, have entered into the Merger Agreement.
Wayne and First Banking are not aware of any material governmental
approvals or actions that are required for consummation of the merger, except as
described below. Should any other approval or action be required, it presently
is contemplated that such approval or action would be sought.
The merger will require the prior approval of the Federal Reserve, pursuant
to Section 3 of the Bank Holding Company Act of 1956, as amended. First Banking
has filed all required applications
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with the Federal Reserve. In evaluating the merger, the Federal Reserve must
consider, among other factors, the financial and managerial resources and future
prospects of the institutions and the convenience and needs of the communities
to be served. The relevant statutes prohibit the Federal Reserve from approving
the merger if (i) it would result in a monopoly or be in furtherance of any
combination or conspiracy to monopolize or attempt to monopolize the business of
banking in any part of the United States or (ii) its effect in any section of
the country may be to substantially lessen competition or to tend to create a
monopoly, or if it would be a restraint of trade in any other manner, unless the
Federal Reserve finds that any anti-competitive effects are outweighed clearly
by the public interest and the probable effect of the transaction in meeting the
convenience and needs of the communities to be served. The merger may not be
consummated until the 30th day (which the Federal Reserve may reduce to 15 days)
following the date of the Federal Reserve approval, during which time the United
States Department of Justice may challenge the transaction on antitrust grounds.
The commencement of any antitrust action would stay the effectiveness of the
approval of the agencies, unless a court of competent jurisdiction specifically
orders otherwise. There can be no assurance that the approval of the Federal
Reserve will be obtained or as to the timing or conditions of any such approval.
Once the Federal Reserve receives the application for the merger, it must
give notice to both the OCC and the GDBF. The purpose of the notice is to give
these regulatory agencies an opportunity to submit views and recommendations on
the proposed merger. The views and recommendations of the OCC and the GDBF must
be submitted within 30 days of the date on which the Federal Reserve's notice is
given. Both the OCC and the GDBF take into account considerations similar to
those applied by the Federal Reserve.
WAIVER, AMENDMENT, AND TERMINATION
To the extent permitted by applicable law, Wayne and First Banking may
amend the Merger Agreement by written agreement at any time before approval of
the Merger Agreement by the Wayne shareholders. After the Wayne shareholders
approve the Merger Agreement no amendment shall be made to the Merger Agreement
that, pursuant to the Georgia Code, requires further shareholder approval
without receiving such shareholder approval. In addition, prior to or at the
effective date of the merger, either Wayne or First Banking, or both, acting
through their respective Boards of Directors, chief executive officers or other
authorized officers may waive any default in the performance of any term of the
Merger Agreement by the other party, may waive or extend the time for the
compliance or fulfillment by the other party of any and all of its obligations
under the Merger Agreement, and may waive any of the conditions precedent to the
obligations of such party under the Merger Agreement, except any condition that,
if not satisfied, would result in the violation of any applicable law or
governmental regulation. No such waiver will be effective unless written and
unless signed by a duly authorized officer of Wayne or First Banking, as the
case may be.
The Merger Agreement may be terminated and the merger abandoned at any time
prior to the effective date of the merger (1) by the mutual consent of Wayne and
First Banking or (2) by Wayne or First Banking (a) in the event of any material
breach of any representation or warranty of the other party contained in the
Merger Agreement which cannot be or has not been cured within 30 days after
giving written notice to the breaching party of such inaccuracy and which breach
is reasonably likely, in the opinion of the non-breaching party, to have,
individually or in the aggregate, a Wayne or First Banking Material Adverse
Effect (as defined in the Merger Agreement), as applicable, on the breaching
party (provided that the terminating party is not then in material breach of any
representation, warranty, covenant, or other agreement contained in the Merger
Agreement); (b) in the event of a material breach by the other party of any
covenant or agreement contained in the Merger Agreement which cannot be or has
not been cured within 30 days after the giving of
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written notice to the breaching party of such breach (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in the Merger Agreement); (c)
if the merger is not consummated by April 30, 1999, provided that the failure to
consummate is not due to a breach by the party electing to terminate; or (d)
provided that the terminating party is not then in material breach of any
representation, warranty, covenant, or other agreement contained in the Merger
Agreement, if (i) any approval of any regulatory authority required for
consummation of the merger and the other transactions contemplated by the Merger
Agreement has been denied by final nonappealable action, or if any action taken
by such authority is not appealed within the time limit for appeal or (ii) the
shareholders of Wayne fail to vote their approval of the matters submitted for
the approval by such shareholders at the Special Meeting.
If the merger is terminated as described in this section, the Merger
Agreement will become void and have no effect, except that certain provisions of
the Merger Agreement, including those relating to the obligations to maintain
the confidentiality of certain information obtained, will survive. In addition,
termination of the Merger Agreement will not relieve any breaching party from
liability for any uncured willful breach of a representation, warranty,
covenant, or agreement giving rise to such termination.
DISSENTERS' RIGHTS
If the Merger Agreement and the transactions contemplated thereby are
consummated, any shareholder of Wayne common stock who properly dissents from
the merger in connection with the Special Meeting may be entitled to receive in
cash the fair value of such shareholder's shares of Wayne common stock
determined immediately prior to the merger, excluding any appreciation or
depreciation in anticipation of the merger.
- --------------------------------------------------------------------------------
FAILURE TO COMPLY WITH THE PROCEDURES PRESCRIBED BY APPLICABLE LAW WILL RESULT
IN THE LOSS OF DISSENTERS' RIGHTS.
- --------------------------------------------------------------------------------
In accordance with the applicable provisions of the Georgia Code, the
holders of shares of Wayne common stock are entitled to dissent from the Merger
and to receive an appraised value of such shares in cash. Subject to the resale
restrictions applicable to executive officers, directors and 10% shareholders
described under "-- Resales of First Banking Common Stock," holders of Wayne
common stock may also sell the shares of First Banking common stock they receive
in the merger on Nasdaq. The holders of Wayne common stock should note that
appraised value is determined without regard to the merger.
Pursuant to the provisions of Article 13 of the Georgia Code, if the merger
is consummated, any shareholder who (i) gives to Wayne, prior to the vote at the
meeting with respect to the approval of the Agreement, written notice of such
holder's intent to demand payment for such holder's shares and (ii) does not
vote in favor thereof, shall be entitled to receive, upon compliance with the
statutory requirements summarized below, the fair value of such holder's shares
as of the effective date of the merger.
A record shareholder may assert dissenters' rights as to fewer than all of
the shares registered in such holder's name only if such holder dissents with
respect to all shares beneficially owned by any one beneficial shareholder and
such holder notifies Wayne in writing of the name and address of each person on
whose behalf such holder asserts dissenters' rights. The rights of such a
partial dissenter are determined as if the shares as to which such holder
dissents and such holder's other shares were registered in the names of
different shareholders.
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The written objection requirement referred to above will not be satisfied
under the Georgia Code by merely voting against approval of the Merger Agreement
by proxy or in person at the Special Meeting. Any shareholder who returns a
signed proxy but fails to provide instructions as to the manner in which such
shares are to be voted will be deemed to have voted in favor of the merger and
will not be entitled to assert dissenters' rights. In addition to not voting in
favor of the Merger Agreement, a shareholder wishing to preserve the right to
dissent and seek appraisal must give a separate written notice of such holder's
intent to demand payment for such holder's shares if the merger is effected, as
hereinabove provided.
Any written objection to the Merger Agreement satisfying the requirements
discussed above should be addressed to Wayne Bancorp, Inc., 818 S. First Street,
Jesup, Georgia 35145, Attention: Douglas R. Harper, President.
If the merger is authorized at the Special Meeting, Wayne must deliver a
written dissenters' notice (the "Dissenters' Notice") to all of its shareholders
who satisfied the foregoing requirements. The Dissenters' Notice must be sent
within 10 days after the effective date of the merger and must (i) state where
the demand for payment must be sent and where and when certificates for the
shares must be deposited; (ii) inform holders of uncertificated shares to what
extent transfer of these shares will be restricted after the demand for payment
is received; (iii) set a date by which Wayne must receive the demand for payment
(which date may not be fewer than 30 nor more than 60 days after the Dissenters'
Notice is delivered); and (iv) be accompanied by a copy of Article 13 of the
Georgia Code.
A record shareholder who receives the Dissenters' Notice must demand
payment and deposit such holder's certificates in accordance with the
Dissenters' Notice. Such shareholder will retain all other rights of a
shareholder until those rights are canceled or modified by the consummation of
the merger. A record shareholder who does not demand payment or deposit such
holder's share certificates where required, each by the date set in the
Dissenters' Notice, is not entitled to payment for such holder's shares under
Article 13 of the Georgia Code.
Except as described below, the surviving corporation must, within 10 days
of the later of the effective date of the merger or receipt of a payment demand,
offer to pay to each dissenting shareholder who complied with the payment demand
and deposit requirements described above the amount the surviving corporation
estimates to be the fair value of such holder's shares, plus accrued interest
from the effective date of the merger. Such offer of payment must be accompanied
by (i) certain recent financial statements of Wayne; (ii) the surviving
corporation's estimate of the fair value of the shares; (iii) an explanation of
how the interest was calculated; (iv) a statement of the dissenter's right to
demand payment under Section 14-2-1327 of the Georgia Code; and (v) a copy of
Article 13 of the Georgia Code. If the shareholder accepts the surviving
corporation's offer by written notice to the surviving corporation within 30
days after the surviving corporation's offer, payment must be made within 60
days after the later of the making of the offer or the effective date of the
merger.
If the Merger is not effected within 60 days after the date set forth
demanding payment and depositing share certificates, Wayne must return the
deposited certificates and release the transfer restrictions imposed on
uncertificated shares. If, after such return and release, the merger is
effected, the surviving corporation must send a new Dissenters' Notice and
repeat the payment demand procedure described above.
Section 14-2-1327 of the Georgia Code provides that a dissenting
shareholder may notify the surviving corporation in writing of such holder's own
estimate of the fair value of such holder's shares and the interest due, and may
demand payment of such holder's estimate, if (i) such holder believes
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that the amount offered by the surviving corporation is less than the fair value
of such holder's shares or that the interest due has been calculated
incorrectly, or (ii) Wayne, having failed to effect the merger, does not return
the deposited certificates or release the transfer restrictions imposed on
uncertificated shares within 60 days after the date set for demanding payment. A
dissenting shareholder waives such holder's right to demand payment under
Section 14-2-1327 unless such holder notifies the surviving corporation of such
holder's demand in writing within 30 days after the surviving corporation makes
or offers payment for such holder's shares. If the surviving corporation does
not offer payment within 10 days of the later of the effective date of the
merger or receipt of a payment demand, then (i) the shareholder may demand the
financial statements and other information required to accompany the surviving
corporation's payment offer, and the surviving corporation must provide such
information within 10 days after receipt of the written demand, and (ii) the
shareholder may notify the surviving corporation of such holder's own estimate
of the fair value of such holder's shares and the amount of interest due, and
may demand payment of that estimate.
If a demand for payment under Section 14-2-1327 remains unsettled, the
surviving corporation must commence a nonjury equity valuation proceeding in the
Superior Court of Bulloch County, Georgia, within 60 days after receiving the
payment demand and must petition the court to determine the fair value of the
shares and accrued interest. If the surviving corporation does not commence the
proceeding within those 60 days, it is required to pay each dissenting
shareholder whose demand remains unsettled the amount demanded. The surviving
corporation is required to make all dissenting shareholders whose demands remain
unsettled parties to the proceeding and to serve a copy of the petition upon
each dissenting shareholder. The court may appoint appraisers to receive
evidence and to recommend a decision on fair value. Each dissenting shareholder
made a party to the proceeding is entitled to judgment for the fair value of
such holder's shares plus interest to the date of judgment.
The court in an appraisal proceeding commenced under the foregoing
provision must determine the costs of the proceeding, excluding fees and
expenses of attorneys and experts for the respective parties, and must assess
those costs against the surviving corporation, except that the court may assess
the costs against all or some of the dissenting shareholders to the extent the
court finds they acted arbitrarily, vexatiously, or not in good faith in
demanding payment under Section 14-2-1327. The court also may assess the fees
and expenses of attorneys and experts for the respective parties against the
surviving corporation if the court finds the surviving corporation did not
substantially comply with the requirements of specified provisions of Article 13
of the Georgia Code, or against either the surviving corporation or a dissenting
shareholder if the court finds that such party acted arbitrarily, vexatiously,
or not in good faith with respect to the rights provided by Article 13 of the
Georgia Code.
If the court finds that the services of attorneys for any dissenting
shareholder were of substantial benefit to other dissenting shareholders
similarly situated, and that the fees for those services should be not assessed
against the surviving corporation, the court may award those attorneys
reasonable fees out of the amounts awarded the dissenting shareholders who were
benefited. No action by any dissenting shareholder to enforce dissenters' rights
may be brought more than three years after the effective date of the merger,
regardless of whether notice of the merger and of the right to dissent was given
by Wayne or the surviving corporation in compliance with the Dissenters' Notice
and payment offer requirements.
The foregoing is a summary of the material rights of a dissenting
shareholder, but is qualified in its entirety by reference to Article 13 of the
Georgia Code, included as Appendix B to this Proxy Statement/Prospectus. Any
shareholder who intends to dissent from approval of the Merger Agreement should
carefully review the text of such provisions and should also consult with such
holder's attorney. No further notice of the events giving rise to dissenters'
rights or any steps
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associated therewith will be furnished to shareholders, except as indicated
above or otherwise required by law.
Any dissenting shareholder who perfects such holder's right to be paid the
value of such holder's shares will recognize taxable gain or loss upon receipt
of cash for such shares for federal income tax purposes. See "-- Certain Federal
Income Tax Consequences."
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, Wayne and First Banking have agreed that
unless the prior written consent of the other party has been obtained, and
except as otherwise expressly contemplated in the Merger Agreement, each of
Wayne and First Banking will, and will cause its respective subsidiaries to (1)
operate its business only in the usual, regular, and ordinary course; (2)
preserve intact its business organization and assets and maintain its rights and
franchises; and (3) take no action which would (a) materially adversely affect
the ability of any party to obtain any consents required for the transactions
contemplated by the Merger Agreement without the imposition of a condition or
restriction of the type referred to in the last sentences of Section 9.1(b) or
9.1(c) of the Merger Agreement, or (b) materially adversely affect the ability
of any party to perform its covenants and agreements under the Merger Agreement.
In addition, Wayne has agreed that, from the date of the Merger Agreement
until the earlier of the effective date of the merger or the termination of the
Merger Agreement, unless First Banking has given prior written consent, and
except as otherwise expressly contemplated by the Merger Agreement, Wayne will
not do or agree or commit to do, or permit any of its subsidiaries to do or
agree or commit to do, any of the following:
(1) amend the Articles of Incorporation, Bylaws or other governing
instruments of any Wayne entity;
(2) incur any additional debt obligation or other obligation for
borrowed money (other than indebtedness of a Wayne entity to another Wayne
entity) in excess of an aggregate of $100,000 (for the Wayne entities on a
consolidated basis) except in the ordinary course of the business of the
Wayne subsidiaries consistent with past practices (which shall include, for
Wayne subsidiaries that are depository institutions, creation of deposit
liabilities, purchases of federal funds, advances from the Federal Reserve
Bank or Federal Home Loan Bank, and entry into repurchase agreements fully
secured by U.S. government or agency securities), or impose, or suffer the
imposition, on any asset of any Wayne entity of any lien or permit any such
lien to exist (other than in connection with deposits, repurchase
agreements, bankers acceptances, "treasury tax and loan" accounts
established in the ordinary course of business, the satisfaction of legal
requirements in the exercise of trust powers, and liens in effect as of the
date of the Merger Agreement that were previously disclosed to First
Banking by Wayne);
(3) repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of
the capital stock of any Wayne entity, or declare or pay any dividend or
make any other distribution in respect of Wayne's capital stock;
(4) except for the Merger Agreement, or pursuant to the exercise of
stock options or warrants outstanding as of the date thereof and pursuant
to the terms thereof in existence on the date thereof, or as previously
disclosed to First Banking by Wayne, issue, sell, pledge, encumber,
authorize the issuance of, enter into any contract to issue, sell, pledge,
encumber, or authorize the issuance of, or otherwise permit to become
outstanding, any additional shares of Wayne
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common stock or any other capital stock of any Wayne entity, or any stock
appreciation rights, or any option, warrant, or other equity right;
(5) adjust, split, combine or reclassify any capital stock of any
Wayne entity or issue or authorize the issuance of any other securities in
respect of or in substitution for shares of Wayne common stock, or sell,
lease, mortgage or otherwise dispose of or otherwise encumber any asset
having a book value in excess of $100,000 other than in the ordinary course
of business for reasonable and adequate consideration or any shares of
capital stock of any Wayne subsidiary (unless any such shares of stock are
sold or otherwise transferred to another Wayne entity);
(6) enter into or amend any employment contract between any Wayne
entity and any person having a salary thereunder in excess of $50,000 per
year (unless such amendment is required by law) that the Wayne entity does
not have the unconditional right to terminate without liability (other than
liability for services already rendered), at any time on or after the
effective date of the merger;
(7) except for loans made in the ordinary course of its business, make
any material investment, either by purchase of stock or securities,
contributions to capital, asset transfers, or purchase of any assets, in
any entity other than a wholly-owned Wayne subsidiary, or otherwise acquire
direct or indirect control over any entity, other than in connection with
(a) foreclosures in the ordinary course of business, (b) acquisitions of
control by a depository institution subsidiary in its fiduciary capacity,
or (c) the creation of new wholly-owned subsidiaries organized to conduct
or continue activities otherwise permitted by the Merger Agreement;
(8) grant any increase in compensation or benefits to the employees or
officers of any Wayne entity, except in accordance with past practice
previously disclosed to First Banking by Wayne or as required by law; pay
any severance or termination pay or any bonus other than pursuant to
written policies or written contracts in effect on the date of the Merger
Agreement and previously disclosed to First Banking by Wayne; enter into or
amend any severance agreements with officers of any Wayne entity; grant any
material increase in fees or other increases in compensation or other
benefits to directors of any Wayne entity except in accordance with past
practice previously disclosed to First Banking by Wayne; or voluntarily
accelerate the vesting of any stock options or other stock-based
compensation or employee benefits or other equity rights;
(9) adopt any new employee benefit plan of any Wayne entity or
terminate or withdraw from, or make any material change in or to, any
existing employee benefit plans of any Wayne entity other than any such
change that is required by law or that, in the opinion of counsel, is
necessary or advisable to maintain the tax qualified status of any such
plan, or make any distributions from such employee benefit plans, except as
required by law, the terms of such plans or consistent with past practice;
(10) make any significant change in any tax or accounting methods or
systems of internal accounting controls, except as may be appropriate to
conform to changes in tax laws or regulatory accounting requirements or
GAAP;
(11) commence any litigation other than in accordance with past
practice or except as previously disclosed to First Banking by Wayne,
settle any litigation involving any liability of any Wayne entity for
material money damages or restrictions upon the operations of any Wayne
entity; or
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(12) except in the ordinary course of business, enter into, modify,
amend or terminate any material contract (including any loan contract with
an unpaid balance exceeding $50,000) or waive, release, compromise or
assign any material rights or claims.
The Merger Agreement also provides that from the date of the Merger
Agreement until the earlier of the effective date of the merger or the
termination of the Merger Agreement, unless Wayne has given prior written
consent, and except as otherwise expressly contemplated by the Merger Agreement,
First Banking will not amend the Articles of Incorporation or Bylaws of First
Banking in any manner adverse to the holders of Wayne common stock or take any
action that will materially adversely impact the ability of the First Banking
entities to consummate the merger.
MANAGEMENT AND OPERATIONS AFTER THE MERGER; INTERESTS OF CERTAIN PERSONS IN THE
MERGER
First Banking will be the surviving corporation resulting from the merger.
Certain members of Wayne's management and the Wayne Board of Directors have
interests in the merger in addition to their interests as shareholders of Wayne
generally. These include, among other things, provisions in the Merger Agreement
relating to indemnification of directors and officers and eligibility for
certain First Banking employee benefits. The directors of First Banking in
office immediately prior to the effective date of the merger and J. Ashley
Dukes, Chairman of the Board of Wayne, and such other additional persons as may
thereafter be elected, will serve as the directors of First Banking from and
after the effective date of the merger in accordance with First Banking's
Bylaws. The officers of First Banking in office immediately prior to the
effective date of the merger, together with such additional persons as may
thereafter be elected, will serve as the officers of First Banking from and
after the effective date of the merger in accordance with First Banking's
Bylaws. Additionally, the Merger Agreement provides that First Banking and
Douglas Harper, President of Wayne, will enter into an employment agreement. As
of the Wayne Record Date, none of the directors and officers of Wayne
beneficially owned any shares of First Banking common stock.
Indemnification and Advancement of Expenses. The Merger Agreement provides
that First Banking will indemnify, defend and hold harmless each person entitled
to indemnification from a Wayne entity against all liabilities arising out of
actions or omissions occurring at or prior to the effective date of the merger
(including the transactions contemplated by the Merger Agreement) to the fullest
extent permitted under Georgia law and by Wayne's Charter and Bylaws as in
effect on the date of the Merger Agreement, including provisions relating to
advances of expenses incurred in the defense of any litigation. Without limiting
the foregoing, in any case in which approval by First Banking is required to
effectuate any indemnification, First Banking will direct, at the election of
the indemnified party, that the determination of any such approval shall be made
by independent counsel mutually agreed upon between First Banking and the
indemnified party.
Other Matters Relating to Employee Benefit Plans. The Merger Agreement
also provides that, after the effective date of the merger, First Banking will
either (1) continue to provide to officers and employees of the Wayne entities
employee benefits under Wayne's existing employee benefit and welfare plans or,
(2) if First Banking determines to provide to officers and employees of the
Wayne entities employee benefits under other employee benefit plans and welfare
plans, provide generally to officers and employees of the Wayne entities
employee benefits under employee benefit and welfare plans (other than stock
option or other plans involving the potential issuance of First Banking common
stock), on terms and conditions which, when taken as a whole are substantially
similar to those currently provided by the First Banking entities to their
similarly situated officers and employees. For purposes of participation and
vesting (but not accrual of benefits) under First Banking's employee benefit
plans, (1) service under any qualified defined benefit plan of Wayne will be
treated as service under First Banking's defined benefit plan, if any; (2)
service under any
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qualified defined contribution plans of Wayne will be treated as service under
First Banking's qualified defined contribution plans; and (3) service under any
other employee benefit plans of Wayne will be treated as service under any
similar employee benefit plans maintained by First Banking. With respect to
officers and employees of the Wayne entities who, at or after the effective date
of the merger, become employees of a First Banking entity and who, immediately
prior to the effective date of the merger, are participants in one or more
employee welfare benefit plans maintained by the Wayne entities, First Banking
will cause each comparable employee welfare benefit plan which is substituted
for a Wayne welfare benefit plan to waive any evidence of insurability or
similar provision, to provide credit for such participation prior to such
substitution with regard to the application of any pre-existing condition
limitation, and to provide credit towards satisfaction of any deductible or
out-of-pocket provisions for expenses incurred by such participants during the
period prior to such substitution, if any, that overlaps with the then current
plan year for each such substituted employee welfare benefit plan. First Banking
also will cause the surviving corporation and its subsidiaries to honor in
accordance with their terms all employment, severance, consulting and other
compensation contracts previously disclosed to First Banking by Wayne between
any Wayne entity and any current or former director, officer, or employee
thereof, and all provisions for vested benefits or other vested amounts earned
or accrued through the effective date of the merger under the Wayne benefit
plans.
Employment Agreement. The Merger Agreement provides that, as a condition
to consummation of the merger, First Banking and Mr. Harper will execute an
Employment Agreement pursuant to which Mr. Harper will serve as President and
Chief Executive Officer of Wayne National Bank. The Employment Agreement also
provides that in the event the Employment Agreement is terminated under certain
circumstances, Mr. Harper will not for a period of six months from the date of
the termination (1) compete with First Banking or its subsidiaries in Wayne and
Long Counties, (2) solicit customers of First Banking or its subsidiaries, or
(3) solicit employees of First Banking or its subsidiaries.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the material anticipated federal income tax
consequences of the merger. This summary is based on the federal income tax laws
now in effect and as currently interpreted; it does not take into account
possible changes in such laws or interpretations, including amendments to
applicable statutes or regulations or changes in judicial decisions or
administrative rulings, some of which may have retroactive effect. This summary
does not purport to address all aspects of the possible federal income tax
consequences of the merger and is not intended as tax advice to any person. In
particular, and without limiting the foregoing, this summary does not address
the federal income tax consequences of the merger to shareholders in light of
their particular circumstances or status (for example, as foreign persons,
tax-exempt entities, dealers in securities, and insurance companies, among
others). Nor does this summary address any consequences of the merger under any
state, local, estate, or foreign tax laws. Shareholders, therefore, are urged to
consult their own tax advisors as to the specific tax consequences to them of
the merger, including tax return reporting requirements, the application and
effect of federal, foreign, state, local, and other tax laws, and the
implications of any proposed changes in the tax laws.
A federal income tax ruling with respect to this transaction was not
requested from the Internal Revenue Service ("IRS"). Instead, Powell, Goldstein,
Frazer & Murphy LLP, counsel to First Banking, will render an opinion to Wayne
and First Banking concerning material federal income tax consequences of the
proposed merger under federal income tax law. It is such firm's opinion that,
based upon the assumption the merger is consummated in accordance with the
Merger Agreement and the representations made by the management of Wayne and
First Banking, the merger will constitute a reorganization within the meaning of
Section 368(a) of the Code.
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Assuming the merger qualifies as a reorganization pursuant to Section
368(a) of the Code, tax consequences to First Banking, Wayne and Wayne
shareholders will be as follows:
(1) No gain or loss will be recognized by either Wayne or First
Banking upon consummation of the merger of Wayne with and into First
Banking, except for deferred gain or loss recognized in accordance with the
provisions of Treasury Regulations issued under Code Section 1502;
(2) The basis of the assets received by First Banking from Wayne,
including the stock of Wayne National Bank, will equal Wayne's basis in
such assets immediately prior to the merger, and First Banking's holding
period with respect to such assets will include the period such assets were
held by Wayne;
(3) The shareholders of Wayne will recognize no gain or loss upon the
exchange of all of their Wayne common stock solely for shares of First
Banking common stock;
(4) The aggregate tax basis of the First Banking common stock received
by the Wayne shareholders in the merger will, in each instance, be the same
as the aggregate tax basis of the Wayne common stock surrendered in
exchange therefor, less the basis of any fractional share of First Banking
common stock settled by cash payment;
(5) The holding period of the First Banking common stock received by
the Wayne shareholders will, in each instance, include the period during
which the Wayne common stock surrendered in exchange therefor was held,
provided that the Wayne common stock was held as a capital asset on the
date of the exchange;
(6) The payment of cash to Wayne shareholders in lieu of fractional
share interests of First Banking common stock will be treated for federal
income tax purposes as if the fractional shares were distributed as part of
the exchange and then were redeemed by First Banking. These cash payments
will be treated as having been received as distributions in full payment in
exchange for the stock redeemed. Generally, any gain or loss recognized
upon such exchange will be capital gain or loss, provided the fractional
share would constitute a capital asset in the hands of the exchanging
shareholder; and
(7) Where solely cash is received by a Wayne shareholder in exchange
for Wayne common stock pursuant to the exercise of dissenters' rights, the
former Wayne shareholder will be subject to federal income tax as a result
of such transaction. The cash will be treated as having been received in
redemption of such holder's Wayne common stock and subject to the taxation
in accordance provisions and limitations of Section 302 of the Code.
Tax consequences to dealers in First Banking common stock, non-United
States holders of First Banking common stock or others who have a special tax
status (including, without limitation, financial institutions, insurance
companies and tax-exempt entities) or to persons who received their shares
through the exercise of employee stock options or otherwise as compensation may
be different and such persons should consult their tax advisors as to the tax
consequences of a sale or exchange of First Banking common stock.
Each Wayne shareholder who receives First Banking common stock in the
merger will be required to attach a statement to such shareholder's federal
income tax return for the year of the merger which describes the facts of the
merger, including the shareholder's basis in the Wayne common stock exchanged,
and the number of shares of First Banking common stock received in exchange for
Wayne common stock. Each shareholder should also keep as part of such
shareholder's permanent records information necessary to establish such
shareholder's basis in, and holding period for, the First Banking common stock
received in the merger.
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<PAGE> 40
If the merger fails to qualify as a tax-free reorganization for any reason,
the principal federal income tax consequences, under currently applicable law,
would be as follows: (1) gain or loss would be recognized to Wayne as a result
of the merger; (2) gain or loss would be recognized by the holders of Wayne
common stock upon the exchange of such shares in the merger for shares of First
Banking common stock; (3) the tax basis of the First Banking common stock to be
received by the holders of Wayne common stock in the merger would be the fair
market value of such shares of First Banking common stock at the effective date
of the merger; and (4) the holding period of such shares of First Banking common
stock to be received by Wayne shareholders pursuant to the merger would begin
the day after the effective date of the merger.
CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON YOUR
PARTICULAR CIRCUMSTANCES. YOU ARE URGED TO CONSULT YOUR OWN TAX ADVISORS TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES OF THE MERGER TO YOU (INCLUDING THE
APPLICATION AND EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX
LAWS).
ACCOUNTING TREATMENT
First Banking and Wayne anticipate that the merger will be accounted for as
a pooling-of-interests. Under the pooling-of-interests method of accounting, the
recorded amounts of the assets and liabilities of Wayne will be carried forward
at their previously recorded amounts.
In order for the merger to qualify for pooling-of-interests accounting
treatment, substantially all (90% or more) of the outstanding Wayne common stock
must be exchanged for First Banking common stock with substantially similar
terms. There are certain other criteria that must be satisfied in order for the
merger to qualify as a pooling of interests, some of which criteria cannot be
satisfied until after the effective date of the merger.
For information concerning certain conditions to be imposed on the exchange
of Wayne common stock for First Banking common stock in the merger by affiliates
of Wayne and certain restrictions to be imposed on the transferability of the
First Banking common stock received by those affiliates in the merger in order,
among other things, to ensure the availability of pooling-of-interests
accounting treatment, see "-- Resales of First Banking Common Stock."
EXPENSES AND FEES
The Merger Agreement provides that each of the parties will bear and pay
all direct costs and expenses incurred by it or on its behalf in connection with
the transactions contemplated by the Merger Agreement, including filing,
registration and application fees, printing fees, and fees and expenses of its
own financial or other consultants, investment bankers, accountants, and
counsel.
In the event the Merger Agreement is terminated by First Banking as a
result of a material breach by Wayne of any representation, warranty, covenant
or agreement, which cannot be or has not been cured within 30 days after First
Banking has given Wayne written notice of such breach, and the breach of any
representation or warranty, in the opinion of First Banking is reasonably likely
to have a material adverse effect or if the Wayne shareholders do not approve
the Merger Agreement, then Wayne shall pay to First Banking an amount equal to
the lesser of $100,000 or First Banking's actual out of pocket expenses incurred
in connection with the merger transaction.
In the event that the Merger Agreement is terminated by Wayne as a result
of a material breach by First Banking of any representation, warranty, covenant
or agreement, which cannot or has not been cured within 30 days after Wayne has
given First Banking written notice of such breach, and the breach of any
representation or warranty, in the opinion of Wayne, is reasonably likely to
have a
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<PAGE> 41
material adverse effect, then First Banking shall pay to Wayne an amount equal
to the lesser of $100,000 or Wayne's actual out of pocket expenses incurred in
connection with the merger transaction.
RESALES OF FIRST BANKING COMMON STOCK
The issuance of First Banking common stock to shareholders of Wayne in
connection with the merger will be registered under the Securities Act. All
shares of First Banking common stock received by holders of Wayne common stock
and all shares of First Banking common stock issued and outstanding immediately
prior to the effective date of the merger will, upon consummation of the merger,
be freely transferable by those shareholders of Wayne and First Banking not
deemed to be "affiliates" of Wayne or First Banking. "Affiliates" generally are
defined as persons or entities who control, are controlled by, or are under
common control with Wayne or First Banking at the time of the Special Meeting
(generally, directors, executive officers and 10% shareholders).
Affiliates would be permitted to resell First Banking common stock received
in the merger pursuant to an effective registration statement under the
Securities Act or an available exemption from the Securities Act registration
requirements. This Proxy Statement/Prospectus does not cover any resales of
First Banking common stock received by persons who may be deemed to be
affiliates of Wayne or First Banking. One exemption that may be available to
such affiliates is contained in Rules 144 and 145 under the Securities Act.
Rules 144 and 145 restrict the sale of First Banking common stock received in
the merger by affiliates and certain of their family members and related
interests. Generally speaking, during the one-year period following the
effective date of the merger, affiliates of Wayne or First Banking may publicly
resell the First Banking common stock received by them in the merger within
certain limitations as to the amount of First Banking common stock sold in any
three-month period and as to the manner of sale. After this one-year period,
affiliates of Wayne who are not affiliates of First Banking may resell their
shares without restriction. The ability of affiliates to resell shares of First
Banking common stock received in the merger under Rule 144 or 145 will be
subject to First Banking's having satisfied its Exchange Act reporting
requirements for specified periods prior to the time of sale. Affiliates will
receive additional information regarding the effect of Rules 144 and 145 on
their ability to resell First Banking common stock received in the merger.
Each person who is deemed to be an affiliate of Wayne has delivered to
First Banking an agreement (each, a "Wayne Affiliate Agreement") providing that
such affiliate will not sell, pledge, transfer, or otherwise dispose of any
First Banking common stock obtained as a result of the merger (1) except in
compliance with the Securities Act and the rules and regulations of the SEC
thereunder and (2) in any case, until after results covering 30 days of
post-merger operations of First Banking have been published. The receipt of the
Wayne Affiliate Agreements by First Banking is also a condition to First
Banking's obligations to consummate the merger. The stock certificates
representing First Banking common stock issued to affiliates in the merger may
bear a legend summarizing the foregoing restrictions. See "-- Conditions to
Consummation of the Merger."
DESCRIPTION OF FIRST BANKING COMMON STOCK
First Banking's authorized capital stock consists of 10,000,000 shares of
$1.00 par value common stock. As of December 31, 1998, there were 4,715,419
shares of First Banking common stock outstanding and held of record by 1,155
shareholders. The holders of the First Banking common stock have unlimited
voting rights and are entitled to one vote per share for all purposes. Holders
of First Banking common stock are entitled to such dividends, if any, as may be
declared by the Board
34
<PAGE> 42
of Directors of First Banking in compliance with the provisions of the Georgia
Code and the regulations of the appropriate regulatory authorities, and to
receive the net assets of the corporation upon dissolution. The First Banking
common stock does not have any preemptive rights with respect to acquiring
additional shares of First Banking common stock, and the shares are not subject
to any conversion, redemption or sinking fund provisions. The outstanding shares
of First Banking common stock are, and the shares to be issued by First Banking
in connection with the Merger Agreement will be, when issued, fully-paid and
nonassessable. The First Banking Board of Directors is divided into three
classes, as nearly equal in number as possible. First Banking common stock does
not have cumulative voting rights in the election of First Banking directors.
EFFECT OF THE MERGER ON RIGHTS OF SHAREHOLDERS
On the effective date of the merger, Wayne shareholders will become
shareholders of First Banking, and their rights as shareholders will be
determined by First Banking's Articles of Incorporation and Bylaws. The
following is a summary of the material differences in the rights of shareholders
of First Banking and Wayne. Both First Banking and Wayne are Georgia
corporations governed by the Georgia Code. Accordingly, there are no material
differences between the rights of a First Banking shareholder and the rights of
an Wayne shareholder solely under the Georgia Code. The following discussion is
necessarily general; it is not intended to be a complete statement of all
differences affecting the rights of shareholders of their respective entities,
and it is qualified in its entirety by reference to the Georgia Code, First
Banking's Articles of Incorporation and Bylaws, and Wayne's Articles of
Incorporation and Bylaws.
AUTHORIZED CAPITAL STOCK
First Banking. The First Banking Articles authorize the issuance of an
aggregate of 10,000,000 shares of common stock, $1.00 par value, of which
4,715,419 shares were issued and outstanding as of the December 31, 1998.
Shares of First Banking common stock have unlimited voting rights and are
entitled to receive the net assets of First Banking upon the dissolution of the
corporation. The First Banking Bylaws provide that each share of First Banking
common stock is entitled to one vote per share for all purposes.
First Banking's Board of Directors may authorize the issuance of authorized
but unissued shares of First Banking common stock without further action by
First Banking's shareholders, unless such action is required in a particular
case by applicable laws or regulations or by any stock exchange upon which First
Banking's capital stock may be listed. First Banking's shareholders do not have
the preemptive right to purchase or subscribe to any unissued authorized shares
of First Banking common stock or any option or warrant for the purchase thereof.
The authority to issue additional shares of First Banking common stock
provides First Banking with the flexibility necessary to meet its future needs
without the delay resulting from seeking shareholder approval. The authorized
but unissued shares of First Banking common stock will be issuable from time to
time for any corporate purpose, including, without limitation, stock splits,
stock dividends, employee benefit and compensation plans, acquisitions, and
public or private sales for cash as a means of raising capital. Such shares
could be used to dilute the stock ownership of persons seeking to obtain control
of First Banking. In addition, the sale of a substantial number of shares of
First Banking common stock to persons who have an understanding with First
Banking concerning the voting of such shares, or the distribution or declaration
of a dividend of shares of First Banking common stock (or the right to receive
First Banking common stock) to First Banking shareholders,
35
<PAGE> 43
may have the effect of discouraging or increasing the cost of unsolicited
attempts to acquire control of First Banking.
Wayne. Wayne's authorized capital stock consists of 10,000,000 shares of
Wayne common stock, $1.00 par value, of which 558,648 shares were issued and
outstanding as of the Wayne record date. Each share of Wayne common stock is
entitled to one vote per share for all purposes, except as described below.
The Wayne Articles of Incorporation provide that any shareholder who
directly or indirectly acquires beneficial ownership of more than ten percent of
any class of equity securities of the Company through a control share
acquisition is not entitled to vote any stock in excess of ten percent. Control
share acquisition does not include acquiring beneficial ownership of stock
through descent, as satisfaction of a security interest, pursuant to a merger or
through any employee benefit plan. The Wayne Articles of Incorporation permit a
person who has made a control share acquisition to vote those shares exceeding
ten percent if approved by either a majority of the interested shares or by
seventy-five percent of the eligible members of the Board of Directors.
Wayne's shareholders do not have the preemptive right to purchase or
subscribe to any unissued authorized shares of Wayne common stock or any option
or warrant for the purchase thereof. In addition, the Board of Directors of
Wayne has the ability to increase the number of issued and outstanding shares of
Wayne common stock without the approval of the shareholders, within the maximum
number of shares authorized by the Wayne Articles of Incorporation.
BOARD OF DIRECTORS
First Banking. First Banking's Board of Directors is divided into three
classes. Each class is to consist, as nearly as possible, of one-third of the
total number of directors. At each annual meeting of shareholders, successors to
the class of directors whose term expired as of the annual meeting are elected
for a three-year term. The affirmative vote of the holders of at least 80% of
the shares of First Banking common stock entitled to vote in an election of
directors is required to amend or rescind the provision of the Articles of
Incorporation establishing a classified Board.
The effect of having a classified Board is that only approximately
one-third of the directors is selected each year. Consequently, two annual
meetings are effectively required for shareholders to change a majority of the
members of the Board. This provision, coupled with the 80% vote required to
amend or rescind it, renders it more difficult to gain control of First Banking
and may have the effect of discouraging such attempts.
Wayne. Wayne's Board of Directors is also divided into three classes. Each
class is to consist, as nearly as possible of one-third of the total number of
directors. At each annual meeting of shareholders, successors to the class of
directors whose terms have expired as of the annual meeting are elected for a
three-year term. The affirmative vote of the holders of at least 75% of the
shares of Wayne common stock present and entitled to vote are required to amend
or rescind the provision of the Articles of Incorporation establishing a board
that is divided into different classes.
REMOVAL OF DIRECTORS
First Banking. First Banking's Bylaws provide that any director may be
removed at a meeting with respect to which notice of such purpose is given: (i)
without cause, only upon the affirmative vote of the holders of at least 80% of
the issued and outstanding shares of First Banking common stock; and (ii) for
cause only upon the affirmative vote of the holders of a majority of the issued
and outstanding shares of First Banking common stock.
36
<PAGE> 44
Wayne. Wayne's Bylaws provide that any director or the entire Board of
Directors may be removed from office with or without cause by a majority of the
holders of the shares entitled to vote at an election of directors. In addition,
the Board of Directors may, upon a vote of 75 % of its members, remove a
director from office if the director is (1) adjudicated an incompetent by a
court; (2) if he has been grossly negligent in the performance of his duties;
(3) if he has intentionally violated the provisions of certain federal banking
laws; (3) if he is convicted of a felony; (4) if he does not, within sixty days
of his election, accept the office in writing or by attendance at a meeting of
the Board of Directors and fulfills any other requirements for holding the
office of director; or (5) if he fails to attend regular meetings of the Board
of Directors for six consecutive meetings without having been excused by the
Board of Directors.
VOTE REQUIRED FOR SHAREHOLDER APPROVAL
First Banking. The Georgia Code requires that unless a greater vote is
required elsewhere under the Act or under the corporation's Articles of
Incorporation or Bylaws, more votes must be cast in favor of a proposal than
against it in order to approve a proposal. However, the Georgia Code requires
the vote of a majority of the votes entitled to be cast in order to approve
certain mergers or dispositions of assets and amendments to the Articles of
Incorporation.
First Banking's Bylaws state that the affirmative vote of a majority of the
shares of First Banking common stock represented at the meeting and entitled to
vote on the subject matter will represent the act of the shareholders, except as
otherwise provided by law or First Banking's Articles of Incorporation or
Bylaws.
Under First Banking's Articles of Incorporation, unless 80% of the
directors then in office have approved the following matters, action on these
matters requires the affirmative vote of the holders of at least 80% of the
issued and outstanding shares of First Banking common stock entitled to vote in
an election of directors:
(1) amendment of the provision of the Articles of Incorporation
establishing a classified Board;
(2) a change in the number of directors;
(3) amendment of the provision of the Bylaws prescribing the vote
required to amend the Bylaws;
(4) amendment of the provision of the Articles of Incorporation
setting forth the grounds and vote required for removal of directors;
(5) a merger or consolidation of First Banking with or into any other
corporation or the sale, lease, exchange or other disposition of all or
substantially all of its assets if the other party to the transaction is
the beneficial owner of 5% or more of the outstanding First Banking common
stock;
(6) amendment of the provision of the Articles of Incorporation
prescribing the vote required for the transactions described in clause (v)
above; or
(7) amendment of the provision of the Articles of Incorporation
listing the factors permitted to be considered by the Board in evaluating a
potential change of control of the corporation.
Wayne. Wayne's Bylaws state that at all meetings of the shareholders, the
presence in person or by proxy, of the holders of more than a majority of the
shares outstanding and entitled to vote will
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<PAGE> 45
constitute a quorum for shareholder action. If a quorum is present, action on a
matter, other than the election of directors, is approved if the votes cast in
favor of the action exceed the votes cast opposing the action, unless the
Georgia Code, the Articles of Incorporation, or the Bylaws requires a different
vote.
Under Wayne's Articles of Incorporation, any action by the shareholders to
adopt a modification to the Bylaws or to the Articles of Incorporation requires
the approval of at least 75% of the shares present and entitled to vote. The
Board of Directors may amend Wayne's Bylaws without shareholder approval if the
amendment is approved by at least 75% of the directors present and entitled to
vote.
SPECIAL MEETING OF SHAREHOLDERS
First Banking. First Banking's Bylaws state that special meetings of the
shareholders may be called at any time by the President of First Banking or upon
the request of any one or more shareholders owning an aggregate of not less than
25% of the outstanding capital stock. Notice must be given in writing not less
than 10 or more than 50 days before the date of the meeting and must state the
purpose for which the meeting is called.
Wayne. Wayne's Bylaws state that special meetings of the shareholders may
be called by a majority of the Board of Directors or upon the written request of
the holders of 25% or more of the shares outstanding of common stock. Notice
must be given in writing, not less than 10 or more than 60 days before the date
of the meeting and must state the purpose for which the meeting is called.
COMPARATIVE MARKET PRICES AND DIVIDENDS
First Banking common stock is traded on the Nasdaq National Market under
the symbol "FBCG." The following table sets forth the high and low sale prices
per share of First Banking common stock on the Nasdaq National Market and the
dividends paid per share of First Banking common stock for the indicated
periods, adjusted for the 25% stock dividend paid in June 1997 and a 25% stock
dividend paid in May 1998.
<TABLE>
<CAPTION>
SALE PRICE PER
SHARE OF FIRST BANKING
COMMON STOCK DIVIDENDS DECLARED
---------------------- PER SHARE OF FIRST BANKING
HIGH LOW COMMON STOCK
-------- -------- --------------------------
<S> <C> <C> <C>
1996
First Quarter................................... $17.28 $12.80 $0.095
Second Quarter.................................. 17.92 16.64 0.095
Third Quarter................................... 17.60 15.36 0.095
Fourth Quarter.................................. 16.32 14.48 0.095
1997
First Quarter................................... 15.68 14.00 0.1175
Second Quarter.................................. 18.24 14.00 0.1175
Third Quarter................................... 19.90 17.20 0.1175
Fourth Quarter.................................. 26.40 18.80 0.1175
1998
First Quarter................................... 27.20 20.80 0.130
Second Quarter.................................. 27.00 23.80 0.130
Third Quarter................................... 28.75 24.00 0.130
Fourth Quarter.................................. 26.50 22.25 0.130
</TABLE>
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<PAGE> 46
<TABLE>
<CAPTION>
SALE PRICE PER
SHARE OF FIRST BANKING
COMMON STOCK DIVIDENDS DECLARED
---------------------- PER SHARE OF FIRST BANKING
HIGH LOW COMMON STOCK
-------- -------- --------------------------
<S> <C> <C> <C>
1999
First Quarter (through ).................
</TABLE>
On October 20, 1998, the last day prior to the public announcement of the
proposed merger between First Banking and Wayne, the last reported sale price
per share of First Banking common stock on the Nasdaq National Market was
$25.125 and the resulting share of Wayne common stock (based on the 1.57024
Exchange Ratio) was $39.45. On , 1999 the latest practicable date
prior to the mailing of this Proxy Statement/Prospectus, the last reported sale
price per share of First Banking common stock on the Nasdaq National Market was
$ and the resulting equivalent pro forma price per share of Wayne common
stock was $ . The equivalent per share price of a share of Wayne common
stock at each specified date represents the last reported sale price of a share
of First Banking common stock on such date multiplied by the Exchange Ratio.
The market price of First Banking common stock on the effective date of the
merger may be higher or lower than the market price at the time the merger
proposal was announced, at the time the Merger Agreement was executed, at the
time of mailing of this Proxy Statement/Prospectus, or at the time of the
Special Meeting. Holders of Wayne common stock are not assured of receiving any
specific market value of First Banking common stock on the effective date of the
merger, and such value may be substantially more or less than the current value
of First Banking common stock.
As of the Wayne Record Date, there were 951 shareholders of record of Wayne
common stock. No established trading market for Wayne common stock exists.
Because transactions in Wayne common stock are infrequent and because such
transactions are not reported on an exchange or other organized trading systems,
Wayne does not have reliable data regarding recent trading activity in Wayne
common stock.
First Banking is a legal entity separate and district from its subsidiaries
and its revenues depend in significant part on the payment of dividends from its
subsidiary depository institutions. First Banking's subsidiaries are subject to
certain legal restriction on the amount of dividends they are permitted to pay.
First Banking may pay dividends in any year in an amount up to 50% of the
previous year's net income, or $2,854,039 in 1999, without the approval of the
GDBF. The holders of First Banking common stock are entitled to receive
dividends when and if declared by the Board of Directors out of funds legally
available therefor. First Banking has paid regularly quarterly cash dividends on
its common stock since 1990. Although First Banking intends to continue to a pay
quarterly cash dividends on First Banking common stock, First Banking cannot
assure that its dividend policy will not change after consummation of the
merger. The declaration and payment of dividends thereafter will depend upon
business conditions, operating results, capital and reserve requirements, and
the Board of Directors' consideration of other relevant factors. For information
with respect to the provisions of the Merger Agreement relating to First
Banking's and Wayne's abilities to pay dividends on their respective common
stock during the pendency of the merger, see "DESCRIPTION OF MERGER -- Conduct
of Business Pending the Merger."
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<PAGE> 47
BUSINESS OF WAYNE
GENERAL
Wayne was organized under the Georgia Code on September 5, 1989, to become
a one-bank holding company by acquiring all the capital stock of Wayne National
Bank upon its formation. Wayne National Bank commenced business on September 26,
1990, and the only activity of Wayne since then has been the ownership and
operation of Wayne National Bank. Wayne National Bank was organized as a banking
association under the laws of the United States. Wayne National Bank is engaged
in a general commercial and retail banking business, emphasizing in its
marketing Wayne National Bank's local management and ownership, from its main
office in Jesup, Georgia. The products offered include commercial and retail
checking accounts, NOW accounts, money market accounts and certificates of
deposit. Wayne National Bank offers commercial loans, agricultural loans, real
estate loans and installment loans. Wayne National Bank is an issuing agent for
U.S. savings bonds, traveler's checks, money orders and cashier's checks, and it
offers collection teller services, including wire transfer services. Wayne
National Bank also offers a night depository facility, safe deposit boxes, and
ATM service.
COMPETITION
Wayne County is Wayne National Bank's primary service area ("PSA"), which
encompasses the cities of Jesup, Screven and Odum. Wayne National Bank competes
in the Wayne County market with three commercial banks and two credit unions.
Barnett Bank of Southeast Georgia, N.A., which was recently acquired by
NationsBank, Heritage Bank, headquartered in Hinesville, Georgia, and Sun Trust
Bank, Southeast Georgia, N.A., are branch banks of larger holding companies and
constitute the major commercial bank competition in Wayne National Bank's PSA.
In addition, Patterson Bank, headquartered in Patterson, Georgia, opened a
branch bank in Jesup in May 1998. As of December 31, 1998, Wayne National Bank,
which is the only locally-owned commercial bank in the county, held 31% of all
bank deposits in Wayne County.
The credit unions have gained a considerable share of the market in part
because of their close relationship with several significant employers. The two
major credit unions, Altamaha Federal and Interstate Unlimited, have a presence
in Jesup due to the existence of the paper plant and county government. These
institutions cater primarily to specific industry groups. They do not extend
commercial loans and are not a factor in Wayne National Bank's commercial
business. However, these institutions do compete for the retail deposit and
consumer loan business in the PSA.
Competition for deposit and loan opportunities in Wayne National Bank's PSA
is intense because of existing competitors, the accelerating pace of
deregulation and the geographic likelihood of expansion into the PSA by other
institutions.
EMPLOYEES
As of December 31, 1998, Wayne National Bank had 25 employees, 20 of which
were full-time. Wayne's operations are conducted through Wayne National Bank.
Consequently, Wayne does not have any separate employees. None of the employees
of Wayne National Bank are represented by any collective bargaining unit. Wayne
National Bank considers its relations with its employees to be good.
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<PAGE> 48
MANAGEMENT STOCK OWNERSHIP
The following table sets forth the number and percentage of outstanding
shares of common stock beneficially owned at the Record Date by (a) each
executive officer of Wayne, (b) each director of Wayne, and (c) all executive
officers and directors of Wayne as a group. There are no persons who own more
than 5% of the outstanding Wayne common stock who are not also directors or
executive officers. Information relating to beneficial ownership of common stock
is based upon "beneficial ownership" concepts set forth in rules of the SEC
under Section 13(d) of the Securities Exchange Act of 1934. Under these rules a
person is deemed to be a "beneficial owner" of a security if that person has or
shares "voting power," which includes the power to vote or direct the voting of
such security, or "investment power," which includes the power to dispose or to
direct the disposition of such security. A person is also deemed to be a
beneficial owner of any security of which that person has the right to acquire
beneficial ownership within sixty days. Under the rules, more than one person
may be deemed to be a beneficial owner of securities as to which he has no
beneficial interest. For instance, beneficial ownership includes spouses, minor
children and other relatives residing in the same household, and trusts,
partnerships, corporations or deferred compensation plans which are affiliated
with the principal.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
BENEFICIALLY OWNED AT OF
NAME(1) THE WAYNE RECORD DATE TOTAL(%)(2)
- ------- --------------------- -----------
<S> <C> <C>
Patricia B. Armstrong................................... 20,120 3.60
Leonard D. Brannen...................................... 19,085 3.42
C. Revis Clary.......................................... 38,355 6.87
J. Ashley Dukes......................................... 65,937(3) 11.80
Tommie C. Fuller, Sr.................................... 10,150 1.82
Douglas R. Harper....................................... 10,845 1.94
J. Lex Kenerly, III, M.D................................ 15,100 2.70
James L. Lott........................................... 15,550 2.78
Jerry D. McDaniel....................................... 18,841 3.37
Ferrell L. O'Quinn...................................... 31,480 5.64
Bernon W. Sapp.......................................... 21,750 3.89
W. Donald Whitaker...................................... 10,650 1.91
Executive officers and directors as a group (12 persons)
(4)................................................... 277,863 49.74%
</TABLE>
- ---------------
(1) The address for all persons listed is 818 South First Street, Jesup, Georgia
31545.
(2) Percentage is determined on the basis of 558,648 shares of common stock
issued and outstanding.
(3) Pursuant to Article 8 of Wayne's Articles of Incorporation, Mr. Dukes is not
entitled to vote those shares beneficially owned by him which are in excess
of 10% of the total outstanding shares of common stock of Wayne. As of the
Record Date, based on 558,648 shares of common stock then outstanding, Mr.
Dukes beneficially owned 10,073 shares of common stock which he was not
entitled to vote.
(4) Includes the twelve directors and executive officers listed above.
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<PAGE> 49
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF WAYNE
The following discussion of Wayne's financial condition and results of
operation should be read in conjunction with Wayne's Consolidated Financial
Statements and related notes and the statistical information included elsewhere
herein.
FOR THE NINE-MONTHS ENDED SEPTEMBER 30, 1998
Wayne experienced a net profit during the quarter ended September 30, 1998,
of $286,674, compared to $281,818 during the same period of 1997. This brings
net profits for the nine months ended September 30, 1998 to $819,524 compared to
$729,844 for the nine months ended September 30, 1997. The improvement in
earnings for the third quarter is attributed to higher net interest income which
is up 9.4% from the third quarter of 1997. The improvement in net interest
income can be attributed to a 9.8% increase in earning assets to $42.4 million
as of September 30, 1998, from $38.6 million as of September 30, 1997. The
segment of earning assets showing the most significant increase was loans which
grew $4.7 million, or 16.2%, during the twelve months ending September 30, 1998.
Wayne's net interest margin was unchanged at 6.4% for the quarter ended
September 30, 1998, compared to 6.4% for the same period of 1997.
Noninterest income for the quarter ended September 30, 1998, was $182,517,
up 9.1% from $167,355 for the same quarter of 1997. For the nine months ended
September 30, 1998, noninterest income increased $91,884, or 21.1%, to $528,119
from $436,235 for the same period of 1997. The increase was primarily the result
of improved mortgage origination fees which were up 93.7% to $87,218 for the
nine months ended September 30, 1998, compared to $45,026 for the same period of
1997. This increase is primarily attributable to an increase in mortgage loan
activity resulting from falling mortgage loan interest rates.
Noninterest expenses for the quarter ended September 30, 1998, was
$377,757, an increase of $47,559, or 14.4%, from $330,198 for the same period of
1997. Salaries and benefits were up $25,698, or 16.6%, to $180,095 for the
quarter ended September 30, 1998, from $154,397 for the same period of 1997,
primarily as a result of increases in staffing levels at Wayne National Bank,
and overtime pay. Other operating expenses were up $16,154, or 12.8%, to
$142,219 for the quarter ended September 30, 1998, from $126,065 for the same
period of 1997. This increase is primarily a result of data processing
expenditures associated with Wayne National Bank's efforts to prepare for the
year 2000. For the nine month period ended September 30, 1998, noninterest
expense increased $85,028, or 8.4%, to $1,099,715 from $1,014,687 for the same
period of 1997. This increase in noninterest expense can also be attributed to
increases in staffing levels at Wayne National Bank and year 2000 expenditures.
Loan losses, net of recoveries, during the quarter ended September 30,
1998, were $34,895 compared to $37,480 for the same period one year ago. Loan
losses, net of recoveries, amounted to $65,695 for the nine months ended
September 30, 1998, compared to $87,480 for the nine months ended September 30,
1997. The majority of loan losses continue to be the result of consumer
bankruptcies on secured loans. Past due loans amounted to 1.02% of total loans
as of September 30, 1998, well below the national average of our peer group of
2.99%.
During the nine month period ended September 30, 1998, the loan loss
reserve increased by $69,305, bringing the allowance for loan losses to 1.03% of
loans, compared to .81% of loans at September 30, 1997. Based on its review,
management believes the allowances for loan losses is adequate at this time.
However, there can be no assurance that charge-offs in future periods will not
42
<PAGE> 50
exceed the allowance for loan losses or that additional increases in the loan
loss allowance will not be required.
Return on average assets and average equity, on an annualized basis, for
the quarter ended September 30, 1998, were 2.51% and 16.10%, respectively,
compared to 2.76% and 20.43%, respectively, for the same quarter of 1997. Return
on average assets and average equity, on an annualized basis, for the nine
months ended September 30, 1998, were 2.43% and 16.15%, respectively, compared
to 2.49% and 18.98%, respectively, for the same period of 1997. Earnings per
share, on a basic basis, for the nine and three month periods ended September
30, 1998, amounted to $1.79 and $.62, respectively, compared to $1.85 and $.71,
respectively for the same periods of 1997. Earnings per share, on a diluted
basis, for the nine and three month periods ended September 30, 1998, amounted
to $1.64 and $.56, respectively, compared to $1.63 and $.64, respectively, for
the same periods of 1997.
Wayne's assets ended the third quarter of 1998 at $47.3 million, down 7.4%
from $51.1 million at December 31, 1997. This decrease can be attributed to the
reduction in seasonal local government tax deposits of approximately $7.7
million at December 31, 1997, which deposits were subsequently withdrawn by
mid-January 1998. Total deposits ended the quarter at $39.7 million, down 11.0%
from $44.6 million at December 31, 1997, which decrease is also related to the
reduction in seasonal local government tax deposits, offset by normal growth in
Bank deposits. At September 30, 1998, Wayne's loan to deposit ratio was 83.8%,
compared to 63.7% at December 31, 1997.
Management expects earnings to improve slightly during the final quarter of
1998 over that experienced in the quarter just ended, contingent upon no
deterioration within the loan portfolio which would require excessive provisions
to the loan loss reserve. Although such expectations are based on management's
best judgment, actual results will depend upon a number of factors that cannot
be predicted with certainty and fulfillment of management's expectations cannot
be assured.
Liquidity and Sources of Capital
The $4.8 million reduction in deposits during the nine month period ended
September 30, 1998, is primarily reflected in federal funds sold which decreased
$9.6 million, offset by the $4.9 million increase in loans. The reduction in
federal funds sold is primarily attributed to the seasonal local government tax
deposits of approximately $7.7 million at December 31, 1997, which deposits were
withdrawn by mid-January 1998. During the first nine months of 1998, management
has expanded the held-to-maturity portion of the investment portfolio by
approximately $1.3 million through the purchase of municipal bonds. The
available-for-sale portion of the portfolio has increased approximately $1.0
million through the purchase of U.S. Treasury securities and equities. During
the first nine months of 1998, loans have increased by approximately $4.9
million, meeting management's expectations. Wayne's liquid assets at September
30, 1998, represented 11.4% of total assets, compared to 30.8% at December 31,
1997.
During the first quarter of 1998, three directors of Wayne exercised
warrants for Wayne's common stock, par value $1.00 per share, resulting in the
issuance of 34,000 shares of the common stock. The exercise price was $10.00 per
share, resulting in an injection of $340,000 into Wayne's capital during the
first quarter of 1998. At September 30, 1998, Wayne's risk based capital ratio
was 20.9% and its leverage ratio was 15.8%, compared to 20.2% and 14.8%,
respectively, at December 31, 1997. Both Wayne and Wayne National Bank are, at
this time, in compliance with the Federal Reserve Board's and the OCC's capital
requirements. Management expects asset growth to continue at a deliberate and
controllable pace during the coming months and capital should continue to be
adequate. However, no assurances can be given in this regard, as rapid growth,
deterioration in loan
43
<PAGE> 51
quality and poor earnings, or a combination of these factors, could change
Wayne's capital position in a relatively short period of time.
RESULTS OF OPERATIONS FOR THE YEAR ENDED 1997
Wayne had net income of $1.0 million in 1997, compared to $828,148 in 1996,
an increase of 24%. Earnings per share, on a basic basis, were $2.58 in 1997,
compared to $2.19 in 1996. Earnings per share, on a diluted basis, were $2.35 in
1997, compared to $1.99 in 1996. Wayne's earnings in 1997 resulted in a return
on average assets and return on average equity of 2.55% and 19.03%,
respectively, compared to 2.41% and 19.65%, respectively, in 1996.
The improvements in earnings in 1997 can be attributed primarily to higher
net interest income, which grew 17% to $2.3 million in 1997 on net interest
margin of 6.48% and an interest spread of 5.30%. This improvement in net
interest income can be attributed primarily to a 19% increase in average earning
assets brought about by the 16% increase in average deposits. Deposits grew $6.5
million, or 17%, between December 31, 1996, and December 31, 1997.
Wayne had $41,064 in nonperforming assets at year end 1997, compared to no
nonperforming assets at year end 1996. Net charge-offs amounted to .35% of
average loans in 1997, unchanged from 1996. During 1997, Wayne National Bank
provided $154,000 to the allowance for loan losses, compared to $90,000 in 1996.
The allowance for loan losses totaled $273,405 at year end 1997, which
represents .95% of net year end loans.
Noninterest income grew $61,020, or 11%, to $629,921 in 1997, from $568,901
in 1996. This increase resulted primarily from a $65,036, or 16%, increase in
service charges on deposits. Other operating income declined $2,715, or 2%,
while securities gains declined $1,301, or 9%.
Noninterest expense grew $85,403, or 7%, to $1.4 million in 1997. Occupancy
expenses were up $11,064, or 6%, in 1997 compared to 1996, while other expenses
were up $73,835, or 15%, compared to 1996, primarily as a result of a $13,000
increase in advertising and a $19,000 increase in professional fees. Wayne's
efficiency ratio, which is noninterest expense as a percentage of net interest
income after the provision for loan losses plus noninterest income, net of gains
and losses on the sale of assets, improved to 48.8% in 1997, compared to 51.9%
in 1996.
Net Interest Income/Margins
The primary source of revenue for Wayne is net interest income, which is
the difference between income on interest-earning assets, such as investment
securities and loans, and interest incurred on interest-bearing sources of
funds, such as deposits and borrowings. The level of net interest income is
determined primarily by the average balances ("volume") of interest-earning
assets and the various rate spreads between the interest-earning assets and
Wayne's funding sources. The table "Average Balances, Income and Expenses, and
Rates" below indicates Wayne's average volume of interest-earning assets and
interest-bearing liabilities for 1997 and 1996 and average yields and rates.
Changes in net interest income from period to period result from increases or
decreases in the volume of interest-earning assets and interest-bearing
liabilities, increases or decreases in the average rates earned and paid on such
assets and liabilities, the ability to manage the earning asset portfolio (which
includes loans), and the availability of particular sources of funds, such as
noninterest bearing deposits. The table "Analysis of Changes in Net Interest
Income" below indicates the changes in Wayne's net interest income as a result
of changes in volume and rate from 1996 to 1997 and from 1995 and 1996.
44
<PAGE> 52
Net interest income was $2.3 million for 1997, a 17% increase from 1996.
Net interest income increased primarily as a result of an increase in average
earning assets, as earning assets averaged $37.6 million in 1997, up 19% from
$31.7 million in 1996. Wayne National Bank increased the amount of loans
outstanding during 1997, however, there was a slight decline in the yield earned
on loans. Loans averaged $27.0 million in 1997, up 30% from $20.8 million in
1996, and the average yield decreased to 11.23% in 1997, from 11.72% in 1996.
The combination of this increase in loans and the decline in loan yield served
to increase loan interest income 25% to $3.0 million in 1997, from $2.4 million
in 1996. Wayne's net interest spread, the difference between the taxable
equivalent yield on earning assets and the cost of interest-bearing liabilities,
grew slightly in 1997 to 5.30%, from 5.28% in 1996, primarily as a result of the
increased lending activity.
The key performance measure for net interest income is the "net interest
margin," or net interest income divided by average interest-earning assets.
Unlike net interest spread, net interest margin is affected by the level of
interest-free funding used to support earning assets. Wayne's net interest
margin on a taxable equivalent basis rose slightly to 6.48% for 1997 from 6.45%
for 1996. Net interest margin is expected to decline slightly during 1997,
reflecting increased competition for loans, resulting in a decline in the yield
on loans. Although such expectations are based on management's judgment, actual
results will depend on a number of factors that cannot be predicted with
certainty, and fulfillment of management's expectations cannot be assured.
45
<PAGE> 53
The following table depicts interest income on earning assets and related
average yields as well as interest expense on interest-bearing liabilities and
related average rates paid for the periods indicated.
AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------
1997 1996
---------------- ------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
------- ------- ------ ------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets
Loans(1)............................ $27,040 $3,036 11.23% $20,768 $2,433 11.72%
Securities:(2)
Taxable.......................... 1,751 108 6.17% 5,978 355 5.94%
Tax exempt(3).................... 4,507 363 8.05% 2,189 180 8.22%
Interest-bearing deposits........... 137 7 5.11% 60 3 5.00%
Funds sold.......................... 3,642 201 5.52% 2,326 124 5.33%
Other earning assets(3)............. 562 25 4.45% 440 20 4.55%
------- ------ ----- ------- ------ --------
Total earning assets........ 37,639 3,740 9.94% 31,761 3,115 9.81%
------ ----- ------ --------
Cash and due from banks............... 1,481 1,401
Premises and equipment................ 957 1,019
Other assets.......................... 430 422
Allowance for loan losses............. (234) (207)
------- -------
Total assets................ $40,273 $34,396
======= =======
LIABILITIES
Interest-Bearing Liabilities
Interest-bearing transaction
accounts (1)..................... $ 4,628 90 1.94% $ 4,446 109 2.45%
Savings deposits (1)................ 4,125 117 2.84% 3,851 97 2.52%
Time deposits (1)................... 19,306 1,094 5.67% 15,227 859 5.64%
Other short-term borrowings......... 2 0 0% 18 1 5.50%
Long-term debt...................... 0 0 0% 0 0 0.00%
------- ------ ----- ------- ------ --------
Total interest-bearing
liabilities.............. 28,061 1,301 4.64% 23,542 1,066 4.53%
------ ----- ------ --------
Demand deposits (1)................... 6,430 6,241
Accrued interest and other
liabilities......................... 393 399
Shareholders' equity.................. 5,389 4,214
------- -------
Total liabilities and
shareholders' equity..... $40,273 $34,396
======= =======
Net interest spread................... 5.30% 5.28%
===== ========
Net interest income/margin on a
taxable Equivalent basis............ $2,439 $2,049
====== ======
Net interest
income/margin............ 6.48% 6.45%
===== ========
</TABLE>
- ---------------
(1) Average loans include nonaccrual loans. All loans and deposits are domestic.
(2) Yield on securities is based on amortized cost. Changes in market value are
not considered.
(3) Tax exempt income converted to taxable equivalent.
46
<PAGE> 54
Analysis of Changes in Net Interest Income. The following tables set
forth, on a taxable equivalent basis, the effect which the varying levels of
earning assets and interest-bearing liabilities and the applicable rates have
had on changes in net interest income from 1995 to 1996 and 1996 to 1997. The
change in interest due to both rate and volume has been allocated to volume and
rate changes in proportion to the relationship of the absolute dollar amount of
the change of each.
ANALYSIS OF CHANGES IN NET INTEREST INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 COMPARED WITH 1995 1997 COMPARED WITH 1996
VARIANCE DUE TO VARIANCE DUE TO
----------------------- -------------------------
VOLUME RATE TOTAL RATE VOLUME TOTAL
------ ----- ----- ------ ------ -----
<S> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Loans................................ 704 $(101) $603 $646 $ 33 $679
Securities:
Taxable........................... (261) 14 (247) (87) (3) (90)
Tax exempt........................ 187 (4) 183 78 14 92
Funds sold........................... 73 4 77 (33) (12) (45)
Interest-bearing deposits with
banks............................. 4 0 4 (11) (1) (12)
Other earning assets................. 5 0 5 2 2 4
----- ----- ---- ---- ---- ----
Total interest income........ 712 (87) 625 595 33 628
----- ----- ---- ---- ---- ----
INTEREST-BEARING LIABILITIES
Interest-bearing deposits:
Interest-bearing transaction
accounts........................ 4 (23) (19) 26 (27) (1)
Savings and market rate
investments..................... 8 12 20 5 (24) (19)
Certificates and other time
deposits........................ 231 4 235 78 (21) 57
----- ----- ---- ---- ---- ----
Total interest-bearing
deposits.................. 243 (7) 236 109 (72) 37
Other short-term borrowings.......... (1) 0 (1) 1 0 1
Long-term debt....................... 0 0 0 0 0 0
----- ----- ---- ---- ---- ----
Total interest expense....... 242 (7) 235 110 (72) 38
----- ----- ---- ---- ---- ----
Net interest income on a
taxable Equivalent
basis..................... 470 (80) 390 485 105 590
Less taxable equivalent
adjustment................ 58 0 58 32 0 32
----- ----- ---- ---- ---- ----
Net interest income.......... $ 412 ($ 80) $332 $453 $105 $558
===== ===== ==== ==== ==== ====
</TABLE>
Interest Sensitivity. Wayne monitors and manages the pricing and maturity
of its assets and liabilities in order to diminish the potential adverse impact
that changes in interest rates could have on its net interest income. The
principal monitoring technique employed by Wayne is the measurement of Wayne's
interest sensitivity "gap," which is the positive or negative dollar difference
between assets and liabilities that are subject to interest rate repricing
within a given period of time. Interest rate sensitivity can be managed by
repricing assets or liabilities, selling securities available-for-sale,
replacing an asset or liability at maturity or by adjusting the interest rate
during the life of an asset or liability. Managing the amount of assets and
liabilities repricing in this same time interval helps to hedge the risk and
minimize the impact on net interest income of rising or falling interest rates.
47
<PAGE> 55
Wayne evaluates interest sensitivity risk and then formulates guidelines
regarding asset generation and repricing, funding sources and pricing, and
off-balance sheet commitments in order to decrease interest sensitivity risk.
The following table illustrates Wayne's interest rate sensitivity at
December 31, 1997.
INTEREST SENSITIVITY ANALYSIS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------------------------
AFTER ONE AFTER THREE GREATER THAN
WITHIN THROUGH THROUGH WITHIN ONE YEAR OR
ONE MONTH THREE MONTHS TWELVE MONTHS ONE YEAR NONSENSITIVE TOTAL
--------- ------------ ------------- -------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets(1)
Loans.............. $ 8,146 $ 2,817 $ 5,379 $16,342 $12,289 $28,631
Securities (2)..... 0 0 100 100 5,414 5,514
Interest-bearing
deposits with
banks........... 124 0 0 124 0 124
Funds sold......... 11,970 0 0 11,970 0 11,970
------- ------- ------- ------- ------- -------
Total
earning
assets... $20,240 $ 2,817 $ 5,479 $28,536 $17,703 $46,239
======= ======= ======= ======= ======= =======
LIABILITIES
Interest-bearing
liabilities
Interest-bearing
deposits
Demand deposits.... $ 5,086 $ 0 $ 0 $ 5,086 $ 0 $ 5,086
Savings
deposits...... 4,073 0 0 4,073 0 4,073
Time
deposits(3)... 2,004 5,223 11,620 18,847 2,769 21,616
------- ------- ------- ------- ------- -------
Total
interest-
bearing
deposits... 11,163 5,223 11,620 28,006 2,769 30,775
Other short-term
borrowings......... 0 0 0 0 0 0
Long-term debt..... 0 0 0 0 0 0
------- ------- ------- ------- ------- -------
Total
interest-
bearing
liabilities... $11,163 $ 5,223 $11,620 $28,006 $ 2,769 $30,775
======= ======= ======= ======= ======= =======
Period gap........... $ 9,077 $(2,406) $(6,141) $ 530 $14,934 $15,464
Cumulative gap....... $ 9,077 $ 6,671 $ 530 $ 530 $15,464 $15,464
Ratio of cumulative
gap to total
earning assets..... 19.6% 14.4% 1.1% 1.1% 33.4% 33.4%
</TABLE>
- ---------------
(1) Excludes nonaccrual loans and securities.
(2) Excludes investment equity securities of $535,451.
(3) Excludes matured certificates which have not been redeemed by the customer
and on which no interest is accruing.
Wayne generally would benefit from increasing market rates of interest when
it has an asset-sensitive gap and generally would benefit from decreasing market
rates of interest when it is liability
48
<PAGE> 56
sensitive. Wayne is asset sensitive over the one month and one year time frames
and liability sensitive over the one through three months and three through
twelve months time frames. However, Wayne's gap analysis is not a precise
indicator of its interest sensitivity position. The analysis presents only a
static view of the timing of maturities and repricing opportunities, without
taking into consideration that changes in interest rates do not affect all
assets and liabilities equally. For example, rates paid on a substantial portion
of core deposits may change contractually within a relatively short time frame,
but those rates are viewed by management as significantly less
interest-sensitive than market-based rates such as those paid on non-core
deposits. Accordingly, management believes a liability-sensitive gap position is
not as indicative of Wayne's true interest sensitivity as it would be for an
organization which depends to a greater extent on purchased funds to support
earning assets. Net interest income may be impacted by other significant factors
in a given interest rate environment, including changes in the volume and mix of
earning assets and interest-bearing liabilities.
Provision and Allowance for Loan Losses
General. Wayne National Bank has developed policies and procedures for
evaluating the overall quality of its credit portfolio and for the timely
identification of potential problem credits. On a quarterly basis, management of
Wayne National Bank recommends, and the Board of Directors of Wayne National
Bank approves, the appropriate level for the allowance for loan losses based on
the results of the internal monitoring and reporting system, analysis of
economic conditions in its market, and a review of historical statistical data
for both Wayne National Bank and other financial institutions. Management's
judgment as to the adequacy of the allowance is based upon a number of
assumptions about future events which it believes to be reasonable, but which
may or may not be valid. Thus, there can be no assurance that charge-offs in
future periods will not exceed the allowance for loan losses or that additional
increases in the loan loss allowance will not be required. The adequacy of the
allowance for loan losses and the effectiveness of Wayne National Bank's
monitoring and analysis system are also reviewed periodically by the banking
regulators and Wayne National Bank's independent auditors and independent loan
review firm.
Additions to the allowance for loan losses, which are expensed as the
provision for loan losses on Wayne's income statement, are made periodically to
maintain the allowance at an appropriate level based on management's analysis of
the potential risk in the loan portfolio. Loan losses and recoveries are charged
or credited directly to the allowance. The amount of the provision is a function
of the level of loans outstanding, the level of nonperforming loans, historical
loan loss experience, the amount of loan losses actually charged against the
reserve during a given period, and current and anticipated economic conditions.
The table below summarizes certain information with respect to Wayne
National Bank's allowance for loan losses and the composition of charge-offs and
recoveries for each of the last two years.
ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Total loans outstanding at end of period, net of unearned
income.................................................... $28,671 $23,382
Average amount of loans outstanding, net of unearned
income.................................................... $27,040 $20,768
Balance of allowance for loan losses at beginning of
period.................................................... $ 214 $ 197
</TABLE>
49
<PAGE> 57
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------------
1997 1996
------- -------
<S> <C> <C>
Loan losses:
Commercial, financial and agricultural.................... 18 0
Real estate -- mortgage................................... 20 7
Consumer.................................................. 97 81
------- -------
Total loan losses................................. 135 88
------- -------
Recoveries of previous loan losses:
Commercial, financial and agricultural.................... 0 0
Real estate -- mortgage................................... 4 3
Consumer.................................................. 36 12
------- -------
Total recoveries.................................. 40 15
------- -------
Net loan losses............................................. 95 73
Provision for loan losses................................... 154 90
------- -------
Balance of allowance for loan losses at end of period....... $ 273 $ 214
======= =======
Allowance for loan losses to period end loans............... .95% .92%
Net charge-offs to average loans............................ .35% .35%
</TABLE>
The provision for loan losses charged to earnings for the year ended
December 31, 1997, amounted to $154,000, compared to $90,000 in 1996. Net
charge-offs amounted to .35% of average loans in 1997, unchanged from 1996. The
provision set aside for loan losses during 1997 was primarily the result of
management's assessment that, even though asset quality remains at a desirable
level, the allowance for loan losses should be increased to reflect the growth
experienced in the loan portfolio. Management feels the allowance is adequate at
this time; however, there can be no assurance that charge-offs in future periods
will not exceed the allowance for loan losses or that additional increases in
the loan loss allowance will not be required.
Allocation of Allowance. The table below sets forth the amount of the
allowance for loan losses allocated by Wayne by loan categories.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------
1997 1996
---------------- ----------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural................. $ 56 20.5% $ 23 10.7%
Real estate............................................ 93 34.1% 67 31.3%
Consumer............................................... 68 24.9% 41 19.2%
Unallocated............................................ 56 20.5% 83 38.8%
---- ----- ---- -----
Total........................................ $273 100.0% $214 100.0%
==== ===== ==== =====
</TABLE>
50
<PAGE> 58
Nonperforming Assets. The following table presents Wayne's nonperforming
assets for the dates indicated.
NONPERFORMING ASSETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------
1997 1996
------ ----
<S> <C> <C>
Nonaccrual loans............................................ $ 41 $ 0
Restructured loans........................................ 0 0
------ ----
Total nonperforming loans......................... 41 0
Nonaccruing securities.................................... 0 0
Other real estate owned................................... 0 0
------ ----
Total nonperforming assets........................ $ 41 $ 0
====== ====
Loans past due 90 days or more.............................. $ 13 $ 0
Allowance for loan losses to period end loans............... .95% .92%
Allowance for loan losses to period end nonperforming
loans..................................................... 665.9% N/A
Allowance for loan losses to period end nonperforming
assets.................................................... 665.9% N/A
Net charge-offs to average loans............................ .35% .35%
Nonperforming assets to period end loans and foreclosed
property.................................................. .14% N/A
</TABLE>
Accrual of interest is discontinued on a loan when management believes,
after considering economic and business conditions and collection efforts, that
the borrower's financial condition is such that the collection of interest is
doubtful. A delinquent loan is generally placed in nonaccrual status when it
becomes 90 days or more past due. When a loan is placed in nonaccrual status,
all interest which has been accrued on the loan but remains unpaid is reversed
and deducted from earnings as a reduction of reported interest income. No
additional interest is accrued on the loan balance until the collection of both
principal and interest becomes reasonably certain. When a problem loan is
finally resolved, there may ultimately be an actual writedown or charge-off of
the principal balance of the loan which would necessitate additional charges to
earnings. Nonperforming assets totaled $41,064 at year-end 1997, or .14% of
period end loans.
Potential Problem Loans. A potential problem loan is one in which
management has serious doubts about the borrower's future performance under the
terms of the loan contract. These loans are current as to principal and interest
and, accordingly, they are not included in the nonperforming assets categories.
Management monitors these loans closely in order to ensure that Wayne's
interests are protected. At December 31, 1997, Wayne held fifteen loans
considered by management to be potential problem loans totaling approximately
$413,352. The level of potential problem loans is factored into the
determination of the adequacy of the allowance for loan losses.
Noninterest Income and Expense
Noninterest income. The largest component of noninterest income is service
charges on deposit accounts, which totaled $461,931 in 1997, a 16% increase over
the 1996 level of $396,895. There was very little change in the other components
of noninterest income during 1997 as compared to 1996.
51
<PAGE> 59
The following table sets forth, for the periods indicated, the principal
components of noninterest income:
NONINTEREST INCOME
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
------------
1997 1996
---- ----
<S> <C> <C>
Service charges on deposit Accounts......................... $462 $397
Securities gains............................................ 14 15
Other....................................................... 154 157
---- ----
Total noninterest income.......................... $630 $569
==== ====
</TABLE>
Noninterest Expense. The following table sets forth, for the periods
indicated, the primary components of noninterest expense:
NONINTEREST EXPENSE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1997 1996
------ ------
<S> <C> <C>
Salaries and employee benefits.............................. $ 605 $ 604
Net occupancy expense....................................... 79 73
Furniture and equipment expense............................. 121 116
Director and committee fees................................. 42 42
Data processing............................................. 23 21
Insurance................................................... 18 16
Advertising................................................. 35 22
Banking assessments......................................... 24 21
Professional fees........................................... 70 51
Postage and freight and couriers............................ 53 50
Supplies.................................................... 74 74
Travel, meetings, seminars, entertainment................... 19 20
Other....................................................... 194 163
------ ------
Total noninterest expense......................... $1,357 $1,273
====== ======
Efficiency ratio............................................ 48.8% 51.9%
</TABLE>
Noninterest expense increased 7% to $1.4 million in 1997 primarily as a
result of increases in advertising expenses, professional fees, and other
expenses. Advertising expense increased $12,838, or 59%, to $34,655 in 1997,
from $21,817 in 1996, as Wayne National Bank increased its advertising efforts
in response to increased competition. Professional fees increased $18,768, or
36%, to $70,278 in 1997, from $51,510 in 1996, primarily as a result of
increased legal fees at both Wayne and Wayne National Bank.
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<PAGE> 60
Earning Assets
Loans. Loans are the largest category of earning assets and typically
provide higher yields than the other types of earning assets. Associated with
the higher loan yields are the inherent credit and liquidity risks which
management attempts to control and counterbalance. Loans averaged $27.0 million
in 1997, compared to $20.8 million in 1996, an increase of $6.2 million, or 30%.
At December 31, 1997, total loans were $28.7 million, compared to $23.4 million
at the end of 1996.
In 1997, growth in Wayne's loan portfolio accelerated as the local economy
remained strong. The following table shows the composition of the loan portfolio
by category at the dates indicated.
COMPOSITION OF LOAN PORTFOLIO
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 PERCENT 1996 PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
------- -------- ------- --------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural................ $ 5,267 18.4% $ 3,361 14.4%
Real estate Construction.............................. 1,421 4.9% 2,066 8.8%
Mortgage -- residential............................... 7,343 25.6% 6,044 25.8%
Mortgage -- commercial................................ 5,248 18.3% 3,341 14.3%
Consumer.............................................. 9,390 32.7% 8,261 35.3%
Other................................................. 29 .1% 337 1.4%
------- ----- ------- -----
Total gross loans........................... 28,698 100.0% 23,410 100.0%
===== =====
Unearned income....................................... 27 28
------- -------
Total loans net of unearned income.......... 28,671 23,382
Allowance for loan losses............................. 273 214
------- -------
Total net loans............................. $28,398 $23,168
======= =======
</TABLE>
The principal component of Wayne's loan portfolio is consumer loans. At
year end 1997, this category totaled $9.4 million and represented 33% of the
total loan portfolio, compared to $8.3 million, or 35%, at the end of 1996.
Consumer loans increased $1.1 million, or 14%, at December 31, 1997, compared to
December 31, 1996. The growth in 1997 was primarily a result of the strong local
economy.
Residential mortgage loans increased $1.3 million, or 21%, to $7.3 million
at December 31, 1997, from $6.0 million at year end 1996. This increase is the
result of management's decision to allocate more funds to residential mortgage
loans, primarily to low and moderate income borrowers. Nonresidential mortgage
loans, which include commercial loans and other loans secured by multi-family
properties and farmland, increased $1.9 million, or 57%, to $5.2 million at
December 31, 1997, from $3.3 million at year end 1996. This increase is due
primarily to management's ability to attract several new commercial borrowers.
Construction loans declined $644,188, or 31%, due to a slow down in new home
building.
Commercial, financial and agriculture loans grew by $1.9 million, or 57%,
to $5.3 million at December 31, 1997, from $3.4 million at December 31, 1996.
This increase is due primarily to management's efforts to increase Wayne
National Bank's commercial customer base and to increase lending to farmers.
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<PAGE> 61
The repayment of loans in the loan portfolio as they mature is also a
source of liquidity for Wayne. The following table sets forth Wayne's loans
maturing within specified intervals at December 31, 1997.
LOAN MATURITY SCHEDULE AND SENSITIVITY TO CHANGES IN INTEREST RATES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------
OVER ONE YEAR
ONE YEAR THROUGH OVER FIVE
OR LESS FIVE YEARS YEARS TOTAL
-------- ------------- --------- -------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural.......... $ 3,673 $ 1,351 $ 243 $ 5,267
Real estate..................................... 6,388 3,607 4,017 14,012
Consumer........................................ 2,786 5,477 1,127 9,390
Other........................................... 29 0 0 29
------- ------- ------ -------
Total................................. $12,876 $10,435 $5,387 $28,698
======= ======= ====== =======
Fixed interest rate............................. $ 6,004 $10,435 $5,387 $21,826
Variable interest rate.......................... 6,872 0 0 6,872
------- ------- ------ -------
Total................................. $12,876 $10,435 $5,387 $28,698
======= ======= ====== =======
</TABLE>
The information presented in the above table is based on the contractual
maturities of the individual loans, including loans which may be subject to
renewal at their contractual maturity. Renewal of such loans is subject to
review and credit approval, as well as modification of terms upon their
maturity. Consequently, management believes this treatment presents fairly the
maturity and repricing structure of the loan portfolio shown on the above table.
Investment Securities. The investment securities portfolio is a
significant component of Wayne's total earning assets. Total investment
securities averaged $6.3 million in 1997, compared to $8.2 million in 1996. At
December 31, 1997, the total securities portfolio was $6.0 million, compared to
$8.7 million at December 31, 1996. The decrease in the portfolio during 1997 was
primarily due to management's decision to increase Wayne National Bank's
liquidity position to enable it to respond more quickly to a change in interest
rates and to partially offset the investment in long term tax exempt municipal
bonds. The decrease in the portfolio also reflects the increased lending
activity experienced in 1997.
The following table sets forth the book value of the securities held by
Wayne at the dates indicated.
BOOK VALUE OF SECURITIES
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1997 1996
------ ------
<S> <C> <C>
U.S. Treasury............................................... $ 0 $4,273
U.S. government agencies.................................... 0 500
State, county and municipal securities...................... 5,514 3,623
Other....................................................... 485 331
------ ------
Total securities.................................. $5,999 $8,727
====== ======
</TABLE>
54
<PAGE> 62
The following table shows the scheduled maturities and average yields of
securities held at December 31, 1997.
INVESTMENT SECURITIES MATURITY DISTRIBUTION AND YIELDS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------------------------------------------------------
AFTER ONE BUT AFTER FIVE BUT
WITHIN ONE WITHIN FIVE WITHIN TEN AFTER TEN
YEAR YEARS YEARS YEARS
-------------- -------------- -------------- --------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------ ----- ------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
State and political subdivisions(1)..... $100 6.00% $399 6.23% $0 0% $5,015 8.12%
---- ---- ---- ---- -- -- ------ ----
Total(2)....................... $100 6.00% $399 6.23% $0 0% $5,015 8.12%
==== ==== ==== ==== == == ====== ====
</TABLE>
- ---------------
(1) Yields based on taxable equivalent.
(2) Excludes $535,451 in investment equity securities.
In accordance with the Financial Accounting Standards Board (the "FASB")
Statement of Financial Accounting Standards ("SFAS") 115, Wayne classifies its
investment securities into the following three categories: trading,
available-for-sale and held-to-maturity. Debt securities that Wayne has the
intent and ability to hold until maturity are classified as held-to-maturity and
reported at amortized cost. Trading securities and available-for-sale securities
are reported at market value with unrealized gains and losses on trading
securities reported in income and unrealized gains and losses on
available-for-sale securities reported as a net amount in a separate component
of shareholders' equity until realized. At December 31, 1997, Wayne held
$535,451 in securities classified available-for-sale and $5.5 million in
securities classified held-to-maturity and reflected an unrealized gain after
tax of $33,377 as a separate component in shareholders' equity. There can be no
assurance that as interest rates change in the future the amount of unrealized
gain will not decrease, but if these securities are held until they mature and
are repaid in accordance with their terms, these gains will not be realized.
Other attributes of the securities portfolio, including yields and maturities,
are discussed elsewhere in "-- Net Interest Income/Margins -- Interest
Sensitivity."
Short-Term Investments. Short-term investments, which consist primarily of
federal funds sold, equities, and interest-bearing deposits with other banks,
averaged $4.2 million in 1997, compared to $2.8 million in 1996. At December 31,
1997, short-term investments totaled $12.5 million. These funds are a primary
source of Wayne National Bank's liquidity and are generally invested in an
earning capacity on an overnight basis.
Deposits and Other Interest-Bearing Liabilities
Average interest-bearing deposits increased $4.5 million, or 19%, to $28.1
million in 1997, from $23.5 million in 1996. This increase resulted from
increases in all categories of interest-bearing deposits, primarily as a result
of normal deposit growth similar to growth experienced in prior years. Wayne
rarely utilizes interest-bearing liabilities other than deposits.
Deposits. Average total deposits increased $4.7 million, or 16%, to $34.5
million during 1997, from $29.8 million during 1996. At December 31, 1997, total
deposits were $44.6 million, compared to $38.0 million a year earlier, an
increase of 17%. Seasonal local government deposits amounted to $7.8 million at
December 31, 1997, compared to $7.4 million at December 31, 1996. In both years
these seasonal deposits are reflected as noninterest bearing deposits, and were
temporarily invested in federal funds sold until withdrawn in mid-January of the
following year.
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<PAGE> 63
The following table sets forth the deposits of Wayne by category at the
dates indicated.
DEPOSITS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------------------
1997 1996
-------------------- --------------------
PERCENT OF PERCENT OF
AMOUNT DEPOSITS AMOUNT DEPOSITS
------- ---------- ------- ----------
<S> <C> <C> <C> <C>
Demand deposit accounts............................ $13,779 30.9% $12,971 34.1%
NOW accounts....................................... 5,086 11.4% 4,508 11.9%
Money market accounts.............................. 1,924 4.3% 1,613 4.2%
Savings accounts................................... 2,148 4.8% 2,228 5.9%
Time deposits less than $100,000................... 15,633 35.1% 12,263 32.3%
Time deposits of $100,000 or over.................. 5,984 13.5% 4,434 11.6%
------- ----- ------- -----
Total deposits........................... $44,554 100.0% $38,017 100.0%
======= ===== ======= =====
</TABLE>
Core deposits, which exclude certificates of deposit of $100,000 or more
and seasonal government deposits, provide a relatively stable funding source for
Wayne's loan portfolio and other earning assets. Wayne's core deposits increased
$4.6 million in 1997, primarily as a result of normally recurring deposit
growth.
Deposits, and particularly core deposits, have historically been Wayne's
primary source of funding and have enabled Wayne to meet successfully both its
short-term and long-term liquidity needs. Management anticipates that such
deposits will continue to be Wayne's primary source of funding in the future.
Wayne's loan-to-deposit ratio was 64% at December 31, 1997, and 61% at the end
of 1996, and the ratio averaged 78% during 1997. Wayne's loan-to-core deposits
ratio was 92% at December 31, 1997, and 88% at December 31, 1996, and the ratio
averaged 90% during 1997. The maturity distribution of Wayne's time deposits of
$100,000 or more at December 31, 1997, is shown in the following table.
MATURITIES OF CERTIFICATES OF DEPOSIT
AND OTHER TIME DEPOSITS OF $100,000 OR MORE
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
DECEMBER 31, 1997
----------------------------------------------------------
AFTER
THREE AFTER SIX
THROUGH THROUGH
WITHIN THREE SIX TWELVE AFTER TWELVE
MONTHS MONTHS MONTHS MONTHS TOTAL
------------ ------- --------- ------------ ------
<S> <C> <C> <C> <C> <C>
Certificates of deposit of $100,000 or
more.................................. $2,251 $900 $1,642 $1,191 $5,984
Other time deposits of $100,000 or
more.................................. 0 0 0 0 0
------ ---- ------ ------ ------
Total......................... $2,251 $900 $1,642 $1,191 $5,984
====== ==== ====== ====== ======
</TABLE>
More than a third, 38%, of Wayne's time deposits of $100,000 or more had
scheduled maturities within three months. Large certificate of deposit customers
tend to be extremely sensitive to interest rate levels, making these deposits
less reliable sources of funding for liquidity planning purposes than core
deposits. Some financial institutions partially fund their balance sheets using
large certificates of
56
<PAGE> 64
deposit obtained through brokers. These brokered deposits are generally
expensive and are unreliable as long-term funding sources. Accordingly, Wayne
does not actively solicit brokered deposits.
Borrowed funds. Borrowed funds consist primarily of short-term borrowings
in the form of federal funds purchased from correspondent banks. Wayne strives
to fund its loan growth and other investments from deposits. Accordingly, Wayne
has relied only occasionally upon borrowed funds to fund its operations.
Borrowed funds, in the form of federal funds purchased, averaged $2,082 during
1997.
Capital
Under the capital guidelines of the Federal Reserve and the OCC, Wayne and
Wayne National Bank are currently required to maintain a minimum risk-based
total capital ratio of 8%, with at least 4% being Tier 1 capital. Tier 1 capital
consists of common shareholders' equity, qualifying perpetual preferred stock,
and minority interests in equity accounts of consolidated subsidiaries, less
goodwill. In addition, Wayne and Wayne National Bank must maintain a minimum
Tier 1 leverage ratio (Tier 1 capital to total assets) of at least 3%, but this
minimum ratio is increased by 100 to 200 basis points for other than the
highest-rated institutions.
At December 31, 1997, Wayne and Wayne National Bank exceeded their
regulatory capital ratios, as set forth in the following table.
ANALYSIS OF CAPITAL
<TABLE>
<CAPTION>
REQUIRED
COMPANY BANK MINIMUMS
------- ---- --------
<S> <C> <C> <C>
Tier 1 risk-based capital ratio............................. 19.4% 16.2% 4.0%
Total risk-based capital ratio.............................. 20.2% 17.1% 8.0%
Tier 1 leverage ratio....................................... 14.8% 11.7% 3.0%
</TABLE>
Liquidity Management and Capital Resources
Liquidity management involves monitoring Wayne's sources and uses of funds
in order to meet its day-to-day cash flow requirements while maximizing profits.
Liquidity represents the ability of a company to convert assets into cash or
cash equivalents without significant loss and to raise additional funds by
increasing liabilities. Without proper liquidity management, Wayne will not be
able to perform the primary function of a financial intermediary and would,
therefore, not be able to meet the needs of the communities it serves.
Increased liquidity in typical interest rate environments often involves
decreasing profits by investing in earning assets with shorter maturities.
Liquidity management is made more complex because different balance sheet
components are subject to varying degrees of management control. For example,
the timing of maturities of the investment portfolio is very predictable and
subject to a high degree of control at the time investment decisions are made.
However, net deposit inflows and outflows are far less predictable and are not
subject to nearly the same degree of control.
Wayne's funds sold position, its primary source of liquidity, averaged $3.6
million during the year ended December 31, 1997, and was $11.9 million at
December 31, 1997, and averaged $2.3 million during the year ended December 31,
1996, and was $8.3 million at December 31, 1996. Reflected in the unusually
large funds sold position at December 31, 1997, and December 31, 1996, was
approximately $7.8 million and $7.4 million, respectively, of seasonal
government deposits. Within days of each respective year end, the funds sold
position returned to a more normal level. Liquidity
57
<PAGE> 65
can also be managed using the overnight and short-term borrowed fund markets.
Wayne maintains overnight borrowing lines with several financial institutions,
and utilizes these lines on rare occasions.
Wayne, as a stand alone corporation, has more limited access to liquidity
sources than Wayne National Bank and depends on dividends from Wayne National
Bank as its primary source of liquidity. The ability of Wayne National Bank to
pay dividends is subject to general regulatory restrictions which may, but are
not expected to, have a material negative impact on the liquidity available to
Wayne. If circumstances warrant, Wayne's liquidity needs can also be met by
borrowings from third parties, subject to the availability of loan funds on
appropriate terms and Wayne's ability to service the debt.
Impact of Inflation
Unlike most industrial companies, the assets and liabilities of financial
institutions such as Wayne and Wayne National Bank are primarily monetary in
nature. Therefore, interest rates have a more significant effect on Wayne's
performance than do the effects of changes in the general rate of inflation and
change in prices. In addition, interest rates do not necessarily move in the
same direction or in the same magnitude as the prices of goods and services. As
discussed previously, management seeks to manage the relationships between
interest sensitive assets and liabilities in order to protect against wide
interest rate fluctuations, including those resulting from inflation. See "--
Net Interest Income/Margins -- Interest Sensitivity."
Industry Developments
Certain recently enacted and proposed legislation could have an effect on
both the costs of doing business and the competitive factors facing the
financial institutions industry. Wayne is unable at this time to assess the
impact of this legislation on its financial condition or results of operations.
YEAR 2000 ISSUES
Year 2000 issues relate to the anticipated failure of computer systems to
accurately process dates falling in the next century as a result of a common
programming convention of representing years with two digits rather than four
digits. Programs that are time sensitive may recognize a date using "00" as the
Year 1900 rather than the Year 2000. This misrepresentation of the year could
result in an incorrect computation or a computer shutdown.
Assessment
Wayne has completed an evaluation of its computer information systems and
has identified those systems which will require program modifications or new
software installations in order to function properly for the Year 2000. Wayne
believes that its computer systems will be Year 2000 compliant in a timely
manner. Most systems are made compliant through periodic software upgrades
provided by the various vendors as part of the license agreements. Wayne expects
the costs of becoming Year 2000 compliant will not be material to its financial
position or operating results; however, Wayne can not assure you that the costs
it incurs will not have a material effect.
Internal Infrastructure
Wayne uses an in-house data processing system for most of its accounting
functions. Wayne believes that it has identified substantially all of the major
computers, software applications, and related equipment used in connection with
its internal operations that must be modified, upgraded, or
58
<PAGE> 66
replaced to minimize the possibility of a material disruption of its business.
Wayne also has a number of personal computers, some of which, due to their age,
are not Year 2000 compliant. Management has spent approximately $200,000 to get
all of its systems Year 2000 compliant. Wayne does not believe that the cost
related to these efforts will be material to its business, financial condition,
or operating results.
Wayne has developed a testing strategy in which all mission critical
systems, such as heating and air, security and phone systems, as well as
information systems, will be tested and documented by March 31, 1999. Wayne has
already incurred costs of approximately $200,000 to get its systems Year 2000
compliant, and it does not expect to incur any additional material costs. Wayne
estimates that its total cost of completing any required modifications,
upgrades, or replacements of these internal systems will not have a material
effect on its business, financial condition or operating results.
Vendors, Suppliers and Other Third Parties
Wayne is in the process of surveying its vendors and suppliers to determine
their Year 2000 readiness. To date, Wayne has not identified any vendor,
supplier, or other third party on which Wayne relies whose noncompliance with
Year 2000 would have a material effect on Wayne. However, Wayne has limited or
no control over the actions of its vendors, suppliers and others. While Wayne
expects that it will be able to resolve any significant Year 2000 problems with
its own system, Wayne can not guarantee that its vendors, suppliers or other
will resolve any Year 2000 problems with their systems before the occurrence of
a material disruption to their business. If Wayne's vendors, suppliers or others
fail to resolve any Year 2000 problems with their systems in a timely manner, it
could have a material adverse effect on Wayne's business, financial condition or
operating results.
Customers
Wayne is in the process of assessing the loan portfolio for the greatest
areas of risk and designing a survey form for loan officers and the riskier
large loan customers. Once Wayne develops this form, it plans to survey these
customers to determine their readiness. If Wayne's large borrowers do not
sufficiently address Year 2000 problems, Wayne may experience an increase in
loan defaults. Wayne has evaluated the adequacy of its loan loss reserve and
believes the reserve is presently sufficient to cover current estimates of
losses.
Most Likely Consequences of Year 2000 Problems
Wayne expects to identify and resolve all Year 2000 problems that could
materially adversely affect its business, financial condition, or operating
results. However, Wayne believes that it is not possible to determine with
complete certainty that all Year 2000 problems affecting it have been identified
or corrected. The number of devices that could be affected and the interactions
among these devices are simply too numerous. In addition, Wayne cannot
accurately predict how many failures related to the Year 2000 problem will occur
with its suppliers, customers, or other third parties or the severity, duration,
or financial consequences of such failures. As a result, Wayne expects that it
could possibly suffer the following consequences:
- A number of operational inconveniences and inefficiencies for Wayne, its
service providers, or its customers that may divert Wayne's time and
attention and financial and human resources from its ordinary business
activities;
- System malfunctions that may require significant efforts by Wayne, its
service providers, or its customers to prevent or alleviate material
business disruptions.
59
<PAGE> 67
Contingency Plan
Wayne is currently developing a Year 2000 contingency plan to be
implemented as part of its efforts to identify and correct Year 2000 problems
affecting its internal systems. Wayne expects to complete its contingency plans
by the end of the first quarter of 1999. Depending on the systems affected,
these plans could include: (a) accelerated replacement of affected equipment or
software; (b) short term use of back up equipment and software; (c) increased
work hours of Wayne's personnel or use of contract personnel to correct on an
accelerated schedule any Year 2000 problems that arise; and (d) other similar
approaches. If Wayne is required to implement these contingency plans, it could
have a material adverse effect on its business, financial condition or operating
results.
Wayne has also been subject to regulatory review of its overall Year 2000
plan and will continue to be monitored closely by its regulators for its
progress.
60
<PAGE> 68
BUSINESS OF FIRST BANKING
GENERAL
First Banking is a bank holding company organized on October 27, 1981. All
of First Banking's business is presently conducted by its wholly-owned
subsidiaries, First Bulloch Bank & Trust Company ("Bulloch Bank") Metter Banking
Company ("Metter Bank") and First National Bank of Effingham ("Effingham Bank")
(collectively, the "Banks"), which are engaged in bank and bank-related
activities. First Banking does not engage in any non-bank activities. Bulloch
Bank was organized under the laws of the State of Georgia in 1934 as a state
banking corporation. On December 31, 1985, Metter Financial Services, Inc.
("Metter Financial") combined with First Banking and Metter Financial's
subsidiary, Metter Bank, became a wholly-owned subsidiary of First Banking. On
August 27, 1996 FNB Bancshares, Inc. combined with First Banking and Effingham
Bank because a wholly-owned subsidiary of First Banking.
As of September 30, 1998, First Banking had consolidated assets of
approximately $378 million, consolidated deposits of approximately $317 million
and consolidated shareholders' equity of approximately $44 million.
The Banks accept customary types of demand and time deposits, make
installment and commercial loans and offer safe deposit services and individual
retirement accounts to their customers. Bulloch Bank also performs corporate,
pension and personal trust services as well as other financial services for its
customers and for those of Metter Bank and Effingham Bank.
As of December 31, 1998, Bulloch Bank had a headquarters building, four
branches and eight ATM installations, and Metter Bank had a headquarters
building, a drive-in facility, three ATM installations and a supermarket branch
office. Effingham Bank had a headquarters building, two branch offices and three
ATM installations.
COMPETITION
The banking business is highly competitive. The Banks emphasize the quality
of services they provide. The prices of the Banks' financial products relative
to those of other financial institutions is another important variable
influencing customer choice. Bulloch Bank's primary market area consists of
Bulloch County, Georgia, which has a population of approximately 50,400. Bulloch
Bank competes for all types of loans, deposits, and other financial services
with four other commercial banks in Bulloch County. As of December 31, 1998,
Bulloch Bank was the largest of the five commercial banks located in Bulloch
County, based upon total deposits and total assets.
Metter Bank's primary market area consists of Candler County, Georgia,
which is adjacent to Bulloch County. Candler County has a population of
approximately 9,000. Metter Bank competes for all types of loans, deposits and
other financial services with one other commercial bank and a local thrift in
the county, as well as other providers of financial services in adjacent
counties. Metter Bank is the largest of the three local financial institutions,
based upon total deposits and total assets.
Effingham's Bank's primary market area consists of Effingham County,
Georgia, which is included in the Savannah-Chatham County Metropolitan
Statistical Area. The county has been recognized as one of the "bedroom"
communities of Savannah and had an estimated population of 33,400 at December
31, 1997. Effingham Bank competes for all types of loans, deposits and other
financial services with one community bank and two branches of a regional bank.
As of December 31, 1997, Effingham Bank was the largest of two community banks
in its market area, based upon total deposits and total assets.
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<PAGE> 69
First Banking also competes with other financial institutions that are
located in Bulloch, Candler and Effingham counties as well as with commercial
banks, savings and loan associations, other financial institutions and brokerage
houses located in Chatham, Evans, Bryan, Screven, Tattnall and Jenkins Counties.
To a lesser extent, First Banking competes for loans with insurance companies,
regulated small loan companies, credit unions and certain governmental agencies.
Recent legislation, together with other regulatory changes by the primary
regulators of the various financial institutions and competition from
unregulated entities, has resulted in the elimination of many traditional
distinctions between commercial banks, thrift institutions and other providers
of financial services. Consequently, competition among financial institutions of
all types is virtually unlimited with respect to legal ability and authority to
provide most financial services.
EMPLOYEES
Except for the six officers of First Banking, who are also officers of the
Banks, First Banking does not have any employees. As of December 31, 1998,
Bulloch Bank had 89 full-time employees and 17 part-time employees, and Metter
Bank had 37 full-time employees and seven part-time employees and Effingham Bank
had 26 full-time employees and seven part-time employees. Management considers
employee relations to be generally good. Neither First Banking nor the Banks
have collective bargaining agreements with any employees.
LOAN PORTFOLIO
First Banking's loan portfolio consists of the following categories of
loans:
Commercial, Financial and Agricultural. Commercial, Financial and
Agricultural loans consist of all business and agricultural loans not secured by
real estate. The borrowers in this category are small to medium sized businesses
located in First Banking's market area. Most loans in this category are
collateralized. Types of collateral include accounts receivable, inventory,
equipment, furniture and fixtures, and certificates of deposit. Risks associated
with these types of loans include bankruptcy, economic downturn, deteriorating
collateral, and, in the case of agricultural loans, crop failure as a result of
extreme or poor weather, and changes in market prices for underlying crops.
Management seeks to reduce the risks associated with these loans by reviewing
the borrower's management, financial strength, and cash flow position and, to a
lesser extent, the value of the collateral before extending the loan. Commercial
and financial loans represented approximately 64% of net charge-offs for 1997.
Agriculturally Related. Agriculturally related loans are defined as those
loans secured by farmland as well as those originated to finance agricultural
production. Risks associated with such loans are typically those identified
above in "Commercial, Financial and Agricultural," as well as those associated
with declining commodity prices and inclement weather. First Banking limits such
loans to operators who exhibit strong financial ability and proven performance
and can offer the collateral deemed necessary for their individual lines of
credit. Farm visits and inspections are also performed periodically to assess
the collateral and the overall soundness of the operation. Agriculturally
related loans represented approximately 5% of net-charge-offs in 1997.
Real Estate -- Construction. Loans classified as construction loans are
typically made short-term to finance the construction of residential (1-4
family) dwellings, have permanent take-out mortgages approved and will be fully
repaid upon completion of construction. Builder financing is generally
discouraged. Such loans require site inspections and evaluations prior to the
payment of any draws. Risks associated with these loans include cost overruns,
interest rate movements, and the nature of changing economic conditions. First
Banking avoids these risks by obtaining a takeout commitment letter for each
loan to be extended. No construction loans were charged off in 1997.
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<PAGE> 70
Real Estate -- Mortgage. Loans classified as mortgage real estate include
all loans secured by real estate which were made for commercial, financial or
agricultural purposes and which are not construction loans. The primary
collateral on such loans is first lien mortgages, but also includes
second-mortgage positions. Risks associated with this type of loan include title
defects, fraud, bankruptcy, deteriorating or non-existing collateral, and
changes in interest rates. Management seeks to reduce the risks associated with
real estate mortgage loans by investigating thoroughly the borrower's
creditworthiness, obtaining an independent appraisal of the collateral and
obtaining appropriate insurance coverage. Real estate mortgage loans represented
approximately 13% of net charge-offs for 1997.
Installment Loans to Individuals. Installment loans to individuals
consists of consumer loans made for personal, household and family purposes,
such as home improvement and automobile purchases. Types of collateral include
automobiles, mobile homes, savings accounts and stock. Risks associated with
such loans include deteriorating collateral, general economic downturn, changes
in interest rates and bankruptcy. Management seeks to reduce these risks by
investigating thoroughly the borrower's creditworthiness and verifying the
existence and value of the collateral. Installment loans represented
approximately 18% of net charge-offs in 1997.
CREDIT UNDERWRITING AND MONITORING
It is First Banking's practice to meet the credit needs of qualified
borrowers within its market area at a reasonable price. The extent and amount of
collateral required is based on factors such as the character of the borrower,
his financial condition, his ability to service the debt according to a
predetermined repayment plan, his credit history, and the loan purpose. Because
each loan is evaluated on its own merit, there are no predetermined or minimal
loan-to-value ratios or lien positions, except as provided by bank regulators in
the case of real estate loans. State banking regulations require that, in the
absence of other acceptable collateral, a real estate loan be less than or equal
to 90% and 75% of the appraised value of the real estate taken as security in
the case of an amortizing loan and of a nonamortizing loan, respectively.
Agriculturally related loans made for real estate or for equipment follow
the general guidelines discussed above. Crop production and livestock operation
loans typically require liens on the livestock or the current year crop
production. Farm visits and inspections are also performed periodically to
assess the collateral and the overall soundness of the operation. A customized
repayment plan is developed for each operator based upon his projected cash flow
from crop production or livestock sales.
First Banking has adopted and implemented a comprehensive loan policy which
individually addresses the various types and purposes of loans the Banks can
make and defines acceptable collateral. The lending policy emphasizes the
financial strength and cash flow position of the borrower and considers
collateral as the last resort source of repayment. First Banking has a formal
loan classification and grading system, performed as a separate and independent
function within the company. All loans are assigned a grade and are subject to
review based on the perceived risk of loss to First Banking. Such review
includes verification of all necessary documentation as well as financial
statement analysis and compliance with regulations and bank policy.
DIRECTORS AND EXECUTIVE OFFICERS
First Banking's Board of Directors is divided into three classes: Class I,
Class II and Class III. The current terms of the Class I directors expire in
2001; those of the Class II directors expire in 1999; and those of the Class III
directors expire in 2000.
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<PAGE> 71
The table set forth below shows for each director (a) his current class and
term of office; (b) his name; (c) his age at December 31, 1998; (d) the year he
was first elected as a director of First Banking; (e) any positions held by him
with First Banking or its subsidiary banks, the Bulloch Bank, the Metter Bank
and the Effingham Bank, other than as a director; and (f) his business
experience for the past five years.
Upon completion of the merger, J. Ashley Dukes will be appointed to the
Board of Directors of First Banking. J. Ashley Dukes, was born in Wayne County,
Georgia on August 14, 1941. He graduated from the Wayne County school system and
received a B.S. degree in pharmacy from the University of Georgia in 1971. Mr.
Dukes has been self-employed in the retail pharmaceutical business since 1973
and is a licensed pharmacist in Georgia, Florida and South Carolina. He is
president of three corporations that provide retail drug and pharmaceutical
products from seven locations. Mr. Dukes has served as the president of the
Georgia State Board of Pharmacy and has been a member of that organization since
1984. He has served as the president of the University of Georgia College of
Pharmacy Alumni Association and he is a member of the Wayne Chamber of Commerce,
Kiwanis Club, Georgia Pharmaceutical Association, National Association of Retail
Druggists, and various other civic and social organizations. He has served as
Chairman of Wayne's Board of Directors since 1991.
CLASS I -- DIRECTORS
CURRENT TERM EXPIRES IN 2001
<TABLE>
<CAPTION>
YEAR FIRST POSITIONS WITH FIRST BANKING
NAME AGE ELECTED AND BUSINESS EXPERIENCE
- ---- --- ---------- --------------------------------------------
<S> <C> <C> <C>
E. Raybon Anderson(1)................ 60 1981 Chairman of the Board, Bulloch Fertilizer
Co., Inc.
A. M. Braswell, Jr.(2)............... 78 1981 Chairman of the Board, A.M. Braswell, Jr.
Food Company, Inc. (Manufacturer of
Preserves and Other Condiments)
W. A. Crider, Jr.(1)................. 59 1986 Chairman, Crider Poultry, Inc. (Wholesale
Poultry
Dan J. Parrish, Jr.(1,2)............. 63 1986 Owner, Candler Computers (Computer
Consulting)
</TABLE>
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<PAGE> 72
CLASS II -- DIRECTORS
CURRENT TERM EXPIRES IN 1999
<TABLE>
<CAPTION>
YEAR FIRST POSITIONS WITH FIRST BANKING
NAME AGE ELECTED AND BUSINESS EXPERIENCE
- ---- --- ---------- --------------------------------------------
<S> <C> <C> <C>
James Eli Hodges..................... 57 1981 President and Chief Executive Officer of
First Banking and the Bulloch Bank
C. Arthur Howard(1).................. 57 1984 President, Claude Howard Lumber Company,
Inc.
Lanier A. Hunnicutt(2)............... 71 1986 Retired Farmer
Joe P. Johnston(2)................... 64 1981 Realtor
Harry S. Mathews(1).................. 47 1996 Private investor since April 1994;
President, Statesboro Telephone Company
until April 1994
Douglas E. Wren...................... 51 1998 Vice President of First Banking, Executive
Vice President and Chief Operating Officer
of the Bulloch Bank; President and Chief
Operating Officer of First State
Corporation, Albany, Georgia from 1986 until
April 1998; and President and Chief
Executive Officer of First State Bank &
Trust Company, Albany, Georgia from 1986
until April 1998
</TABLE>
CLASS III -- DIRECTORS
CURRENT TERM EXPIRES IN 2000
<TABLE>
<CAPTION>
YEAR FIRST YEAR FIRS POSITIONS WITH FIRST BANKING
NAME AGE ELECTED AND BUSINESS EXPERIENCE
- ---- --- ---------- --------------------------------------------
<S> <C> <C> <C>
Julian C. Lane, Jr................... 50 1988 Vice President of First Banking and
President and Chief Executive Officer of the
Metter Bank
Charles M. Robbins, Jr.(2)........... 78 1981 Retired Chairman of the Board, Robbins
Packing Company (Meat Packing &
Distribution)
Larry D. Weddle(2)................... 58 1996 Retired District Sales Manager, Purina
Mills, Inc.; President, Harvest Properties,
Inc.
Alvin Williams(2).................... 71 1986 Retired Executive Vice President of the
Metter Bank
</TABLE>
- ---------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
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<PAGE> 73
The following table sets forth for each executive officer of First Banking
(a) the person's name; (b) his age at December 31, 1998; (c) the year he was
first elected as an executive officer of First Banking; and (d) his position
with First Banking and its subsidiary banks. Unless otherwise indicated, each
executive officer has been employed by the Bulloch Bank or Metter Bank for more
than five years.
<TABLE>
<CAPTION>
YEAR FIRST POSITIONS WITH FIRST BANKING AND THE BULLOCH OR METER
NAME AGE ELECTED BANKS; BUSINESS EXPERIENCE
- ---- --- ---------- -----------------------------------------------------
<S> <C> <C> <C>
James Eli Hodges..................... 57 1981 President and Chief Executive Officer of First
Banking and the Bulloch Bank
Julian C. Lane, Jr................... 50 1985 Vice President of First Banking and President and
Chief Executive Officer of the Metter Bank
Douglas E. Wren...................... 51 1998 Vice President of First Banking, Executive Vice
President and Chief Operating Officer of the Bulloch
Bank; President and Chief Operating Officer of First
State Corporation, Albany, Georgia from 1986 until
April 1998; and President and Chief Executive Officer
of First State Bank & Trust Company, Albany, Georgia
from 1986 until April 1998
Dwayne E. Rocker..................... 34 1992 Secretary and Treasurer of First Banking; Vice
President and Secretary of the Bulloch Bank
</TABLE>
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<PAGE> 74
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS OF FIRST BANKING
FINANCIAL RESULTS OF OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
This discussion relates to the consolidated financial condition and results
of operations of First Banking and its wholly-owned subsidiaries, Bulloch Bank,
Metter Bank and Effingham Bank. Since First Banking has no subsidiaries other
than the Banks and no activities other than those of the Banks, the following
narrative refers to the operations of the Banks.
Financial Condition
First Banking functions as the sole owner of three commercial banks, and
its financial condition should be examined in terms of trends in sources and
uses of funds. First Banking's primary use of funds historically comes from loan
demand. Loans outstanding have increased $6,137,000 or 2.5% since year-end.
Interest bearing deposits in other banks and federal funds sold have increased
$1,658,000 (10.1%) and $4,850,000 (128.5%), respectively, while investment
securities have decreased $34,996,000 (33.3%) since year-end.
Total assets have decreased $32,736,000 (8.0%) since year-end, while total
funds (deposits plus Other Borrowed Money) have decreased $35,603,000 (9.8%).
Total deposits have decreased $37,338,000 (10.5%) since year-end, and Other
Borrowed Money has increased $2,095,000 (22.2%). Demand deposits have increased
$1,944,000 (4.2%), and savings deposits (including NOW accounts and the liquid
money market accounts) have decreased $28,525,000 (23.8%). Time deposits over
$100,000 have decreased approximately $9,836,000 (11.1%), while other time
deposits have decreased approximately $921,000 (0.9%).
The decrease in deposits since year end is primarily the result of a
movement of approximately $24.7 million of public funds out of the Banks. Public
funds in savings deposits that have moved out of the Banks total $19.5 million,
while those in time deposits over $100,000 moving out of the Banks total $5.2
million. The flow of public funds out of the Banks is the result of several
factors, including special construction projects with one local public entity,
the awarding of a banking services bid to another local financial institution
for a state public entity, the distribution of tax deposits among the various
local public entities, and the reinvestment outside the local economy of matured
public fund time deposits over $100,000 for still another local public entity.
The $1.9 million increase in demand deposits is the result of a $5.2 million
shift from NOW accounts into demand deposits for one specific public fund
account. The remaining $3.8 million decrease in savings deposits, the $4.6
million decrease in time deposits over $100,000 and the $0.9 million decrease in
other time deposits is the result of a movement of both business and individual
accounts out of the Banks.
Effective May 29, 1998, First Banking declared a 5-for-4 stock split of its
common stock effected in the form of a 25 percent stock dividend. All references
to number of shares and to per share amounts have been retroactively adjusted to
reflect the split.
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<PAGE> 75
Capital Resources
The Banks are required to maintain minimum amounts of capital to total
"risk-weighted" assets, as defined by the banking regulators. At September 30,
1998, the Banks were required to have minimum Tier 1 and Total Risk-Based
Capital ratios of 4% and 8%, respectively, and a leverage ratio of at least 3%.
At that date the Banks' actual ratios were as follows:
<TABLE>
<CAPTION>
BULLOCH BANK METTER BANK EFFINGHAM BANK
------------ ----------- --------------
<S> <C> <C> <C>
Tier 1 Risk-based Capital ratio................... 20.1% 15.9% 10.0%
Total Risk-based Capital ratio.................... 21.4 17.1 11.3
Leverage ratio.................................... 13.0 10.6 7.2
</TABLE>
These ratios qualify each Bank for the "well-capitalized" classification as
defined by the banking regulators. First Banking's ratio of shareholders' equity
to total assets was 11.6% at September 30, 1998 and 10.0% at December 31, 1997.
Liquidity
The percentage of net loans to total funds was 77.5% at September 30, 1998
and 70.3% at December 31, 1997. At September 30, 1998 the Banks had $41,384,000
in cash and due from banks, interest bearing deposits in other banks and federal
funds sold as compared with $44,774,000 at December 31, 1997. The Banks'
liquidity policies typically require that the ratio of cash and certain
short-term investments to net withdrawable deposit accounts be at least 20.0%.
At September 30, 1998, all three banks reflected a liquidity ratio of 21.3% or
better. The liquidity of First Banking and the Banks is considered adequate to
repay deposits and other obligations, meet expected loan demand and pay
dividends.
Presented below is an interest rate sensitivity analysis of First Banking
at September 30, 1998. NOW, money market, and savings accounts have been
included in "less than three months". The analysis results in a negative one
year gap of $45,315,000, which means that First Banking is liability-sensitive
through one year (a greater amount of liabilities are maturing or repricing than
assets), which is beneficial in a falling rate environment. However, the Banks'
experience has indicated that
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<PAGE> 76
NOW, money market, and savings accounts of $91,216,000 are not interest rate
sensitive. Beyond one year, First Banking is asset-sensitive, which is
beneficial in a rising rate environment.
INTEREST RATE SENSITIVITY ANALYSIS
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
TERM TO REPRICING OR MATURITY
------------------------------------------------------------
OVER THREE OVER ONE
LESS THAN MONTHS YEAR OVER FIVE
THREE THROUGH THROUGH YEARS AND
MONTHS ONE YEAR FIVE YEARS INSENSITIVE TOTAL
--------- ---------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
Interest Earning Assets:
Interest Bearing Deposits in Other
Banks................................ $ 18,026 $ 18,026
Investment Securities................ 7,310 $ 16,663 $ 31,082 $ 15,716 70,771
Federal Funds Sold................... 8,625 8,625
Loans................................ 97,817 57,175 76,668 24,201 255,861
-------- -------- -------- -------- --------
Total Interest Earning Assets........ 131,778 73,838 107,750 39,917 353,283
Non-interest Earning Assets.......... 25,204 25,204
Total Assets................. $131,778 $ 73,388 $107,750 $ 65,121 $378,487
======== ======== ======== ======== ========
Interest Bearing Liabilities:
Interest Bearing Deposits............ $133,868 $114,232 $ 21,442 $269,542
Other Borrowed Money and Repurchase
Agreements........................ 334 2,497 5,029 $ 4,693 12,553
-------- -------- -------- -------- --------
Total Interest Bearing Liabilities... 134,202 116,729 26,471 4,693 282,095
Interest Free Deposits............... 47,925 47,925
Other Interest Free Liabilities and
Equity............................ 48,467 48,467
-------- -------- -------- -------- --------
Total Liability and Equity... $134,202 $116,729 $ 26,471 $101,085 $378,487
======== ======== ======== ======== ========
Net Interest Rate:
Sensitivity Gap...................... $ (2,424) $(42,891) $ 81,279 $(35,964)
Cumulative Gap....................... $ (2,424) $(45,315) $ 35,964
Net Interest Rate:
Sensitivity Gap as a Percent of
Interest Earning Assets........... (1.8)% (58.1)% 75.4% (55.2)%
Cumulative Gap as a Percent of
Cumulative Interest Earning Assets... (1.8)% (22.0)% 11.5%
</TABLE>
RESULTS OF OPERATIONS
Interest Income
Total interest income increased $897,000 (3.8%) in the first nine months of
1998 as compared to the first nine months of 1997 and increased $103,000 (1.3%)
in the third quarter of 1998 as compared to the third quarter of 1997. Interest
on loans increased $852,000 (4.6%) in the first nine months of 1998 as compared
to the first nine months of 1997 and increased $198,000 (3.1%) in the third
quarter of 1998 as compared to the third quarter of 1997, as a result of an
increase of $7,257,000 in the year-to-date average balance of loans outstanding
from September 30, 1997 to September 30, 1998 as well as an increase in yield on
the loan portfolio of approximately 0.2% for that period. Interest on
investments decreased $190,000 (4.4%) in the first nine months of this year
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<PAGE> 77
as compared to the first nine months of 1997 and decreased $199,000 (15.1%) in
the third quarter of 1998 from the third quarter of 1997, primarily as a result
of a nominal decrease in yield on the portfolio from 6.4% during the first nine
months of 1997 to 6.3% during the first nine months of 1998, as well as a
decrease in the average balance of the investment portfolio of $2,851,000 for
that period.
During the first nine months of 1998, interest on federal funds sold
increased $25,000 (16.1%) from the first nine months of 1997 and increased
$24,000 (60.0%) in the third quarter of 1998 as compared to the third quarter of
1997. Interest on Interest-bearing Deposits in Other Banks increased $210,000
(47.7%) during the first nine months of 1998 from the first nine months of 1997
and increased $80,000 (53.0%) in the third quarter of 1998 from the third
quarter of 1997. These increases were the result of an increase of 0.2% in the
weighted average yield on these short-term investments from September 30, 1997
to September 30, 1998 as well as an increase of $4,979,000 in the combined
average balance carried in interest bearing deposits in other banks and federal
funds sold for that period, which are the two means of investing any excess cash
from day to day.
Interest Expense
During the first nine months of 1998, the total interest expense increased
$192,000 (1.8%) from the first nine months of 1997 and decreased $95,000 (2.6%)
in the third quarter of 1998 from the third quarter of 1997. Interest on
deposits increased $187,000 (1.8%) in the first nine months of 1998 from the
first nine months of 1997 and decreased $113,000 (3.1%) in the third quarter of
this year from the third quarter of 1997. The increase for the first nine months
is attributable to an increase in the year-to-date average balance of interest
bearing deposits of $6,560,000 from September 30, 1997 to September 30, 1998
offset by a nominal decrease in the cost of these funds from 4.90% to 4.87% for
that period. Interest on Other Borrowed Money increased $5,000 (0.9%) in the
first nine months of 1998 from the first nine months of 1997 and increased
$18,000 (9.7%) in the third quarter of 1998 as compared to the third quarter of
1997. This increase is the result of an increase of $436,000 from September 30,
1997 to September 30, 1998 in the year-to-date average balance outstanding of
Other Borrowed Money offset by a lower average interest rate of 6.70% for the
first nine months of 1998 as compared to 7.14% for the first nine months of
1997.
Provisions for Loan Losses
Provisions for loan losses for the first nine months of 1998 decreased
$77,000 (10.4%) from the first nine months of 1997 and decreased $50,000 (18.5%)
in the third quarter of 1998 from the third quarter of 1997. After considering
the credit worthiness of the loan portfolios, it is the opinion of the
management of the Banks that the allowance for loan losses is adequate. At
September 30, 1998 the allowance for loan losses was 1.6% of outstanding loans
less unearned interest.
Nonperforming loans were $1,508,000 at September 30, 1998 and $1,217,000 at
December 31, 1997. These loans included those on a nonaccrual status of $596,000
and $434,000, respectively, accruing loans contractually past due at least 90
days of $293,000 and $134,000, respectively, and restructured loans of $619,000
and $649,000, respectively. Net loans charged off totaled $445,000 during the
first nine months of 1998 as compared to $854,000 during the first nine months
of 1997.
Noninterest Income and Expense
Noninterest income increased $207,000 (9.9%) in the first nine months of
1998 from the first nine months of 1997 and increased $41,000 (5.5%) in the
third quarter of 1998 from the third quarter of 1997. These increases are
reflected primarily in an increase in Other Service Charges of $239,000 and of
$39,000 and in Service Charges on Deposit Accounts of $46,000 and of $40,000
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<PAGE> 78
during the first nine months of this year and during the third quarter,
respectively, offset by a decrease of $78,000 and $38,000 in Fees for Trust
Services for the first nine months of this year and for the third quarter,
respectively. The year to date increases in Other Service Charges is the result
of a $152,000 increase in income from long-term mortgage loans (which are
acquired by other banks on a non-recourse basis concurrent with the closing of
the loan), a $60,000 increase in commissions on life insurance and mutual funds,
and a $24,000 increase in ATM fees. The increase in Service Charges on Deposit
Accounts is primarily the result of increases in deposit account fees
implemented in the late second quarter and early third quarter of 1998 and of
increases in the volume of accounts subject to service charge. The nine month
and quarterly decreases in Trust Fees are the result of having outsourced trust
administration activities and sharing fees with the third party.
Noninterest expense increased $584,000 (7.2%) in the first nine months of
1998 compared to the first nine months of 1997 and increased $145,000 (5.2%) in
the third quarter of 1998 as compared to the third quarter of 1997. These
increases are the result of increases in salary and personnel expense of
$190,000 and $40,000, respectively, increases in occupancy and equipment expense
of $160,000 and $39,000, respectively, and increases in Other Expense of
$234,000 and $66,000, respectively, during the first nine months of 1998 as
compared to the first nine months of 1997 and during the third quarter of 1998
as compared to the third quarter of 1997. The increase in salary and personnel
expense is primarily the result of nine month increases in salaries of $161,000
and in medical insurance premiums of $24,000. The increase in occupancy and
equipment expense is the result of increases in maintenance and repairs and in
depreciation expense related to equipment installation and upgrades in the
latter part of 1997. The increase in Other Expense is the result of nine month
increases in several items, including a $70,000 increase in advertising and
public relations, a $34,000 increase in charge card processing fees, a $34,000
increase in data processing and electronic banking expense, a $28,000 increase
in director fees and a $25,000 increase in check fraud losses.
FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31,
1997
Organization
First Banking owns all of the outstanding stock in Bulloch Bank, Metter
Bank and Effingham Bank. Effective August 27, 1996, First Banking consummated
its merger of the Effingham Bank into First Banking. First Banking exchanged
425,386 shares of its common stock and cash of approximately $2,800 for all of
the outstanding common stock and options to acquire the common stock of FNB
Bancshares, Inc. ("FNB"), parent company of Effingham Bank. The merger was
accounted for as a pooling-of-interests. The financial statements of First
Banking for the year ended December 31, 1995 have been restated to include FNB
and the Effingham Bank. All of the operations of First Banking are conducted by
the Banks. Management's discussion and analysis, which follows, relates
primarily to the Banks.
Capital Resources
First Banking and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on First Banking's consolidated financial statements.
Under capital adequacy guidelines First Banking and the Banks must meet specific
capital guidelines that involve quantitative measures of First Banking's and the
Banks' assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. First Banking's and the Banks'
classifications under the regulatory framework for prompt corrective action are
also subject to qualitative judgments by the regulators about components, risk
weightings and other factors.
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<PAGE> 79
Quantitative measures established by regulation to ensure capital adequacy
require First Banking and the Banks to maintain minimum amounts and ratios of
total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to
average assets, as defined in the regulations and as set forth in the table
below. Management believes that as of December 31, 1997 First Banking and the
Banks meet all capital adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notifications from the FDIC
categorized each bank as "well-capitalized" under the regulatory framework for
prompt corrective action. To be categorized as "well-capitalized", each bank
must maintain minimum total capital to risk-weighted assets, Tier I capital to
risk-weighted assets, and Tier 1 capital to average assets as set forth in the
table. There are no conditions or events since that notification that management
believes have changed such institutions' category.
First Banking's and the Banks' actual capital amounts and ratios as of
December 31, 1997 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
TO BE WELL
FOR CAPITAL CAPITALIZED UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
--------------- --------------- ------------------
AS OF DECEMBER 31, 1997 AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
- ----------------------- ------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Total Capital (to Risk-weighted
Assets):
Company............................. $43,529 17.4% $19,983 8.0% Not Applicable
Bulloch Bank........................ 27,639 19.7% 11,200 8.0% $14,000 10.0%
Metter Bank......................... 11,201 16.9% 5,302 8.0% 6,628 10.0%
Effingham Bank...................... 4,527 10.3% 3,499 8.0% 4,374 10.0%
Tier I Capital (to Risk-weighted
Assets):
Company............................. $40,397 16.3% $ 9,991 4.0% Not Applicable
Bulloch Bank........................ 25,884 18.5% 5,600 4.0% $ 8,400 6.0%
Metter Bank......................... 10,369 15.6% 2,651 4.0% 3,977 6.0%
Effingham Bank...................... 3,980 9.1% 1,750 4.0% 2,624 6.0%
Tier I Capital (to Average Assets):
Company............................. $40,397 10.5% $15,396 4.0% Not Applicable
Bulloch Bank........................ 25,884 11.5% 6,724 3.0% $11,207 5.0%
Metter Bank......................... 10,369 10.4% 2,995 3.0% 4,992 5.0%
Effingham Bank...................... 3,980 6.5% 2,431 4.0% 3,039 5.0%
</TABLE>
Liquidity
The percentage of net loans to deposits was 69.4% at December 31, 1997 and
68.9% at December 31, 1996. At December 31, 1997, the Banks held $44,773,861 in
cash and due from banks, interest bearing deposits and federal funds sold as
compared to $37,736,228 at December 31, 1996. The Banks' liquidity policies
require a minimum ratio of 20.0% of cash and certain investments to net with
drawable deposits and short-term maturities of other borrowed money. At December
31, 1997, each Bank's liquidity ratio exceeded 20.1%. Management considers First
Banking and the Banks' liquidity to be adequate to repay deposits and other
obligations, to meet expected loan demands, and to pay cash dividends.
Operating activities provided cash to First Banking of $7,991,966 and
$5,368,714 in 1997 and 1996, respectively. Investing activities, which primarily
consist of granting loans to customers and purchasing investment securities,
used cash of $26,033,610 and $27,909,705 in 1997 and 1996, respectively. The
Banks invested $983,951 and $2,405,496 in premises and equipment in 1997 and
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<PAGE> 80
1996, respectively. Cash provided by financing activities was $21,062,243 and
$29,146,202 in 1997 and 1996, respectively. Financing activities consist
primarily of accepting deposits from customers, the payment of dividends to
shareholders, and occasional strategic borrowing from the Federal Home Loan
Bank. Dividend payments were $2,207,930 in 1997 and $1,699,119 in 1996.
Effective May 15, 1995, First Banking declared an eight-for-five split of
its common stock effected in the form of a 60% stock dividend, and effective
June 30, 1997, First Banking declared a five-for-four split of its common stock
effected in the form of a 25% stock dividend. All references to share and per
share amounts have been retroactively adjusted to reflect these splits. Further,
effective May 29, 1998, First Banking declared a five-for-four stock split
effective in the form of a 25% stock dividend.
FINANCIAL CONDITION
Total assets increased $27,186,894 (7.1%) at December 31, 1997 from
December 31, 1996 and increased $33,669,945 (9.6%) at December 31, 1996 from
December 31, 1995. The 1997 customer growth was primarily in interest-bearing
deposits and loans and was funded by an increase in total deposits of
$25,158,005 and by operations of $7,991,966. The 1996 increase was primarily in
investment securities and loans and was funded by an increase in total deposits
of $25,164,629, other borrowings of $5,683,504 and by operations of $5,368,714.
A detailed discussion of the major components of the changes follows.
Investment Securities. First Banking has classified its investment
securities as either available for sale or held to maturity depending upon
whether First Banking has the intent and ability to hold investment securities
to maturity. At December 31, 1997 and 1996, $84,476,788 and $85,865,947,
respectively, of investment securities were classified as available for sale. A
net unrealized gain of $217,470 at December 31, 1997 and a net unrealized loss
of $22,824 at December 31, 1996 were included in shareholders' equity related to
available for sale securities. There were no realized losses from the sale or
call of investment securities in 1997 and 1996. Gross unrealized losses for all
investment securities at December 31, 1997 were $101,800. Such losses are not
expected to have any adverse impact on future operations of First Banking.
The following table sets forth the carrying amounts of investment
securities available for sale at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
U.S. Treasury Securities....................... $13,331,884 $22,156,402 $22,594,548
U.S. Government Agencies....................... 62,398,551 55,678,161 24,923,867
States and Political Subdivisions.............. 6,197,101 5,421,832 4,899,323
Other.......................................... 2,549,252 2,609,552 1,597,452
----------- ----------- -----------
$84,476,788 $85,865,947 $54,015,190
=========== =========== ===========
</TABLE>
73
<PAGE> 81
The following table sets forth the maturities of investment securities
available for sale at December 31, 1997, and the weighted average yields of such
securities (calculated on the basis of the cost and effective yields weighted
for the scheduled maturity of each security):
<TABLE>
<CAPTION>
MATURING
-----------------------------------------------------------------------------------
WITHIN AFTER ONE BUT AFTER FIVE BUT AFTER
ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS TEN YEARS
------------------- ------------------- ------------------ ------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
----------- ----- ----------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
Securities......... $ 9,496,291 5.65% $ 3,835,593 5.93%
U.S. Government
Agencies........... $23,792,817 5.72 34,053,389 5.69 $1,913,613 5.76% $2,638,732 5.99%
States and Political
Subdivisions(1).... 1,387,028 6.85 2,532,987 6.69 2,277,086 6.84
Other.............. 2,549,252
----------- ---- ----------- ---- ---------- ---- ---------- ----
$33,289,108 5.70% $39,276,010 5.75% $4,446,600 6.29% $7,465,070 6.38%
=========== ==== =========== ==== ========== ==== ========== ====
</TABLE>
The following table sets forth the carrying amounts of investment
securities held to maturity at the dates indicated:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
U.S. Treasury Securities........................... $ 3,701,283 $ 1,199,082 $ 6,985,104
U.S. Government Agencies........................... 1,264,194 2,377,268 17,221,506
States and Political Subdivisions.................. 15,881,638 13,781,394 11,571,495
----------- ----------- -----------
$20,847,115 $18,157,744 $35,778,105
=========== =========== ===========
</TABLE>
The following table sets forth the maturities of investment securities held
to maturity at December 31, 1997, and the weighted average yields of such
securities (calculated on the basis of the cost and effective yields weighted
for the scheduled maturity of each security):
<TABLE>
<CAPTION>
MATURING
-----------------------------------------------------------------------------------
WITHIN AFTER ONE BUT AFTER FIVE BUT AFTER
ONE YEAR WITHIN FIVE YEARS WITHIN TEN YEARS TEN YEARS
------------------- ------------------- ------------------ ------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
----------- ----- ----------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury
Securities......... $ 3,701,283 5.55%
U.S. Government
Agencies........... $ 999,904 8.16 $ 248,283 9.21% $ 16,007 10.42%
States and Political
Subdivisions(1).... 2,038,015 9.75 5,563,887 7.17 $4,061,990 7.48% 4,217,746 7.52
----------- ---- ----------- ---- ---------- ---- ---------- -----
$ 6,739,202 7.24 $ 5,812,170 7.26% $4,061,990 7.48% $4,233,753 7.53%
=========== ==== =========== ==== ========== ==== ========== =====
</TABLE>
- ---------------
(1) Weighted average yields on tax exempt obligations have been computed on a
fully tax-equivalent basis assuming a tax rate of 34 percent. The tax
equivalent rate has been reduced by 0.35% to allow for estimated
disallowance of interest expense.
No securities of a single issuer held by First Banking, excluding U. S.
Treasury and U. S. Government Agencies, exceeded 10% of total shareholders'
equity in 1997, 1996, and 1995.
74
<PAGE> 82
Loans. Loans net of unearned interest increased $20,673,289 or 8.3% in
1997 as compared to 1996 and increased $15,934,923 or 7.4% in 1996 as compared
to 1995. These increases were the result of continued strong economic activity,
both consumer and commercial, in First Banking's market.
First Banking's loan portfolio consists of the following categories of
loans:
Commercial, Financial and Agricultural. Commercial, Financial and
Agricultural loans consist of all business and agricultural loans not secured by
real estate. The borrowers in this category are generally small to medium sized
businesses located in the market area of First Banking. Most loans in this
category are collateralized. Types of collateral include accounts receivable,
inventory, equipment, furniture and fixtures, and certificates of deposit. Risks
associated with these types of loans include bankruptcy, economic downturn,
deteriorating collateral, crop failure as a result of extreme or poor weather,
and changes in market prices for underlying crops in the case of agricultural
loans.
Real Estate -- Construction. Loans classified as construction loans are
typically made short-term to finance the construction of residential (1-4
family) dwellings, have permanent take-out mortgages approved and will be fully
repaid upon completion of construction. Builder financing is generally
discouraged. Such loans require site inspections and evaluations prior to the
payment of any draws. Risks associated with such loans include cost overruns and
interest rate movements.
Real Estate -- Mortgage. Loans classified as mortgage real estate include
all loans secured by real estate which were made for commercial, financial or
agricultural purposes and which are not construction loans. The primary
collateral on such loans is first lien mortgages, but also includes
second-mortgage positions. Risks associated with this type loan are typically
bankruptcy, economic downturn, and deteriorating collateral.
Installment Loans to Individuals. Installment loans to individuals consist
of consumer loans made for personal, household and family purposes, such as home
improvement and automobile purchases. Types of collateral include automobiles,
mobile homes, savings accounts, and stock. Risks associated with such loans
include deteriorating collateral, general economic downturn, and bankruptcy.
Agriculturally-related loans. Agriculturally related loans comprise
approximately 8.9% of the total loan portfolio at December 31, 1997.
Agriculturally related loans are defined as those loans secured by farmland as
well as those originated to finance agricultural production, which includes
irrigated and non-irrigated row crops, food and feed grain, livestock and other
enterprises, such as timber and pecans. First Banking limits such loans to
operators who exhibit strong financial ability and proven performance and can
offer the collateral deemed necessary for their individual lines of credit.
Agriculturally related loans made for real estate or for equipment follow the
general guidelines discussed below in "Credit Underwriting and Monitoring." Crop
production and livestock operation loans typically require liens on the
livestock or the current year crop production. Farm visits and inspections are
performed periodically to assess the collateral and the overall soundness of the
operation. A customized repayment plan is developed for each operator based upon
his projected cash flow from crop production or livestock sales. Risks
associated with such loans are typically those identified above in "Commercial,
Financial and Agricultural," but also include poor production associated with
unfavorable weather conditions as well as an unfavorable farm-to-market economic
relationship.
Credit Underwriting and Monitoring. It is the practice of First Banking to
meet the credit needs of qualified borrowers within its market area at a
reasonable price. The extent and amount of collateral required is based on
factors such as the character of the borrower, his financial condition,
75
<PAGE> 83
his ability to service the debt according to a predetermined repayment plan, his
credit history, and the loan purpose. Because each loan is evaluated on its own
merit, there are no predetermined or minimal loan-to-value ratios or lien
positions, except as provided by bank regulators in the case of real estate
loans. State banking regulations require that, in the absence of other
acceptable collateral, a real estate loan be less than or equal to 90% and 75%
of the appraised value of the real estate taken as security in the case of an
amortizing loan and of a nonamortizing loan, respectively.
First Banking operates under a comprehensive loan policy which individually
addresses the various types and purposes of loans the Banks can make and defines
acceptable collateral. The lending policy emphasizes the financial strength and
cash flow position of the borrower and considers collateral as the last resort
source of repayment. First Banking also has in place a formal loan
classification and grading system, performed as a separate and independent
function within First Banking. All loans are assigned a grade and are subject to
review based on the perceived risk of loss to First Banking. Such review
includes verification of all necessary documentation as well as financial
statement analysis and compliance with regulations and bank policy.
Economy of the Market Area. First Banking's primary market area is
comprised of Bulloch, Candler, Effingham, and contiguous counties of southeast
Georgia. The local economy is a diversified mix of retail and service,
manufacturing and agriculture. Statesboro-Bulloch County is a retail hub which
draws from an eight county area and is also the home of Georgia Southern
University, enrolling 14,000 students and employing 2,000 faculty and staff.
Ogeechee Technical Institute is a drawing card for industries looking to locate
in southeast Georgia. Metter-Candler County has also experienced commercial
development in terms of motels, restaurants, and other retail businesses around
the Interstate 16 interchange which cater to travelers. Ceran Language
Institute, a language school headquartered in Belgium, recently established its
first U. S. facility in Metter-Candler County and is designed to provide intense
instruction in the English language to foreign executives.
Springfield-Rincon-Effingham County is included as part of the Savannah-Chatham
County, Georgia Metropolitan Statistical Area. This area has experienced
tremendous growth in recent years as a result of population movement from
Savannah-Chatham County, and the correlating growth in retail and service
businesses from the increased population, and of the establishment of a large
paper mill in the county.
In the manufacturing sector First Banking's market area is home to seventy
manufacturers, ranging from meat packing, lumber mills, a paper mill, grey-iron
foundry, meter and valve production, and garment manufacturing to computer form
production, steel recycling, and lawn mower engines. Agriculture and
agribusiness account for approximately one-third of the local economy in terms
of economic impact. Major cash producers include Vidalia onions, peanuts,
cotton, forestry, tobacco, corn, poultry, beef and swine. The resurgence of
cotton has led to the construction of three cotton gins in the area and the
major upgrading of an existing one. A technological advance in controlled
atmospheric storage enables Vidalia onion growers to store their crop and ship
year-round all across the nation.
76
<PAGE> 84
The following tables present the composition of First Banking's loan
portfolio at December 31 for the past five years as well as the maturities and
sensitivities of loans to changes in interest rates.
LOAN PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Commercial, Financial
and Agricultural.... $ 52,950,189 $ 49,837,280 $ 54,600,117 $ 64,999,750 $ 63,548,257
Real Estate --
Construction........ 14,175,794 17,366,129 12,505,746 7,534,115 7,272,112
Real
Estate -- Mortgage.. 161,563,698 141,015,449 127,203,963 93,688,443 77,795,102
Installment Loans to
Individuals......... 21,622,026 22,838,620 21,686,523 22,945,822 23,307,496
------------ ------------ ------------ ------------ ------------
Total....... $250,311,707 $231,057,478 $215,996,349 $189,168,130 $171,922,967
============ ============ ============ ============ ============
</TABLE>
The maturities of the indicated loans at December 31, 1997 are as follows:
MATURING
<TABLE>
<CAPTION>
AFTER ONE
WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
Commercial, Financial and
Agricultural....................... $ 28,858,989 $13,611,143 $10,480,057 $ 52,950,189
Real Estate -- Construction.......... 10,712,954 956,838 2,506,002 14,175,794
Real Estate -- Mortgage.............. 66,172,253 66,743,447 28,647,998 161,563,698
Installment Loans to Individuals..... 9,463,231 11,905,775 253,020 21,622,026
------------ ----------- ----------- ------------
Total...................... $115,207,427 $93,217,203 $41,887,077 $250,311,707
============ =========== =========== ============
</TABLE>
INTEREST SENSITIVITY
<TABLE>
<CAPTION>
DECEMBER 31, 1997
-----------------------------------------
FIXED VARIABLE
RATE RATE TOTAL
------------ ----------- ------------
<S> <C> <C> <C>
Due Within One Year.............................. $ 84,837,405 $30,370,022 $115,207,427
Due After One But Within Five Years.............. 59,235,554 33,981,649 93,217,203
Due After Five Years............................. 22,179,287 19,707,790 41,887,077
------------ ----------- ------------
Total.................................. $166,252,246 $84,059,461 $250,311,707
============ =========== ============
</TABLE>
The risks associated with granting loans at fixed rates is that the
deposits funding such loans may reprice at higher rates prior to the loan's
maturity. First Banking mitigates such risk by managing the maturity match of
interest bearing assets and liabilities. See "Market Risk."
The Banks have no foreign loans or significant potential problem loans that
are not already disclosed herein nor any other significant interest bearing
assets required to be disclosed.
77
<PAGE> 85
Nonperforming Assets. The following table presents a history of First
Banking's nonperforming assets at year-end for the past five years.
NONACCRUAL, PAST DUE AND RESTRUCTURED LOANS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Nonaccrual Loans................ $ 434,296 $ 353,389 $ 549,297 $ 474,045 $ 562,123
Accruing Loans Past Due at least
90 days....................... 133,712 207,420 367,663 419,115 241,560
Restructured Loans.............. 648,751 855,515 750,550 1,039,729 413,897
---------- ---------- ---------- ---------- ----------
Total Nonperforming Loans....... 1,216,759 1,416,324 1,667,510 1,932,889 1,217,580
Other Real Estate............... 368,524 446,500 306,500 492,692 504,000
---------- ---------- ---------- ---------- ----------
Total Nonperforming
Assets............. $1,585,283 $1,862,824 $1,974,010 $2,425,581 $1,721,580
========== ========== ========== ========== ==========
</TABLE>
Interest income that would have been recorded on these nonperforming loans
in accordance with their original terms amounted to $163,401, $171,952,
$110,345, $115,293 and $94,358 in 1997, 1996, 1995, 1994 and 1993, respectively,
compared with amounts received of $96,369, $52,193, $53,462, $53,961 and $23,553
for such years, respectively. Restructured loans are performing in accordance
with their restructured terms.
Nonaccrual loans by loan category in 1997 included $140,500 in real
estate-construction, $41,011 in real estate-mortgage, $51,324 in consumer loans
$148,621 in commercial loans, and $52,840 in agricultural loans.
Loans are placed on non-accrual status when management does not consider
the collection of interest to be reasonably assured. It is First Banking's
policy to allow any loan past due greater than 90 days to remain on an accrual
basis if it is well collateralized and in process of collection. All loans 120
days past due, however, are charged-off.
Deposits. Average deposits increased $9,869,870 in 1997 and $38,891,138 in
1996. The 1997 increase is primarily the result of a net increase of $11,565,185
in total time deposits, of $4,352,212 in demand deposits and $3,108,412 in NOW
accounts offset by a $10,426,124 decrease in money market accounts. The overall
cost of funds decreased 0.10% from 1996 to 1997. The decrease in money market
accounts in 1997 is primarily the result of a transfer out of First Banking of
$8,300,000 from an established public fund account. The increase in time
deposits is in time deposits over $100,000. The 1996 increase in NOW accounts is
primarily attributable to one new public fund account obtained through
competitive bid and opened on January 2, 1996. This account maintained an
average balance of approximately $5,900,000 in 1997 and $10,700,000 during 1996.
At December 31, 1997 and 1996, time deposits $100,000 and above comprised 25.0%
and 24.9% of total deposits and 21.6% and 21.4% of total assets, respectively.
Peer average of time deposits $100,000 and above to total assets was 9.5% at
December 31, 1996. At December 31, 1997 and 1996, 30.1% and 33.8%, respectively,
of total time deposits over $100,000 were deposits of state and local
governmental entities. Such deposits are acquired from, and rates paid are based
on, competitive bids with other local commercial banks in the market area. State
banking regulations require such deposits in excess of the FDIC coverage of
$100,000 be collateralized by pledging securities in the investment portfolio.
Because of the volatility of such deposits, securities are generally purchased
to match maturities of the corresponding time deposit.
78
<PAGE> 86
The following table presents the average amount outstanding and the average
rate paid on deposits by First Banking for the years 1997, 1996 and 1995.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------
1997 1996 1995
------------------- ------------------- -------------------
AVERAGE AVERAGE AVERAGE
AMOUNT RATE AMOUNT RATE AMOUNT RATE
------------ ---- ------------ ---- ------------ ----
<S> <C> <C> <C> <C> <C> <C>
Deposits:
Demand...................... $ 40,128,073 0.00% $ 35,775,861 0.00% $ 32,728,690 0.00%
NOW......................... 57,994,847 3.23% 54,886,435 3.27% 39,170,751 2.95%
Money Market................ 26,797,217 3.21% 37,223,341 3.40% 36,363,393 3.56%
Savings..................... 14,380,510 3.12% 13,110,326 3.19% 12,181,251 3.17%
Time ($100,000 and above)... 84,007,293 6.02% 74,498,750 6.08% 66,101,805 6.05%
Other Time.................. 100,672,800 5.62% 98,616,158 5.87% 88,673,843 5.85%
------------ ---- ------------ ---- ------------ ----
Total............... $323,980,740 4.29% $314,110,871 4.39% $275,219,733 4.37%
============ ==== ============ ==== ============ ====
</TABLE>
As of December 31, 1997, time deposits of $100,000 or more totaled
$88,807,158. The maturities of all time deposits over $100,000 are as follows:
<TABLE>
<S> <C>
Three months or less........................................ $33,788,512
Over three months through six months........................ 23,140,502
Over six months through twelve months....................... 22,904,418
Over twelve months.......................................... 8,973,726
-----------
Total............................................. $88,807,158
===========
</TABLE>
Other Borrowed Money. Other borrowed money decreased $1,499,608 from
December 31, 1996 to December 31, 1997 and increased $3,683,504 from December
31, 1995 to December 31, 1996. Funds are strategically borrowed from the Federal
Home Loan Bank of Atlanta as a means of providing funding for long-term credit
products to First Banking's loan customers. Maturities and principal repayments
of other borrowed money are structured to generally match those of the loans
funded by these borrowings. At December 31, 1997, First Banking also had
short-term borrowings outstanding of $1,400,000 in repurchase agreements.
There were no short-term borrowings for which the average balance
outstanding during the period was more than 30% of shareholders' equity for each
of the years ended December 31, 1997, 1996 and 1995.
Market Risk
Asset and Liability Management. First Banking's principal business is the
making of loans, funded by customer deposits and, occasionally, other borrowed
funds. Consequently, a significant portion of First Banking's assets and
liabilities are monetary in nature and fluctuations in interest rates will
affect First Banking's future net interest income and cash flows. This interest
rate risk is First Banking's primary market risk exposure. First Banking does
not enter into derivative financial instruments such as futures, forwards,
swaps, and options. Also, First Banking has no market risk-sensitive instruments
held for trading purposes. First Banking's exposure to market risk is reviewed
on a regular basis by its management.
First Banking measures interest rate sensitivity as the difference between
amounts of interest-earning assets and interest-bearing liabilities which either
reprice or mature within a given period of time. The difference, or the interest
rate repricing "gap," provides an indication of the extent to
79
<PAGE> 87
which an institution's interest rate spread will be affected by changes in
interest rates. A gap is considered positive when the amount of interest-rate
sensitive assets exceeds the amount of interest-rate sensitive liabilities and
is considered negative when the amount of interest rate sensitive liabilities
exceeds the amount of interest-rate sensitive assets. Generally, during a period
of rising interest rates, a negative gap within shorter maturities would
adversely affect net interest income, while a positive gap within shorter
maturities would result in an increase in net interest income, and during a
period of falling interest rates, a negative gap within shorter maturities would
result in an increase in net interest income while a positive gap within shorter
maturities would have the opposite effect.
The table below depicts First Banking's interest risk at December 31, 1997.
The time period indicated in the table represents the shorter of the time
remaining before the asset or liability either matures or is subject to
repricing. NOW, money market, and savings accounts have been included in "less
than three months." The analysis results in a negative one year gap of
$63,227,000 (excess of interest bearing liabilities over interest earning assets
repricing within one year). However, the Banks' experience has indicated that
NOW, money market, and savings deposits of $119,740,750 are not interest rate
sensitive.
INTEREST RATE SENSITIVITY ANALYSIS
DECEMBER 31, 1997 (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
TERM TO REPRICING OR MATURITY
-----------------------------------------------------------------
OVER THREE OVER ONE OVER FIVE
LESS THAN MONTHS YEAR THROUGH YEARS AND
THREE MONTHS ONE YEAR FIVE YEARS INSENSITIVE TOTAL
------------ ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
Interest Earning Assets:
Interest Bearing Deposits in Other
Banks................................. $ 16,367 $ 16,367
Investment Securities................... 20,199 $ 19,830 $ 45,088 $ 20,207 105,324
Federal Funds Sold...................... 3,775 3,775
Loans................................... 112,410 52,854 62,194 22,854 250,312
-------- -------- -------- -------- --------
Total Interest
Earning Assets.......................... 152,751 72,684 107,282 43,061 375,778
Non-interest Earning Assets............. 35,445 35,445
-------- -------- -------- -------- --------
Total Assets............................ $152,751 $ 72,684 $107,282 $ 78,506 $411,223
======== ======== ======== ======== ========
Interest Bearing Liabilities:
Interest Bearing Deposits............... $190,185 $ 95,964 $ 22,675 $308,824
Short-term Borrowings................... 300 700 400 1,400
Other Borrowed Money.................... 785 728 4,022 $ 3,883 9,418
-------- -------- -------- -------- --------
Total Interest Bearing
Liabilities.................... 191,270 97,392 27,097 3,883 319,642
Interest Free Deposits.................... 45,981 45,981
Other Interest Free Liabilities and
Equity.................................. 45,600 45,600
-------- -------- -------- -------- --------
Total Liabilities & Equity....... $191,270 $ 97,392 $ 27,097 $ 95,464 $411,223
======== ======== ======== ======== ========
Net Interest Rate Sensitivity Gap......... $(38,519) $(24,708) $ 80,185 $(16,958)
Cumulative Gap.......................... $(38,519) $(63,227) $ 16,958
Net Interest Rate
Sensitivity Gap as a Percent of Interest
Earning Assets........................ (25.22)% (33.99)% 74.74% (39.38)%
Cumulative Gap as a Percent of Cumulative
Interest Earning Assets................. (25.22)% (28.05)% 5.10%
</TABLE>
80
<PAGE> 88
The following table sets forth the consolidated average balance sheets for
First Banking, total interest earned on earning assets, total interest paid on
deposits, and average rates earned on earning assets and paid on interest
bearing liabilities. This information is presented for the years ended December
31, 1997, 1996 and 1995.
<TABLE>
<CAPTION>
AVERAGE BALANCE SHEETS, INCOME/EXPENSE AND AVERAGE
YIELDS EARNED AND RATES PAID
YEAR ENDED DECEMBER 31,
--------------------------------------------------
1997 1996
----------------------------------- ------------
INTEREST
AVERAGE EARNED/ YIELD/ AVERAGE
BALANCE PAID RATE BALANCE
------------ ----------- ------ ------------
<S> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Interest Bearing......... $ 11,910,890 $ 672,159 5.64% $ 10,633,446
Deposits In Other Banks
Investment
Securities(1):
Taxable.................. 76,139,093 4,571,210 6.00 83,224,586
Tax Exempt(2)............ 20,193,215 1,084,100 7.60 16,981,576
Federal Funds Sold....... 3,191,193 199,988 5.53 8,263,873
Loans (Less Unearned):
Taxable(3)............... 236,880,257 24,613,628 10.39 218,746,182
Tax Exempt(2)............ 4,828,943 321,646 9.56 2,976,186
------------ ----------- ----- ------------
Interest Earning
Assets(2).............. 353,143,591 31,462,731 9.08 340,825,849
Non-Interest Earning
Assets:
Cash and Non-interest
bearing................ 13,931,555 12,690,146
Deposits Interest
Receivable............. 4,844,170 4,652,260
Premises and Equipment,
Net.................... 7,254,940 6,389,377
Other Real Estate........ 630,429 369,197
Other Assets............. 2,264,412 2,314,288
Less: Allowance for Loan
Losses................. (4,056,133) (4,075,648)
------------ ------------
Total.............. $378,012,964 $363,165,469
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing
Liabilities:
Deposits:
NOW.................... $ 57,994,847 1,875,013 3.23% $ 54,886,435
Money Market Deposit
Accounts............. 26,797,217 859,518 3.21 37,223,341
Savings................ 14,380,510 448,766 3.12 13,110,326
Time:
Certificates of Deposits
over $100,000.......... 84,007,293 5,057,137 6.02 74,498,750
Other Time................. 100,672,800 5,656,899 5.62 98,616,158
Other Borrowed Money....... 10,651,997 737,760 6.93 9,194,557
------------ ----------- ----- ------------
Total Interest
Bearing
Liabilities...... 294,504,664 14,635,093 4.97 287,529,567
Non-Interest Bearing
Liabilities:
Demand Deposits.......... 40,128,073 35,775,861
Interest Payables........ 3,203,323 3,174,297
Other Liabilities........ 1,086,226 1,057,999
Shareholders' Equity....... 39,090,678 35,627,745
------------ ------------
Total.............. $378,012,964 $363,165,469
------------ ------------
Net Interest Earnings...... $16,827,638
===========
Net Yield on Interest
Earning Assets(2)........ 4.93%
=====
<CAPTION>
AVERAGE BALANCE SHEETS, INCOME/EXPENSE AND AVERAGE
YIELDS EARNED AND RATES PAID
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------
1996 1995
-------------------- ---------------------------
INTEREST INTEREST
EARNED/ YIELD/ AVERAGE EARNED/ YIELD/
PAID RATE BALANCE PAID RATE
----------- ------ ------------ ------------ ------
<S> <C> <C> <C> <C> <C>
ASSETS
Interest Earning Assets:
Interest Bearing......... $ 584,746 5.50% $ 12,556,038 $ 755,892 6.01%
Deposits In Other Banks
Investment
Securities(1):
Taxable.................. 5,111,510 6.14 63,315,691 3,815,850 6.03
Tax Exempt(2)............ 859,929 7.14 14,342,909 881,278 8.78
Federal Funds Sold....... 418,504 5.35 4,909,650 268,331 5.47
Loans (Less Unearned):
Taxable(3)............... 23,358,479 10.68 198,786,488 21,477,088 10.80
Tax Exempt(2)............ 234,809 11.42 3,498,118 249,364 10.27
----------- ----- ------------ ------------ -----
Interest Earning
Assets(2).............. 30,567,977 9.10 297,408,894 27,447,803 9.39
Non-Interest Earning
Assets:
Cash and Non-interest
bearing................ 10,391,126
Deposits Interest
Receivable............. 4,026,487
Premises and Equipment,
Net.................... 5,251,465
Other Real Estate........ 450,852
Other Assets............. 2,406,137
Less: Allowance for Loan
Losses................. (3,517,734)
------------
Total.............. $316,417,227
============
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest Bearing
Liabilities:
Deposits:
NOW.................... 1,793,576 3.27% $ 39,170,751 1,155,231 2.95%
Money Market Deposit
Accounts............. 1,265,473 3.40 36,363,393 1,292,854 3.56
Savings................ 418,777 3.19 12,181,251 386,571 3.17
Time:
Certificates of Deposits
over $100,000.......... 4,528,026 6.08 66,101,805 3,998,332 6.05
Other Time................. 5,783,882 5.87 88,673,843 5,184,666 5.85
Other Borrowed Money....... 617,601 6.72 5,539,147 400,390 7.23
----------- ----- ------------ ------------ -----
Total Interest
Bearing
Liabilities...... 14,407,335 5.01 248,030,190 12,418,044 5.01
Non-Interest Bearing
Liabilities:
Demand Deposits.......... 32,728,690
Interest Payables........ 2,464,105
Other Liabilities........ 1,250,224
Shareholders' Equity....... 31,944,018
------------
Total.............. $316,417,227
------------
Net Interest Earnings...... $16,160,642 $ 15,029,759
=========== ============
Net Yield on Interest
Earning Assets(2)........ 4.88% 5.22%
===== =====
</TABLE>
- ---------------
(1) Yield on securities is based on amortized cost. Changes in market value are
not considered.
(2) Yields have been calculated on a tax equivalent basis assuming a tax rate of
34 percent. The tax equivalent rate has been reduced by 0.35 percent to
allow for estimated disallowance of interest expense.
(3) Total interest income includes loan fees of $797,924 in 1997, $789,618 in
1996 and $721,902 in 1995. No separate treatment has been made for
non-accrual loans.
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<PAGE> 89
The following table sets forth a summary of the changes in interest income
and interest expense resulting from changes in volume and rate for the periods
indicated. There were no out-of-period items and adjustments required to be
excluded from the table.
<TABLE>
<CAPTION>
1997 COMPARED TO 1996 1996 COMPARED TO 1995
INCREASE (DECREASE) DUE TO INCREASE (DECREASE) DUE TO
----------------------------------- ------------------------------------
VOLUME(1) RATE(1) NET VOLUME(1) RATE(1) NET
---------- --------- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest Income:
Interest Bearing
Deposits........... $ 72,130 $ 15,283 $ 87,413 $ (110,119) $ (61,027) $ (171,146)
Loans:
Taxable............ 1,866,519 (611,370) 1,255,149 2,115,491 (234,100) 1,881,391
Tax-Exempt......... 117,607 (30,770) 86,837 (58,336) 43,781 (14,555)
Investments:
Taxable............ (426,165) (114,135) (540,300) 1,223,860 64,440 1,288,300
Tax-Exempt......... 167,210 56,961 224,171 14,085 (12,476) 1,609
Federal Funds Sold... (231,188) 12,672 (218,516) 168,680 (18,506) 150,174
---------- --------- ---------- ----------- --------- ----------
Total Interest
Income............. 1,566,113 (671,359) 894,754 3,353,661 (217,888) 3,135,773
---------- --------- ---------- ----------- --------- ----------
Interest Expense:
NOW................ 103,873 (22,436) 81,437 502,488 135,857 638,345
Savings............ 38,770 (8,781) 29,989 29,745 2,461 32,206
Money Market
Deposit
Accounts........ (338,434) (67,521) (405,955) 30,407 (57,788) (27,381)
Certificate of
Deposits Over
$100,000........... 573,449 (44,338) 529,111 509,794 19,900 529,694
Other Time........... 121,845 (248,828) (126,983) 581,485 17,730 599,215
Other Borrowed
Money.............. 100,371 19,788 120,159 243,208 (25,996) 217,212
---------- --------- ---------- ----------- --------- ----------
Total Interest
Expense............ 599,874 (372,116) 227,758 1,897,1279 2,164 1,989,291
---------- --------- ---------- ----------- --------- ----------
Net Interest
Earnings........... $ 966,239 $(299,243) $ 666,996 $ 1,456,534 $(310,052) $1,146,482
========== ========= ========== =========== ========= ==========
</TABLE>
- ---------------
(1) The change in interest due to both rate and volume has been allocated to
volume and rate changes in proportion to the relationship of the absolute
dollar amount of the change of each.
RESULTS OF OPERATIONS
Interest Income
Total interest income increased $894,754 (2.9%) in 1997 from 1996 and
increased $3,120,174 (11.4%) in 1996 from 1995. Interest on loans increased
$1,341,986 in 1997 from 1996 and increased $1,866,836 in 1996 from 1995. The
increase in 1997 is the result of an increase in average loans outstanding of
$19,986,832 offset by a decrease in the taxable equivalent yield on the loan
portfolio from 10.7% in 1996 to 10.4% in 1997. The increase in 1996 is primarily
the result of an increase in average loans outstanding of $19,437,762. The loan
growth in 1997 and 1996 is reflected primarily in Real Estate-Mortgage loans,
which are made for commercial, financial or agricultural purposes.
Interest on investments decreased $316,129 (5.3%) in 1997 from 1996 and
increased $1,274,311 (27.1%) in 1996 from 1995. The decrease in 1997 is the
result of a decrease in the average investment portfolio of $3,873,854 offset by
a nominal increase in taxable equivalent yield of 0.03% from 1996 to 1997. The
increase in 1996 is the result of an increase in the average investment
82
<PAGE> 90
portfolio of $22,547,562 offset by lower average yields within the portfolio
from 6.5% in 1995 to 6.3% in 1996.
During 1997, interest on federal funds sold decreased $218,516 (52.2%) from
1996 and increased $150,173 (56.0%) in 1996 from 1995, while interest on
interest bearing deposits increased $87,413 (14.9%) in 1997 from 1996 and
decreased $171,146 (22.6%) in 1996 from 1995. The decrease in income from
federal funds sold and the increase in income from interest bearing deposits in
other banks during 1997 is primarily the result of an overall decrease in total
funds available for short-term investment offset by higher rates paid on these
short-term investments from 5.4% in 1996 to 5.6% in 1997. The net decrease of
$20,972 in total interest on interest bearing deposits and federal funds sold in
1996 is the result of a decrease in the yield on such investments from 5.86% in
1995 to 5.31% in 1996 offset by an increase in the average balance of
$1,431,631.
Interest Expense
During 1997 interest paid on deposits increased $107,599 (0.8%) from 1996
and increased $1,772,080 (14.7%) in 1996 from 1995. The 1997 increase is the
result of an increase in average interest bearing deposits of $5,517,657 offset
by a decrease in the average rate paid on deposits from 5.0% in 1996 to 4.9% in
1997. The 1996 increase is solely the result of an increase of $35,843,967 in
average interest bearing deposits.
Net Interest Margin
The interest margin of First Banking, calculated as interest income divided
by average interest earning assets, was 4.9% in both 1997 and 1996 and 5.2% in
1995. The margin is the result of careful management of both the growth and the
pricing of loans and deposits in a competitive interest rate environment.
Provision for Loan Losses
Provision for loan losses increased $237,374 in 1997 from 1996 and
decreased $164,389 in 1996 from 1995. Changes in the amount of the provision for
loan losses are the result of judgments made by management of the Banks after
considering the credit worthiness and growth of the loan portfolios. At December
31, 1997 and 1996, the allowance for loan losses was 1.6% and 1.8%,
respectively, of outstanding loans less unearned interest. Total nonperforming
loans were $1,216,759 at December 31, 1997 and $1,416,324 at December 31, 1996.
The allowance for loan losses was 3.2 and 2.8 times total nonperforming loans at
December 31, 1997 and 1996, respectively. Net charge-offs amounted to $1,036,289
in 1997 as compared to $526,693 in 1996. The increase in net charge-offs in 1997
is directly the result of a charge-off of $632,110 on one credit line. The
amount of the allowance for loan losses is determined by management after
considering, among other things, factors such as classified and past due loans
as well as portfolio growth and diversification. Management believes such
allowance is adequate to absorb future probable losses on loans outstanding at
December 31, 1997.
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<PAGE> 91
SUMMARY OF LOAN LOSS EXPERIENCE
The following table summarizes average loan balances; changes in the
allowance for possible loan losses arising from loans charged off and recoveries
on loans previously charged off, by loan category; and additions to the
allowance which have been charged to expense:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------------------------------------------
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Average Amount of
Loans................ $241,709,200 $221,722,368 $202,284,606 $180,191,264 $171,448,186
============ ============ ============ ============ ============
Analysis of the
Allowance for Loan
Losses:
Balance at Beginning
of Period......... $ 4,024,539 $ 3,856,321 $ 3,274,587 $ 2,852,712 $ 2,783,559
------------ ------------ ------------ ------------ ------------
Loans Charged off:
Commercial,
Financial and
Agricultural.... 851,356 254,876 88,777 70,117 312,463
Real Estate --
Mortgage........ 155,341 336 -- 2,514 34,738
Installment Loans
to
Individuals..... 222,733 403,947 253,294 254,231 406,597
------------ ------------ ------------ ------------ ------------
Total Loans
Charged off..... 1,229,430 659,159 342,071 326,862 753,798
------------ ------------ ------------ ------------ ------------
Recoveries on
Loans Previously
Charged off:
Commercial,
Financial and
Agriculture... 63,934 55,393 12,907 33,123 35,904
Real Estate --
Mortgage..... 5,450
Installment
Loans to
Individuals... 123,757 77,073 51,598 83,541 60,279
------------ ------------ ------------ ------------ ------------
Total
Recoveries.. 193,141 132,466 64,505 116,664 96,183
------------ ------------ ------------ ------------ ------------
Net Loans Charged
off.................. 1,036,289 526,693 277,566 210,198 657,615
Additions to
Allowance Charged
to Expense........ 932,285 694,911 859,300 632,073 726,768
------------ ------------ ------------ ------------ ------------
Balance at End of
Period............... $ 3,920,535 $ 4,024,539 $ 3,856,321 $ 3,274,587 $ 2,852,712
============ ============ ============ ============ ============
Ratio of Net
Charge-offs during
the period to Average
Loans Outstanding.... 0.43% 0.24% 0.14% 0.12% 0.38%
Provision for Loan
Losses shown on the
Selected Financial
Data................. $ 932,285 $ 694,911 $ 859,300 $ 632,073 $ 726,768
</TABLE>
First Banking's provision for loan losses is based upon management's
continuing review and evaluation of the portfolio and is intended to create an
allowance adequate to absorb losses on loans outstanding as of the end of each
reporting period. For individually significant amounts, management's review
consists of evaluations of the financial strength of the borrowers and the
related
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<PAGE> 92
collateral. Such evaluation is made by classifying loans based on values for
financial strength. These classifications are assigned by responsible loan
officers and reviewed by the Loan Review Officer. The totals by loan
classification, along with related historical loss ratios, are used to determine
the allowance required to provide for probable losses. The review of groups of
loans which are individually insignificant is based upon delinquency status of
the group, lending policies and previous collection experience by each category.
Also, the effects of current economic conditions on specific industries or
classes of borrowers are considered in determining allowance for loan loss
requirements.
The approximate anticipated amount of charge-offs by category during 1998
is as follows:
<TABLE>
<S> <C>
Commercial, Financial and Agricultural...................... $175,000
Real Estate -- Mortgage..................................... 25,000
Installment Loans to Individuals............................ $200,000
--------
Total............................................. $400,000
========
</TABLE>
Non-interest Income and Expense
Non-interest income increased $395,431 in 1997 from 1996 and increased
$209,498 in 1996 from 1995. The increase in 1997 non-interest income is the
result of increases in service charges on deposit accounts of $181,393 and in
other income of $221,120 offset by a $7,082 decrease in trust income. The
increase in service charges on deposit accounts is the result of a full year
effect of service charge adjustments made in the later part of 1996, and the
increase in Other Service Charges is primarily the result of an increase of
$54,154 in income from long-term mortgage loans originated for other banks, of
an increase of $27,455 in commissions on mutual funds, annuities, and life
insurance, and from a gain of $110,516 from the sale of a pool of SBA-guaranteed
loans. The increase in non-interest income in 1996 is primarily the result of an
increase of $166,617 in service charges on deposit accounts, of $15,710 in trust
income, and of $26,188 in income from long-term mortgage loans originated for
other banks.
Non-interest expense increased $676,941 in 1997 from 1996 and $588,959 in
1996 from 1995. The increases in non-interest expense resulted from an increase
in total salary and personnel expense of $476,329 in 1997 and $134,204 in 1996,
an increase in total occupancy and equipment expense of $388,378 in 1997 and
$208,865 in 1996, and a decrease in Other Expense of $187,766 in 1997 and an
increase in such expense of $245,890 in 1996. The increase in salary and
employee expense is the result of increases in health insurance premiums, the
adoption of benefit plans for employees of Effingham Bank, and increases in
benefit plan expense at Bulloch Bank and Metter Bank related to the restatement
of the benefit plans in prior years. The increase in occupancy and equipment
expense is primarily the result of an increase in depreciation expense of
$238,000 related to various capital projects in 1996. The decrease in Other
Expense was offset by an increase of $94,578 in assessments paid to the FDIC and
OCC for deposit insurance premiums and for FICO bond payments and also offset by
an increase in service charges paid to correspondent banks of $64,837. The
increase in other expense in 1996 included approximately $374,000 in
non-recurring merger expenses related to the Effingham Bank transaction.
Income Taxes
The decrease in the provision for income taxes of $141,810 in 1997 and the
increase of $447,817 in 1996 resulted from changes in taxable income. The
effective tax rate for 1997, 1996 and 1995 was 29%, 32%, and 29%, respectively.
The effective tax rate is lower than the statutory rate of 34% because of the
Banks' investments in tax-exempt securities and loans.
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<PAGE> 93
New Accounting Standards
In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards SFAS No. 131 "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"). SFAS 131
establishes standards for, among other things, reporting information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. SFAS 131 is effective for annual
financial statements issued for periods beginning after December 15, 1997.
In June 1998, FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activities" ("SFAS
133"). SFAS 133 establishes standards for derivative instruments and hedging
activities and requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. SFAS 133 is effective for all fiscal quarters of
fiscal years beginning after June 15, 1999. First Banking does not expect SFAS
133 to have an effect on First Banking's financial statements.
YEAR 2000 ISSUES
Year 2000 issues relate to the anticipated failure of computer systems to
accurately process dates falling in the next century as a result of a common
programming convention of representing years with two digits rather than four
digits. Programs that are time sensitive may recognize a date using "00" as the
year 1900 rather than the year 2000. This misrepresentation of the year could
result in an incorrect computation or a computer shutdown.
Assessment
First Banking has completed an evaluation of its computer information
systems and has identified those systems which will require program
modifications or new software installations in order to function properly for
the Year 2000. First Banking has developed a plan that provides for, among other
things, the replacement or modification of existing information systems as
necessary. Because the primary hardware and software systems are presently
certified by their vendors as Year 2000 compliant, First Banking has not
incurred any significant costs to date relating to software modifications or new
installations for the other systems. Most systems are made compliant through
periodic software upgrades provided by the various vendors as part of the
license agreements. First Banking expects that the costs of becoming Year 2000
compliant will not be material to its financial position or any year's operating
results; however, First Banking cannot assure you that the costs it incurs will
not have a material effect.
Internal Infrastructure
First Banking has developed a testing strategy in which all mission
critical systems, such as heating and air, security and phone systems, as well
as information systems, will be tested and documented by March 31, 1999. First
Banking has assigned responsibility for specific areas in the testing plan to
different teams of employees, and these teams report on the progress of this
testing to the Boards of Directors of the subsidiary banks and of First Banking
on a regular basis. First Banking's primary systems have been tested by proxy
with the software provider, who has tested in environments with like software
and hardware systems as First Banking. Banking regulators have approved this
type of testing as a valid means of testing. First Banking has received results
and the results are available for review. This testing process did not reveal
any problems relating to the Year 2000. First Banking has not incurred any
material costs related to Year 2000 remediation and does
86
<PAGE> 94
not expect to incur any such material cost. First Banking estimates that its
total cost of completing any required modifications, upgrades, or replacements
of these internal systems will not have a material effect on its business,
financial condition or operating results.
Vendors, Suppliers and Other Third Parties
First Banking has completed a survey of its vendors, suppliers, and other
third parties to determine their Year 2000 readiness. If any vendor, supplier or
other third party had not provided a Year 2000 compliant application or product
or a statement of compliance schedule by December 31, 1998, First Banking
planned to search for a replacement. Through this survey, however, First Banking
has not identified any vendors, suppliers or other third parties that First
Banking relies on which is not year 2000 compliant. If First Banking determines
any vendor, supplier or other third party to be noncompliant during the testing
phase, which concludes March 31, 1999, then First Banking will select a
replacement product or application and install it prior to June 30, 1999. While
First Banking expects that it will be able to resolve any significant Year 2000
problems with its own systems, First Banking cannot guarantee that its vendors,
suppliers or others will resolve any Year 2000 problems with their systems
before the occurrence of a material disruption to their business. If First
Banking's vendors, suppliers or others fail to resolve any Year 2000 problems
with their systems in a timely manner, there could be a material adverse effect
on First Banking's business, financial condition or operating results.
Customers
In surveying its large loan customers, First Banking has not received an
adequate response. Less than 30% of loan customers contacted from each
subsidiary bank have responded to date. First Banking is in the process of
assessing the loan portfolio for the greatest areas of risk and designing a
survey form for loan officers and the riskier large loan customers. Once First
Banking completes this form, it will make diligent efforts to survey these
customers to determine their readiness. If First Banking's large borrowers do
not sufficiently address Year 2000 problems, First Banking may experience an
increase in loan defaults. First Banking has evaluated the adequacy of its loan
loss reserve and believes that the reserve is presently sufficient to cover
current estimates of losses.
Most Likely Consequences of Year 2000 Problems
First Banking expects to identify and resolve all Year 2000 problems that
could materially adversely affect its business, financial condition, or
operating results. However, First Banking believes that it is not possible to
determine with complete certainty that all Year 2000 problems affecting it have
been identified or corrected. The number of devices that could be affected and
the interactions among these devices are simply too numerous. In addition, First
Banking cannot accurately predict how many failures related to the Year 2000
problem will occur with its suppliers, customers, or other third parties or the
severity, duration, or financial consequences of such failures. As a result,
First Banking expects that it could possibly suffer the following consequences:
- A number of operational inconveniences and inefficiencies for First
Banking, its service providers, or its customers that may divert First
Banking's time and attention and financial and human resources from its
ordinary business activities;
- System malfunctions that may require significant efforts by First
Banking, its service providers, or its customers to prevent or alleviate
material business disruptions.
87
<PAGE> 95
Contingency Plan
First Banking has adopted a Year 2000 Business Continuity and Contingency
Plan (the "Year 2000 Contingency Plan."). Should the primary processing system
fail as a result of any natural or other disaster or as a result of Year 2000
problems, First Banking has contracted with its software provider to process for
First Banking on systems that are Year 2000 complaint in another location.
Back-up documentation of account and department information will be stored at
two off-site locations. The Year 2000 Contingency Plan also addresses a plan of
action in the event of failure of systems such as telephones, water, and heating
and air. First Banking has identified local vendors that can provide services
and equipment in case of Year 2000 failure and has included contact information
for these vendors in the Year 2000 Contingency Plan. First Banking plans to make
arrangements by June 30, 1999 to reserve these products and services in order to
ensure availability at year-end.
First Banking has also been subject to regulatory review of its overall
Year 2000 plan and will continue to be monitored closely by its regulators for
its progress.
CERTAIN TRANSACTIONS AND BUSINESS RELATIONSHIPS
First Banking and the Banks have banking and other transactions in the
ordinary course of business with the directors and officers of First Banking and
the Bank and their affiliates, including members of their families or
corporations, partnerships or other organizations in which such officers or
directors have a controlling interest, on substantially the same terms
(including price or interest rates, and collateral) as those prevailing at the
time for comparable transactions with unrelated parties. Such transactions do
not involve more than the normal risk of collectibility or present other
unfavorable features to First Banking and the Bank. Loans to individual
directors and officers must comply with Bank's lending limits, and directors
with a personal interest in any loan application are excluded from the
consideration of such loan application.
88
<PAGE> 96
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
First Banking entered into a definitive agreement to acquire all of the
outstanding common stock of Wayne in the merger as described in this Proxy
Statement/Prospectus effective November 30, 1998. The merger is expected to
close by the end of the first quarter of 1999, and is expected to be accounted
for under the "pooling of interests" method of accounting. Under the terms of
the merger, each share of Wayne common stock is expected to be exchanged for
1.57024 shares of First Banking common stock.
The following unaudited pro forma condensed financial statements give
effect to the merger as contemplated herein. These pro forma financial
statements are presented for illustrative purposes only and, therefore, are not
necessarily indicative of the operating results and financial position that
might have been achieved had the merger occurred as of an earlier date, nor are
they necessarily indicative of the operating results and financial position
which may occur in the future.
The pro forma condensed balance sheet as of September 30, 1998 gives effect
to the merger as though the transaction had been consummated on that date. Pro
forma condensed income statements for the nine-month period ended September 30,
1998 and for the fiscal years ended December 31, 1997, 1996 and 1995 give effect
to the merger as though the transaction had occurred at the beginning of the
earliest period presented. Certain pro forma adjustments to the pro forma
condensed balance sheet have been made to give effect to transaction costs at
September 30, 1998. No pro forma adjustments were necessary for any of the pro
forma income statements presented; however, integration costs related to the
proposed merger will be recorded in the historical statements of income as
incurred.
The pro forma condensed financial statements are derived from the
historical consolidated financial statements of First Banking and Wayne as of
September 30, 1998 and for the nine-month period ended September 30, 1998 and
for the fiscal years ended December 31, 1997, 1996 and 1995 and should be read
in conjunction with First Banking's and Wayne's historical financial statements
and "Management's Discussions and Analysis of Financial Condition and Results of
Operations" incorporated by reference or contained elsewhere in this
Prospectus/Proxy Statement.
89
<PAGE> 97
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA PRO FORMA
FIRST BANKING WAYNE ADJUSTMENTS COMBINED
------------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Cash and Due From Banks............... $ 14,733,304 $ 1,487,732 $ 16,221,036
Interest Bearing Deposits in Other
Banks............................... 18,025,547 37,580 18,063,127
Federal Funds Sold.................... 8,625,000 2,340,000 10,965,000
Investment Securities:
Available for Sale.................. 56,575,948 1,529,513 58,105,461
Held to Maturity.................... 14,194,610 6,852,109 21,046,719
Loans................................. 255,877,219 33,639,096 289,516,315
Allowance for Loan Losses........... (4,136,196) (342,711) (4,478,907)
Unearned Interest................... (16,229) -- (16,229)
------------ ----------- --------- ------------
Loans, Net............................ 251,724,794 33,296,385 -- 285,021,179
------------ ----------- --------- ------------
Interest Receivable................... 4,968,557 4,968,557
Premises and Equipment, Net........... 7,321,150 1,098,286 8,419,436
Other Real Estate..................... 360,174 360,174
Other Assets.......................... 1,958,154 629,777 2,587,931
------------ ----------- --------- ------------
TOTAL ASSETS................ $378,487,238 $47,271,382 -- $425,758,620
============ =========== ========= ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand.............................. $ 47,925,209 $ 6,978,297 $ 54,903,506
Interest Bearing.................... 269,542,576 32,743,222 302,285,798
------------ ----------- --------- ------------
Total Deposits.............. 317,467,785 39,721,519 357,189,304
Repurchase Agreements................. 1,400,000 1,400,000
Other Borrowed Money.................. 11,153,016 11,153,016
Interest Payable...................... 3,288,811 285,405 3,574,216
Other Liabilities..................... 1,309,068 77,794 $ 185,000 1,571,862
------------ ----------- --------- ------------
Total Liabilities........... 334,618,680 40,084,718 185,000 374,888,398
Shareholders' Equity:
Common Stock........................ 4,702,607 458,888 261,676 5,423,171
Additional Paid-In Capital.......... 6,521,987 4,084,020 (261,676) 10,344,331
Retained Earnings................... 32,134,043 2,627,295 (185,000) 34,576,338
Accumulated Other Comprehensive.....
Income, net of tax.................. 509,921 16,461 526,382
------------ ----------- --------- ------------
Total Shareholders'
Equity................... 43,868,558 7,186,664 (185,000) 50,870,222
Total Liabilities and
Shareholders' Equity..... $378,487,238 $47,271,382 $ -- $425,758,620
============ =========== ========= ============
</TABLE>
90
<PAGE> 98
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE NINE-MONTH PERIOD ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
FIRST BANKING WAYNE COMBINED
------------- ---------- -----------
<S> <C> <C> <C>
Interest Income
Loans (including fees)............................ $19,369,143 $2,513,957 $21,883,100
Interest Bearing Deposits......................... 650,212 1,544 651,756
Investment Securities............................. 4,099,455 308,651 4,408,106
Federal Funds Sold................................ 180,479 134,884 315,363
----------- ---------- -----------
Total Interest Income..................... 24,299,289 2,959,036 27,258,325
----------- ---------- -----------
Interest Expense
Deposits.......................................... 10,535,404 1,069,375 11,604,779
Other............................................. 565,346 461 565,807
----------- ---------- -----------
Total Interest Expense.................... 11,100,750 1,069,836 12,170,586
Net Interest Income................................. 13,198,539 1,889,200 15,087,739
Provision for Loan Losses........................... 660,253 135,000 795,253
----------- ---------- -----------
Net Interest Income After Provision for Loan........ 12,538,286 1,754,200 14,292,486
Losses..............................................
Non-Interest Income
Service Charges on Deposits....................... 1,604,072 344,010 1,948,082
Fees for Trust Services........................... 80,507 80,507
Other............................................. 613,741 184,109 797,850
----------- ---------- -----------
Total Non-Interest Income................. 2,298,320 528,119 2,826,439
Non-Interest Expense
Salaries and Other Personnel Expense.............. 4,479,716 503,995 4,983,711
Occupancy and Equipment Expense, Net.............. 1,755,284 158,080 1,913,364
Other............................................. 2,479,805 437,640 2,917,445
----------- ---------- -----------
Total Non-Interest Expense................ 8,714,805 1,099,715 9,814,520
Income Before Income Taxes.......................... 6,121,801 1,182,604 7,304,405
Provision for Income Taxes.......................... 1,737,942 363,080 2,101,022
----------- ---------- -----------
Net Income.......................................... 4,383,859 819,524 5,203,383
OTHER COMPREHENSIVE INCOME:
Unrealized holding gains (losses) on Securities
Available for Sale arising during the period... 356,650 (16,916) 339,734
----------- ---------- -----------
Comprehensive Income................................ $ 4,740,509 $ 802,608 $ 5,543,117
=========== ========== ===========
Net Income per Common and Potential Common Share:
Basic............................................. $ 0.93 $ 1.79 $ 0.96
Diluted........................................... 0.93 1.64 0.95
Weighted Average Common and Potential Common
Outstanding
Basic............................................. 4,702,866 457,931 5,421,669
Diluted........................................... 4,715,008 500,231 5,500,491
</TABLE>
91
<PAGE> 99
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
FIRST BANKING WAYNE COMBINED
------------- ---------- -----------
<S> <C> <C> <C>
Interest Income
Loans (including fees)............................ $24,935,274 $3,036,348 $27,971,622
Interest Bearing Deposits......................... 672,159 7,463 679,622
Investment Securities............................. 5,655,310 376,179 6,031,489
Federal Funds Sold................................ 199,988 201,089 401,077
----------- ---------- -----------
Total Interest Income..................... 31,462,731 3,621,079 35,083,810
----------- ---------- -----------
Interest Expense
Deposits.......................................... 13,897,333 1,300,994 15,198,327
Other............................................. 737,760 737,760
----------- ---------- -----------
Total Interest Expense.................... 14,635,093 1,300,994 15,936,087
Net Interest Income................................. 16,827,638 2,320,085 19,147,723
Provision for Loan Losses........................... 932,285 154,000 1,086,285
----------- ---------- -----------
Net Interest Income After Provision for Loan
Losses............................................ 15,895,353 2,166,085 18,061,438
Non-Interest Income
Service Charges on Deposits....................... 2,099,425 461,931 2,561,356
Fees for Trust Services........................... 208,864 154,113 362,977
Other............................................. 626,554 13,877 640,431
----------- ---------- -----------
Total Non-Interest Income................. 2,934,843 629,921 3,564,764
Non-Interest Expense
Salaries and Other Personnel Expense.............. 5,743,529 604,599 6,348,128
Occupancy and Equipment Expense, Net.............. 2,207,788 200,253 2,408,041
Other............................................. 3,156,288 553,061 3,709,349
----------- ---------- -----------
Total Non-Interest Expense................ 11,107,605 1,357,913 12,465,518
Income Before Income Taxes.......................... 7,722,591 1,438,093 9,160,684
Provision for Income Taxes.......................... 2,258,707 412,763 2,671,470
----------- ---------- -----------
Net Income.......................................... 5,463,884 1,025,330 6,489,214
OTHER COMPREHENSIVE INCOME:
Unrealized holding gains on Securities Available
for Sale arising during the period............. 240,294 34,661 274,955
----------- ---------- -----------
Comprehensive Income................................ $ 5,704,178 $1,059,991 $ 6,764,169
=========== ========== ===========
Earnings per Share:
Basic............................................. $ 1.16 $ 2.58 $ 1.22
Diluted........................................... 1.16 2.35 1.21
Weighted Average Number of Shares Outstanding
Basic............................................. 4,691,164 397,245 5,314,934
Diluted........................................... 4,694,695 436,947 5,380,807
</TABLE>
92
<PAGE> 100
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
FIRST BANKING WAYNE COMBINED
------------- ---------- -----------
<S> <C> <C> <C>
Interest Income
Loans (including fees)............................ $23,593,288 $2,433,258 $26,026,546
Interest Bearing Deposits......................... 584,746 3,077 587,823
Investments:...................................... 5,971,439 493,556 6,464,995
Federal Funds Sold................................ 418,504 124,062 542,566
----------- ---------- -----------
Total Interest Income..................... 30,567,977 3,053,953 33,621,930
----------- ---------- -----------
Interest Expense
Deposits.......................................... 13,789,734 1,065,545 14,855,279
Other............................................. 617,601 617,601
----------- ---------- -----------
Total Interest Expense.................... 14,407,335 1,065,545 15,472,880
Net Interest Income................................. 16,160,642 1,988,408 18,149,050
Provision for Loan Losses........................... 694,911 90,000 784,911
----------- ---------- -----------
Net Interest Income After Provision for Loan
Losses............................................ 15,465,731 1,898,408 17,364,139
Non-Interest Income
Service Charges on Deposits....................... 1,918,032 396,895 2,314,927
Fees for Trust Services........................... 215,946 215,946
Other............................................. 405,434 172,006 577,440
----------- ---------- -----------
Total Non-Interest Income................. 2,539,412 568,901 3,108,313
Non-Interest Expense
Salaries and Other Personnel Expense.............. 5,267,200 604,095 5,871,295
Occupancy and Equipment Expense, Net.............. 1,819,410 189,189 2,008,599
Other............................................. 3,344,054 479,226 3,823,280
----------- ---------- -----------
Total Non-Interest Expense................ 10,430,664 1,272,510 11,703,174
Income Before Income Taxes.......................... 7,574,479 1,194,799 8,769,278
Provision for Income Taxes.......................... 2,400,517 366,651 2,767,168
----------- ---------- -----------
Net Income.......................................... 5,173,962 828,148 6,002,110
OTHER COMPREHENSIVE INCOME:
Unrealized holding losses on securities Available
for Sale arising during the period............. (279,271) (35,621) (314,892)
----------- ---------- -----------
Comprehensive Income................................ $ 4,894,691 $ 792,527 $ 5,687,218
=========== ========== ===========
Earnings per Share:
Basic............................................. $ 1.10 $ 2.19 $ 1.14
Diluted........................................... 1.10 1.99 1.12
Weighted Average Number of Shares Outstanding
Basic............................................. 4,690,769 377,786 5,283,983
Diluted........................................... 4,690,769 415,620 5,343,392
</TABLE>
93
<PAGE> 101
UNAUDITED PRO FORMA CONDENSED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
HISTORICAL HISTORICAL PRO FORMA
FIRST BANKING WAYNE COMBINED
------------- ---------- -----------
<S> <C> <C> <C>
Interest Income
Loans (including fees)............................ $21,726,452 $1,753,619 $23,480,071
Interest Bearing Deposits......................... 755,892 14,721 770,613
Investments....................................... 4,697,128 520,448 5,217,576
Federal Funds Sold................................ 268,331 169,365 437,696
----------- ---------- -----------
Total Interest Income..................... 27,447,803 2,458,153 29,905,956
----------- ---------- -----------
Interest Expense
Deposits.......................................... 12,017,654 1,028,414 13,046,068
Other............................................. 400,390 400,390
----------- ---------- -----------
Total Interest Expense.................... 12,418,044 1,028,414 13,446,458
Net Interest Income................................. 15,029,759 1,429,739 16,459,498
Provision for Loan Losses........................... 859,300 859,300
----------- ---------- -----------
Net Interest Income After Provision for Loan
Losses............................................ 14,170,459 1,429,739 15,600,198
Non-Interest Income
Service Charges on Deposits....................... 1,751,415 342,515 2,093,930
Fees for Trust Services........................... 200,236 200,236
Other............................................... 378,263 165,533 543,796
----------- ---------- -----------
Total Non-Interest Income................. 2,329,914 508,048 2,837,962
Non-Interest Expense
Salaries and Other Personnel Expense.............. 5,132,996 536,383 5,669,379
Occupancy and Equipment Expense, Net.............. 1,610,545 195,093 1,805,638
Other............................................. 3,098,164 482,834 3,580,998
----------- ---------- -----------
Total Non-Interest Expense................ 9,841,705 1,214,310 11,056,015
Income Before Income Taxes.......................... 6,658,668 723,477 7,382,145
Provision for Income Taxes.......................... 1,952,700 225,668 2,178,368
----------- ---------- -----------
Net Income.......................................... 4,705,968 497,809 5,203,777
OTHER COMPREHENSIVE INCOME:
Unrealized holding gains on Securities Available
for Sale arising during the period............. 1,444,508 128,371 1,572,879
----------- ---------- -----------
Comprehensive Income................................ $ 6,150,476 $ 626,180 $ 6,776,656
=========== ========== ===========
Earnings per Share:
Basic............................................. $ 1.00 $ 1.33 $ 0.99
Diluted........................................... 1.00 1.22 0.98
Weighted Average Number of Shares Outstanding
Basic............................................. 4,690,961 374,660 5,279,267
Diluted........................................... 4,690,961 406,535 5,329,319
</TABLE>
94
<PAGE> 102
NOTES TO UNAUDITED PRO FORMA CONDENSED
FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The unaudited pro forma combined financial statements are presented for
illustrative purposes only and give effect to the merger of First Banking and
Wayne, as contemplated herein, with the transaction accounted for as a "pooling
of interests." In accordance with SEC reporting rules, the pro forma condensed
statements of income, and the historical statements from which they are derived,
present only income from continuing operations before extraordinary items and
the cumulative effect of accounting changes.
Because the transaction has not been completed and transition plans are
currently being developed, transaction costs expected to be incurred can only be
estimated at this time. With respect to the merger of First Banking and Wayne,
the pro forma condensed statement of income for the nine-month period ended
September 30, 1998 excludes: (i) the positive effects of potential cost savings
which may be achieved upon combining the resources of the companies, and (ii)
merger and non-recurring costs to integrate the companies, currently estimated
to be approximately $265,000, including investment broker, legal, and
miscellaneous transactions costs of the merger, and other nonrecurring costs and
expenses expected to be incurred subsequent to the merger.
The pro forma condensed balance sheet as of September 30, 1998 includes, in
accordance with SEC reporting rules, the impact of all transactions, whether of
a recurring or nonrecurring nature, that can be reasonably estimated and should
be reflected as of that date. Therefore, current liabilities and stockholders'
equity reflect a pro forma adjustment of $185,000, net of tax, determined based
on the $265,000 of amounts for transaction costs related to the Merger of First
Banking and Wayne as contemplated herein.
2. OTHER PRO FORMA ADJUSTMENTS
Intercompany Transactions. There were no intercompany transactions which
required elimination from the pro forma combined operating results or balance
sheet.
Common Shareholders' Equity. Pro forma common shareholders' equity as of
September 30, 1998 has been adjusted to reflect the following:
Common stock accounts are adjusted for the assumed issuance of
approximately 720,564 shares of First Banking common stock in exchange for
approximately 458,888 shares of Wayne common stock issued and outstanding
as of September 30, 1998 utilizing the Exchange Ratio.
Income per Common and Common Equivalent Share. Pro forma weighted average
common shares outstanding for the three years ended December 31, 1997 and for
the nine-month period ended September 30, 1998 are based upon First Banking's
and Wayne's historical weighted average shares as of the end of the respective
period, after adjustment of Wayne's historical number of shares by the Exchange
Ratio.
95
<PAGE> 103
SHAREHOLDER PROPOSALS
First Banking expects to hold its next annual meeting of shareholders after
the merger during April 1999. Proposals with respect to First Banking's 1999
annual meeting of shareholders may be submitted until the date specified in
First Banking's 1998 annual meeting proxy statement.
EXPERTS
The consolidated financial statements of First Banking as of December 31,
1997 and 1996 and for each of the three years in the period ended December 31,
1997 included and incorporated by reference in this prospectus have been audited
by Deloitte & Touche LLP independent auditors, as stated in their reports which
are included and incorporated by reference herein, and have been so included and
incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements of Wayne as of December 31, 1997 and
1996, and for each of the years in the three-year period ended December 31,
1997, have been included herein in reliance upon the report of McNair, McLemore,
Middlebrooks & Co. LLP, independent public accountants, included herein, and
upon the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the shares of First Banking common stock to be issued in
the Merger and certain tax consequences of the transaction will be passed upon
by Powell, Goldstein, Frazer & Murphy LLP, Atlanta, Georgia.
OTHER MATTERS
Management of Wayne does not know of any matters to be brought before the
Special Meeting other than those described above. If any other matters properly
come before the Special Meeting, the persons designated as Proxies will vote on
such matters in accordance with their best judgment.
WHERE YOU CAN FIND MORE INFORMATION ABOUT FIRST BANKING AND WAYNE
First Banking and Wayne file annual, quarterly and special reports, proxy
statements and other information with the SEC. You can receive copies of such
reports, proxy and information statements, and other information, at prescribed
rates, from the SEC by addressing written requests for to the Public Reference
Section of the SEC at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549. In addition, you can read such reports, proxy and information statements,
and other information at the public reference facilities and at the regional
offices of the SEC, Washington, D.C., New York, New York and Chicago, Illinois.
Please call the SEC at 1-800-SEC-0330 for further information on the public
reference rooms. The SEC also maintains a Web site that contains reports, proxy
and information statements and other information regarding registrants such as
First Banking and Wayne that file electronically with the SEC. The address of
the SEC Web site is http://www.sec.gov.
96
<PAGE> 104
First Banking has filed with the SEC a registration statement on Form S-4
to register the shares that First Banking will issue to Wayne shareholders. This
document is a part of the registration statement. This Proxy
Statement/Prospectus does not include all of the information contained in the
Registration statement. For further information about First Banking and the
securities offered in this Proxy Statement/Prospectus, you should review the
registration statement. You can inspect or copy the registration statement, at
prescribed rates, at the SEC's public reference facilities at the addresses
listed above.
The SEC allows First Banking and Wayne to "incorporate by reference"
information into the Proxy Statement/Prospectus, which means that First Banking
and Wayne can disclose important information to you by referring you to another
document filed separately with the SEC. The information incorporated by
reference is considered part of this Proxy Statement/Prospectus, except for any
information superseded by information contained directly in this Proxy
Statement/Prospectus or in later filed documents incorporated by reference in
this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus incorporates by reference the documents
listed below that First Banking previously filed with the SEC. These documents
contain important information about First Banking and its finances. Some filings
have been amended by later filings, which are also listed.
(a) Annual Report on Form 10-K for the fiscal year ended December 31, 1997;
(b) Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998; and
(c) Current Report on Form 8-K dated January 4, 1998.
First Banking also incorporates by reference additional documents that it
may file with the SEC between the date of this Proxy Statement/Prospectus and
the completion of the merger or the termination of the Merger Agreement. These
additional documents include periodic reports, such as Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well
as proxy statements.
This Proxy Statement/Prospectus incorporates by reference the documents
listed below that Wayne previously filed with the SEC. These documents contain
important information about Wayne and its finances. Some filings have been
amended by later filings, which are also listed.
(a) Annual Report on Form 10-KSB for the fiscal year ended December 31,
1997;
(b) Quarterly Reports on Form 10-QSB for the quarters ended March 31, 1998,
June 30, 1998 and September 30, 1998; and
(c) Current Report on Form 8-K dated December 21, 1998
Wayne also incorporates by reference additional documents that it may file
with the SEC between the date of this Proxy Statement/Prospectus and the
completion of the merger or the termination of the Merger Agreement. These
additional documents include periodic reports, such as Annual Reports on Form
10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K, as well
as proxy statements.
97
<PAGE> 105
SHAREHOLDERS MAY OBTAIN DOCUMENTS INCORPORATED BY REFERENCE IN THIS PROXY
STATEMENT/ PROSPECTUS BY REQUESTING THEM FROM:
INVESTOR RELATIONS
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
40 NORTH MAIN STREET
STATESBORO, GEORGIA 30458
TELEPHONE: (912) 764-6611
IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, YOU SHOULD MAKE A
REQUEST FOR DOCUMENTS NO LATER THAN , 1999.
98
<PAGE> 106
INDEX TO FIRST BANKING DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheet as of September 30, 1998
(unaudited)............................................... F-2
Consolidated Statements of Income and Comprehensive Income
for the Three Months Ended September 30, 1998 and 1997
(unaudited)............................................... F-3
Consolidated Statements of Income and Comprehensive Income
for the Nine Months Ended September 30, 1998 and 1997
(unaudited)............................................... F-5
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and 1997 (unaudited)............. F-7
Notes to Consolidated Financial Statements (unaudited)...... F-9
Independent Auditors' Report................................ F-10
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-11
Consolidated Statements of Income and Comprehensive Income
for the Years Ended December 31, 1997, 1996 and 1995...... F-12
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-14
Consolidated Statements of Shareholders' Equity for the
Years Ended December 31, 1997, 1996 and 1995.............. F-16
Notes to Consolidated Financial Statements.................. F-17
</TABLE>
F-1
<PAGE> 107
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF
SEPTEMBER 30, 1998
------------------
(THOUSANDS OF
DOLLARS)
<S> <C>
ASSETS
Cash and Due From Banks..................................... $ 14,733
Interest Bearing Deposits in Other Banks.................... 18,026
Federal Funds Sold.......................................... 8,625
Investment Securities:
Available for Sale........................................ 56,576
Held to Maturity (Estimated Value of $14,932 in 1998)..... 14,195
Loans....................................................... 255,877
Less: Unearned Interest................................... (16)
Allowance for Loan Losses........................... (4,136)
--------
Loans, Net................................................ 251,725
--------
Interest Receivable......................................... 4,968
Premises and Equipment, Net................................. 7,321
Other Real Estate........................................... 360
Other Assets................................................ 1,958
--------
Total Assets...................................... $378,487
========
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits:
Demand................................................. $ 47,925
Interest Bearing:
NOW Accounts......................................... 48,410
Money Market Deposit Accounts........................ 27,319
Savings.............................................. 15,487
Time ($100,000 and above)............................ 78,971
Other Time........................................... 99,355
--------
Total Deposits....................................... 317,467
Repurchase Agreements..................................... 1,400
Other Borrowed Money...................................... 11,153
Interest Payable.......................................... 3,289
Other Liabilities......................................... 1,309
--------
Total Liabilities........................................... 334,618
--------
Shareholders' Equity (Note 3):
Common Stock, 4,702,607 Shares Issued And Outstanding in
1998................................................... 4,703
Additional Paid-In Capital................................ 6,522
Retained Earnings......................................... 32,134
Accumulated Other Comprehensive Income, net of tax of
$262,687............................................... 510
--------
Shareholders' Equity.............................. 43,869
--------
Total Liabilities and Shareholders' Equity........ $378,487
========
</TABLE>
See notes to consolidated financial statements.
F-2
<PAGE> 108
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
SEPTEMBER 30,
----------------
1998 1997
------ ------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
INTEREST INCOME
Loans (Including fees).................................... $6,569 $6,371
Interest Bearing Deposits................................. 231 151
Investments:
U.S. Treasury.......................................... 100 301
U.S. Government Agencies............................... 718 696
States and Political Subdivisions...................... 272 274
Dividend Income........................................ 27 45
Federal Funds Sold........................................ 64 40
------ ------
Total Interest Income............................. 7,981 7,878
------ ------
INTEREST EXPENSE
NOW Accounts.............................................. 418 454
Money Market Deposits Accounts............................ 243 220
Savings................................................... 122 114
Time Deposits ($100,000 and above)........................ 1,191 1,247
Other Time Deposits....................................... 1,354 1,406
Other..................................................... 203 185
------ ------
Total Interest Expense............................ 3,531 3,626
------ ------
NET INTEREST INCOME....................................... 4,450 4,252
Provision for Loan Losses................................. 220 270
------ ------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES....... 4,230 3,982
------ ------
NON-INTEREST INCOME
Service Charges on Deposits............................... 565 525
Fees for Trust Services................................... 31 69
Other..................................................... 184 145
------ ------
Total Non-interest Income......................... 780 739
------ ------
NON-INTEREST EXPENSE
Salaries.................................................. 1,112 1,082
Other Personnel Expense................................... 396 386
Occupancy Expense, Net.................................... 243 225
Equipment Expense......................................... 354 333
Other..................................................... 814 748
------ ------
Total Non-interest Expense........................ 2,919 2,774
------ ------
</TABLE>
F-3
<PAGE> 109
<TABLE>
<CAPTION>
FOR THE THREE
MONTHS ENDED
SEPTEMBER 30,
----------------
1998 1997
------ ------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
Income Before Income Taxes.................................. $2,091 $1,947
Provision for Income Taxes.................................. 601 580
------ ------
NET INCOME.................................................. 1,490 1,367
Other Comprehensive Income:
Unrealized holding gains (losses) on Securities Available
for Sale arising during the period, net of taxes of
$116 in 1998 and $66 in 1997........................... 226 129
------ ------
COMPREHENSIVE INCOME........................................ $1,716 $1,496
====== ======
EARNINGS PER SHARE:
Basic..................................................... $ 0.32 $ 0.29
====== ======
Diluted................................................... $ 0.32 $ 0.29
====== ======
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 110
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30,
----------------------
1998 1997
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
INTEREST INCOME
Loans (Including fees).................................... $19,369 $18,517
Interest Bearing Deposits................................. 650 440
Investments:
U.S. Treasury.......................................... 428 1,012
U.S. Government Agencies............................... 2,724 2,319
States and Political Subdivisions...................... 837 817
Dividend Income........................................ 111 142
Federal Funds Sold........................................ 180 155
------- -------
Total Interest Income............................. 24,299 23,402
------- -------
INTEREST EXPENSE
NOW Accounts.............................................. 1,711 1,367
Money Market Deposits Accounts......................... 702 618
Savings................................................... 357 334
Time Deposits ($100,000 and above)........................ 3,617 3,797
Other Time Deposits....................................... 4,149 4,233
Other..................................................... 565 560
------- -------
Total Interest Expense............................ 11,101 10,909
------- -------
NET INTEREST INCOME......................................... 13,198 12,493
Provision for Loan Losses................................... 660 737
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES......... 12,538 11,756
------- -------
NON-INTEREST INCOME
Service Charges on Deposits............................... 1,604 1,558
Fees for Trust Services................................... 80 158
Other..................................................... 614 375
------- -------
Total Non-interest Income......................... 2,298 2,091
------- -------
</TABLE>
F-5
<PAGE> 111
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30,
----------------------
1998 1997
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
NON-INTEREST EXPENSE
Salaries.................................................. $ 3,308 $ 3,142
Other Personnel Expense................................... 1,172 1,148
Occupancy Expense, Net.................................... 691 648
Equipment Expense......................................... 1,063 946
Other..................................................... 2,480 2,246
------- -------
Total Non-interest Expense........................ 8,714 8,130
------- -------
Income Before Income Taxes.................................. 6,122 5,717
Provision for Income Taxes.................................. 1,738 1,708
------- -------
NET INCOME.................................................. 4,384 4,009
Other Comprehensive Income:
Unrealized holding gains on Securities Available for Sale
arising during the period, net of taxes of $151 in 1998
and $91 in 1997........................................ 357 176
------- -------
COMPREHENSIVE INCOME........................................ $ 4,741 $ 4,185
======= =======
EARNINGS PER SHARE:
Basic..................................................... $ 0.93 $ 0.85
======= =======
Diluted................................................... $ 0.93 $ 0.85
======= =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 112
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED
SEPTEMBER 30,
--------------------
1998 1997
-------- --------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income................................................ $ 4,384 $ 4,009
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Provision for Depreciation.............................. 847 784
Provision for Loan Losses............................... 660 737
Loss on Sale of Other Assets............................ 5
Loss on Sale of Other Real Estate....................... 8 6
Gain on Call of Securities.............................. (13) (6)
Loss on Sale of Premises and Equipment.................. 1 15
Net Accretion of Premiums and Discounts on Securities... (282) (152)
Changes in Assets and Liabilities:
Decrease in Interest Receivable....................... 190 311
Decrease in Other Assets.............................. 17 46
Decrease in Interest Payable.......................... (262) (30)
Increase in Other Liabilities......................... 289 398
-------- --------
Net Cash Provided by Operating Activities.......... 5,844 6,118
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net Increase in Interest Bearing Deposits in Other
Banks................................................... (1,658) (2,908)
(Increase) Decrease in Federal Funds Sold................. (4,850) 2,895
Available-for-Sale Securities:
Proceeds from Maturity.................................. 84,950 37,761
Purchases............................................... (57,293) (21,905)
Held-to-Maturity Securities:
Proceeds from Maturity.................................. 8,188 6,645
Purchases............................................... (554) (7,952)
Net Increase in Loans..................................... (6,137) (15,099)
Purchases of Premises and Equipment....................... (1,079) (860)
Improvements to Other Real Estate......................... (25)
Proceeds from Sale of Other Assets........................ 4
Proceeds from Sale of Other Real Estate................... 151 285
-------- --------
Net Cash Used in Investing Activities.............. 21,697 (1,138)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Deposits.................................. (37,338) (6,989)
Increase in Other Borrowed Money.......................... 6,600 1,800
Repayment of Note Payable................................. (4,865) (4,558)
Purchase and Retirement of Fractional Shares.............. (12) (7)
Dividends Paid............................................ (1,824) (1,644)
-------- --------
Net Cash Provided by Financing Activities.......... (37,439) (11,398)
-------- --------
DECREASE IN CASH AND DUE FROM BANKS......................... (9,898) (6,418)
CASH AND DUE FROM BANKS AT BEGINNING OF YEAR................ 24,631 21,611
-------- --------
CASH AND DUE FROM BANKS AT END OF PERIOD........... $ 14,733 $ 15,193
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest................................................ $ 11,363 $ 10,939
Income Taxes............................................ 1,789 1,435
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES:
Other Real Estate Acquired through Loan Foreclosure....... 280 990
Loans granted to facilitate the Sale of Other Real
Estate.................................................. 154 302
Change in Net Unrealized Gain (Loss) on Investment
Securities Available for Sale........................... 292 176
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 113
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. BASIS OF PRESENTATION
The consolidated financial statements of First Banking Company of Southeast
Georgia (the "Company") include the financial statements of First Bulloch Bank &
Trust Company, Metter Banking Company and First National Bank of Effingham,
wholly-owned subsidiaries. Intercompany balances and transactions have been
eliminated in consolidation.
The consolidated statements contained in this report are unaudited but
reflect all adjustments, consisting only of normal recurring accruals, which
are, in the opinion of management, necessary for a fair statement of the results
for the interim periods reflected. The results of operations for the interim
periods reported herein are not necessarily indicative of results to be expected
for the full year.
The consolidated financial statements included herein should be read in
conjunction with the financial statements and notes thereto, and the Independent
Auditors' Report for the consolidated balance sheets as of December 31, 1997 and
1996 and the related statements of income, shareholders' equity, and cash flows
for each of the three years in the period ended December 31, 1997, in this Proxy
Statement/Prospectus.
2. ACCOUNTING POLICIES
Reference is made to the accounting policies of the Company described in
the notes to consolidated financial statements consolidated balance sheets as of
December 31, 1997 and 1996 and the related statements of income, shareholders'
equity, and cash flows for each of the three years in the period ended December
31, 1997, included elsewhere in this Proxy Statement/Prospectus. The Company has
followed those policies in preparing this report.
3. COMMON STOCK
The par value of the Company's common stock is $1, and 10,000,000 shares
are authorized. The Banks may pay dividends to the Company in any year up to 50%
of the previous year's net income or $2,732,000 in 1998 without the approval of
the Georgia Department of Banking and Finance.
Effective May 29, 1998, the Company declared a 5-for-4 split of its common
stock effected in the form of a 25% stock dividend. In connection with the
split, $940,617 has been transferred from surplus to common stock. All
references to number of shares and to per share amounts have been retroactively
adjusted to reflect the split.
4. EARNINGS PER SHARE
In February 1997, Statement of Financial Accounting Standards ("SFAS") 128,
"Earnings Per Share" was issued. SFAS 128 establishes standards for computing
and presenting basic and diluted earnings per share information for entities
with publicly held common stock. All per share amounts conform to SFAS 128.
F-8
<PAGE> 114
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) -- (CONTINUED)
The number of shares used in computing basic and diluted per share amounts
is as follows:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Weighted average shares outstanding --
Basic Earnings Per Share..................... 4,702,607 4,690,273 4,702,866 4,690,525
Effect of dilutive outstanding stock options... 12,401 3,565 12,142 1,190
--------- --------- --------- ---------
Weighted average shares outstanding --
Diluted Earnings Per Share................... 4,715,008 4,693,838 4,715,008 4,691,715
========= ========= ========= =========
</TABLE>
5. IMPACT OF NEW ACCOUNTING STANDARDS
In June 1997, Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131") was issued. SFAS 131 establishes annual and interim reporting standards
for an enterprise's business segments and related disclosures about its
products, services, geographic areas and major customers. Adoption of this
statement will not impact the Company's consolidated financial position, results
of operations or cash flows. The Company will adopt this statement in its annual
financial statements for the year ending December 31, 1998.
In February 1998, Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits" ("SFAS
132") was issued. SFAS 132 standardizes the disclosure requirements for pensions
and other postretirement benefits to the extent practicable, requires additional
information on changes in the benefit obligations and fair value of plan assets
that will facilitate financial analysis, and eliminates certain disclosures that
are no longer useful. SFAS 132 is effective for fiscal years beginning after
December 15, 1997. The Company currently does not hold any derivative
instruments and therefore this statement is not expected to have an effect on
the Company's financial statements.
In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" ("SFAS 133") was
issued. SFAS 133 establishes standards for derivative instruments and hedging
activities and requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial position and measure those
instruments at fair value. This statement is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The Statement is not expected to
have an effect on the Company's financial statements.
F-9
<PAGE> 115
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
First Banking Company of Southeast Georgia:
We have audited the consolidated balance sheets of First Banking Company of
Southeast Georgia and subsidiaries (the "Company") as of December 31, 1997 and
1996 and the related consolidated statements of income and comprehensive income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 1997. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on the
consolidated financial statements based on our audits. The consolidated
financial statements give retroactive effect to the 1996 merger of First Banking
Company of Southeast Georgia and FNB Bancshares, Inc., which was accounted for
as a pooling of interests as described in Note 2 to the consolidated financial
statements. We did not audit the related consolidated statements of income,
stockholders' equity, and cash flows of FNB Bancshares, Inc. and subsidiary for
the year ended December 31, 1995, which statements reflect total revenues of
$4,012,435 for the year ended December 31, 1995. Those statements were audited
by other auditors whose report has been furnished to us, and our opinion,
insofar as it relates to the amounts included for FNB Bancshares, Inc. and
subsidiary for 1995, is based solely on the report of such other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall consolidated financial statement
presentation. We believe that our audits and the report of the other auditors
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of December 31,
1997 and 1996 and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1997 in conformity with
generally accepted accounting principles.
/s/ Deloitte & Touche LLP
Atlanta, Georgia
January 30, 1998 (May 29, 1998 as to the effects of the 1998 stock split in
Note 9 and February 8, 1999 as to the last paragraph of Note 1)
F-10
<PAGE> 116
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
ASSETS
Cash and Due from Banks (Note 14).......................... $ 24,631,342 $ 21,610,743
Interest Bearing Deposits in Other Banks................... 16,367,519 9,905,485
Federal Funds Sold......................................... 3,775,000 6,220,000
Investment Securities:
Available for Sale, at Fair Value (Amortized Cost of
$84,147,288 in 1997 and $85,900,522 in 1996) (Note
3).................................................... 84,476,788 85,865,947
Held to Maturity, at Cost (Estimated Fair Value of
$21,543,556 in 1997 and $18,738,071 in 1996) (Note
4).................................................... 20,847,115 18,157,744
Loans (Notes 5 and 11)................................... 250,311,707 231,057,478
Less: Unearned Interest Income........................... (16,698) (15,127)
Allowance for Loan Losses (Note 5)....................... (3,920,535) (4,024,539)
Loans -- Net............................................. 246,374,474 227,017,812
Interest Receivable........................................ 5,157,819 5,383,067
Premises and Equipment, Net (Note 6)....................... 7,089,559 7,193,309
Other Real Estate.......................................... 368,524 446,500
Other Assets............................................... 2,134,736 2,235,375
------------ ------------
Total Assets..................................... $411,222,876 $384,035,982
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Deposits (Note 12):
Demand................................................... $ 45,981,051 $ 43,367,783
Interest Bearing:
NOW Accounts.......................................... 76,036,196 56,265,610
Money Market Deposit Accounts......................... 29,111,446 33,331,641
Savings............................................... 14,593,108 13,185,253
Time Certificates ($100,000 and above)................ 88,807,158 82,203,709
Other Time............................................ 100,276,241 101,293,199
------------ ------------
Total Deposits................................... 354,805,200 329,647,195
Federal Funds Purchased.................................... 800,000
Repurchase Agreements...................................... 1,400,000 1,200,000
Other Borrowed Money (Note 12)............................. 9,418,343 10,917,951
Interest Payable........................................... 3,550,857 3,279,336
Other Liabilities.......................................... 1,019,691 870,739
------------ ------------
Total Liabilities................................ 370,194,091 346,715,221
Commitments and Contingencies (Note 5)
Shareholders' Equity (Notes 9 and 10):
Common Stock, $1.00 Par Value, 10,000,000
Shares Authorized, 4,703,085 Shares Issued and
Outstanding at December 31, 1997 and 4,690,656 Shares
Issued and Outstanding at December 31, 1996........... 4,703,085 4,690,656
Additional Paid-in Capital............................... 6,533,555 6,334,208
Retained Earnings........................................ 29,574,675 26,318,721
Accumulated Other Comprehensive Income, net of tax of
($112,000) in 1997 and $12,000 in 1996................ 217,470 (22,824)
------------ ------------
Total Shareholders' Equity............................... 41,028,785 37,320,761
------------ ------------
Total Liabilities and Shareholders' Equity....... $411,222,876 $384,035,982
============ ============
</TABLE>
See notes to consolidated financial statements.
F-11
<PAGE> 117
CONSOLIDATED STATEMENTS OF INCOME AND
COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
INTEREST INCOME
Loans (Including Fees)............................. $24,935,274 $23,593,288 $21,726,452
Interest Bearing Deposits.......................... 672,159 584,746 755,892
Investment Securities:
U.S. Treasury.................................... 1,257,456 1,438,107 1,817,279
U.S. Government Agencies......................... 3,113,072 3,398,383 1,865,014
States and Political Subdivisions................ 1,098,739 983,163 881,278
Dividend Income.................................. 186,043 151,786 133,557
Federal Funds Sold................................. 199,988 418,504 268,331
----------- ----------- -----------
Total Interest Income.................... 31,462,731 30,567,977 27,447,803
----------- ----------- -----------
INTEREST EXPENSE
NOW Accounts..................................... 1,875,013 1,793,576 1,155,231
Money Market Deposit Accounts.................... 859,518 1,265,473 1,292,854
Savings.......................................... 448,766 418,777 386,571
Time Certificates($100,000 and above)............ 5,057,137 4,528,026 3,998,332
Other Time....................................... 5,656,899 5,783,882 5,184,666
Other............................................ 737,760 617,601 400,390
----------- ----------- -----------
Total Interest Expense................... 14,635,093 14,407,335 12,418,044
----------- ----------- -----------
NET INTEREST INCOME................................ 16,827,638 16,160,642 15,029,759
PROVISION FOR LOAN LOSSES.......................... 932,285 694,911 859,300
----------- ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN
LOSSES........................................... 15,895,353 15,465,731 14,170,459
----------- ----------- -----------
NON-INTEREST INCOME
Service Charges on Deposit Accounts.............. 2,099,425 1,918,032 1,751,415
Fees for Trust Services.......................... 208,864 215,946 200,236
Other............................................ 626,554 405,434 378,263
----------- ----------- -----------
Total Non-interest Income................ 2,934,843 2,539,412 2,329,914
----------- ----------- -----------
NON-INTEREST EXPENSE
Salaries......................................... 4,249,429 4,110,004 3,835,909
Other Personnel Expense.......................... 1,494,100 1,157,196 1,297,087
Occupancy Expense, Net........................... 893,338 767,941 699,277
Equipment Expense................................ 1,314,450 1,051,469 911,268
Other (Note 13).................................. 3,156,288 3,344,054 3,098,164
----------- ----------- -----------
Total Non-interest Expense............... 11,107,605 10,430,664 9,841,705
----------- ----------- -----------
INCOME BEFORE INCOME TAXES......................... 7,722,591 7,574,479 6,658,668
PROVISION FOR INCOME TAXES (NOTE 7)................ 2,258,707 2,400,517 1,952,700
----------- ----------- -----------
NET INCOME......................................... 5,463,884 5,173,962 4,705,968
</TABLE>
F-12
<PAGE> 118
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
OTHER COMPREHENSIVE INCOME:
Unrealized holding gains (losses) on Securities
Available for Sale arising during the period,
net of tax of ($112,000), $12,000, and
($132,000) in 1997, 1996 and 1995,
respectively.................................. 240,294 (279,271) 1,444,508
----------- ----------- -----------
COMPREHENSIVE INCOME............................... $ 5,704,178 $ 4,894,691 $ 6,150,476
=========== =========== ===========
EARNINGS PER SHARE:
Basic............................................ $ 1.16 $ 1.10 $ 1.00
Diluted.......................................... $ 1.16 $ 1.10 $ 1.00
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING:
Basic............................................ 4,691,164 4,690,769 4,690,961
=========== =========== ===========
Diluted.......................................... 4,694,695 4,690,769 4,690,961
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-13
<PAGE> 119
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income.................................... $ 5,463,884 $ 5,173,962 $ 4,705,968
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Provision for Depreciation............... 1,084,048 845,621 656,059
Provision for Loan Losses................ 932,285 694,911 859,300
Gain on Sale of Other Assets............. (1,619)
Loss (Gain) on Sale of Other Real
Estate................................ 42,487 (3,607) (26,693)
Gain on Sale and Call of Securities...... (6,090) (7,359) (2,723)
(Gain) Loss on Sale of Premises and
Equipment............................. 3,653 11,751 (6,070)
Net Accretion of Premiums and Discounts
on Securities......................... (150,874) (537,317) (126,317)
Amortization of Goodwill................. 37,688 37,688 37,688
Changes in Assets and Liabilities:
(Increase) Decrease in Interest
Receivable............................ 225,248 (426,124) (1,419,086)
Increase in Other Assets................. (60,836) (49,864) (135,022)
Increase in Interest Payable............. 271,521 61,334 1,222,327
Increase (Decrease) in Other
Liabilities........................... 148,952 (432,282) 168,801
------------ ------------ ------------
Net Cash Provided by Operating
Activities......................... 7,991,966 5,368,714 5,932,613
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (Increase) Decrease in Interest Bearing
Deposits in Other Banks.................... (6,462,034) 2,386,061 746,402
Net (Increase) Decrease in Federal Funds
Sold....................................... 2,445,000 1,950,000 (1,955,000)
Available For Sale Securities:
Proceeds from Calls and Maturity........... 49,498,081 46,577,991 20,535,193
Purchases.................................. (47,610,844) (78,462,013) (24,016,143)
Held To Maturity Securities:
Proceeds from Maturity..................... 6,685,322 23,121,405 7,215,196
Purchases.................................. (9,351,725) (5,346,240) (25,389,464)
Net Increase in Loans......................... (20,673,289) (15,934,923) (27,060,604)
Purchases of Premises and Equipment........... (983,951) (92,405,496) (1,797,173)
Proceeds from Sale of Premises and
Equipment.................................. 1,886 8,660
Proceeds from Sale of Other Assets............ 1,621
Proceeds from Sales of Other Real Estate...... 419,830 201,624 138,030
------------ ------------ ------------
Net Cash Used in Investing
Activities......................... (26,033,610) (27,909,705) (51,573,282)
------------ ------------ ------------
</TABLE>
F-14
<PAGE> 120
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Net Increase in Deposits...................... 25,158,00 525,164,629 44,968,802
Borrowings from the Federal Home Loan Bank.... 2,530,000 9,041,000 5,332,000
Repayment of Other Borrowed Money............. (4,029,608) (5,357,496) (2,727,429)
(Decrease) Increase in Fed Funds Purchased.... (800,000) 800,000
Increase in Repurchase Agreements............. 200,000 1,200,000
Purchase and Retirement of Fractional
Shares..................................... (6,754) (2,812) (3,137)
Proceeds from Exercise of Stock Options....... 218,530
Dividends Paid................................ (2,207,930) (1,699,119) (1,274,321)
------------ ------------ ------------
Net Cash Provided by Financing
Activities......................... 21,062,243 29,146,202 46,295,915
------------ ------------ ------------
INCREASE IN CASH AND DUE FROM BANKS............. 3,020,599 6,605,211 655,246
CASH AND DUE FROM BANKS, BEGINNING OF YEAR...... 21,610,743 15,005,532 14,350,286
------------ ------------ ------------
CASH AND DUE FROM BANKS, END OF YEAR............ $ 24,631,342 $ 21,610,743 $ 15,005,532
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest................................... $ 14,363,572 $ 14,346,000 $ 11,194,917
Income Taxes............................... 1,953,000 2,439,418 2,208,452
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING
ACTIVITIES:
Other Real Estate Acquired through Loan
Foreclosure................................ $ 1,092,524 $ 414,917 $ 170,096
Loans granted to facilitate the Sale of Other
Real Estate................................ 708,183 76,900 268,405
Change in Net Unrealized Gain (Loss) on
Securities Available for Sale.............. 240,294 (279,271) 1,513,979
</TABLE>
See notes to consolidated financial statements.
F-15
<PAGE> 121
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMMON PAID-IN RETAINED COMPREHENSIVE
STOCK CAPITAL EARNINGS INCOME
---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1994............. $4,691,186 $6,339,627 $19,412,231 $(1,188,061)
Net Income............................... 4,705,968
Cash Dividends, $.31 per share........... (1,274,321)
Change in Net Unrealized Gain (Loss) on
Investment Securities Available for
Sale................................... 1,444,508
Purchase & Retirement of Fractional
Shares................................. (356) (2,781)
---------- ---------- ----------- -----------
Balance at December 31, 1995............. 4,690,830 6,336,846 22,843,878 256,447
Net Income............................... 5,173,962
Cash Dividends, $.38 per share........... (1,699,119)
Change in Net Unrealized Gain (Loss) on
Investment Securities Available for
Sale................................... (279,271)
Purchase & Retirement of Fractional
Shares................................. (174) (2,638)
---------- ---------- ----------- -----------
Balance at December 31, 1996............. 4,690,656 6,334,208 26,318,721 (22,824)
Net Income............................... 5,463,884
Cash Dividends, $.47 per share........... (2,207,930)
Change in Net Unrealized Gain (Loss) on
Investment Securities Available for
Sale................................... 240,294
Purchase and Retirement of Fractional
Shares................................. (384) (6,370)
Exercise of Stock Options................ 12,813 205,717
---------- ---------- ----------- -----------
Balance at December 31, 1997............. $4,703,085 $6,533,555 $29,574,675 $ 217,470
========== ========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-16
<PAGE> 122
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting and reporting policies of First Banking Company of Southeast
Georgia (the "Company") conform with generally accepted accounting principles
and to general practice within the banking industry. The following is a summary
of the more significant policies:
CONSOLIDATION
The consolidated financial statements of the Company include the financial
statements of First Bulloch Bank & Trust Company ("Bulloch Bank"), Metter
Banking Company ("Metter Bank") and First National Bank of Effingham ("Effingham
Bank"), (collectively, the "Banks"), wholly owned subsidiaries. Intracompany
balances and transactions have been eliminated in consolidation.
NATURE OF OPERATIONS
The Company's banks have eleven banking locations in Bulloch, Candler and
Effingham counties located in southeast Georgia. The Company's primary source of
revenue is interest from loans to businesses and individuals located in its
market area.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INTEREST RATE RISK
The Company's assets and liabilities are generally monetary in nature, and
interest rate changes have an impact on the Company's performance. The Company
decreases the effect of interest rate changes on its performance by striving to
match maturities and interest sensitivity between loans, investment securities,
deposits and other borrowings. However, a significant change in interest rates
could have an effect on the Company's results of operations.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and demand deposits due from banks.
INVESTMENT SECURITIES AVAILABLE FOR SALE
Investment securities available for sale are carried at fair value, and the
related unrealized gain or loss, net of deferred income taxes, is included as
other comprehensive income. Gains and losses on sales and calls are based on the
net proceeds and adjusted carrying amounts of the securities sold or called,
using the specific identification method.
F-17
<PAGE> 123
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVESTMENT SECURITIES HELD TO MATURITY
Investment securities held to maturity are stated at cost adjusted for
amortization of premiums and accretion of discounts, which are recognized as
adjustments to interest income. The Company has the intent and ability to hold
these investment securities to maturity.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level estimated to be
adequate to absorb probable losses in the loan portfolio. Management's estimate
of the adequacy of the allowance is based upon reviews of individual loans,
recent loss experience, the estimated value of any underlying collateral,
current economic conditions, the risk characteristics of the various categories
of loans and other pertinent factors. Loans deemed uncollectible are charged to
the allowance. Provisions for loan losses and recoveries on loans previously
charged off are added to the allowance.
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed using accelerated and straight line methods over the
estimated useful life of each asset. Significant additions and improvements are
capitalized. Maintenance and repairs are charged to expense. The Company
evaluates the estimated useful lives of assets on a periodic basis to determine
whether events or circumstances warrant revised estimated useful lives or
whether any impairment exists. Management believes no material impairment of
premises and equipment exists at December 31, 1997.
INTEREST INCOME ON LOANS
Interest income on commercial, real estate and simple interest installment
loans is recognized based upon the principal amount outstanding. The Banks
discontinue accruing interest income on loans when, in the opinion of
management, the interest is not collectible currently.
OTHER REAL ESTATE
Other real estate represents properties acquired through foreclosure and is
carried at the lower of cost or estimated fair market value less estimated costs
to sell.
GOODWILL
Goodwill is included in other assets and is being amortized over 25 years.
The carrying value of goodwill is periodically reviewed to assess recoverability
based on expected undiscounted cash flows and operating income for the Company.
Impairments would be recognized in operating results if a permanent diminution
in value was expected. The Company also evaluates the amortization period to
determine whether events or circumstances warrant revision to the amortization
period. Management believes no material impairment of goodwill exists at
December 31, 1997.
INCOME TAXES
Provisions for income taxes are based upon amounts reported in the
statements of income (after exclusion of non-taxable income such as interest on
state and municipal securities) and include
F-18
<PAGE> 124
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
deferred taxes for temporary differences between financial statement and tax
bases of assets and liabilities using enacted tax rates for the year in which
the temporary differences are expected to reverse.
NET INCOME PER SHARE
In February 1997, Statement of Financial Accounting Standards ("SFAS") 128,
"Earnings Per Share" was issued. SFAS 128 establishes standards for computing
and presenting earnings per share information for entities with publicly held
common stock. All per share amounts conform to SFAS 128.
Net income and average common shares outstanding used to compute both basic
and diluted earnings per share were the same for 1996 and 1995. Average common
shares used to compute basic earnings per share differed from average common
shares used to compute diluted earnings per share by 3,531 equivalent shares
related to the issuance of stock options in 1997.
RECLASSIFICATIONS
Certain reclassifications have been made to the 1996 and 1995 financial
statements to conform to the 1997 presentation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
131 "Disclosures about Segments of an Enterprise and Related Information" ("SFAS
131"). SFAS 131 establishes standards for, among other things, reporting
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports issued to shareholders. SFAS 131 is effective for
annual financial statements issued for periods beginning after December 15,
1997.
As of January 1, 1999, the Company adopted Statement of Financial
Accounting Standards 130, "Reporting Comprehensive Income" ("SFAS 130"), and
restated prior periods to conform to the presentation required by SAFS 130. SFAS
130 establishes new rules for the reporting and display of comprehensive income
and its components. SFAS 130 requires unrealized gains or losses on the
Company's available-for-sale securities, which prior to adoption were reported
separately in shareholders' equity, to be included in other comprehensive
income. The adoption of SFAS 130 had no impact on the Company's net income or
shareholders' equity.
2. ACQUISITION
Effective August 27, 1996, the Company consummated its merger of the
Effingham Bank into the Company. The Company exchanged 425,386 shares of its
common stock and cash of approximately $2,800 for all the outstanding common
stock and options to acquire common stock of FNB Bancshares, Inc. ("FNB"),
parent company of Effingham Bank. The merger was accounted for as a
pooling-of-interests. The financial statements of the Company for the year ended
December 31, 1995 have been restated to include FNB and the Effingham Bank.
F-19
<PAGE> 125
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVESTMENT SECURITIES AVAILABLE FOR SALE
The amortized cost, estimated fair value and gross unrealized gains and
losses of investment securities available for sale are as follows:
<TABLE>
<CAPTION>
GROSS GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
U.S. Treasury............................. $13,311,448 $ 32,293 $ 11,857 $13,331,884
U.S. Government Agencies.................. 62,329,447 158,803 89,699 62,398,551
States and Political Subdivisions......... 5,957,141 239,960 6,197,101
Equity securities......................... 2,549,252 2,549,252
----------- -------- -------- -----------
Total............................. $84,147,288 $431,056 $101,556 $84,476,788
=========== ======== ======== ===========
DECEMBER 31, 1996
U.S. Treasury............................. $22,150,564 $ 39,534 $ 33,696 $22,156,402
U.S. Government Agencies.................. 55,803,683 109,467 234,989 55,678,161
States and Political Subdivisions......... 5,336,723 100,581 5,421,832
Equity securities......................... 2,609,552 2,609,552
----------- -------- -------- -----------
Total............................. $85,900,522 $249,582 $284,157 $85,865,947
=========== ======== ======== ===========
</TABLE>
The amortized cost and estimated fair value of these securities at December
31, 1997, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because the borrower may have the right to
call or prepay obligations with or without call or prepayment penalties.
Mortgage-backed securities, which are included above in U. S. Government
Agencies, are included in the year of their final maturity. Equity securities
are included in the category "Due after ten years".
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
Due in one year or less................................... $33,279,299 $33,289,108
Due after one year through five years..................... 39,179,368 39,276,010
Due after five years through ten years.................... 4,343,890 4,446,600
Due after ten years....................................... 7,344,731 7,465,070
----------- -----------
Total............................................. $84,147,288 $84,476,788
=========== ===========
</TABLE>
During 1997, 1996, and 1995, there were realized gains of $4,414, $991 and
$2,723 from sales and calls of securities of $2,000,000, $800,991 and $50,000,
respectively.
Securities with a fair value of $61,876,541 at December 31, 1997 were
pledged as collateral for public deposits and trust assets.
F-20
<PAGE> 126
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
4. INVESTMENT SECURITIES HELD TO MATURITY
The amortized cost, estimated fair value and gross unrealized gains and
losses of investment securities held to maturity are as follows:
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
DECEMBER 31, 1997
U.S. Treasury............................. $ 3,701,283 $ 191 $ 18 $ 3,701,456
U.S. Government Agencies.................. 1,264,194 22,686 1,286,880
States and Political Subdivisions......... 15,881,638 673,808 226 16,555,220
----------- -------- ------- -----------
Total............................. $20,847,115 $696,685 $ 244 $21,543,556
=========== ======== ======= ===========
DECEMBER 31, 1996
U.S. Treasury............................. $ 1,999,082 $ 6,548 $12,005,630
U.S. Government Agencies.................. 2,377,268 53,329 2,430,597
States and Political Subdivisions......... 13,781,394 532,680 $12,230 14,301,844
----------- -------- ------- -----------
Total............................. $18,157,744 $592,557 $12,230 $18,738,071
=========== ======== ======= ===========
</TABLE>
The amortized cost and estimated fair value of these securities at December
31, 1997, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because the borrower may have the right to
call or prepay obligations with or without call or prepayment penalties.
Mortgage-backed securities, which are included above in U. S. Government
Agencies, are included in the year of their final maturity.
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
----------- -----------
<S> <C> <C>
Due in one year or less..................................... $ 6,739,202 $ 6,768,859
Due after one year through five years....................... 5,812,170 5,937,149
Due after five years through ten years...................... 4,061,990 4,349,723
Due after ten years......................................... 4,233,753 4,487,825
----------- -----------
Total............................................. $20,847,115 $21,543,556
=========== ===========
</TABLE>
During 1997 and 1996, there were realized gains of $1,676 and $6,368 from
total proceeds from calls of securities of $65,000 and $396,800, respectively.
There were no sales or calls of held to maturity securities in 1995 and,
therefore, no gains or losses.
Securities with a carrying amount of $18,793,764 at December 31, 1997 were
pledged as collateral for public deposits and trust assets.
F-21
<PAGE> 127
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. LOANS
Loans are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Real Estate:
Construction.............................................. $ 14,175,794 $ 17,366,129
Other..................................................... 161,563,698 141,015,449
Commercial and Agricultural................................. 52,950,189 49,837,280
Installment and Other Consumer.............................. 21,622,026 22,838,620
------------ ------------
Total............................................. $250,311,707 $231,057,478
============ ============
</TABLE>
The Banks' loans are concentrated with customers in the Banks' market area
of southeast Georgia, primarily in Bulloch, Candler, Effingham and contiguous
counties.
An analysis of the allowance for loan losses follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ---------- ----------
<S> <C> <C> <C>
Balance, Beginning of Year........................... $ 4,024,539 $3,856,321 $3,274,587
Provision for Loan Losses............................ 932,285 694,911 859,300
Loans Charged Off.................................... (1,229,430) (659,159) (342,070)
Recoveries........................................... 193,141 132,466 64,504
----------- ---------- ----------
Balance, End of Year................................. $ 3,920,535 $4,024,539 $3,856,321
=========== ========== ==========
</TABLE>
Nonperforming loans were $1,216,759, $1,416,324, and $1,667,510 at December
31, 1997, 1996, and 1995, respectively. These loans included those on a
non-accrual status of $434,296, $353,389, and $549,297, accruing loans
contractually past due at least 90 days of $133,712, $207,420, and $367,663 and
restructured loans of $648,751, $855,515, and $750,550 at December 31, 1997,
1996, and 1995, respectively. Interest income that would have been recorded on
these nonperforming loans in accordance with their original terms was $163,401
in 1997, $171,952 in 1996, and $110,345 in 1995, compared with amounts received
of $96,369, $52,193 and $53,462, respectively.
The Company considers a loan to be impaired when it is probable that it
will be unable to collect all amounts due according to the original terms of the
loan agreement. The Company measures impairment of a loan on a loan by loan
basis for real estate, commercial and agricultural loans. Installment and other
consumer loans are considered smaller balance, homogeneous loans. Amounts of
impaired loans that are not probable of collection are charged off immediately.
The Company had impaired loans of $434,296, $353,389, and $549,297 as of
December 31, 1997, 1996, and 1995, respectively. The average amount of impaired
loans during 1997 was $1,361,500. No specific allowance was necessary for such
loans. The interest income recognized on such loans was $56,975 in 1997, $5,562
in 1996, and $17,649 in 1995 as compared to $56,975, $5,562, and $2,635
respectively, of interest received on a cash basis.
The Banks are parties to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers.
These financial instruments include commitments to extend credit and standby
letters of credit. The Banks' exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the contractual
amount of those instruments.
F-22
<PAGE> 128
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Banks use the same credit policies in making these commitments as they do
for on-balance-sheet instruments. The Banks expect no loss from loan commitments
of $25,513,505, $24,837,764 and $26,704,692 and standby letters of credit of
$924,185, $1,070,250 and $757,450 at December 31, 1997, 1996 and 1995,
respectively. The loan commitments and standby letters of credit include
$12,209,044 and $533,100, respectively, of fixed rate commitments and
$13,304,461 and $391,085, respectively, of variable rate commitments at December
31, 1997. The Banks evaluate each customer's credit-worthiness on a case-by-case
basis. The amount of collateral obtained for these commitments, if deemed
necessary by the Banks, is based on management's credit evaluation of the
customer. Collateral held varies, but may include inventory, equipment, and real
estate.
6. PREMISES AND EQUIPMENT
Premises and equipment are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
Land........................................................ $ 923,253 $ 923,253
Buildings................................................... 4,593,420 4,471,265
Leasehold Improvements...................................... 584,746 527,279
Furniture and Equipment..................................... 7,560,613 6,886,549
----------- -----------
Total............................................. 13,662,032 12,808,346
Less: Accumulated Depreciation.............................. 6,572,473 5,615,037
----------- -----------
Premises and Equipment, Net................................. $ 7,089,559 $ 7,193,309
=========== ===========
</TABLE>
7. INCOME TAXES
The Company provides deferred income taxes based on temporary differences
between financial statement and tax bases of assets and liabilities using
enacted tax rates in effect for the year in which the temporary differences are
expected to reverse. The provisions for income taxes for the years ended
December 31, 1997, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current............................................... $2,189,707 $2,433,517 $2,262,981
Deferred.............................................. 69,000 (33,000) (310,281)
---------- ---------- ----------
Total....................................... $2,258,707 $2,400,517 $1,952,700
========== ========== ==========
</TABLE>
At December 31, 1997 and 1996, the significant components of the Company's
net deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred Tax Assets:
Allowance for Possible Loan Losses........................ $1,181,000 $1,255,000
Other Postretirement Benefits............................. 95,000 106,000
Other Liabilities......................................... 63,000 17,000
Unrealized Loss on Investment Securities Available for
Sale................................................... 12,000
---------- ----------
Total Deferred Tax Assets......................... 1,339,000 1,390,000
---------- ----------
</TABLE>
F-23
<PAGE> 129
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Deferred Tax Liabilities:
Accumulated Depreciation.................................. (44,000) (55,000)
Other Assets.............................................. (158,000) (117,000)
Unrealized Gain on Investment Securities..................
Available for Sale........................................ (112,000)
---------- ----------
Total Deferred Tax Liabilities.................... (314,000) (172,000)
---------- ----------
Net Deferred Tax Assets..................................... $1,025,000 $1,218,000
========== ==========
</TABLE>
No valuation allowance has been recorded by the Company, as management
considers it more likely than not that all deferred tax assets will be realized.
The provision for income taxes is less than that computed by applying the
federal statutory rate of 34% to pretax income as indicated by following:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Income Tax Computed at
Statutory Rate...................................... $2,625,681 $2,573,323 $2,263,947
Increases (Decreases) Resulting from:
Tax Exempt Interest................................. (419,957) (303,852) (375,512)
Other............................................... 52,983 131,046 64,265
---------- ---------- ----------
Income Tax Expense.................................. $2,258,707 $2,400,517 $1,952,700
========== ========== ==========
</TABLE>
8. BENEFIT PLANS
At December 31, 1997 and 1996, the Company had recorded liabilities of
approximately $249,322 and $279,451, respectively, for other post-retirement
benefits. The Company did not recognize any expense for other post-retirement
benefits in 1997 and recognized expenses during each of the years ended December
31, 1996 and 1995 of approximately $8,919 and $23,600, respectively. A discount
of 7.5% and an annual medical insurance cost trend rate of 12% reduced by 1%
each year until 6.5% were used in calculating the other post-retirement benefit
obligation. If the annual medical insurance cost trend rate assumption were
increased by 1%, the liability would be increased by 8% at December 31, 1997.
The Company sponsors a contributory profit sharing plan under Internal
Revenue Code Section 401(k), (the "401(k) plan"), which covers substantially all
employees of the Banks. Employees may contribute up to 10% of their compensation
to the 401(k) plan, up to a maximum amount of $9,500 in 1997. The Banks
contribute between 50% and 187.5% of the participant's initial 4% contribution.
The Banks may make an additional contribution each year under certain
circumstances.
The Company also sponsors a Target Benefit Plan which covers substantially
all employees of the Banks. Under the terms of this plan, a participant's target
benefit will be based on service of up to twenty years subsequent to January 1,
1986 for employees of the Bulloch Bank, subsequent to January 1, 1989 for
employees of the Metter Bank, and subsequent to January 1, 1997 for employees of
the Effingham Bank. For each year of service performed, the Banks contribute
percentages of the participant's compensation as set forth in the plan.
F-24
<PAGE> 130
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of profit-sharing and target benefit expenses follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Profit Sharing Plan........................................ $460,418 $283,198 $288,284
Target Benefit Plan........................................ 150,129 113,027 134,331
-------- -------- --------
Total............................................ $610,547 $396,225 $422,615
======== ======== ========
</TABLE>
9. SHAREHOLDERS' EQUITY
Effective May 15, 1995, the Company declared an 8-for-5 stock split of its
common stock effected in the form of a 60% stock dividend. Additional paid-in
capital has been charged and common stock has been credited retroactively with
$998,227 to reflect this stock split. Also, effective June 30, 1997, the Company
declared a five-for-four stock split of its common stock effected in the form of
a 25% stock dividend. Additional paid-in capital has been charged and common
stock has been credit retroactively with $750,505 to reflect this stock split.
Effective May 29, 1998, the Company declared a 5-for-4 stock split of its common
stock effected in the form of a 25% stock dividend. Additional paid-in capital
has been charged and common stock has been credited retroactively with $940,617
to reflect this stock split. All references to share and per share amounts have
been retroactively adjusted to reflect these splits.
The primary source of funds for payment of dividends by the Company to its
shareholders is dividends received from the Banks. The Banks may pay dividends
to the Company in any year in an amount up to 50% of the previous year's net
income, or $2,731,942 in 1998, without the approval of the Georgia Department of
Banking and Finance.
During the third quarter of 1997, the Company established a Dividend
Reinvestment Plan which allows its shareholders to reinvest their dividends in
shares of the Company at market price average, as defined. The Company has
reserved and registered 125,000 shares for issuance under the Plan.
The Company and the Banks are subject to various regulatory capital
requirements administered by the federal banking agencies. Failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on the Company's consolidated financial statements. Under
capital adequacy guidelines the Company and the Banks must meet specific capital
guidelines that involve quantitative measures of the Company's and the Banks'
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company's and the Banks' capital amounts
and the Bank's classifications under the regulatory framework for prompt
corrective action are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Banks to maintain minimum amounts and ratios of
total and Tier 1 capital to risk-weighted assets and of Tier 1 capital to
average assets, as defined in the regulations and as set forth in the table
below. Management believes that as of December 31, 1997 the Company and the
Banks meet all capital adequacy requirements to which they are subject.
As of December 31, 1997, the most recent notifications from the Federal
Deposit Insurance Corporation categorized each bank as "well-capitalized" under
the regulatory framework for prompt corrective action and as of December 31,
1996 categorized Bulloch Bank and Metter Bank as "well capitalized" and
Effingham Bank as "adequately capitalized." As a result, Effingham Bank was not
F-25
<PAGE> 131
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
allowed to accept brokered deposits without regulatory approval at December 31,
1996. To be categorized as "well-capitalized", each bank must maintain minimum
total risk-based, Tier I risk-based, and Tier 1 leverage ratios as set forth in
the table. There are no conditions or events since that notification that
management believes have changed such institutions' categories.
The Company's and the Banks' actual capital amounts and ratios as of
December 31, 1997 and 1996 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED
FOR CAPITAL UNDER PROMPT
ADEQUACY CORRECTIVE
ACTUAL PURPOSES ACTION PROVISIONS
--------------- --------------- ------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------- ----- ------- ----- ------- --------
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997:
Total Capital (to Risk-weighted Assets):
Company............................... $43,529 17.4% $19,983 8.0% Not Applicable
Bulloch Bank.......................... 27,639 19.7% 11,200 8.0% $14,000 10.0%
Metter Bank........................... 11,201 16.9% 5,302 8.0% 6,628 10.0%
Effingham Bank........................ 4,527 10.3% 3,499 8.0% 4,374 10.0%
Tier I Capital (to Risk-weighted
Assets):
Company............................... $40,397 16.3% $ 9,991 4.0% Not Applicable
Bulloch Bank.......................... 25,884 18.5% 5,600 4.0% $ 8,400 6.0%
Metter Bank........................... 10,369 15.6% 2,651 4.0% 3,977 6.0%
Effingham Bank........................ 3,980 9.1% 1,750 4.0% 2,624 6.0%
Tier I Capital (to Average Assets):
Company............................... $40,397 10.5% $15,396 4.0% Not Applicable
Bulloch Bank.......................... 25,884 11.5% 6,724 3.0% $11,207 5.0%
Metter Bank........................... 10,369 10.4% 2,995 3.0% 4,992 5.0%
Effingham Bank........................ 3,980 6.5% 2,431 4.0% 3,039 5.0%
AS OF DECEMBER 31, 1996:
Total Capital (to Risk-weighted Assets):
Company............................... $39,831 17.0% $18,730 8.0% Not Applicable
Bulloch Bank.......................... 25,603 19.3% 10,585 8.0% $13,232 10.0%
Metter Bank........................... 10,164 16.6% 4,899 8.0% 6,124 10.0%
Effingham Bank........................ 3,994 9.7% 3,278 8.0% 4,097 10.0%
Tier I Capital (to Risk-weighted
Assets):
Company............................... $36,891 15.8% $ 9,365 4.0% Not Applicable
Bulloch Bank.......................... 23,940 18.1% 5,293 4.0% $ 7,939 6.0%
Metter Bank........................... 9,393 15.3% 2,450 4.0% 3,675 6.0%
Effingham Bank........................ 3,584 8.7% 1,639 4.0% 2,458 6.0%
Tier I Capital (to Average Assets):
Company............................... $36,891 9.8% $14,959 4.0% Not Applicable
Bulloch Bank.......................... 23,940 10.8% 6,624 3.0% $11,040 5.0%
Metter Bank........................... 9,393 9.8% 2,863 3.0% 4,772 5.0%
Effingham Bank........................ 3,584 6.2% 2,326 4.0% 2,908 5.0%
</TABLE>
F-26
<PAGE> 132
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. STOCK OPTIONS
In 1997 the Company adopted the First Banking Company of Southeast Georgia
1997 Stock Option Plan, which provides that key employees may be granted
nonqualified stock options to purchase shares of common stock of the Company.
The Plan limits the total number of shares which may be awarded to 64,063, which
have been reserved for the Plan. The Options expire five years from the date of
grant. During the year ended December 31, 1997, nonqualified options were
granted to two key employees to purchase 64,063 shares of stock at an exercise
price which increases each year over the five-year term of each option from
$15.04 per share to a maximum of $22.02 per share in the final year of the
option term. Options were immediately exercisable as to 20% of the shares
subject to options and the remaining balance of the options outstanding shall
become exercisable in equal 20% increments on the first day of January in 1998,
1999, 2000, and 2001. For any option increment, 80% of the unexercised portion
of that increment will be carried forward to remain exercisable for the
remainder of the option term.
During 1997, 12,813 stock options were exercised at an exercise price of
$15.04 per share. As of December 31, 1997 the Company had 51,250 options to
purchase common stock outstanding at a weighted average exercise price of
$19.20, and no options were exercisable.
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
NUMBER REMAINING
EXERCISE OUTSTANDING CONTRACTUAL WEIGHTED AVERAGE
PRICE AT 12-31-97 LIFE EXERCISE PRICE
- -------- ----------- ----------- ----------------
<S> <C> <C> <C>
$16.54 12,813 4.0 $16.54
18.20 12,813 4.0 18.20
20.02 12,812 4.0 20.02
22.02 12,812 4.0 22.02
</TABLE>
The Company accounts for its stock-based compensation plan under Accounting
Principles Board 25. The Company has adopted SFAS No. 123 "Accounting for
Stock-Based Compensation" ("SFAS 123") for disclosure purposes. For SFAS 123
purposes, the fair value of each option grant of $2.94 has been estimated as of
the date of the grant using the Black-Scholes option pricing model with the
following weighted average assumptions:
<TABLE>
<S> <C>
Expected Life (years)....................................... 2.85%
Risk-free interest rate..................................... 5.88%
Dividend Rate............................................... 2.55%
Expected Volatility......................................... 37.82%
Forfeiture Rate............................................. 0.00%
</TABLE>
F-27
<PAGE> 133
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Had compensation cost for the Company's stock options granted been
determined based on the fair value at the grant dates for awards under this plan
consistent with a method prescribed in SFAS 123 utilizing the assumptions
described above, the Company's net income and net income per share for the year
ended December 31, 1997 would have changed to the pro-forma amounts indicated
below:
<TABLE>
<S> <C>
Net Income:
As reported............................................... $5,463,884
Pro Forma................................................. 5,407,040
Net income per share -- diluted:
As reported............................................... $ 1.16
Pro Forma................................................. 1.15
</TABLE>
11. RELATED PARTY TRANSACTIONS
Certain directors, executive officers and principal shareholders of the
Company and the Banks, including their associates and companies in which they
are principal owners, were loan customers of the Banks during 1997 and 1996.
Such loans are made in the ordinary course of business at the Banks' normal
credit terms, including interest rates and collateralization, and do not
represent more than a normal risk of collection. An analysis of the activity in
loans to executive officers, directors, and principal shareholders is as
follows:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Balance, Beginning of Year........................... $ 11,591,083 $ 9,573,707
Amounts Advanced..................................... 10,041,133 25,738,381
Repayments........................................... (12,096,007) (23,721,005)
------------ ------------
Balance, End of Year................................. $ 9,536,209 $ 11,591,083
============ ============
</TABLE>
12. DEPOSITS AND OTHER BORROWED MONEY
At December 31, 1997, the scheduled maturities of time deposits were as
follows:
<TABLE>
<S> <C>
Within three months......................................... $ 64,128,761
Over three months through six months........................ 49,068,665
Over six months through one year............................ 53,012,995
Over one year............................................... 22,872,978
------------
Total....................................................... $189,083,399
============
</TABLE>
Other borrowed money at December 31, 1997 and 1996 consists of $9,418,343
and $10,917,951, respectively, advanced from the Federal Home Loan Bank of
Atlanta to the Banks. Contractual repayments of these advances are $1,513,164 in
1998, $1,253,081 in 1999, $1,039,312 in 2000, $869,778 in 2001, $859,778 in
2002, and $3,883,230 in 2003 and beyond. Average interest rates on such advances
outstanding were 7.00% at December 31, 1997 and 6.98% at December 31, 1996.
F-28
<PAGE> 134
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. OTHER EXPENSE
Items comprising other expense for the years ended December 31, 1997, 1996
and 1995 follow:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Office Supplies....................................... $ 425,374 $ 441,952 $ 400,785
Outside Services...................................... 491,164 568,065 533,259
Computer Services..................................... 98,196 164,753 143,455
Advertising and Public Relations...................... 547,343 526,176 512,102
Directors' Fees....................................... 165,400 195,860 192,800
Postage............................................... 260,747 247,450 224,382
FDIC, FICO and OCC Assessments........................ 103,279 8,521 257,578
Correspondent Service Charges......................... 198,362 133,525 105,000
Other................................................. 866,423 1,057,752 728,803
---------- ---------- ----------
Total....................................... $3,156,288 $3,344,054 $3,098,164
========== ========== ==========
</TABLE>
14. CASH RESTRICTIONS
The Federal Reserve System requires that a certain level of average cash be
maintained. At December 31, 1997 and 1996, such required balances were
$4,778,000 and $3,120,000, respectively.
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures about Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company using available market
information and appropriate valuation methodologies. However, considerable
judgment is necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented herein are not
necessarily indicative of the amounts the Company could realize in a current
market exchange. The use of different market assumptions and/or estimation
methodologies may have a material effect on the estimated fair value amounts.
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Assets:
Cash and Due from Banks........................ $ 24,631 $ 24,631 $ 21,611 $ 21,611
Interest Bearing Deposits in Other Banks....... 16,368 16,368 9,905 9,905
Federal Funds Sold............................. 3,775 3,775 6,220 6,220
Investment..................................... 105,324 106,020 104,024 104,604
Loans.......................................... 250,295 244,069 231,042 226,121
Liabilities:
Deposits....................................... 354,805 356,934 329,647 332,138
Other Borrowed Money........................... 10,818 11,485 12,918 13,419
</TABLE>
F-29
<PAGE> 135
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
-------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
Off-Balance-Sheet Instruments:
Commitments to Extend Credit................... $ 25,514 $ 24,838
Standby Letters of Credit...................... 924 1,070
</TABLE>
The carrying amounts of cash and due from banks, interest bearing deposits
in other banks, and federal funds sold are a reasonable estimate of their fair
value due to the short-term nature of these financial instruments. The fair
value of investment securities is based on quoted market prices and dealer
quotes. The fair value of loans, deposits, and other borrowed money is estimated
by discounting the future cash flows using the Banks' current interest rates for
such financial instruments. No adjustment was made to the entry-value interest
rates for changes in credit of performing loans for which there are no known
credit concerns. Management segregates loans in appropriate risk categories.
Management believes that the risk factor embedded in the entry-value interest
rates along with the general reserves applicable to the performing loan
portfolio for which there are no known credit concerns result in a fair
valuation of such loans on an entry-value basis. The fair value of nonperforming
loans with a recorded book value of $1,216,759 at December 31, 1997 and
$1,416,324 at December 31, 1996 has been estimated to be the recorded book value
based on the fair value of the underlying collateral.
As required by SFAS 107, demand deposits are shown at their face value. No
additional value has been ascribed to core deposits, which generally bear a low
rate of or no interest and do not fluctuate in response to changes in interest
rates. The fair value of commitments to extend credit and standby letters of
credit is estimated to approximate the amount outstanding (see Note 5).
The fair value estimates presented herein are based on pertinent
information available to management as of December 31, 1997. Although management
is not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and, therefore, current estimates
of fair value may differ significantly from the amounts presented herein.
F-30
<PAGE> 136
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
16. CONDENSED FINANCIAL STATEMENTS OF FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
(PARENT ONLY)
The condensed financial statements of First Banking Company of Southeast
Georgia (parent only) are as follows:
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Cash and Due from Banks..................................... $ 237,632 $ 2,338
Investment in Subsidiaries.................................. 40,864,338 37,345,826
Other Assets................................................ 51,287
----------- -----------
Total Assets...................................... $41,101,970 $37,399,451
=========== ===========
LIABILITIES
Other Liabilities........................................... $ 73,185 $ 78,690
----------- -----------
Total Liabilities................................. $ 73,185 78,690
----------- -----------
SHAREHOLDERS' EQUITY
Common Stock................................................ 4,703,085 4,690,656
Additional Paid-in Capital.................................. 6,533,555 6,334,208
Retained Earnings........................................... 29,574,675 26,318,721
Accumulated Other Comprehensive Income, net of tax of
($112,000) in 1997 and $12,000 in 1996.................... 217,470 (22,824)
----------- -----------
Total Shareholders' Equity........................ 41,028,785 37,320,761
----------- -----------
Total Liabilities and Shareholders' Equity........ $41,101,970 $37,399,451
=========== ===========
</TABLE>
F-31
<PAGE> 137
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
CONDENSED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Dividends from Subsidiaries........................... $2,458,425 $2,070,243 $1,489,895
Fees from Subsidiaries................................ 436,116
---------- ---------- ----------
Total Income................................ 2,458,425 2,070,243 $1,926,011
General and Administrative Expenses................... 446,347 738,595 649,542
---------- ---------- ----------
Income Before Income Taxes and Equity in Undistributed
Income of Subsidiaries.............................. 2,012,078 1,331,648 1,276,469
Income Tax Benefit.................................... 135,900 264,594 59,139
---------- ---------- ----------
Income Before Equity in Undistributed Income of
Subsidiaries........................................ 2,147,978 1,596,242 1,335,608
Equity in Undistributed Income of Subsidiaries........ 3,315,906 3,577,720 3,370,360
---------- ---------- ----------
Net Income.................................. $5,463,884 $5,173,962 $4,705,968
========== ========== ==========
Other Comprehensive Income:
Unrealized holding gains (losses) on Securities
Available for Sale arising during the period, net of
taxes............................................... 240,294 (279,271) 1,444,508
---------- ---------- ----------
Comprehensive Income.................................. $5,704,178 $4,894,691 $6,150,476
---------- ---------- ----------
</TABLE>
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Income....................................... $ 5,463,884 $ 5,173,962 $ 4,705,968
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Amortization of Goodwill...................... 37,688 37,688 37,688
Earnings of Subsidiaries...................... (5,774,331) (5,647,962) (4,860,256)
Changes in Assets and Liabilities:
(Increase) Decrease in Other Assets......... 51,287 70,099 (98,819)
Increase (Decrease) in Other Liabilities.... (5,505) (18,308) 16,718
----------- ----------- -----------
Net Cash Used by Operating Activities.... (226,977) (384,521) (198,701)
----------- ----------- -----------
Cash Flows From Investing Activities:
Dividends Received From Subsidiaries............. 2,458,425 2,070,243 1,489,895
----------- ----------- -----------
</TABLE>
F-32
<PAGE> 138
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows From Financing Activities:
Exercise of Stock Options........................ 218,530
Purchase and Retirement of Fractional Shares..... (6,754) (2,813) (3,137)
Dividends Paid................................... (2,207,930) (1,699,119) (1,274,321)
----------- ----------- -----------
Net Cash Used by Financing Activities.... (1,996,154) (1,701,932) (1,277,458)
----------- ----------- -----------
Increase (Decrease) in Cash and Due From Banks..... 235,294 (16,210) 13,736
Cash and Due From Banks, Beginning of Year......... 2,338 18,548 4,812
----------- ----------- -----------
Cash and Due From Banks, End of Year............... $ 237,632 $ 2,338 $ 18,548
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid (Received) During the Year for:
Income Taxes..................................... $ (282,540) $ (227,063) $ (67,950)
</TABLE>
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
Quarterly financial data for the years ended December 31, 1997 and 1996 is
summarized as follows (thousands, except per share amounts):
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
1997
Interest Income.......................................... $7,731 $7,793 $7,878 $8,060
Interest Expense......................................... 3,648 3,635 3,626 3,726
------ ------ ------ ------
Net Interest Income............................ 4,083 4,158 4,252 4,334
Provision for Loan Losses................................ 231 236 270 195
------ ------ ------ ------
Net Interest Income after Provision for Loan Losses.... 3,852 3,922 3,982 4,139
Non-Interest Income...................................... 653 699 739 844
Non-Interest Expense..................................... 2,588 2,769 2,774 2,977
------ ------ ------ ------
Income Before Income Taxes............................... 1,917 1,852 1,947 2,006
Provision for Income Taxes............................... 583 544 580 551
------ ------ ------ ------
Net Income..................................... $1,334 $1,308 $1,367 $1,455
====== ====== ====== ======
Earnings Per Share:
Basic.................................................. $ 0.28 $ 0.28 $ 0.29 $ 0.31
====== ====== ====== ======
Diluted................................................ $ 0.28 $ 0.28 $ 0.29 $ 0.31
====== ====== ====== ======
1996
Interest Income.......................................... $7,497 $7,490 $7,740 $7,841
Interest Expense......................................... 3,619 3,495 3,603 3,690
------ ------ ------ ------
Net Interest Income............................ 3,878 3,995 4,137 4,151
Provision for Loan Losses................................ 228 233 169 65
------ ------ ------ ------
Net Interest Income after Provision for Loan
Losses...................................... 3,650 3,762 3,968 4,086
</TABLE>
F-33
<PAGE> 139
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
------- ------- ------- -------
<S> <C> <C> <C> <C>
Non-Interest Income...................................... 600 662 602 675
Non-Interest Expense..................................... 2,426 2,447 2,885 2,673
------ ------ ------ ------
Income Before Income Taxes............................... 1,824 1,977 1,685 2,088
Provision for Income Taxes............................... 547 582 549 722
------ ------ ------ ------
Net Income..................................... $1,277 $1,395 $1,136 $1,366
====== ====== ====== ======
Earnings Per Share:
Basic.................................................. $ 0.27 $ 0.29 $ 0.24 $ 0.30
====== ====== ====== ======
Diluted................................................ $ 0.27 $ 0.29 $ 0.24 $ 0.30
====== ====== ====== ======
</TABLE>
F-34
<PAGE> 140
INDEX TO WAYNE FINANCIAL DATA
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Balance Sheet as of September 30, 1998
(unaudited)............................................... F-36
Consolidated Statements of Operations and Comprehensive
Income for the Three Months Ended and Nine-Months Ended
September 30, 1998 and 1997 (unaudited)................... F-37
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and 1997 (unaudited)............. F-38
Notes to Consolidated Financial Statements (unaudited)...... F-39
Independent Auditors' Report................................ F-40
Consolidated Balance Sheets as of December 31, 1997 and
1996...................................................... F-41
Consolidated Statements of Income for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-42
Consolidated Statements of Comprehensive Income for the
Years Ended December 31, 1997, 1996 and 1995.............. F-43
Consolidated Statements of Changes in Stockholders' Equity
for the Years Ended December 31, 1997, 1996 and 1995...... F-44
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1996 and 1995.......................... F-45
Notes to Consolidated Financial Statements.................. F-46
</TABLE>
F-35
<PAGE> 141
WAYNE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1998
-------------
<S> <C>
ASSETS
Cash and due from banks..................................... $ 1,487,732
Interest-bearing deposits................................... 37,580
Federal funds sold.......................................... 2,340,000
Investment securities:
Held-to-maturity.......................................... 6,852,109
Available-for-sale........................................ 1,529,513
Loans, less allowances for loan losses of $342,711 and
$273,405, respectively.................................... 33,296,385
Premises and equipment, net................................. 1,098,286
Deferred income taxes....................................... 79,379
Other assets................................................ 550,398
-----------
Total assets...................................... $47,271,382
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Noninterest-bearing deposits.............................. $ 6,978,297
Interest-bearing deposits................................. 32,743,222
-----------
Total deposits.................................... 39,721,519
Accrued interest expense.................................. 285,405
Accrued income taxes...................................... 3,622
Other liabilities......................................... 74,172
-----------
Total liabilities................................. 40,084,718
-----------
Commitments and contingencies
Stockholders' equity:
Common stock, $1 par value; authorized 10,000,000 shares;
458,888 shares issued and outstanding.................. 458,888
Surplus................................................... 4,084,020
Retained earnings......................................... 2,627,295
Accumulated other comprehensive income.................... 16,461
-----------
Total stockholders' equity........................ 7,186,664
-----------
Total liabilities and stockholders' equity........ $47,271,382
===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-36
<PAGE> 142
WAYNE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- -----------------------
1998 1997 1998 1997
---------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Interest income:
Loans, including fees.................................... $ 889,682 $803,083 $2,513,957 $2,222,402
Interest-bearing deposits................................ 522 1,945 1,544 6,074
Federal funds sold....................................... 15,077 42,774 134,884 123,853
Investment securities:
Taxable................................................ 20,643 14,402 50,064 101,623
Nontaxable............................................. 83,565 68,505 242,528 180,523
Dividends.............................................. 3,605 2,870 16,059 14,554
---------- -------- ---------- ----------
Total interest income............................. 1,013,094 933,579 2,959,036 2,649,029
---------- -------- ---------- ----------
Interest expense:
Deposits................................................. 360,696 337,672 1,069,375 944,394
Federal funds purchased.................................. 461 0 461 118
---------- -------- ---------- ----------
Total interest expense............................ 361,157 337,672 1,069,836 944,512
---------- -------- ---------- ----------
Net interest income........................................ 651,937 595,907 1,889,200 1,704,517
Provision for loan losses.................................. 45,000 36,000 135,000 108,000
---------- -------- ---------- ----------
Net interest income after provision for loan
losses.......................................... 606,937 559,907 1,754,200 1,596,517
---------- -------- ---------- ----------
Other income:
Service charges on deposits.............................. 126,989 120,490 344,010 345,182
Other operating income................................... 55,528 46,865 157,865 118,385
Securities gains (losses), net........................... 0 0 26,244 (27,332)
---------- -------- ---------- ----------
Total other income................................ 182,517 167,355 528,119 436,235
---------- -------- ---------- ----------
Other expenses:
Salaries and employee benefits........................... 180,095 154,397 503,995 454,037
Net occupancy and equipment expense...................... 55,443 49,736 158,080 149,238
Other operating expenses................................. 142,219 126,065 437,640 411,412
---------- -------- ---------- ----------
Total other expenses.............................. 377,757 330,198 1,099,715 1,014,687
---------- -------- ---------- ----------
Income before income taxes................................. 411,697 397,064 1,182,604 1,018,065
Income tax expense......................................... 125,023 115,246 363,080 288,221
---------- -------- ---------- ----------
Net Income........................................ $ 286,674 $281,818 $ 819,524 $ 729,844
========== ======== ========== ==========
Other Comprehensive Income:
Unrealized holding gains (losses) on securities available
for sale, arising during the period, net of tax........ (43,536) 15,393 (16,916) 33,371
---------- -------- ---------- ----------
Comprehensive Income.............................. $ 243,138 $297,211 $ 802,608 $ 763,215
========== ======== ========== ==========
BASIC:
Earnings per common share.................................. $ 0.62 $ 0.71 $ 1.79 $ 1.85
========== ======== ========== ==========
Weighted average shares outstanding........................ 458,888 397,900 457,931 394,763
========== ======== ========== ==========
DILUTED:
Earnings per common share fully diluted.................... $ 0.56 $ 0.64 $ 1.64 $ 1.63
========== ======== ========== ==========
Weighted average fully diluted shares outstanding.......... 511,918 440,341 500,231 447,568
========== ======== ========== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-37
<PAGE> 143
WAYNE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------
1998 1997
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net profit................................................ $ 819,524 $ 729,844
Adjustments to reconcile net profit to net cash provided
by operating activities:
Depreciation, amortization, and accretion, net......... 80,040 71,575
Provision for loan losses.............................. 135,000 108,000
Securities (gains) losses, net......................... (26,244) 27,332
Net decrease (increase) in available-for-sale
securities............................................ 25,631 (50,560)
Net decrease (increase) in deferred taxes.............. (33,843) 1,900
Net decrease (increase) in other assets................ (61,561) (108,192)
Net increase (decrease) in accrued interest payable.... 27,220 43,963
Net increase (decrease) in accrued income taxes........ (15,678) (325,895)
Net increase (decrease) in other liabilities........... (108,400) (31,031)
Net increase (decrease) in unrealized gain (loss) AFS
investments........................................... (16,916) 33,370
------------ -----------
Net cash provided by operating activities......... 824,773 500,306
------------ -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of investment securities held-to-maturity........ (1,336,719) (1,754,154)
Purchase of investment securities available-for-sale...... (1,139,275) (371,617)
Proceeds from maturities of interest-bearing time
deposits............................................... 86,424 98,864
Proceeds from maturities of securities held-to-maturity... 0 135,000
Proceeds from maturities of securities
available-for-sale..................................... 0 1,500,000
Proceeds from sales of securities available-for-sale...... 145,928 3,200,776
Net increase in loans..................................... (5,033,480) (5,675,670)
Purchase of fixed assets.................................. (272,405) (8,623)
------------ -----------
Net cash used by investing activities............. (7,549,527) (2,875,424)
------------ -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits.................................. (4,832,910) (2,604,115)
Proceeds from issuance of common stock.................... 340,000 266,020
------------ -----------
Net cash used by financing activities..................... (4,492,910) (2,338,095)
------------ -----------
Net decrease in cash and cash equivalents................. (11,217,664) (4,713,213)
Cash and cash equivalents at beginning of period.......... 15,045,396 9,665,896
------------ -----------
Cash and cash equivalents at end of period................ $ 3,827,732 $ 4,952,683
============ ===========
SUPPLEMENTAL DISCLOSURES OF CASH PAID FOR:
Interest.................................................. $ 1,042,155 $ 900,431
Income taxes.............................................. $ 521,997 $ 633,409
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
F-38
<PAGE> 144
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310 (b)
of Regulation S-B of the Securities and Exchange Commission. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. However, in
the opinion of management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the nine months ended September 30, 1998, are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1998. For further information, please refer to the consolidated
financial statements and footnotes thereto for the Company's fiscal year ended
December 31, 1997, included in the Company's Form 10-KSB for the year ended
December 31, 1997.
NOTE 2. ADOPTION OF NEW ACCOUNTING PRINCIPLES
During the fourth quarter of 1997, the Company adopted Financial Accounting
Standards Board Statement No. 128, "Earnings Per Share." SFAS 128 replaces the
presentation of primary earnings per share with a presentation of basic earnings
per share and it requires a dual presentation of basic and diluted earnings per
share on the face of the income statement. SFAS 128 was effective for financial
statements issued for periods ending after December 15, 1997. The adoption of
this pronouncement by the Company in 1997 resulted in the restatement of the
Company's prior period earnings per share disclosures.
F-39
<PAGE> 145
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Wayne Bancorp, Inc.
We have audited the accompanying consolidated balance sheets of WAYNE
BANCORP, INC. AND SUBSIDIARY as of December 31, 1997 and 1996 and the related
consolidated statements of income, comprehensive income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1997. 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Wayne Bancorp, Inc. and Subsidiary as of December 31, 1997 and 1996 and the
consolidated results of operations and cash flows for each of the years in the
three-year period ended December 31, 1997 in conformity with generally accepted
accounting principles.
MCNAIR, MCLEMORE, MIDDLEBROOKS & CO., LLP
Macon, Georgia
February 20, 1998, Except for
Footnote 1, Comprehensive
Income, for which the date
is January 8, 1999.
F-40
<PAGE> 146
WAYNE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
CASH AND DUE FROM BANKS..................................... $ 3,075,396 $ 1,385,896
----------- -----------
FEDERAL FUNDS SOLD.......................................... 11,970,000 8,280,000
----------- -----------
INTEREST-BEARING DEPOSITS WITH BANKS........................ 124,003 255,152
----------- -----------
INVESTMENT SECURITIES
Available for Sale, at Fair Value......................... 535,451 5,102,326
Held to Maturity, at Cost (Fair Value at December 31, 1997
and 1996 of $5,791,094 and $3,695,352, Respectively)... 5,514,009 3,622,528
----------- -----------
6,049,460 8,724,854
----------- -----------
LOANS....................................................... 28,698,690 23,410,171
Allowance for Loan Losses................................. (273,405) (213,969)
Unearned Loan Fees........................................ (27,380) (27,967)
----------- -----------
28,397,905 23,168,235
----------- -----------
BANK PREMISES AND EQUIPMENT................................. 907,405 997,013
----------- -----------
OTHER ASSETS................................................ 534,373 423,600
----------- -----------
TOTAL ASSETS................................................ $51,058,542 $43,234,750
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
DEPOSITS
Noninterest-Bearing....................................... $13,779,191 $12,970,694
Interest-Bearing.......................................... 30,775,238 25,045,809
----------- -----------
44,554,429 38,016,503
OTHER LIABILITIES........................................... 460,057 590,480
----------- -----------
TOTAL LIABILITIES........................................... 45,014,486 38,606,983
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock, Par Value $1 Per Share; 10,000,000 Shares
Authorized, 424,888 and 377,786 Shares Issued and
Outstanding as of December 31, 1997 and 1996,
Respectively........................................... 424,888 377,786
Surplus................................................... 3,778,020 3,354,102
Retained Earnings......................................... 1,807,771 897,163
Accumulated Comprehensive Income, Net of Tax (Benefit) of
$17,194 in 1997 and $(661) in 1996..................... 33,377 (1,284)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY.................................. 6,044,056 4,627,767
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $51,058,542 $43,234,750
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-41
<PAGE> 147
WAYNE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans............................... $3,036,348 $2,433,258 $1,753,619
Interest on Federal Funds Sold........................... 201,089 124,062 169,365
Interest on Investment Securities
U.S. Treasury......................................... 86,534 287,587 276,425
U.S. Government Agencies.............................. 2,605 48,884 153,802
Municipals............................................ 268,928 142,297 80,982
Interest on Deposits in Other Banks...................... 7,463 3,077 14,721
Dividends on Other Investments........................... 18,112 14,788 9,239
---------- ---------- ----------
3,621,079 3,053,953 2,458,153
INTEREST EXPENSE
Interest on Deposits..................................... 1,300,994 1,065,545 1,028,414
---------- ---------- ----------
NET INTEREST INCOME........................................ 2,320,085 1,988,408 1,429,739
Provision for Loan Losses................................ 154,000 90,000 --
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES........ 2,166,085 1,898,408 1,429,739
---------- ---------- ----------
OTHER INCOME
Service Charges on Deposits.............................. 461,931 396,895 342,515
Other Operating Income................................... 154,113 156,827 144,317
Gain on Sale of Securities............................... 13,877 15,179 21,216
---------- ---------- ----------
629,921 568,901 508,048
---------- ---------- ----------
OTHER EXPENSES
Salaries and Employee Benefits........................... 604,599 604,095 536,383
Occupancy and Equipment.................................. 200,253 189,189 195,093
Other Operating Expenses................................. 408,760 358,868 383,324
Office Supplies.......................................... 74,023 68,848 50,539
Professional Fees........................................ 70,278 51,510 48,971
---------- ---------- ----------
1,357,913 1,272,510 1,214,310
---------- ---------- ----------
INCOME BEFORE INCOME TAXES................................. 1,438,093 1,194,799 723,477
INCOME TAXES............................................... 412,763 366,651 225,668
---------- ---------- ----------
NET INCOME................................................. $1,025,330 $ 828,148 $ 497,809
========== ========== ==========
BASIC EARNINGS PER SHARE................................... $ 2.58 $ 2.19 $ 1.33
========== ========== ==========
DILUTED EARNINGS PER SHARE................................. $ 2.35 $ 1.99 $ 1.22
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-42
<PAGE> 148
WAYNE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
NET INCOME............................................... $1,025,330 $828,148 $497,809
OTHER COMPREHENSIVE INCOME, NET OF TAX
Gains (Losses) on Securities Arising During the Year... 43,820 (25,603) 143,374
Reclassification Adjustment............................ (9,159) (10,018) (14,003)
---------- -------- --------
Unrealized Gains (Losses) on Securities................ 34,661 (35,621) 129,371
---------- -------- --------
Comprehensive Income..................................... $1,059,991 $792,527 $627,180
========== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-43
<PAGE> 149
WAYNE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
ACCUMULATED
RETAINED OTHER
COMMON EARNINGS COMPREHENSIVE
STOCK SURPLUS (DEFICIT) INCOME TOTAL
-------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994...... $370,230 $3,299,359 $ (428,794) $(95,034) $3,145,761
Net Income.................... 497,809 497,809
Net Unrealized Gain on
Securities Available for
Sale, Net of Tax........... 129,371 129,371
Issuance of 7,556 Shares of
Stock...................... 7,556 54,743 62,299
-------- ---------- ---------- -------- ----------
BALANCE, DECEMBER 31, 1995...... 377,786 3,354,102 69,015 34,337 3,835,240
Net Income.................... 828,148 828,148
Net Unrealized Loss on
Securities Available for
Sale, Net of Tax........... (35,621) (35,621)
-------- ---------- ---------- -------- ----------
BALANCE, DECEMBER 31, 1996...... 377,786 3,354,102 897,163 (1,284) 4,627,767
Exercise of Stock Options..... 7,556 68,004 75,560
Exercise of Stock Warrants.... 39,546 355,914 395,460
Net Income.................... 1,025,330 1,025,330
Cash Dividends................ (114,722) (114,722)
Net Unrealized Gain on
Securities Available for
Sale, Net of Tax........... 34,661 34,661
-------- ---------- ---------- -------- ----------
BALANCE, DECEMBER 31, 1997...... $424,888 $3,778,020 $1,807,771 $ 33,377 $6,044,056
======== ========== ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-44
<PAGE> 150
WAYNE BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income............................................ $ 1,025,330 $ 828,148 $ 497,809
Adjustments to Reconcile Net Income to Net
Cash Flows from Operating Activities
Depreciation, Amortization and Accretion........... 100,790 111,372 117,804
Provision for Loan Losses.......................... 154,000 90,000 --
Gain on Sale of Securities......................... (13,877) (15,179) (21,216)
Deferred Taxes..................................... (32,595) (4,003) 184,897
CHANGE IN
Interest Receivable.............................. (56,037) 767 (67,950)
Interest Payable................................. 77,134 (20,217) 88,961
Other............................................ (227,987) 314,553 23,879
----------- ----------- -----------
1,026,758 1,305,441 824,184
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of Investment Securities
Available for Sale................................. (528,007) (2,697,802) (3,491,633)
Held to Maturity................................... (2,024,055) (1,579,546) (2,761,536)
Proceeds from Maturities of Interest-Bearing Deposits
in Other Banks..................................... -- -- 600,000
Proceeds from Maturities of Securities
Held to Maturity................................... 135,000 130,000 250,000
Available for Sale................................. 1,750,000 2,000,000 3,065,000
Proceeds from Sales of Securities
Available for Sale................................. 3,408,950 1,356,155 3,525,446
Held to Maturity................................... -- -- 609,824
Proceeds from Sales of OREO........................... 5,000 33,200 --
Loans, Net............................................ (5,404,942) (6,981,865) (2,982,332)
Bank Premises and Equipment........................... (14,577) (93,382) (41,381)
Interest-Bearing Deposits............................. 131,149 (141,867) (113,285)
----------- ----------- -----------
(2,541,482) (7,975,107) (1,339,897)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Demand, Interest-Bearing Demand and Savings
Accounts........................................... 1,618,154 2,823,545 1,357,684
Time Deposits......................................... 4,919,772 1,706,588 1,975,316
Cash Dividends........................................ (114,722)
Issuance of Stock..................................... 471,020 -- 62,299
----------- ----------- -----------
6,894,224 4,530,133 3,395,299
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 5,379,500 (2,139,533) 2,879,586
CASH AND CASH EQUIVALENTS, BEGINNING.................... 9,665,896 11,805,429 8,925,843
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, ENDING....................... $15,045,396 $ 9,665,896 $11,805,429
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-45
<PAGE> 151
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The consolidated financial statements include the accounts of Wayne
Bancorp, Inc. and its wholly-owned subsidiary, Wayne National Bank (the Bank)
located in Jesup, Georgia. All significant intercompany accounts have been
eliminated.
The accounting and reporting policies of Wayne Bancorp, Inc. are presented
on the basis of generally accepted accounting principles and practices utilized
in the commercial banking industry. The following is a description of the more
significant of those policies.
BASIS OF PRESENTATION
In preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets and
liabilities as of the balance sheet date and revenues and expenses for the
period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for loan losses,
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans and the valuation of deferred tax assets.
INVESTMENT SECURITIES
Investment securities are recorded under the provisions of Statement of
Financial Accounting Standards No. 115 whereby the Bank must classify its
securities as trading, available for sale or held to maturity. Trading
securities are purchased and held for sale in the near term. Securities held to
maturity are those which the Bank has the ability and intent to hold until
maturity. All other securities not classified as trading or held to maturity are
considered available for sale. As of December 31, 1997 and 1996, all investment
securities held by the Bank are classified as available for sale and held to
maturity.
Securities available for sale are measured at fair value with unrealized
gains and losses reported net of deferred taxes as a separate component of
stockholders' equity. Fair value represents an approximation of realizable value
as of December 31, 1997 and 1996. Realized and unrealized gains and losses are
determined using the specific identification method. Premiums and discounts are
recognized in interest income using the straight-line method over the period to
maturity.
LOANS
Loans are generally reported at principal amount less unearned interest and
fees. The Bank records impaired loans under Statement of Financial Accounting
Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan and
SFAS No. 118, Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures. Impaired loans are loans for which principal and
interest are unlikely to be collected in accordance with the original loan terms
and, generally, represent loans delinquent in excess of 90 days which have been
placed on nonaccrual status and for which collateral values are less than
outstanding principal and interest. Small balance, homogeneous loans are
excluded from impaired loans. Generally, interest payments received on impaired
loans are applied to principal. Upon receipt of all loan principal, additional
interest
F-46
<PAGE> 152
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
payments are recognized as interest income on the cash basis. As of December 31,
1997, the Bank had no significant loans classified as impaired loans.
Other nonaccrual loans are loans for which payments of principal and
interest are considered doubtful of collection under original terms but
collateral values equal or exceed outstanding principal and interest.
Wayne National Bank's loans consist of commercial, financial and
agricultural loans, real estate mortgage loans and consumer loans primarily to
individuals and entities located throughout coastal and southeast Georgia.
Accordingly, the ultimate collectibility of the loans is largely dependent upon
economic conditions in those Georgia areas.
ALLOWANCE FOR LOAN LOSSES
The allowance method is used in providing for losses on loans. Accordingly,
all loan losses are charged to the allowance and all recoveries are credited to
it. The provision for loan losses is based on factors which, in management's
judgment, deserve current recognition in estimating possible loan losses. Such
factors considered by management include growth and composition of the loan
portfolio, economic conditions and the relationship of the allowance for loan
losses to outstanding loans.
When impaired loans exist, an allowance for impaired loan losses is
maintained. Provisions are made for impaired loans upon changes in expected
future cash flows or estimated net realizable value of collateral. When
determination is made that impaired loans are wholly or partially uncollectible,
the uncollectible portion is charged off.
Management believes the allowance for possible loan losses is adequate.
While management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based on their judgment about information available to them at the
time of their examination.
BANK PREMISES AND EQUIPMENT
Premises and equipment are recorded at acquisition cost net of accumulated
depreciation.
Depreciation is charged to operations over the estimated useful lives of
the assets. The estimated useful lives and methods of depreciation are as
follows:
<TABLE>
<CAPTION>
DESCRIPTION LIFE IN YEARS METHOD
- ----------- ------------- -------------
<S> <C> <C>
Banking Premises............................................ 25 Straight-Line
Furniture and Equipment..................................... 5-20 Straight-Line
</TABLE>
Expenditures for major renewals and betterments are capitalized.
Maintenance and repairs are charged to operations as incurred. When property and
equipment are retired or sold, the cost and accumulated depreciation are removed
from the respective accounts and any gain or loss is reflected in other income
or expense.
F-47
<PAGE> 153
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in
the financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the basis of assets and
liabilities for financial statement and income tax purposes. The differences
relate primarily to depreciable assets (use of different depreciation methods
for financial statement and income tax purposes) and allowance for loan losses
(use of the allowance method for financial statement purposes and the direct
write-off method for tax purposes). The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
either be taxable or deductible when the assets and liabilities are recovered or
settled.
Wayne Bancorp and its subsidiary file consolidated federal and state income
tax returns. Consolidated current and deferred tax expense (benefit) is
allocated to each of the entities based on the separate return method.
OTHER REAL ESTATE
Other real estate owned includes property acquired through foreclosure.
These properties are carried at the lower of cost or current appraisal values.
Losses from the acquisition of property in full or partial satisfaction of debt
are recorded as loan losses. Subsequent declines in value, routine holding costs
and gains or losses upon disposition are included in other expense.
CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include
cash on hand and amounts due from banks and federal funds sold.
Cash payments made during 1997, 1996 and 1995 for interest totaled
$1,231,431, $1,087,710 and $942,201, respectively.
Cash payments for income taxes were $755,956 and $62,481 for the years
ended December 31, 1997 and 1996, respectively. Due to net operating loss
carryforwards, no cash payments for income taxes were made in 1995.
Noncash financing and investing activities for the year ended December 31,
1997 included a real estate sale resulting from a loan foreclosure totaling
$5,000 in recoveries and net unrealized gains (losses) on securities available
for sale totaling $50,571, $(1,945) and $52,026 for the years ended December 31,
1997, 1996 and 1995, respectively.
COMPREHENSIVE INCOME
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 130, Reporting Comprehensive Income, with an
effective date for fiscal years beginning after December 15, 1997. Earlier
application is encouraged and upon adoption, comparative statements for prior
years must be reclassified. The consolidated statements of comprehensive income
represent retroactive applications herein of SFAS 130.
Accounting principles generally require that recognized revenue, expenses,
gains and losses be included in net income. Although certain changes in assets
and liabilities, such as unrealized gains
F-48
<PAGE> 154
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
and losses on securities available for sale are reported as a separate component
of the equity section of the consolidated balance sheets, such items, along with
net income are components of comprehensive income. The adoption of SFAS 130 had
no effect on Wayne Bancorp, Inc. and Subsidiary's consolidated net income or
stockholders' equity.
(2) STOCK WARRANTS AND OPTIONS
Organizers purchasing shares of the Company's common stock during the
initial public offering were granted one warrant for each of the original shares
purchased. Each warrant grants the holder the right to acquire one share of
common stock at any time through September 26, 2000 at $10 per share. Except as
specified in the Warrant Agreement, warrants are nontransferable and
nonassignable. As of December 31, 1997 and 1996, warrants outstanding totaled
116,650 and 156,196, respectively.
Stock options have been granted at various times to the Bank's president
and certain vice-presidents pursuant to the "Wayne Bancorp, Inc. 1990 Stock
Option Plan." The maximum number of shares of stock which may be issued or sold
shall not exceed 36,000.
As of December 31, 1997, the status of stock options is as follows:
<TABLE>
<CAPTION>
SHARES
OPTIONS SUBJECT EXERCISE
YEAR GRANTED GRANTED TO OPTION PRICE EXPIRATION DATE
- ------------ ------- --------- -------- ------------------
<S> <C> <C> <C> <C>
1991....................................... 3,778 3,778 $10.00 September 26, 2000
1992....................................... 3,702 3,702 $10.00 September 26, 2000
1992....................................... 7,556 7,556 $ 7.25 December 31, 1999
1993....................................... 2,074 2,074 $10.00 September 26, 2000
------ ------
17,110 17,110
====== ======
</TABLE>
A summary of warrant and option transactions since issuance follows:
<TABLE>
<CAPTION>
SHARES UNDER
--------------------
INCENTIVE
ORIGINAL STOCK
WARRANTS OPTIONS
-------- ---------
<S> <C> <C>
Granted..................................................... 156,196 24,666
Canceled.................................................... -- --
Exercised................................................... 39,546 7,556
------- ------
Outstanding, December 31, 1997.............................. 116,650 17,110
======= ======
Eligible to be Exercised December 31, 1997.................. 116,650 17,110
======= ======
</TABLE>
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock Based Compensation, requires new disclosures about employee stock options
in financial statements for fiscal years beginning after December 15, 1994. The
disclosures are required for the proforma effects of options and other awards
granted in fiscal years beginning after December 15, 1994 based upon their fair
value at the date of grant. SFAS 123 is inapplicable to Wayne Bancorp, Inc. for
years presented herein.
F-49
<PAGE> 155
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) INVESTMENT SECURITIES
The carrying amount of investment securities and their approximate fair
values as of December 31 are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1997
SECURITIES AVAILABLE FOR SALE
Equity Securities............................. $ 385,880 $ 51,767 $ (1,196) $ 436,451
Other......................................... 99,000 99,000
---------- -------- -------- ----------
$ 484,880 $ 51,767 $ (1,196) $ 535,451
========== ======== ======== ==========
SECURITIES HELD TO MATURITY
Municipals.................................... $5,514,009 $277,087 $ (2) $5,791,094
========== ======== ======== ==========
1996
SECURITIES AVAILABLE FOR SALE
Equity Securities............................. $ 232,525 $ 11,873 $ (4,127) $ 240,271
U.S. Treasury and U.S Government Agencies..... 4,772,744 9,905 (19,594) 4,763,055
Other......................................... 99,000 99,000
---------- -------- -------- ----------
$5,104,269 $ 21,778 $(23,721) $5,102,326
========== ======== ======== ==========
SECURITIES HELD TO MATURITY
Municipals.................................... $3,622,528 $ 84,150 $(11,326) $3,695,352
========== ======== ======== ==========
</TABLE>
Gross realized gains and gross realized losses on sales of securities
available for sale were:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
GROSS REALIZED GAINS
Equity Securities......................................... $60,090 $24,778 $24,393
U.S. Treasury and U.S. Government Agencies................ -- 2,774 20,935
------- ------- -------
$60,090 $27,552 $45,328
======= ======= =======
GROSS REALIZED LOSSES
Equity Securities......................................... $ 6,210 $ 9,682 $ 2,912
U.S. Treasury and U.S. Government Agencies................ 40,003 2,691 21,200
------- ------- -------
$46,213 $12,373 $24,112
======= ======= =======
</TABLE>
F-50
<PAGE> 156
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The scheduled maturities of securities held to maturity and securities
available for sale as of December 31, 1997 were as follows:
<TABLE>
<CAPTION>
SECURITIES
----------------------------------------------
AVAILABLE FOR SALE HELD TO MATURITY
-------------------- -----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
--------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Due in One Year or Less....................... $385,880 $436,451 $ 99,647 $ 99,811
Due After One Year Through Five Years......... 399,904 400,378
Due After Five Years Through Ten Years........
Due After Ten Years........................... 5,014,458 5,290,905
Federal Reserve Stock......................... 99,000 99,000
-------- -------- ---------- ----------
$484,880 $535,451 $5,514,009 $5,791,094
======== ======== ========== ==========
</TABLE>
Proceeds from sales of investments in debt securities during 1997, 1996 and
1995 were $2,983,711, $1,356,155 and $4,135,270, respectively.
Investment securities having a carrying value and market value of
$1,884,498 and $2,101,639 as of December 31, 1997 and 1996, respectively, were
pledged to secure public and trust deposits and for other purposes required or
permitted by law.
Interest income on taxable investment securities during 1997, 1996 and 1995
was $105,177, $353,320 and $444,500, respectively. In 1997, 1996 and 1995
nontaxable interest income was $252,890, $125,448 and $66,709, respectively.
(4) LOANS
Loans by type as of December 31 are:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Commercial, Financial and Agricultural...................... $ 5,267,114 $ 3,361,241
Real Estate -- Construction................................. 1,421,506 2,065,694
Real Estate -- Other........................................ 12,591,205 9,384,490
Consumer.................................................... 9,389,510 8,261,451
Other....................................................... 29,355 337,295
----------- -----------
$28,698,690 $23,410,171
=========== ===========
</TABLE>
As of December 31, 1997, nonaccrual loans totaled $41,064. The related
reduction in interest income for the year ended December 31, 1997 was
approximately $800. For the years ended December 31, 1996 and 1995, there were
no nonaccrual loans.
F-51
<PAGE> 157
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(5) ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses for the years ended December
31 are summarized as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Balance, January 1......................................... $213,969 $196,669 $339,719
Provision Charged to Operating Expenses.................... 154,000 90,000 --
Loan Losses................................................ (134,959) (88,223) (162,192)
Recoveries................................................. 40,395 15,523 19,142
-------- -------- --------
Balance, December 31....................................... $273,405 $213,969 $196,669
======== ======== ========
</TABLE>
(6) BANK PREMISES AND EQUIPMENT
The detail of bank premises and equipment as of December 31 is as follows:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Land........................................................ $ 186,825 $ 186,825
Bank Buildings and Improvements............................. 682,801 677,919
Furniture, Fixtures and Equipment........................... 681,292 695,598
---------- ----------
1,550,918 1,560,342
Accumulated Depreciation.................................... (643,513) (563,329)
---------- ----------
$ 907,405 $ 997,013
========== ==========
</TABLE>
Depreciation charged to operations totaled $104,185, $102,061 and $112,874
in 1997, 1996 and 1995, respectively.
(7) INCOME TAXES
The Bank reports income taxes under Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, which requires an asset and
liability approach to financial accounting and reporting for income taxes.
Deferred income tax assets and liabilities are computed annually for differences
between the financial statement and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted tax
laws and rates applicable to the periods in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable or refundable for the period plus or minus the change
during the period in deferred tax assets and liabilities.
F-52
<PAGE> 158
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of income tax expense for the years ended December 31 are:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Current Federal............................................ $443,840 $370,654 $ 40,771
Deferred Federal........................................... (32,595) (4,003) 184,897
-------- -------- --------
Federal Income Tax Expense................................. 411,245 366,651 225,668
State Income Tax Expense................................... 1,518 -- --
-------- -------- --------
$412,763 $366,651 $225,668
======== ======== ========
</TABLE>
The sources of temporary differences and the resulting net deferred income
tax are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- ------- --------
<S> <C> <C> <C>
Utilization of Net Operating Loss Carryforward.............. $ -- $ -- $139,493
Provision for Loan Losses................................... (20,209) (5,882) 48,637
Depreciation................................................ (8,632) (3,221) (454)
Discount Accretion on Investment Securities................. (4,859) 4,309 (5,345)
Tax in Excess of Book Loss on Sale of Equipment............. 1,105 791 --
Alternative Minimum Tax..................................... -- -- 7,861
Other....................................................... -- -- (5,295)
-------- ------- --------
NET DEFERRED TAX............................................ $(32,595) $(4,003) $184,897
======== ======= ========
</TABLE>
Income tax expense amounted to $412,763, $366,651 and $225,668 in 1997,
1996 and 1995, respectively, which is more than the tax expense computed by
applying the federal statutory tax rate of 34 percent to income before income
taxes. The reasons for the differences are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
STATUTORY FEDERAL TAXES.................................... $488,952 $406,231 $245,982
Increase (Reductions) Resulting from
Tax-Free Interest on Municipals.......................... (85,319) (42,060) (22,348)
Tefra Interest Disallowance.............................. 10,008 4,672 2,758
Officers' Life Insurance................................. 319 298 261
Meals and Entertainment.................................. 597 492 484
Other.................................................... (3,312) (2,982) (1,469)
-------- -------- --------
ACTUAL FEDERAL TAXES....................................... $411,245 $366,651 $225,668
======== ======== ========
</TABLE>
F-53
<PAGE> 159
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The components of the net deferred tax assets included in other assets in
the accompanying consolidated balance sheets as of December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
DEFERRED TAX ASSETS
Net Unrealized Loss on Securities Available for Sale........ $ -- $ 661
Reserve for Loan Losses..................................... 92,958 72,749
-------- --------
92,958 73,410
-------- --------
DEFERRED TAX LIABILITIES
Net Unrealized Gain on Securities Available for Sale........ (17,194) --
Depreciation and Disposal of Premises and Equipment......... (22,047) (29,575)
Investment Securities Accretion............................. (2,135) (6,993)
Other....................................................... (4,333) (4,333)
-------- --------
(45,709) (40,901)
-------- --------
NET DEFERRED TAX ASSETS..................................... $ 47,249 $ 32,509
======== ========
</TABLE>
(8) DEPOSITS
Components of interest-bearing deposits as of December 31 are as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Interest-Bearing Demand..................................... $ 7,011,059 $ 6,120,488
Savings..................................................... 2,147,507 2,228,421
Time $100,000 and Over...................................... 5,983,606 4,434,446
Other Time.................................................. 15,633,066 12,262,454
----------- -----------
$30,775,238 $25,045,809
=========== ===========
</TABLE>
The aggregate amount of short-term jumbo certificates of deposit, each with
a minimum denomination of $100,000, approximated $4,793,000 and $3,816,900 in
1997 and 1996, respectively.
As of December 31, 1997, the scheduled maturities of time deposits are as
follows:
<TABLE>
<CAPTION>
YEAR AMOUNT
- ---- -----------
<S> <C>
1998........................................ $18,846,577
1999........................................ 2,048,213
2000........................................ 400,132
2001........................................ 66,490
2002 and thereafter................................ 255,260
-----------
$21,616,672
===========
</TABLE>
(9) COMMITMENTS AND CONTINGENCIES
In the normal course of business, certain commitments and contingencies are
incurred which are not reflected in the financial statements. As of December 31,
1997 and 1996, the Company had unfunded loan commitments and commitments under
standby letters of credit totaling $3,141,000 and
F-54
<PAGE> 160
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$2,134,376, respectively. These commitments were made under normal terms and
rates. No losses are anticipated as a result of these commitments.
The Bank is committed to purchase equipment and software approximating
$140,000 during 1998.
(10) RELATED PARTY TRANSACTIONS
The aggregate balance of direct and indirect loans to directors, executive
officers or principal holders of equity securities of the Bank was $570,013 and
$373,953 as of December 31, 1997 and 1996, respectively. All such loans were
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with other persons.
A summary of activity of related party loans is shown below:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
BALANCE, DECEMBER 31........................................ $373,953 $ 60,070
New Loans................................................. 238,227 365,410
Repayments................................................ (42,167) (51,527)
-------- --------
BALANCE, DECEMBER 31........................................ $570,013 $373,953
======== ========
</TABLE>
(11) OTHER INCOME
Significant components of other operating income are:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Commissions on Credit Life Insurance........................ $39,795 $43,403 $37,648
Mortgage Origination Fees................................... 60,478 63,967 49,697
</TABLE>
(12) OTHER EXPENSES
Significant components of other operating expenses are:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Office Supplies............................................. $74,023 $74,195 $55,193
Postage and Freight......................................... 46,776 42,857 37,400
Audit, Tax, Accounting and Consulting....................... 39,298 40,858 30,120
ATM Fees and Expense........................................ 39,209 36,455 38,122
Amortization and Organizational Cost........................ -- -- 20,704
Advertising and Public Relations............................ 34,655 21,817 24,520
FDIC Assessment............................................. 3,719 2,000 30,280
Clearing House and Federal Reserve Processing Fees.......... 26,021 26,188 29,651
Directors' Fees............................................. 41,750 41,900 24,000
Data Processing............................................. 22,541 20,944 17,789
Legal Fees.................................................. 29,980 9,652 17,851
</TABLE>
F-55
<PAGE> 161
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(13) EARNINGS PER SHARE
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 128 (Statement 128), Earnings per Share. Statement 128
establishes standards for computing and presenting earnings per share (EPS), and
supersedes Accounting Principles Board Opinion No. 15 (APB 15) and its related
interpretations. It replaces the presentation of primary EPS with basic EPS,
which excludes dilution, and requires dual presentation of basic and diluted EPS
for all entities with complex capital structures. Diluted EPS is computed
similarly to fully diluted EPS pursuant to APB 15. Statement 128 is effective
for periods ending after December 15, 1997, including interim periods, and will
require restatement of all prior period EPS data presented; earlier application
is not permitted. The following presents earnings per share for the years ended
December 31, 1997, 1996 and 1995 as if Statement 128 had been in effect.
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
BASIC EARNINGS PER SHARE
Net Income Per Common Share............................... $2.58 $2.19 $1.33
Weighted Average Common Shares............................ 397,245 377,786 374,660
DILUTED EARNINGS PER SHARE
Net Income Per Common Share............................... $2.35 $1.99 $1.22
Weighted Average Common Shares............................ 436,947 415,620 406,535
</TABLE>
The difference in weighted average common shares for basic and diluted
earnings per share is attributed solely to the dilutive effect of stock options
and warrants.
(14) FINANCIAL INFORMATION OF WAYNE BANCORP, INC. (PARENT ONLY)
Wayne Bancorp, Inc.'s (parent only) balance sheets as of December 31, 1997
and 1996 and the related statements of income and cash flows for each of the
years in the three-year period ended December 31, 1997 are as follows:
F-56
<PAGE> 162
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
BALANCE SHEETS
DECEMBER 31
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Cash........................................................ $ 7,493 $ 37,239
Interest-Bearing Deposits in Bank........................... 565,425 181,612
Investment Securities Available for Sale.................... 436,451 240,271
Investment in Wayne National Bank........................... 5,065,832 4,173,036
Other Assets................................................ 114,722 --
---------- ----------
$6,189,923 $4,632,158
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accrued Expenses............................................ $ 8,000 $ --
Deferred Taxes.............................................. 18,907 4,346
Accrued Income Taxes........................................ 4,238 45
Other....................................................... 114,722 --
---------- ----------
145,867 4,391
---------- ----------
Common Stock................................................ 424,888 377,786
Surplus..................................................... 3,778,020 3,354,102
Retained Earnings........................................... 1,807,771 897,163
Accumulated Other Comprehensive Income, Net of Tax (Benefit)
of $17,194 in 1997 and $(661) in 1996..................... 33,377 (1,284)
---------- ----------
6,044,056 4,627,767
---------- ----------
$6,189,923 $4,632,158
========== ==========
</TABLE>
F-57
<PAGE> 163
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1997 1996 1995
---------- -------- --------
<S> <C> <C> <C>
Interest Income...................................... $ 10,094 $ 4,468 $ 11,184
Dividends............................................ 126,894 8,847 3,316
Gain on Sale of Securities........................... 53,881 15,096 21,481
---------- -------- --------
190,869 28,411 35,981
---------- -------- --------
Expenses
Amortization....................................... -- -- 9,835
Printing and Supplies.............................. 5,229 5,346 4,655
Postage............................................ 1,558 1,730 1,861
Legal and Professional............................. 26,942 10,367 18,401
Taxes.............................................. 250 250 278
Miscellaneous...................................... 8,363 2,961 1,388
---------- -------- --------
42,342 20,654 36,418
---------- -------- --------
Income (Loss) Before Income Tax Benefit and Equity in
Undistributed Earnings of Subsidiary............... 148,527 7,757 (437)
Income Tax Benefit................................... 9,598 -- 938
---------- -------- --------
Income Before Equity in Undistributed Earnings of
Subsidiary......................................... 138,929 7,757 501
Equity in Undistributed Earnings of Subsidiary....... 886,401 820,391 497,308
---------- -------- --------
NET INCOME........................................... $1,025,330 $828,148 $497,809
========== ======== ========
Other Comprehensive Income, Net of Tax:
Gains (Losses) on Securities Arising During the
Year............................................ 43,820 (25,603) 143,374
Reclassification Adjustment........................ (9,159) (10,018) (14,003)
---------- -------- --------
Unrealized Gains (Losses) on Securities............ 34,661 (35,621) 129,371
---------- -------- --------
Comprehensive Income................................. $1,059,991 $792,527 $627,180
========== ======== ========
</TABLE>
F-58
<PAGE> 164
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1997 1996 1995
---------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income........................................... $1,025,330 $ 828,148 $ 497,809
Adjustments to Reconcile Net Income to Net Cash Flows
from Operating Activities
Amortization and Accretion........................ -- -- 9,835
Equity in Undistributed Earnings of Subsidiary.... (886,401) (820,391) (497,308)
Gain on Sale of Securities........................ (53,881) (15,096) (21,481)
Deferred Taxes.................................... -- 52,798 (939)
CHANGE IN
Other........................................... 12,195 45 --
---------- --------- ---------
97,243 45,504 (12,084)
---------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Interest-Bearing Deposits in Bank.................... (383,813) 33,683 (131,204)
Purchases of Investment Securities Available for
Sale.............................................. (528,007) (397,763) (520,510)
Proceeds from Maturities of Securities Available for
Sale.............................................. -- -- 300,000
Proceeds from Sales of Securities Available for
Sale.............................................. 428,533 355,764 294,930
---------- --------- ---------
(483,287) (8,316) (56,784)
---------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash Dividends....................................... (114,722) -- --
Issuance of Stock.................................... 471,020 -- 62,299
---------- --------- ---------
356,298 -- 62,299
---------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS....... (29,746) 37,188 (6,569)
CASH AND CASH EQUIVALENTS, BEGINNING................... 37,239 51 6,620
---------- --------- ---------
CASH AND CASH EQUIVALENTS, ENDING...................... $ 7,493 $ 37,239 $ 51
========== ========= =========
</TABLE>
(15) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures about Fair Value of Financial Instruments,
requires disclosure of fair value information about financial instruments,
whether or not recognized on the face of the balance sheet, for which it is
practicable to estimate that value. The assumptions used in the estimation of
the fair value of Wayne National Bank's financial instruments are detailed
below. Where quoted prices are not available, fair values are based on estimates
using discounted cash flows and other valuation techniques. The use of
discounted cash flows can be significantly affected by the assumptions used,
including the discount rate and estimates of future cash flows. The following
disclosures should not be considered a surrogate of the liquidation value of the
Bank, but rather a good-faith estimate of the increase or decrease in value of
financial instruments held by the Bank since purchase, origination or issuance.
CASH AND SHORT-TERM INVESTMENTS -- For cash, due from banks, federal funds
sold and interest-bearing deposits with other banks, the carrying amount is
a reasonable estimate of fair value.
F-59
<PAGE> 165
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INVESTMENT SECURITIES -- Fair values for investment securities are based on
quoted market prices.
LOANS -- The fair value of fixed rate loans is estimated by discounting the
future cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings. For variable rate loans, the
carrying amount is a reasonable estimate of fair value.
DEPOSIT LIABILITIES -- The fair value of demand deposits, savings accounts
and certain money market deposits is the amount payable on demand at the
reporting date. The fair value of fixed maturity certificates of deposit is
estimated by discounting the future cash flows using the rates currently
offered for deposits of similar remaining maturities.
STANDBY LETTERS OF CREDIT -- Because standby letters of credit are made
using variable rates, the contract value is a reasonable estimate of fair
value.
The carrying amount and estimated fair values of the Bank's financial
instruments as of December 31, 1997 are as follows:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and Short-Term Investments........................... $15,169 $15,169
Investment Securities Available for Sale.................. 535 535
Investment Securities Held to Maturity.................... 5,514 5,791
Loans..................................................... 28,398 28,623
LIABILITIES
Deposits.................................................. 44,554 44,558
UNRECOGNIZED FINANCIAL INSTRUMENTS
Unfunded Loan Commitments and Standby Letters of Credit... 3,141 3,141
</TABLE>
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Bank's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of the
Bank's financial instruments, fair value estimates are based on many judgments.
These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision.
Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet
financial instruments without attempting to estimate the value of anticipated
future business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial instruments include the deferred income taxes and premises
and equipment. In addition, the tax ramifications related to the realization of
the unrealized gains and losses can have a significant effect on fair value
estimates and have not been considered in the estimates.
(16) REGULATORY CAPITAL MATTERS
The Bank is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure to meet minimum capital requirements
can initiate certain mandatory and,
F-60
<PAGE> 166
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
possibly, additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Bank's financial statements. Under
capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve quantitative
measures of the Bank's assets, liabilities and certain off-balance sheet items
as calculated under regulatory accounting practices. The Bank's capital amounts
and classification are also subject to qualitative judgments by the regulators
about components, risk weightings and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier I
capital to risk-weighted assets, and of Tier I capital to average assets. The
amounts and ratios as defined in banking regulations are presented hereafter.
Management believes, as of December 31, 1997, the Bank meets all capital
adequacy requirements to which it is subject and is classified as well
capitalized under the regulatory framework for prompt corrective action.
The amount of dividends available to the parent company from the subsidiary
bank is limited by various banking regulatory agencies. The amount of cash
dividends available for payment in 1998, without prior approval from banking
regulatory agencies, approximates $500,000. Upon specific approval, banks may
pay cash dividends in excess of regulatory limitations.
<TABLE>
<CAPTION>
TO BE WELL
CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES ACTION PROVISIONS
------------------ ------------------ -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
---------- ----- ---------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C>
AS OF DECEMBER 31, 1997
Total Capital
(to Risk-Weighted Assets)... $6,250,708 20.24% $2,470,445 8.00% $30,880,556 10.00%
Tier I Capital
(to Risk-Weighted Assets)... 5,977,302 19.36 1,235,222 4.00 1,852,833 6.00
Tier I Capital
(to Average Assets)......... 5,977,302 14.84 1,611,296 4.00 2,014,120 5.00
AS OF DECEMBER 31, 1996
Total Capital
(to Risk-Weighted Assets)... 4,843,020 19.57 1,979,879 8.00 2,474,849 10.00
Tier I Capital
(to Risk-Weighted Assets)... 4,629,051 18.70 989,940 4.00 1,484,910 6.00
Tier I Capital
(to Average Assets)......... 4,629,051 12.33 1,502,094 4.00 1,877,617 5.00
</TABLE>
(17) EMPLOYEE BENEFIT PLANS
The Bank established a 401(k) retirement plan during 1996 for which all
employees twenty-one years of age with one year of service are eligible. The
plan is funded with employee and employer contributions. Employees may
contribute up to 15 percent of their annual salaries. The employer's amount of
matching may vary from year to year, but will initially match 25 percent of the
employee's first 6 percent of salary. Retirement plan expense for the years
ended December 31, 1997 and 1996 totaled $5,890 and $5,885, respectively.
F-61
<PAGE> 167
WAYNE BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(18) RECLASSIFICATIONS
Certain reclassifications have been made within the 1996 and 1995 financial
statements to conform to the 1997 presentation.
F-62
<PAGE> 168
APPENDIX A
AGREEMENT AND PLAN OF MERGER
A-1
<PAGE> 169
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
LIST OF EXHIBITS.....................................................
AGREEMENT AND PLAN OF MERGER.........................................
ARTICLE 1. TRANSACTIONS AND TERMS OF THE MERGER.....................
1.1 MERGER......................................................
1.2 TIME AND PLACE OF CLOSING...................................
1.3 EFFECTIVE TIME..............................................
ARTICLE 2. TERMS OF MERGER..........................................
2.1 ARTICLES OF INCORPORATION...................................
2.2 BYLAWS......................................................
2.3 DIRECTORS AND OFFICERS......................................
ARTICLE 3. MANNER OF CONVERTING SHARES..............................
3.1 CONVERSION OF SHARES........................................
3.2 ANTI-DILUTION PROVISIONS....................................
3.3 SHARES HELD BY WAYNE OR FIRST BANKING.......................
3.4 DISSENTING SHAREHOLDERS.....................................
3.5 FRACTIONAL SHARES...........................................
ARTICLE 4. EXCHANGE OF SHARES.......................................
4.1 EXCHANGE PROCEDURES.........................................
4.2 RIGHTS OF FORMER SHAREHOLDERS OF WAYNE......................
ARTICLE 5. REPRESENTATIONS AND WARRANTIES OF WAYNE..................
5.1 ORGANIZATION, STANDING, AND POWER...........................
5.2 AUTHORITY OF WAYNE; NO BREACH BY AGREEMENT..................
5.3 CAPITAL STOCK...............................................
5.4 WAYNE SUBSIDIARIES..........................................
5.5 SEC FILINGS; FINANCIAL STATEMENTS...........................
5.6 ABSENCE OF UNDISCLOSED LIABILITIES..........................
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS........................
5.8 TAX MATTERS.................................................
5.9 ALLOWANCE FOR POSSIBLE LOAN LOSSES..........................
5.10 ASSETS......................................................
5.11 INTELLECTUAL PROPERTY.......................................
5.12 ENVIRONMENTAL MATTERS.......................................
5.13 COMPLIANCE WITH LAWS........................................
5.14 LABOR RELATIONS.............................................
5.15 EMPLOYEE BENEFIT PLANS......................................
5.16 MATERIAL CONTRACTS..........................................
5.17 LEGAL PROCEEDINGS...........................................
5.18 REPORTS.....................................................
5.19 STATEMENTS TRUE AND CORRECT.................................
5.20 ACCOUNTING, TAX AND REGULATORY MATTERS......................
5.21 CHARTER PROVISIONS..........................................
5.22 BOARD RECOMMENDATION........................................
5.23 Y-2K........................................................
</TABLE>
A-2
<PAGE> 170
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF FIRST BANKING..........
6.1 ORGANIZATION, STANDING, AND POWER...........................
6.2 AUTHORITY OF FIRST BANKING; NO BREACH BY AGREEMENT..........
6.3 CAPITAL STOCK...............................................
6.4 FIRST BANKING SUBSIDIARIES..................................
6.5 SEC FILINGS, FINANCIAL STATEMENTS...........................
6.6 ABSENCE OF UNDISCLOSED LIABILITIES..........................
6.7 ABSENCE OF CERTAIN CHANGES OR EVENTS........................
6.8 TAX MATTERS.................................................
6.9 ALLOWANCE FOR POSSIBLE LOAN LOSSES..........................
6.10 ASSETS......................................................
6.11 INTELLECTUAL PROPERTY.......................................
6.12 ENVIRONMENTAL MATTERS.......................................
6.13 COMPLIANCE WITH LAWS........................................
6.14 LABOR RELATIONS.............................................
6.15 EMPLOYEE BENEFIT PLANS......................................
6.16 MATERIAL CONTRACTS..........................................
6.17 LEGAL PROCEEDINGS...........................................
6.18 REPORTS.....................................................
6.19 STATEMENTS TRUE AND CORRECT.................................
6.20 ACCOUNTING, TAX AND REGULATORY MATTERS......................
6.21 CHARTER PROVISIONS..........................................
6.22 BOARD RECOMMENDATION........................................
6.23 Y2K.........................................................
ARTICLE 7. CONDUCT OF BUSINESS PENDING CONSUMMATION.................
7.1 AFFIRMATIVE COVENANTS OF WAYNE..............................
7.2 NEGATIVE COVENANTS OF WAYNE.................................
7.3 AFFIRMATIVE COVENANTS OF FIRST BANKING......................
7.4 NEGATIVE COVENANTS OF FIRST BANKING.........................
7.5 ADVERSE CHANGES IN CONDITION................................
7.6 REPORTS.....................................................
ARTICLE 8. ADDITIONAL AGREEMENTS....................................
8.1 REGISTRATION STATEMENT......................................
8.2 NASDAQ LISTING..............................................
8.3 SHAREHOLDER APPROVAL........................................
8.4 APPLICATIONS................................................
8.5 FILINGS WITH STATE OFFICES..................................
8.6 AGREEMENT AS TO EFFORTS TO CONSUMMATE.......................
8.7 INVESTIGATION AND CONFIDENTIALITY...........................
8.8 PRESS RELEASES..............................................
8.9 CERTAIN ACTIONS.............................................
8.10 ACCOUNTING AND TAX TREATMENT................................
8.11 CHARTER PROVISIONS..........................................
8.12 AGREEMENTS OF AFFILIATES....................................
8.13 EMPLOYEE BENEFITS AND CONTRACTS.............................
8.14 INDEMNIFICATION.............................................
</TABLE>
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<TABLE>
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PAGE
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<S> <C> <C>
ARTICLE 9. CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE........
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY.....................
9.2 CONDITIONS TO OBLIGATIONS OF FIRST BANKING..................
9.3 CONDITIONS TO OBLIGATIONS OF WAYNE..........................
ARTICLE 10. TERMINATION.............................................
10.1 TERMINATION.................................................
10.2 EFFECT OF TERMINATION.......................................
10.3 NON-SURVIVAL OF REPRESENTATIONS AND COVENANTS...............
ARTICLE 11. MISCELLANEOUS...........................................
11.1 DEFINITIONS.................................................
11.2 EXPENSES....................................................
11.3 BROKERS AND FINDERS.........................................
11.4 ENTIRE AGREEMENT............................................
11.5 AMENDMENTS..................................................
11.6 WAIVERS.....................................................
11.7 ASSIGNMENT..................................................
11.8 NOTICES.....................................................
11.9 GOVERNING LAW...............................................
11.10 COUNTERPARTS................................................
11.11 CAPTIONS, ARTICLES AND SECTIONS.............................
11.12 INTERPRETATIONS.............................................
11.13 ENFORCEMENT OF AGREEMENT....................................
11.14 SEVERABILITY................................................
</TABLE>
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LIST OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <S> <C>
1. -- Form of Agreement of Affiliates of Wayne Bancorp, Inc.
(sec. 8.12, sec. 9.2(f)).
2. -- Form of Claims Letter (sec. 9.2(g)).
</TABLE>
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made and entered
into as of November 30, 1998, by and between FIRST BANKING COMPANY OF SOUTHEAST
GEORGIA ("FIRST BANKING"), a Georgia corporation located in Statesboro, Georgia,
and WAYNE BANCORP, INC. ("WAYNE"), a Georgia corporation located in Jesup,
Georgia.
PREAMBLE
The respective Boards of Directors of WAYNE and FIRST BANKING are of the
opinion that the transactions described herein are in the best interests of the
Parties to this Agreement and their respective shareholders. This Agreement
provides for the acquisition of WAYNE by FIRST BANKING, pursuant to the merger
of WAYNE with and into FIRST BANKING. At the effective time of such merger, the
outstanding shares of the capital stock of WAYNE shall be converted into the
right to receive shares of the common stock of FIRST BANKING (except as provided
herein). As a result, shareholders of WAYNE shall become shareholders of FIRST
BANKING, and FIRST BANKING shall conduct the business and operations of WAYNE.
The transactions described in this Agreement are subject to (a) approval of the
shareholders of WAYNE, (b) approval of the Georgia Department of Banking and
Finance, (c) approval of the Board of Governors of the Federal Reserve, and (d)
satisfaction of certain other conditions described in this Agreement. It is the
intention of the Parties to this Agreement that the merger, for federal income
tax purposes, shall qualify as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code, and, for accounting purposes, shall qualify
for treatment as a pooling of interests.
Certain terms used in this Agreement are defined in Section 11.1 hereof.
NOW, THEREFORE, in consideration of the above and the mutual warranties,
representations, covenants, and agreements set forth herein, the Parties agree
as follows:
ARTICLE 1.
TRANSACTIONS AND TERMS OF THE MERGER
1.1 MERGER. Subject to the terms and conditions of this Agreement, at the
Effective Time, WAYNE will merge with and into FIRST BANKING in accordance with
the provisions of Section 14-2-1101 of the GBCC and with the effect provided in
Section 14-2-1106 of the GBCC (the "Merger"). FIRST BANKING shall be the
Surviving Corporation resulting from the Merger and shall continue to be
governed by the Laws of the State of Georgia. The Merger shall be consummated
pursuant to the terms of this Agreement, which has been approved and adopted by
the respective Boards of Directors of WAYNE and FIRST BANKING, as set forth
herein.
1.2 TIME AND PLACE OF CLOSING. The closing of the transactions
contemplated hereby (the "Closing") will take place at 9:00 A.M. on the date
that the Effective Time occurs (or the immediately preceding day if the
Effective Time is earlier than 9:00 A.M.), or at such other time as the Parties,
acting through their authorized officers, may mutually agree. The Closing shall
be held at such location as may be mutually agreed upon by the Parties.
1.3 EFFECTIVE TIME. The Merger and other transactions contemplated by this
Agreement shall become effective on the date and at the time the Certificate of
Merger reflecting the Merger shall become effective with the Secretary of State
of the State of Georgia (the "Effective Time"). Subject to the terms and
conditions hereof, unless otherwise mutually agreed upon in writing by the
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authorized officers of each Party, the Parties shall use their reasonable
efforts to cause the Effective Time to occur on the fifth business day following
the last to occur of (i) the effective date (including expiration of any
applicable waiting period) of the last required Consent of any Regulatory
Authority having authority over and approving or exempting the Merger, and (ii)
the earliest date on which the shareholders of WAYNE have approved this
Agreement to the extent such approval is required by applicable Law; provided,
however, that the date of the Effective Time shall not extend past the
termination date set forth in sec. 10.1(e) hereof.
ARTICLE 2.
TERMS OF MERGER
2.1 ARTICLES OF INCORPORATION. The Articles of Incorporation of FIRST
BANKING in effect immediately prior to the Effective Time shall be the Articles
of Incorporation of the Surviving Corporation until duly amended or repealed.
2.2 BYLAWS. The Bylaws of FIRST BANKING in effect immediately prior to the
Effective Time shall be the Bylaws of the Surviving Corporation until duly
amended or repealed.
2.3 DIRECTORS AND OFFICERS.
(a) The directors of the Surviving Corporation shall be (i) the
directors of FIRST BANKING immediately prior to the Effective Time and (ii)
J. Ashley Dukes, together with such additional persons as may thereafter be
elected. Such persons shall serve as the directors of the Surviving
Corporation from and after the Effective Time in accordance with the Bylaws
of the Surviving Corporation.
(b) The executive officers of the Surviving Corporation shall be (i)
the executive officers of the Surviving Corporation immediately prior to
the Effective Time and (ii) such additional persons as may thereafter be
elected. Such persons shall serve as the executive officers of the
Surviving Corporation from and after the Effective Time in accordance with
the Bylaws of the Surviving Corporation.
ARTICLE 3.
MANNER OF CONVERTING SHARES
3.1 CONVERSION OF SHARES. Subject to the provisions of this Article 3, at
the Effective Time, by virtue of the Merger and without any action on the part
of WAYNE, or the shareholders of the foregoing, the shares of WAYNE shall be
converted as follows:
(a) Each share of capital stock of FIRST BANKING issued and
outstanding immediately prior to the Effective Time shall remain issued and
outstanding from and after the Effective Time.
(b) Each share of WAYNE Common Stock (excluding shares held by any
WAYNE Entity or any FIRST BANKING Entity, in each case other than in a
fiduciary capacity or as a result of debts previously contracted, and
excluding shares held by shareholders who perfect their statutory
dissenters' rights as provided in Section 3.4) issued and outstanding
immediately prior to the Effective Time shall cease to be outstanding and
shall be converted into and exchanged for the right to receive 1.57024
shares of FIRST BANKING Common Stock (the "Exchange Ratio").
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(c) Each warrant to acquire shares of WAYNE Common Stock not exercised
prior to the Effective Time shall be forfeited.
3.2 ANTI-DILUTION PROVISIONS. In the event FIRST BANKING changes the
number of shares of FIRST BANKING Common Stock issued and outstanding prior to
the Effective Time as a result of a stock split, stock dividend, or similar
recapitalization with respect to such stock and the record date therefor (in the
case of a stock dividend) or the effective date thereof (in the case of a stock
split or similar recapitalization for which a record date is not established)
and prior to the Effective Time, the Exchange Ratio shall be proportionately
adjusted.
3.3 SHARES HELD BY WAYNE OR FIRST BANKING. Each of the shares of WAYNE
Common Stock held by any WAYNE Entity or by any FIRST BANKING Entity, in each
case other than in a fiduciary capacity or as a result of debts previously
contracted, shall be canceled and retired at the Effective Time and no
consideration shall be issued in exchange therefor.
3.4 DISSENTING SHAREHOLDERS. Any holder of shares of WAYNE Common Stock
who perfects his dissenters' rights in accordance with and as contemplated by
Article 13, Part 2 of Title 14 of the GBCC, shall be entitled to receive the
value of such shares in cash as determined pursuant to such provision of law;
provided, that no such payment shall be made to any dissenting shareholder
unless and until such dissenting shareholder has complied with the applicable
provisions of the GBCC and surrendered to FIRST BANKING the certificates or
certificates representing the shares for which payment is being made. In the
event that after the Effective Time, a dissenting shareholder of WAYNE fails to
perfect, or effectively withdraws or loses, his right to appraisal of and
payment for his shares, FIRST BANKING shall issue and deliver the consideration
to which such holder of shares of WAYNE Common Stock is entitled under this
Article 3 (without interest) upon surrender by such holder of the certificate or
certificates representing shares of WAYNE Common Stock held by him. If and to
the extent required by applicable Law, WAYNE will establish (or cause to be
established) an escrow account with an amount sufficient to satisfy the maximum
aggregate payment that may be required to be paid to dissenting shareholders.
Upon satisfaction of all claims of dissenting shareholders, the remaining
escrowed amount, reduced by payment of the fees and expenses of the escrow
agent, will be returned to FIRST BANKING.
3.5 FRACTIONAL SHARES. Notwithstanding any other provision of this
Agreement, each holder of shares of WAYNE Common Stock exchanged pursuant to the
Merger who would otherwise have been entitled to receive a fraction of a share
of FIRST BANKING Common Stock (after taking into account all certificates
delivered by such holder) shall receive, in lieu thereof, cash (without
interest) in an amount equal to such fractional part of a share of FIRST BANKING
Common Stock multiplied by the market value of one share of FIRST BANKING Common
Stock at the Effective Time. The market value of one share of FIRST BANKING
Common Stock at the Effective Time shall be the last sale price of such common
stock on the Nasdaq National Market (as reported by The Wall Street Journal or,
if not reported thereby, any other authoritative source selected by FIRST
BANKING) on the last trading day preceding the Effective Time. No such holder
will be entitled to dividends, voting rights, or any other rights as a
shareholder in respect of any fractional shares.
ARTICLE 4.
EXCHANGE OF SHARES
4.1 EXCHANGE PROCEDURES. Promptly after the Effective Time, FIRST BANKING
shall cause the exchange agent selected by FIRST BANKING (the "Exchange Agent")
to mail to each holder of record of a certificate or certificates which
represented shares of WAYNE Common Stock
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immediately prior to the Effective Time (the "Certificates") appropriate
transmittal materials and instructions (which shall specify that delivery shall
be effected, and risk of loss and title to such Certificates shall pass, only
upon proper delivery of such Certificates to the Exchange Agent). The
Certificate or Certificates of WAYNE Common Stock so delivered shall be duly
endorsed as the Exchange Agent may require. In the event of a transfer of
ownership of shares of WAYNE Common Stock represented by Certificates that are
not registered in the transfer records of WAYNE, the consideration provided in
Section 3.1 may be issued to a transferee if the Certificates representing such
shares are delivered to the Exchange Agent, accompanied by all documents
required to evidence such transfer and by evidence satisfactory to the Exchange
Agent that any applicable stock transfer taxes have been paid. If any
Certificate shall have been lost, stolen, mislaid or destroyed, upon receipt of
(i) an affidavit of that fact from the holder claiming such Certificate to be
lost, mislaid, stolen or destroyed, (ii) such bond, security or indemnity as
FIRST BANKING and the Exchange Agent may reasonably require, and (iii) any other
documents necessary to evidence and effect the bona fide exchange thereof, the
Exchange Agent shall issue to such holder the consideration into which the
shares represented by such lost, stolen, mislaid or destroyed Certificate shall
have been converted. The Exchange Agent may establish such other reasonable and
customary rules and procedures in connection with its duties as it may deem
appropriate. After the Effective Time, each holder of shares of WAYNE Common
Stock (other than shares to be canceled pursuant to Section 3.3 or as to which
statutory dissenters' rights have been perfected as provided in Section 3.4)
issued and outstanding at the Effective Time shall surrender the Certificate or
Certificates representing such shares to the Exchange Agent and shall promptly
upon surrender thereof receive in exchange therefor the consideration provided
in Section 3.1, together with all undelivered dividends or distributions in
respect of such shares (without interest thereon) pursuant to Section 4.2. FIRST
BANKING shall not be obligated to deliver the consideration to which any former
holder of WAYNE Common Stock is entitled as a result of the Merger until such
holder surrenders such holder's Certificate or Certificates for exchange as
provided in this Section 4.1. Any other provision of this Agreement
notwithstanding, neither FIRST BANKING nor the Exchange Agent shall be liable to
a holder of WAYNE Common Stock for any amounts paid or property delivered in
good faith to a public official pursuant to any applicable abandoned property,
escheat or similar Law. Approval of this Agreement by the shareholders of WAYNE
shall constitute ratification of the appointment of the Exchange Agent.
4.2 RIGHTS OF FORMER SHAREHOLDERS OF WAYNE. At the Effective Time, the
stock transfer books of WAYNE shall be closed as to holders of WAYNE Common
Stock immediately prior to the Effective Time and no transfer of WAYNE Common
Stock by any such holder shall thereafter be made or recognized. Until
surrendered for exchange in accordance with the provisions of Section 4.1, each
Certificate theretofore representing shares of WAYNE Common Stock (other than
shares to be canceled pursuant to Sections 3.3 and 3.4) shall from and after the
Effective Time represent for all purposes only the right to receive the
consideration provided in Section 3.1 in exchange therefor, subject, however, to
FIRST BANKING's obligation to pay any dividends or make any other distributions
with a record date prior to the Effective Time which have been declared or made
by WAYNE in respect of such shares of WAYNE Common Stock in accordance with the
terms of this Agreement and which remain unpaid at the Effective Time. To the
extent permitted by Law, former shareholders of record of WAYNE shall be
entitled to vote after the Effective Time at any meeting of FIRST BANKING
shareholders the number of whole shares of FIRST BANKING Common Stock into which
their respective shares of WAYNE Common Stock are converted, regardless of
whether such holders have exchanged their Certificates for certificates
representing FIRST BANKING Common Stock in accordance with the provisions of
this Agreement. Whenever a dividend or other distribution is declared by FIRST
BANKING on the FIRST BANKING Common Stock, the record date for which is at or
after the Effective Time, the declaration shall include dividends or other
distributions on all shares of FIRST BANKING Common Stock issuable pursuant
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to this Agreement, but no dividend or other distribution payable to the holders
of record of FIRST BANKING Common Stock as of any time subsequent to the
Effective Time shall be delivered to the holder of any Certificate until such
holder surrenders such Certificate for exchange as provided in Section 4.1.
However, upon surrender of such Certificate, both the FIRST BANKING Common Stock
certificate (together with all such undelivered dividends or other distributions
without interest) and any undelivered dividends and cash payments payable
hereunder (without interest) shall be delivered and paid with respect to each
share represented by such Certificate. No interest shall be payable with respect
to any cash to be paid under Section 3.1 of this Agreement except to the extent
required in connection with the exercise of dissenters' rights.
ARTICLE 5.
REPRESENTATIONS AND WARRANTIES OF WAYNE
WAYNE hereby represents and warrants to FIRST BANKING as follows:
5.1 ORGANIZATION, STANDING, AND POWER. WAYNE is a corporation duly
organized, validly existing, and in good standing under the Laws of the State of
Georgia, and has the corporate power and authority to carry on its business as
now conducted and to own, lease and operate its material Assets. WAYNE is duly
qualified or licensed to transact business as a foreign corporation in good
standing in the United States and foreign jurisdictions where the character of
its Assets or the nature or conduct of its business requires it to be so
qualified or licensed, except for such jurisdictions in which the failure to be
so qualified or licensed is not reasonably likely to have, individually or in
the aggregate, a WAYNE Material Adverse Effect. The minute book and other
organizational documents for WAYNE have been made available to FIRST BANKING for
its review and, except as disclosed in Section 5.1 of the WAYNE Disclosure
Memorandum, are true and complete in all material respects as in effect as of
the date of this Agreement and accurately reflect in all material respects all
amendments thereto and all proceedings of the Board of Directors and
shareholders thereof.
5.2 AUTHORITY OF WAYNE; NO BREACH BY AGREEMENT.
(a) WAYNE has the corporate power and authority necessary to execute,
deliver, and perform its obligations under this Agreement and to consummate
the transactions contemplated hereby. The execution, delivery, and
performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly
authorized by all necessary corporate action in respect thereof on the part
of WAYNE, subject to the approval of this Agreement by the holders of a
majority of the outstanding voting stock of WAYNE, which is the only
shareholder vote required for approval of this Agreement, and consummation
of the Merger by WAYNE. Subject to such requisite shareholder approval,
this Agreement represents a legal, valid, and binding obligation of WAYNE,
enforceable against WAYNE in accordance with its terms (except in all cases
as such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, conservatorship, moratorium, or similar Laws
affecting the enforcement of creditors' rights generally and except that
the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which
any proceeding may be brought).
(b) Neither the execution and delivery of this Agreement by WAYNE, nor
the consummation by WAYNE of the transactions contemplated hereby, nor
compliance by WAYNE with any of the provisions hereof, will (i) conflict
with or result in a breach of any provision of WAYNE's Articles of
Incorporation or Bylaws, or the Charter, Articles of Incorporation, or
Bylaws of any WAYNE Subsidiary or any resolution adopted by the board of
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directors or the shareholders of any WAYNE Entity, or (ii) except as
disclosed in Section 5.2 of the WAYNE Disclosure Memorandum, constitute or
result in a Default under, or require any Consent pursuant to, or result in
the creation of any Lien on any Asset of any WAYNE Entity under, any
Contract or Permit of any WAYNE Entity, where such Default or Lien, or any
failure to obtain such Consent, is reasonably likely to have, individually
or in the aggregate, a WAYNE Material Adverse Effect, or (iii) subject to
receipt of the requisite Consents referred to in Section 9.1(b), constitute
or result in a Default under or require any Consent pursuant to any Law or
Order applicable to any WAYNE Entity or any of their respective material
Assets (including any FIRST BANKING Entity or any WAYNE Entity becoming
subject to or liable for the payment of any Tax or any of the Assets owned
by any FIRST BANKING Entity or any WAYNE Entity being reassessed or
revalued by any Taxing authority).
(c) Other than in connection or compliance with the provisions of
applicable federal banking laws, and other than Consents required from
Regulatory Authorities, and other than notices to or filings with the
Internal Revenue Service or the Pension Benefit Guaranty Corporation with
respect to any employee benefit plans, or under the HSR Act, and other than
Consents, filings, or notifications which, if not obtained or made, are not
reasonably likely to have, individually or in the aggregate, a WAYNE
Material Adverse Effect, no notice to, filing with, or Consent of, any
public body or authority is necessary for the consummation by WAYNE of the
Merger and the other transactions contemplated in this Agreement.
5.3 CAPITAL STOCK.
(a) As of the date of this Agreement, the authorized capital stock of
WAYNE consists of Ten Million (10,000,000) shares of WAYNE Common Stock, of
which Five Hundred Fifty Eight Thousand Six Hundred Forty-Eight (558,648)
shares are issued and outstanding, assuming all warrants to acquire WAYNE
Common Stock have been exercised. All of the issued and outstanding shares
of capital stock of WAYNE are duly and validly issued and outstanding and
are fully paid and nonassessable under the GBCC. None of the outstanding
shares of capital stock of WAYNE has been issued in violation of any
preemptive rights of the current or past shareholders of WAYNE. WAYNE has
reserved Fifty-Two Thousand Six Hundred Fifty (52,650) shares of WAYNE
Common Stock for issuance upon the exercise of certain authorized Warrants
as described in Section 5.3(a) of the WAYNE Disclosure Memorandum.
(b) Except as set forth in Section 5.3(a), or as disclosed in Section
5.3(b) of the WAYNE Disclosure Memorandum, there are no shares of capital
stock or other equity securities of WAYNE outstanding and no outstanding
Equity Rights relating to the capital stock of WAYNE.
5.4 WAYNE SUBSIDIARIES. WAYNE has disclosed in Section 5.4 of the WAYNE
Disclosure Memorandum all of the WAYNE Subsidiaries that are corporations
(identifying its jurisdiction of incorporation, each jurisdiction in which the
character of its Assets or the nature or conduct of its business requires it to
be qualified and/or licensed to transact business, and the number of shares
owned and percentage ownership interest represented by such share ownership) and
all of the WAYNE Subsidiaries that are general or limited partnerships, limited
liability companies, or other non-corporate entities (identifying the Law under
which such entity is organized, each jurisdiction in which the character of its
Assets or the nature or conduct of its business requires it to be qualified
and/or licensed to transact business, and the amount and nature of the ownership
interest therein). Except as disclosed in Section 5.4 of the WAYNE Disclosure
Memorandum, WAYNE or one of its wholly-owned Subsidiaries owns all of the issued
and outstanding shares of capital stock (or other equity interests) of each
WAYNE Subsidiary. No capital stock (or other equity interest) of any WAYNE
Subsidiary is or may become required to be issued (other than to another WAYNE
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Entity) by reason of any Equity Rights, and there are no Contracts by which any
WAYNE Subsidiary is bound to issue (other than to another WAYNE Entity)
additional shares of its capital stock (or other equity interests) or Equity
Rights or by which any WAYNE Entity is or may be bound to transfer any shares of
the capital stock (or other equity interests) of any WAYNE Subsidiary (other
than to another WAYNE Entity). There are no Contracts relating to the rights of
any WAYNE Entity to vote or to dispose of any shares of the capital stock (or
other equity interests) of any WAYNE Subsidiary. All of the shares of capital
stock (or other equity interests) of each WAYNE Subsidiary held by a WAYNE
Entity are fully paid and (except pursuant to 12 U.S.C. Section 55 in the case
of national banks and comparable, applicable State Law, if any, in the case of
State depository institutions) nonassessable and are owned by the WAYNE Entity
free and clear of any Lien. Except as disclosed in Section 5.4 of the WAYNE
Disclosure Memorandum, each WAYNE Subsidiary is either a bank, savings
association or a corporation, and is duly organized, validly existing, and in
good standing under the Laws of the jurisdiction in which it is incorporated or
organized, and has the corporate power and authority necessary for it to own,
lease, and operate its Assets and to carry on its business as now conducted.
Each WAYNE Subsidiary is duly qualified or licensed to transact business as a
foreign corporation in good standing in the States of the United States and
foreign jurisdictions where the character of its Assets or the nature or conduct
of its business requires it to be so qualified or licensed, except for such
jurisdictions in which the failure to be so qualified or licensed is not
reasonably likely to have, individually or in the aggregate, a WAYNE Material
Adverse Effect. Each WAYNE Subsidiary that is a depository institution is an
"insured institution" as defined in the Federal Deposit Insurance Act and
applicable regulations thereunder. The minute book and other organizational
documents for each WAYNE Subsidiary have been made available to FIRST BANKING
for its review, and, except as disclosed in Section 5.4 of the WAYNE Disclosure
Memorandum, are true and complete in all material respects as in effect as of
the date of this Agreement and accurately reflect in all material respects all
amendments thereto and all proceedings of the Board of Directors and
shareholders thereof.
5.5 SEC FILINGS; FINANCIAL STATEMENTS.
(a) WAYNE has timely filed and made available to FIRST BANKING all SEC
Documents required to be filed by WAYNE since December 31, 1995 (the "WAYNE
SEC Reports"). The WAYNE SEC Reports (i)at the time filed complied in all
material respects with the applicable requirements of the Securities Laws
and other applicable Laws and (ii) did not, at the time they were filed
(or, if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of
a material fact or omit to state a material fact required to be stated in
such WAYNE SEC Reports or necessary in order to make the statements in such
WAYNE SEC Reports, in light of the circumstances under which they were
made, not misleading.
(b) Each of the WAYNE Financial Statements (including, in each case,
any related notes) was prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be
indicated in the notes to such financial statements), and fairly presented
in all material respects the consolidated financial position of WAYNE and
its Subsidiaries as at the respective dates and the consolidated results of
operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not or are not expected to be
material in amount or effect.
5.6 ABSENCE OF UNDISCLOSED LIABILITIES. No WAYNE Entity has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a WAYNE Material Adverse Effect, except Liabilities which are accrued
or reserved against in the consolidated balance sheets of WAYNE as of December
31, 1997 or September 30, 1998, included in the WAYNE Financial
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Statements or reflected in the notes thereto. No WAYNE Entity has incurred or
paid any Liability since September 30, 1998, except for such Liabilities
incurred or paid (i) in the ordinary course of business consistent with past
business practice and which are not reasonably likely to have, individually or
in the aggregate, a WAYNE Material Adverse Effect or (ii) in connection with the
transactions contemplated by this Agreement.
5.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1997, except
as disclosed in the WAYNE Financial Statements delivered prior to the date of
this Agreement or as disclosed in Section 5.7 of the WAYNE Disclosure
Memorandum, (i) there have been no events, changes, or occurrences which have
had, or are reasonably likely to have, individually or in the aggregate, a WAYNE
Material Adverse Effect, and (ii) WAYNE Entities have not taken any action, or
failed to take any action, prior to the date of this Agreement, which action or
failure, if taken after the date of this Agreement, would represent or result in
a material breach or violation of any of the covenants and agreements of WAYNE
provided in Article 7.
5.8 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of any WAYNE
Entities have been timely filed or requests for extensions have been timely
filed, granted, and, to the Knowledge of WAYNE, have not expired for such
periods, except to the extent that all such failures to file, taken
together, are not reasonably likely to have a WAYNE Material Adverse
Effect, and all Tax Returns filed are complete and accurate in all material
respects. All Taxes shown on filed Tax Returns have been paid. There is no
audit examination, deficiency, or refund Litigation with respect to any
Taxes that is reasonably likely to result in a determination that would
have, individually or in the aggregate, a WAYNE Material Adverse Effect,
except as reserved against in the WAYNE Financial Statements delivered
prior to the date of this Agreement or as disclosed in Section 5.8 of the
WAYNE Disclosure Memorandum. All Taxes and other Liabilities due with
respect to completed and settled examinations or concluded Litigation have
been paid. There are no Liens with respect to Taxes upon any of the Assets
of WAYNE Entities, except for any such Liens which are not reasonably
likely to have a WAYNE Material Adverse Effect or with respect to which the
Taxes are not yet due and payable.
(b) None of the WAYNE Entities has executed an extension or waiver of
any statute of limitations on the assessment or collection of any Tax due
(excluding such statutes that relate to years currently under examination
by the Internal Revenue Service or other applicable taxing authorities)
that is currently in effect.
(c) The provision for any Taxes due or to become due for any of the
WAYNE Entities for the period or periods through and including the date of
the respective WAYNE Financial Statements that has been made and is
reflected on such WAYNE Financial Statements is sufficient to cover all
such Taxes.
(d) Deferred Taxes of WAYNE Entities have been provided for in
accordance with GAAP.
(e) Except as disclosed in Section 5.8 of the WAYNE Disclosure
Memorandum, none of the WAYNE Entities is a party to any Tax allocation or
sharing agreement and none of WAYNE Entities has been a member of an
affiliated group filing a consolidated federal income Tax Return (other
than a group the common parent of which was WAYNE) or has any Liability for
Taxes of any Person (other than WAYNE and its Subsidiaries) under Treasury
Regulation Section 1.1502-6 (or any similar provision of state, local or
foreign Law) as a transferee or successor or by Contract or otherwise.
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(f) Each of the WAYNE Entities is in compliance with, and its records
contain all information and documents (including properly completed IRS
Forms W-9) necessary to comply with, all applicable information reporting
and Tax withholding requirements under federal, state, and local Tax Laws,
and such records identify with specificity all accounts subject to backup
withholding under Section 3406 of the Internal Revenue Code, except for
such instances of noncompliance and such omissions as are not reasonably
likely to have, individually or in the aggregate, a WAYNE Material Adverse
Effect.
(g) Except as disclosed in Section 5.8 of the WAYNE Disclosure
Memorandum, none of the WAYNE Entities has made any payments, is obligated
to make any payments, or is a party to any Contract that could obligate it
to make any payments that would be disallowed as a deduction under Sections
28OG or 162(m) of the Internal Revenue Code.
(h) Exclusive of the Merger, there has not been an ownership change,
as defined in Internal Revenue Code Section 382(g), of WAYNE Entities that
occurred during or after any Taxable Period in which WAYNE Entities
incurred a net operating loss that carries over to any Taxable Period
ending after December 31, 1997.
(i) No WAYNE Entity has or has had in any foreign country a permanent
establishment, as defined in any applicable tax treaty or convention
between the United States and such foreign country.
(j) All material elections with respect to Taxes affecting WAYNE
Entities have been or will be timely made.
5.9 ALLOWANCE FOR POSSIBLE LOAN LOSSES. The allowance for possible loan or
credit losses (the "Allowance") shown on the consolidated balance sheets of
WAYNE included in the most recent WAYNE Financial Statements dated prior to the
date of this Agreement was, and the Allowance shown on the consolidated balance
sheets of WAYNE included in the WAYNE Financial Statements as of dates
subsequent to the execution of this Agreement will be, as of the dates thereof,
adequate (within the meaning of GAAP and applicable regulatory requirements or
guidelines) to provide for all known or reasonably anticipated losses relating
to or inherent in the loan and lease portfolios (including accrued interest
receivables) of WAYNE Entities and other extensions of credit (including letters
of credit and commitments to make loans or extend credit) by WAYNE Entities as
of the dates thereof, except where the failure of such Allowance to be so
adequate is not reasonably likely to have a WAYNE Material Adverse Effect.
5.10 ASSETS.
(a) Except as disclosed in Section 5.10 of the WAYNE Disclosure
Memorandum or as disclosed or reserved against in the WAYNE Financial
Statements delivered prior to the date of this Agreement, WAYNE Entities
have good and marketable title, free and clear of all Liens, to all of
their respective Assets, except for any such Liens or other defects of
title which are not reasonably likely to have a WAYNE Material Adverse
Effect. All tangible properties used in the businesses of the WAYNE
Entities are usable in the ordinary course of business consistent with
WAYNE's past practices.
(b) All Assets which are material to WAYNE's business on a
consolidated basis, held under leases or subleases by any of the WAYNE
Entities, are held under valid Contracts enforceable against WAYNE in
accordance with their respective terms (except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
or other Laws affecting the enforcement of creditors' rights generally and
except that the availability of the equitable remedy of specific
performance or injunctive relief is subject to the discretion of the
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court before which any proceedings may be brought), and, assuming the
enforceability of such Contract against the third party thereto, each such
Contract is in full force and effect.
(c) WAYNE Entities currently maintain the insurance policies described
in Section 5.10(c) of the WAYNE Disclosure Memorandum. None of the WAYNE
Entities has received written notice from any insurance carrier that (i)
any policy of insurance will be canceled or that coverage thereunder will
be reduced or eliminated, or (ii) premium costs with respect to such
policies of insurance will be substantially increased. There are presently
no claims for amounts exceeding in any individual case $25,000 pending
under such policies of insurance and no written notices of claims in excess
of such amounts have been given by any WAYNE Entity under such policies.
(d) The Assets of the WAYNE Entities include all material Assets
required to operate the business of the WAYNE Entities as presently
conducted.
5.11 INTELLECTUAL PROPERTY. Each WAYNE Entity owns or has a license to use
all of the Intellectual Property used by such WAYNE Entity in the ordinary
course of its business. Each WAYNE Entity is the owner of or has a license to
any Intellectual Property sold or licensed to a third party by such WAYNE Entity
in connection with such WAYNE Entity's business operations, and such WAYNE
Entity has the right to convey by sale or license any Intellectual Property so
conveyed. No WAYNE Entity is in material Default under any of its Intellectual
Property licenses. No proceedings have been instituted, or are pending or, to
the Knowledge of WAYNE, threatened, which challenge the rights of any WAYNE
Entity with respect to Intellectual Property used, sold or licensed by such
WAYNE Entity in the course of its business, nor has any person claimed or
alleged any rights to such Intellectual Property. To the Knowledge of WAYNE, the
conduct of the business of the WAYNE Entities does not infringe any Intellectual
Property of any other person. Except as disclosed in Section 5.11 of the WAYNE
Disclosure Memorandum, no WAYNE Entity is obligated to pay any recurring
royalties to any Person with respect to any such Intellectual Property.
5.12 ENVIRONMENTAL MATTERS.
(a) Except as disclosed in Section 5.12 of the WAYNE Disclosure
Memorandum, to the Knowledge of WAYNE, each WAYNE Entity, its Participation
Facilities, and its Operating Properties are, and have been, in compliance
with all Environmental Laws, except for violations which are not reasonably
likely to have, individually or in the aggregate, a WAYNE Material Adverse
Effect.
(b) There is no Litigation pending or, to the Knowledge of WAYNE,
threatened, before any court, governmental agency, or authority or other
forum in which any WAYNE Entity or any of its Operating Properties or
Participation Facilities (or WAYNE in respect of such Operating Property or
Participation Facility) has been or, with respect to threatened Litigation,
may be named as a defendant (i) for alleged noncompliance (including by any
predecessor) with any Environmental Law or (ii) relating to the emission,
migration, release, discharge, spillage, or disposal into the environment
of any Hazardous Material, whether or not occurring at, on, under, adjacent
to, or affecting (or potentially affecting) a site owned, leased, or
operated by any WAYNE Entity or any of its Operating Properties or
Participation Facilities or any neighboring property, except for such
Litigation pending or threatened that is not reasonably likely to have,
individually or in the aggregate, a WAYNE Material Adverse Effect, nor, to
the Knowledge of WAYNE, is there any reasonable basis for any Litigation of
a type described in this sentence, except such as is not reasonably likely
to have, individually or in the aggregate, a WAYNE Material Adverse Effect.
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(c) Except as disclosed in Section 5.12 of the WAYNE Disclosure
Memorandum, during the period of (i) any WAYNE Entity's ownership or
operation of any of their respective current Assets, or (ii) any WAYNE
Entity's participation in the management of any Participation Facility or
any Operating Property, to the Knowledge of WAYNE, there have been no
emissions, migrations, releases, discharges, spillages, or disposals of
Hazardous Material in, on, at, under, adjacent to, or affecting (or
potentially affecting) such properties or any neighboring properties,
except such as are not reasonably likely to have, individually or in the
aggregate, a WAYNE Material Adverse Effect. Except as disclosed in Section
5.12 of the WAYNE Disclosure Memorandum, prior to the period of (i) any
WAYNE Entity's ownership or operation of any of their respective current
properties, (ii) any WAYNE Entity's participation in the management of any
Participation Facility or any Operating Property, to the Knowledge of
WAYNE, there were no releases, discharges, spillages, or disposals of
Hazardous Material in, on, under, or affecting any such property,
Participation Facility or Operating Property, except such as are not
reasonably likely to have, individually or in the aggregate, a WAYNE
Material Adverse Effect.
5.13 COMPLIANCE WITH LAWS. Each WAYNE Entity has in effect all Permits
necessary for it to own, lease, or operate its material Assets and to carry on
its business as now conducted, except for those Permits the absence of which are
not reasonably likely to have, individually or in the aggregate, a WAYNE
Material Adverse Effect, and, to the Knowledge of WAYNE, there has occurred no
Default under any such Permit, other than Defaults which are not reasonably
likely to have, individually or in the aggregate, a WAYNE Material Adverse
Effect. Except as disclosed in Section 5.13 of the WAYNE Disclosure Memorandum,
none of the WAYNE Entities:
(a) is in Default under any of the provisions of its Articles of
Incorporation or Bylaws (or other governing instruments);
(b) is in Default under any Laws, Orders, or Permits applicable to its
business or employees conducting its business, except for Defaults which
are not reasonably likely to have, individually or in the aggregate, a
WAYNE Material Adverse Effect; or
(c) since January 1, 1995, or as of the date of organization, if
later, has received any written notification or written communication from
any agency or department of federal, state, or local government or any
Regulatory Authority or the staff thereof (i) asserting that any WAYNE
Entity is not in compliance with any of the Laws or Orders which such
governmental authority or Regulatory Authority enforces, where such
noncompliance is reasonably likely to have, individually or in the
aggregate, a WAYNE Material Adverse Effect, (ii) threatening to revoke any
Permits, the revocation of which is reasonably likely to have, individually
or in the aggregate, a WAYNE Material Adverse Effect, or (iii) requiring
any WAYNE Entity to enter into or consent to the issuance of a cease and
desist order, formal agreement, directive, commitment, or memorandum of
understanding, or to adopt any Board resolution or similar undertaking,
which restricts materially the conduct of its business or in any material
manner relates to its capital adequacy, its credit or reserve policies, its
management, or the payment of dividends. Copies of all material reports,
correspondence, notices and other documents relating to any inspection,
audit, monitoring or other form of review or enforcement action by a
Regulatory Authority have been made available to FIRST BANKING.
5.14 LABOR RELATIONS. No WAYNE Entity is the subject of any Litigation
asserting that it or any other WAYNE Entity has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it or any other WAYNE Entity to bargain with any
labor organization as to wages or conditions of employment, nor is any WAYNE
Entity party to any collective bargaining agreement, nor is there any strike or
other
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labor dispute involving any WAYNE Entity, pending or threatened, or to the
Knowledge of WAYNE, is there any activity involving any WAYNE Entity's employees
seeking to certify a collective bargaining unit or engaging in any other
organization activity.
5.15 EMPLOYEE BENEFIT PLANS.
(a) WAYNE has disclosed in Section 5.15 of the WAYNE Disclosure
Memorandum, and has delivered or made available to FIRST BANKING prior to
the execution of this Agreement copies in each case of, all pension,
retirement, profit-sharing, deferred compensation, stock option, employee
stock ownership, severance pay, vacation, bonus, or other incentive plan,
all other written employee programs, arrangements, or agreements, all
medical, vision, dental, or other health plans, all life insurance plans,
and all other employee benefit plans or fringe benefit plans, including
"employee benefit plans" as that term is defined in Section 3(3) of ERISA,
currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by any WAYNE Entity or ERISA Affiliate (as defined in
subparagraph (c) below) thereof for the benefit of employees, retirees,
dependents, spouses, directors, independent contractors, or other
beneficiaries and under which employees, retirees, dependents, spouses,
directors, independent contractors, or other beneficiaries are eligible to
participate (collectively, "WAYNE Benefit Plans"). Each WAYNE Benefit Plan
which is an "employee pension benefit plan," as that term is defined in
Section 3(2) of ERISA, is referred to herein as an "WAYNE ERISA Plan." Each
WAYNE ERISA Plan which is also a "defined benefit plan" (as defined in
Section 4140 of the Internal Revenue Code) is referred to herein as an
"WAYNE Pension Plan." No WAYNE Pension Plan is or has been a multiemployer
plan within the meaning of Section 3(37) of ERISA.
(b) All WAYNE Benefit Plans are in compliance with the applicable
terms of ERISA, the Internal Revenue Code, and any other applicable Laws
the breach or violation of which are reasonably likely to have,
individually or in the aggregate, a WAYNE Material Adverse Effect. Each
WAYNE ERISA Plan which is intended to be qualified under Section 401(a) of
the Internal Revenue Code has received a favorable determination letter
from the Internal Revenue Service, and WAYNE has no Knowledge of any
circumstances likely to result in revocation of any such favorable
determination letter. To the Knowledge of WAYNE, no WAYNE Entity has
engaged in a transaction with respect to any WAYNE Benefit Plan that,
assuming the taxable period of such transaction expired as of the date
hereof, would subject any WAYNE Entity to a Tax imposed by either Section
4975 of the Internal Revenue Code or Section 502(i) of ERISA in amounts
which are reasonably likely to have, individually or in the aggregate, a
WAYNE Material Adverse Effect.
(c) No WAYNE Pension Plan has any "unfunded current liability," as
that term is defined in Section 302(d)(8)(A) of ERISA, based on actuarial
assumptions set forth for such plan's most recent actuarial valuation.
Since the date of the most recent actuarial valuation, there has been (i)
no material change in the financial position of any WAYNE Pension Plan,
(ii) no change in the actuarial assumptions with respect to any WAYNE
Pension Plan, and (iii) no increase in benefits under any WAYNE Pension
Plan as a result of plan amendments or changes in applicable Law which is
reasonably likely to have, individually or in the aggregate, a WAYNE
Material Adverse Effect or materially adversely affect the funding status
of any such plan. Neither any WAYNE Pension Plan nor any "single employer
plan," within the meaning of Section 4001(a)(15) of ERISA, currently or
formerly maintained by any WAYNE Entity, or the single-employer plan of any
entity which is considered one employer with WAYNE under Section 4001 of
ERISA or Section 414 of the Internal Revenue Code or Section 302 of ERISA
(whether or not waived) (an "ERISA Affiliate") has an "accumulated funding
deficiency" within the meaning of Section 412 of the Internal Revenue Code
or Section 302 of ERISA,
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which is reasonably likely to have a WAYNE Material Adverse Effect. No
WAYNE Entity has provided, or is required to provide, security to a WAYNE
Pension Plan or to any single-employer plan of an ERISA Affiliate pursuant
to Section 401(a)(29) of the Internal Revenue Code.
(d) Within the six-year period preceding the Effective Time, no
Liability under Subtitle C or D of Title IV of ERISA has been or is
expected to be incurred by any WAYNE Entity with respect to any ongoing,
frozen, or terminated single-employer plan or the single-employer plan of
any ERISA Affiliate, which Liability is reasonably likely to have a WAYNE
Material Adverse Effect. No WAYNE Entity has incurred any withdrawal
Liability with respect to a multiemployer plan under Subtitle B of Title IV
of ERISA (regardless of whether based on contributions of an ERISA
Affiliate), which Liability is reasonably likely to have a WAYNE Material
Adverse Effect. No notice of a "reportable event," within the meaning of
Section 4043 of ERISA for which the 30-day reporting requirement has not
been waived, has been required to be filed for any WAYNE Pension Plan or by
any ERISA Affiliate within the 12-month period ending on the date hereof.
(e) Except as disclosed in Section 5.15 of the WAYNE Disclosure
Memorandum, no WAYNE Entity has any Liability for retiree health and life
benefits under any of the WAYNE Benefit Plans and there are no restrictions
on the rights of such WAYNE Entity to amend or terminate any such retiree
health or benefit Plan without incurring any Liability thereunder, which
Liability is reasonably likely to have a WAYNE Material Adverse Effect.
(f) Except as disclosed in Section 5.15 of the WAYNE Disclosure
Memorandum, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will (i) result in any
payment (including severance, unemployment compensation, golden parachute,
or otherwise) becoming due to any director or any employee of any WAYNE
Entity from any WAYNE Entity under any WAYNE Benefit Plan or otherwise,
(ii) increase any benefits otherwise payable under any WAYNE Benefit Plan,
or (iii) result in any acceleration of the time of payment or vesting of
any such benefit, where such payment, increase, or acceleration is
reasonably likely to have, individually or in the aggregate, a WAYNE
Material Adverse Effect.
(g) The actuarial present values of all accrued deferred compensation
entitlements (including entitlements under any executive compensation,
supplemental retirement, or employment agreement) of employees and former
employees of any WAYNE Entity and their respective beneficiaries, other
than entitlements accrued pursuant to funded retirement plans subject to
the provisions of Section 412 of the Internal Revenue Code or Section 302
of ERISA, have been fully reflected on the WAYNE Financial Statements to
the extent required by and in accordance with GAAP.
5.16 MATERIAL CONTRACTS. Except as disclosed in Section 5.16 of the WAYNE
Disclosure Memorandum or otherwise reflected in the WAYNE Financial Statements,
none of the WAYNE Entities, nor any of their respective Assets, businesses, or
operations, is a party to, or is bound or affected by, or receives benefits
under, (i) any employment, severance, termination, consulting, or retirement
Contract providing for aggregate payments to any Person in any calendar year in
excess of $50,000, (ii) any Contract relating to the borrowing of money by any
WAYNE Entity or the guarantee by any WAYNE Entity of any such obligation (other
than Contracts evidencing deposit liabilities, purchases of federal funds,
fully-secured repurchase agreements, Federal Home Loan Bank advances and trade
payables and Contracts relating to borrowings or guarantees made in the ordinary
course of business), (iii) any Contract which prohibits or restricts any WAYNE
Entity from engaging in any business activities in any geographic area, line of
business or otherwise in competition
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with any other Person, (iv) any Contract between or among the WAYNE Entities or
any Contract between any Wayne Entity and any Affiliate of Wayne, (v) any
Contract relating to the provision of data processing, network communication, or
other technical services to or by any WAYNE Entity, (vi) any exchange traded or
over-the-counter swap, forward, future, option, cap, floor, or collar financial
Contract, or any other interest rate or foreign currency protection Contract not
included on its balance sheet which is a financial derivative Contract, and
(vii) any other Contract or amendment thereto that would be required to be filed
as an exhibit to a Form 10-K filed by WAYNE with the SEC as of the date of this
Agreement that has not been filed as an exhibit to WAYNE's Form 10-K filed for
the fiscal year ended December 31, 1997 or in an SEC Document and identified to
WAYNE (together with all Contracts referred to in Sections 5.10 and 5.15(a), the
"WAYNE Contracts"). With respect to each WAYNE Contract and except as disclosed
in Section 5.16 of the WAYNE Disclosure Memorandum: (i) assuming the
enforceability of such Contract against the third party thereto, each such
Contract is in full force and effect; (ii) no WAYNE Entity is in Default
thereunder, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, a WAYNE Material Adverse Effect; (iii) no
WAYNE Entity has repudiated or waived any material provision of any such
Contract; and (iv) no other party to any such Contract is, to the Knowledge of
WAYNE, in Default in any respect, other than Defaults which are not reasonably
likely to have, individually or in the aggregate, a WAYNE Material Adverse
Effect, or has repudiated or waived any material provision thereunder. Except as
disclosed in Section 5.16 of the WAYNE Disclosure Memorandum, no officer,
director or employee of any WAYNE Entity is party to any Contract which
restricts or prohibits such officer, director or employee from engaging in
activities competitive with any Person, including any WAYNE Entity. All of the
indebtedness of any WAYNE Entity for money borrowed is prepayable at any time by
such WAYNE Entity without penalty or premium.
5.17 LEGAL PROCEEDINGS. There is no Litigation instituted or pending or,
to the Knowledge of WAYNE, threatened (or unasserted but considered probable of
assertion and which if asserted would have at least a reasonable probability of
an unfavorable outcome) against any WAYNE Entity, or against any director,
employee or employee benefit plan (acting in such capacity) of any WAYNE Entity,
or against any Asset, interest, or right of any of them, that is reasonably
likely to have, individually or in the aggregate, a WAYNE Material Adverse
Effect, nor are there any Orders of any Regulatory Authorities, other
governmental authorities, or arbitrators outstanding against any WAYNE Entity,
that are reasonably likely to have, individually or in the aggregate, a WAYNE
Material Adverse Effect. Section 5.17 of the WAYNE Disclosure Memorandum
contains a summary of all Litigation as of the date of this Agreement to which
any WAYNE Entity is a party and which names a WAYNE Entity as a defendant or
cross-defendant or for which, to the Knowledge of WAYNE, any WAYNE Entity has
any potential Liability.
5.18 REPORTS. Since January 1, 1995, each WAYNE Entity has timely filed
all reports and statements, together with any amendments required to be made
with respect thereto, that it was required to file with Regulatory Authorities,
except for such filings which the failure to so file is not reasonably likely to
have, individually or in the aggregate, a WAYNE Material Adverse Effect. As of
their respective dates, each of such reports and documents, including the
financial statements, exhibits, and schedules thereto, complied in all material
respects with all applicable Laws. As of its respective date, each such report
and document did not, in all material respects, contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading. Since January 1, 1995, no Wayne
Entity has filed any Suspicious Activity Report or any claim under any fidelity,
blanket bond, general liability, errors and omissions, directors and officers or
other insurance policies that pertain to the operation of its business or the
ownership of its assets.
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5.19 STATEMENTS TRUE AND CORRECT. No statement, certificate, instrument,
or other writing furnished or to be furnished by any WAYNE Entity to FIRST
BANKING pursuant to this Agreement or any other document, agreement, or
instrument referred to herein contains or will contain any untrue statement of
material fact or will omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. None of the information supplied or to be supplied by any WAYNE
Entity for inclusion in the registration statement to be filed by FIRST BANKING
with the SEC in accordance with Section 8.1 will, when such registration
statement becomes effective, be false or misleading with respect to any material
fact, or omit to state any material fact necessary to make the statements
therein not misleading. All documents that any WAYNE Entity is responsible for
filing with any Regulatory Authority in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
provisions of applicable Law. No documents to be filed by a WAYNE Entity with
any Regulatory Authority in connection with the transactions contemplated
hereby, will, at the respective time such documents are filed, be false or
misleading with respect to any material fact, or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
5.20 ACCOUNTING, TAX AND REGULATORY MATTERS. No WAYNE Entity has taken or
agreed to take any action or has any Knowledge of any fact or circumstance that
is reasonably likely to (i) prevent the Merger from qualifying for pooling of
interest accounting treatment and as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code, or (ii) materially impede or delay
receipt of any Consents of Regulatory Authorities referred to in Section 9.1(b)
or result in the imposition of a condition or restriction of the type referred
to in the last sentence of such Section.
5.21 CHARTER PROVISIONS. Each WAYNE Entity has taken all action so that
the entering into of this Agreement and the consummation of the Merger and the
other transactions contemplated by this Agreement do not and will not result in
the grant of any rights to any Person under the Charter, Articles of
Incorporation, Bylaws or other governing instruments of any WAYNE Entity or
restrict or impair the ability of FIRST BANKING or any of its Subsidiaries to
vote, or otherwise to exercise the rights of a shareholder with respect to,
shares of any WAYNE Entity that may be directly or indirectly acquired or
controlled by them.
5.22 BOARD RECOMMENDATION. The Board of Directors of WAYNE, at a meeting
duly called and held, has by unanimous vote of those directors present (who
constituted all of the directors then in office) (i) determined that this
Agreement and the transactions contemplated hereby are fair to and in the best
interests of the shareholders and (ii) resolved to recommend that the holders of
the shares of WAYNE Common Stock approve this Agreement.
5.23 Y-2K. WAYNE has formed a committee to review policies and directives
issued by Regulatory Authorities with respect to preparedness for year 2000 data
processing and other operations, and intends to implement such committee's
recommendations for ensuring compliance with such policies and directives.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF FIRST BANKING
FIRST BANKING hereby represents and warrants to WAYNE as follows:
6.1 ORGANIZATION, STANDING, AND POWER. FIRST BANKING is a corporation duly
organized, validly existing, and in good standing under the Laws of the State of
Georgia, and has the corporate power and authority to carry on its business as
now conducted and to own, lease and operate its
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material Assets. FIRST BANKING is duly qualified or licensed to transact
business as a foreign corporation in good standing in the States of the United
States and foreign jurisdictions where the character of its Assets or the nature
or conduct of its business requires it to be so qualified or licensed, except
for such jurisdictions in which the failure to be so qualified or licensed is
not reasonably likely to have, individually or in the aggregate, a FIRST BANKING
Material Adverse Effect. The minute book and other organizational documents for
FIRST BANKING have been made available to WAYNE for its review and, except as
disclosed in Section 6.1 of the FIRST BANKING Disclosure Memorandum, are true
and complete in all material respects as in effect as of the date of this
Agreement and accurately reflect in all material respects all amendments thereto
and all proceedings of the Board of Directors and shareholders thereof.
6.2 AUTHORITY OF FIRST BANKING; NO BREACH BY AGREEMENT.
(a) FIRST BANKING has the corporate power and authority necessary to
execute, deliver and perform its obligations under this Agreement and to
consummate the transactions contemplated hereby. The execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated herein, including the Merger, have been duly and validly
authorized by all necessary corporate action in respect thereof on the part
of FIRST BANKING. This Agreement represents a legal, valid, and binding
obligation of FIRST BANKING, enforceable against FIRST BANKING in
accordance with its terms (except in all cases as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization,
receivership, conservatorship, moratorium, or similar Laws affecting the
enforcement of creditors' rights generally and except that the availability
of the equitable remedy of specific performance or injunctive relief is
subject to the discretion of the court before which any proceeding may be
brought).
(b) Neither the execution and delivery of this Agreement by FIRST
BANKING, nor the consummation by FIRST BANKING of the transactions
contemplated hereby, nor compliance by FIRST BANKING with any of the
provisions hereof, will (i) conflict with or result in a breach of any
provision of FIRST BANKING's Articles of Incorporation or Bylaws, or the
Charter, or Articles of Incorporation or Bylaws of any FIRST BANKING
Entity, or any resolution adopted by the Board of Directors or the
shareholders of any FIRST BANKING Entity, or (ii) constitute or result in a
Default under, or require any Consent pursuant to, or result in the
creation of any Lien on any Asset of any FIRST BANKING Entity under, any
Contract or Permit of any FIRST BANKING Entity, where such Default or Lien,
or any failure to obtain such Consent, is reasonably likely to have,
individually or in the aggregate, a FIRST BANKING Material Adverse Effect,
or (iii) subject to receipt of the requisite Consents referred to in
Section 9.1 (b), constitute or result in a Default under, or require any
Consent pursuant to, any Law or Order applicable to any FIRST BANKING
Entity or any of their respective material Assets (including any FIRST
BANKING Entity becoming subject to or liable for the payment of any Tax or
any of the Assets owned by any FIRST BANKING Entity being reassessed or
revalued by any Taxing authority).
(c) Other than in connection or compliance with the provisions of the
Securities Laws, applicable state corporate and securities Laws, and rules
of the NASD, and other than Consents required from Regulatory Authorities,
and other than notices to or filings with the Internal Revenue Service or
the Pension Benefit Guaranty Corporation with respect to any employee
benefit plans, or under the HSR Act, and other than Consents, filings, or
notifications which, if not obtained or made, are not reasonably likely to
have, individually or in the aggregate, a FIRST BANKING Material Adverse
Effect, no notice to, filing with, or Consent of, any public body or
authority is necessary for the consummation by FIRST BANKING of the Merger
and the other transactions contemplated in this Agreement.
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6.3 CAPITAL STOCK.
(a) The authorized capital stock of FIRST BANKING consists of
10,000,000 shares of FIRST BANKING Common Stock, of which 4,702,607 shares
are issued and outstanding as of the date of this Agreement. All of the
issued and outstanding shares of FIRST BANKING Capital Stock are, and all
of the shares of FIRST BANKING Common Stock to be issued in exchange for
shares of WAYNE Common Stock upon consummation of the Merger, when issued
in accordance with the terms of this Agreement, will be, duly and validly
issued and outstanding and fully paid and nonassessable under the GBCC.
None of the outstanding shares of FIRST BANKING Capital Stock has been, and
none of the shares of FIRST BANKING Common Stock to be issued in exchange
for shares of WAYNE Common Stock upon consummation of the Merger will be,
issued in violation of any preemptive rights of the current or past
shareholders of FIRST BANKING.
(b) Except as set forth in Section 6.3(a), or as disclosed in Section
6.3 of the FIRST BANKING Disclosure Memorandum, there are no shares of
capital stock or other equity securities of FIRST BANKING outstanding and
no outstanding Equity Rights relating to the capital stock of FIRST
BANKING.
6.4 FIRST BANKING SUBSIDIARIES. FIRST BANKING has disclosed in Section 6.4
of the FIRST BANKING Disclosure Memorandum all of the FIRST BANKING Subsidiaries
that are corporations (identifying its jurisdiction of incorporation, each
jurisdiction in which the character of its Assets or the nature or conduct of
its business requires it to be qualified and/or licensed to transact business,
and the number of shares owned and percentage ownership interest represented by
such share ownership) and all of the FIRST BANKING Subsidiaries that are general
or limited partnerships, limited liability companies, or other non-corporate
entities (identifying the Law under which such entity is organized, each
jurisdiction in which the character of its Assets or the nature or conduct of
its business requires it to be qualified and/or licensed to transact business,
and the amount and nature of the ownership interest therein). Except as
disclosed in Section 6.4 of the FIRST BANKING Disclosure Memorandum, FIRST
BANKING or one of its wholly-owned Subsidiaries owns all of the issued and
outstanding shares of capital stock (or other equity interests) of each FIRST
BANKING Subsidiary. No capital stock (or other equity interest) of any FIRST
BANKING Subsidiary are or may become required to be issued (other than to
another FIRST BANKING Entity) by reason of any Equity Rights, and there are no
Contracts by which any FIRST BANKING Subsidiary is bound to issue (other than to
another FIRST BANKING Entity) additional shares of its capital stock (or other
equity interests) or Equity Rights or by which any FIRST BANKING Entity is or
may be bound to transfer any shares of the capital stock (or other equity
interests) of any FIRST BANKING Subsidiary (other than to another FIRST BANKING
Entity). There are no Contracts relating to the rights of any FIRST BANKING
Entity to vote or to dispose of any shares of the capital stock (or other equity
interests) of any FIRST BANKING Subsidiary. All of the shares of capital stock
(or other equity interests) of each FIRST BANKING Subsidiary held by a FIRST
BANKING Entity are fully paid and nonassessable under the applicable corporation
Law of the jurisdiction in which such Subsidiary is incorporated or organized
and are owned by the FIRST BANKING Entity free and clear of any Lien. Each FIRST
BANKING Subsidiary is either a bank, savings association or a corporation, and
is duly organized, validly existing, and (as to corporations) in good standing
under the Laws of the jurisdiction in which it is incorporated or organized, and
has the corporate power and authority necessary for it to own, lease and operate
its Assets and to carry on its business as now conducted. Each FIRST BANKING
Subsidiary is duly qualified or licensed to transact business as a foreign
corporation in good standing in the States of the United States and foreign
jurisdictions where the character of its Assets or the nature or conduct of its
business requires it to be so qualified or licensed, except for such
jurisdictions
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in which the failure to be so qualified or licensed is not reasonably likely to
have, individually or in the aggregate, a FIRST BANKING Material Adverse Effect.
Each FIRST BANKING Subsidiary that is a depository institution is an "insured
institution" as defined in the Federal Deposit Insurance Act and applicable
regulations thereunder. The minute book and other organizational documents for
each FIRST BANKING Subsidiary have been made available to WAYNE for its review,
and, except as disclosed in Section 6.4 of the FIRST BANKING Disclosure
Memorandum, are true and complete in all material respects as in effect as of
the date of this Agreement and accurately reflect in all material respects all
amendments thereto and all proceedings of the Board of Directors and
shareholders thereof.
6.5 SEC FILINGS, FINANCIAL STATEMENTS.
(a) FIRST BANKING has timely filed and made available to WAYNE all SEC
Documents required to be filed by FIRST BANKING since December 31, 1995
(the "FIRST BANKING SEC Reports"). The FIRST BANKING SEC Reports (i) at the
time filed complied in all material respects with the applicable
requirements of the Securities Laws and other applicable Laws and (ii) did
not, at the time they were filed (or, if amended or superseded by a filing
prior to the date of this Agreement, then on the date of such filing)
contain any untrue statement of a material fact or omit to state a material
fact required to be stated in such FIRST BANKING SEC Reports or necessary
in order to make the statements in such FIRST BANKING SEC Reports, in light
of the circumstances under which they were made, not misleading. No FIRST
BANKING Subsidiary is required to file any SEC Documents.
(b) Each of the FIRST BANKING Financial Statements (including, in each
case, any related notes) contained in the FIRST BANKING SEC Reports,
including any FIRST BANKING SEC Reports filed after the date of this
Agreement until the Effective Time, complied as to form in all material
respects with the applicable published rules and regulations of the SEC
with respect thereto, was prepared in accordance with GAAP applied on a
consistent basis throughout the periods involved (except as may be
indicated in the notes to such financial statements or, in the case of
unaudited interim statements, as permitted by Form 10-Q of the SEC), and
fairly presented in all material respects the consolidated financial
position of FIRST BANKING and its Subsidiaries as at the respective dates
and the consolidated results of operations and cash flows for the periods
indicated, except that the unaudited interim financial statements were or
are subject to normal and recurring year-end adjustments which were not or
are not expected to be material in amount or effect.
6.6 ABSENCE OF UNDISCLOSED LIABILITIES. No FIRST BANKING Entity has any
Liabilities that are reasonably likely to have, individually or in the
aggregate, a FIRST BANKING Material Adverse Effect, except Liabilities which are
accrued or reserved against in the consolidated balance sheets of FIRST BANKING
as of December 31, 1997 and September 30, 1998, included in the FIRST BANKING
Financial Statements delivered prior to the date of this Agreement or reflected
in the notes thereto. No FIRST BANKING Entity has incurred or paid any Liability
since September 30, 1998, except for such Liabilities incurred or paid (i) in
the ordinary course of business consistent with past business practice and which
are not reasonably likely to have, individually or in the aggregate, a FIRST
BANKING Material Adverse Effect or (ii) in connection with the transactions
contemplated by this Agreement.
6.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Since December 31, 1997, except
as disclosed in the FIRST BANKING Financial Statements delivered prior to the
date of this Agreement or as disclosed in Section 6.7 of the FIRST BANKING
Disclosure Memorandum, (i) there have been no events, changes or occurrences
which have had, or are reasonably likely to have, individually or in the
aggregate, a FIRST BANKING Material Adverse Effect, and (ii) the FIRST BANKING
Entities
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have not taken any action, or failed to take any action, prior to the date of
this Agreement, which action or failure, if taken after the date of this
Agreement, would represent or result in a material breach or violation of any of
the covenants and agreements of FIRST BANKING provided in Article 7.
6.8 TAX MATTERS.
(a) All Tax Returns required to be filed by or on behalf of any of the
FIRST BANKING Entities have been timely filed or requests for extensions
have been timely filed, granted, and have not expired for periods ended on
or before December 31, 1997, and on or before the date of the most recent
fiscal year end immediately preceding the Effective Time, except to the
extent that all such failures to file, taken together, are not reasonably
likely to have a FIRST BANKING Material Adverse Effect, and all Tax Returns
filed are complete and accurate in all material respects. All Taxes shown
on filed Tax Returns have been paid. There is no audit examination,
deficiency, or refund Litigation with respect to any Taxes that is
reasonably likely to result in a determination that would have,
individually or in the aggregate, a FIRST BANKING Material Adverse Effect,
except as reserved against in the FIRST BANKING Financial Statements
delivered prior to the date of this Agreement or as disclosed in Section
6.8 of the FIRST BANKING Disclosure Memorandum. All Taxes and other
Liabilities due with respect to completed and settled examinations or
concluded Litigation have been paid. There are no Liens with respect to
Taxes upon any of the Assets of the FIRST BANKING Entities, except for any
such Liens which are not reasonably likely to have a FIRST BANKING Material
Adverse Effect or with respect to which the Taxes are not vet due and
payable.
(b) None of the FIRST BANKING Entities has executed an extension or
waiver of any statute of limitations on the assessment or collection of any
Tax due (excluding such statutes that relate to veers currently under
examination by the Internal Revenue Service or other applicable taxing
authorities) that is currently in effect.
(c) The provision for any Taxes due or to become due for any of the
FIRST BANKING Entities for the period or periods through and including the
date of the respective FIRST BANKING Financial Statements that has been
made and is reflected on such FIRST BANKING Financial Statements is
sufficient to cover all such Taxes.
(d) Deferred Taxes of the FIRST BANKING Entities have been provided
for in accordance with GAAP.
(e) None of the FIRST BANKING Entities is a party to any Tax
allocation or sharing agreement and none of the FIRST BANKING Entities has
been a member of an affiliated group filing a consolidated federal income
Tax Return (other than a group the common parent of which was FIRST
BANKING) or has any Liability for Taxes of any Person (other than FIRST
BANKING and its Subsidiaries) under Treasury Regulation Section 1.1502-6
(or any similar provision of state, local or foreign, Law) as a transferee
or successor or by Contract or otherwise.
(f) Each of the FIRST BANKING Entities is in compliance with, and its
records contain all information and documents (including properly completed
IRS Forms W-9) necessary to comply with, all applicable information
reporting and Tax withholding requirements under federal, state, and local
Tax Laws, and such records identify with specificity all accounts subject
to backup withholding under Section 3406 of the Internal Revenue Code,
except for such instances of noncompliance and such omissions as are not
reasonably likely to have, individually or in the aggregate, a FIRST
BANKING Material Adverse Effect.
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(g) Except as disclosed in Section 6.8 of the FIRST BANKING Disclosure
Memorandum, none of the FIRST BANKING Entities has made any payments, is
obligated to make any payments, or is a party to any Contract that could
obligate it to make any payments that would be disallowed as a deduction
under Sections 28OG or 162(m) of the Internal Revenue Code.
(h) There has not been an ownership change, as defined in Internal
Revenue Code Section 382(g), of the FIRST BANKING Entities that occurred
during or after any Taxable Period in which the FIRST BANKING Entities
incurred a net operating loss that carries over to any Taxable Period
ending after December 31, 1997.
(i) No FIRST BANKING Entity has or has had in any foreign country a
permanent establishment, as defined in any applicable tax treaty or
convention between the United States and such foreign country.
(j) All material elections with respect to Taxes affecting the FIRST
BANKING Entities have been or will be timely made.
6.9 ALLOWANCE FOR POSSIBLE LOAN LOSSES. The Allowance shown on the
consolidated balance sheets of FIRST BANKING included in the most recent FIRST
BANKING Financial Statements dated prior to the date of this Agreement was, and
the Allowance shown on the consolidated balance sheets of FIRST BANKING included
in the FIRST BANKING Financial Statements as of dates subsequent to the
execution of this Agreement will be, as of the dates thereof, adequate (within
the meaning of GAAP and applicable regulatory requirements or guidelines) to
provide for all known or reasonably anticipated losses relating to or inherent
in the loan and lease portfolios (including accrued interest receivables) of the
FIRST BANKING Entities and other extensions of credit (including letters of
credit and commitments to make loans or extend credit) by the FIRST BANKING
Entities as of the dates thereof, except where the failure of such Allowance to
be so adequate is not reasonably likely to have a FIRST BANKING Material Adverse
Effect.
6.10 ASSETS.
(a) Except as disclosed in Section 6.10 of the FIRST BANKING
Disclosure Memorandum or as disclosed or reserved against in the FIRST
BANKING Financial Statements delivered prior to the date of this Agreement,
the FIRST BANKING Entities have good and marketable title, free and clear
of all Liens, to all of their respective Assets, except for any such Liens
or other defects of title which are not reasonably likely to have a FIRST
BANKING Material Adverse Effect. All tangible properties used in the
businesses of the FIRST BANKING Entities are in good condition, reasonable
wear and tear excepted, and are usable in the ordinary course of business
consistent with FIRST BANKING's past practices.
(b) All Assets which are material to FIRST BANKING's business on a
consolidated basis, held under leases or subleases by any of the FIRST
BANKING Entities, are held under valid Contracts enforceable in accordance
with their respective terms (except as enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium, or other
Laws affecting the enforcement of creditors' rights generally and except
that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which
any proceedings may be brought), and each such Contract is in full force
and effect.
(c) The FIRST BANKING Entities currently maintain insurance similar in
amounts, scope and coverage to that maintained by other peer banking
organizations. None of the FIRST BANKING Entities has received notice from
any insurance carrier that (i) any policy of insurance will be cancelled or
that coverage thereunder will be reduced or eliminated, or (ii) premium
costs with respect to such policies of insurance will be substantially
increased.
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There are presently no claims for amounts exceeding in any individual case
$25,000 pending under such policies of insurance and no notices of claims
in excess of such amounts have been given by any FIRST BANKING Entity under
such policies.
(d) The Assets of the FIRST BANKING Entities include all Assets
required to operate the business of the FIRST BANKING Entities as presently
conducted.
6.11 INTELLECTUAL PROPERTY. Each FIRST BANKING Entity owns or has a
license to use all of the Intellectual Property used by such FIRST BANKING
Entity in the course of its business. Each FIRST BANKING Entity is the owner of
or has a license to any Intellectual Property sold or licensed to a third party
by such FIRST BANKING Entity in connection with such FIRST BANKING Entity's
business operations, and such FIRST BANKING Entity has the right to convey by
sale or license any Intellectual Property so conveyed. No FIRST BANKING Entity
is in Default under any of its Intellectual Property licenses. No proceedings
have been instituted, or are pending or to the Knowledge of FIRST BANKING
threatened, which challenge the rights of any FIRST BANKING Entity with respect
to Intellectual Property used, sold or licensed by such FIRST BANKING Entity in
the course of its business, nor has any person claimed or alleged any rights to
such Intellectual Property. The conduct of the business of the FIRST BANKING
Entities does not infringe any Intellectual Property of any other person. Except
as disclosed in Section 6.11 of the FIRST BANKING Disclosure Memorandum, no
FIRST BANKING Entity is obligated to pay any recurring royalties to any Person
with respect to any such Intellectual Property. Except as disclosed in Section
6.11 of the FIRST BANKING Disclosure Memorandum, no officer, director or
employee of any FIRST BANKING Entity is party to any Contract which restricts or
prohibits such officer, director or employee from engaging in activities
competitive with any Person, including any FIRST BANKING Entity.
6.12 ENVIRONMENTAL MATTERS.
(a) To the Knowledge of FIRST BANKING, each FIRST BANKING Entity, its
Participation Facilities, and its Operating Properties are, and have been,
in compliance with all Environmental Laws, except for violations which are
not reasonably likely to have, individually or in the aggregate, a FIRST
BANKING Material Adverse Effect.
(b) There is no Litigation pending or, to the Knowledge of FIRST
BANKING, threatened before any court, governmental agency, or authority or
other forum in which any FIRST BANKING Entity or any of its Operating
Properties or Participation Facilities (or FIRST BANKING in respect of such
Operating Property or Participation Facility) has been or, with respect to
threatened Litigation, may be named as a defendant (i) for alleged
noncompliance (including by any predecessor) with any Environmental Law or
(ii) relating to the emission, migration, release, discharge, spillage, or
disposal into the environment of any Hazardous Material, whether or not
occurring at, on, under, adjacent to, or affecting (or potentially
affecting) a site owned, leased, or operated by any FIRST BANKING Entity or
any of its Operating Properties or Participation Facilities or any
neighboring property, except for such Litigation pending or threatened that
is not reasonably likely to have, individually or in the aggregate, a FIRST
BANKING Material Adverse Effect, nor is there any reasonable basis for any
Litigation of a type described in this sentence, except such as is not
reasonably likely to have, individually or in the aggregate, a FIRST
BANKING Material Adverse Effect.
(c) During the period of (i) any FIRST BANKING Entity's ownership or
operation of any of their respective current properties, (ii) any FIRST
BANKING Entity's participation in the management of any Participation
Facility or any Operating Property, there have been no emissions,
migrations, releases, discharges, spillages, or disposals of Hazardous
Material in, on,
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at, under, adjacent to, or affecting (or potentially affecting) such
properties or any neighboring properties, except such as are not reasonably
likely to have, individually or in the aggregate, a FIRST BANKING Material
Adverse Effect. Prior to the period of (i) any FIRST BANKING Entity's
ownership or operation of any of their respective current properties, (ii)
any FIRST BANKING Entity's participation in the management of any
Participation Facility or any Operating Property, to the Knowledge of FIRST
BANKING, there were no releases, discharges, spillages, or disposals of
Hazardous Material in, on, under, or affecting any such property,
Participation Facility or Operating Property, except such as are not
reasonably likely to have, individually or in the aggregate, a FIRST
BANKING Material Adverse Effect.
6.13 COMPLIANCE WITH LAWS. Each FIRST BANKING Entity has in effect all
Permits necessary for it to own, lease or operate its material Assets and to
carry on its business as now conducted, except for those Permits the absence of
which are not reasonably likely to have, individually or in the aggregate, a
FIRST BANKING Material Adverse Effect, and there has occurred no Default under
any such Permit, other than Defaults which are not reasonably likely to have,
individually or in the aggregate, a FIRST BANKING Material Adverse Effect.
Except as disclosed in Section 6.13 of the FIRST BANKING Disclosure Memorandum,
none of the FIRST BANKING Entities:
(a) is in Default under any of the provisions of its Articles of
Incorporation or Bylaws (or other governing instruments); or
(b) is in Default under any Laws, Orders or Permits applicable to its
business or employees conducting its business, except for Defaults which
are not reasonably likely to, have, individually or in the aggregate, a
FIRST BANKING Material Adverse Effect; or
(c) since January 1, 1995, has received any notification or
communication from any agency or department of federal, state, or local
government or any Regulatory Authority or the staff thereof (i) asserting
that any FIRST BANKING Entity is not in compliance with any of the Laws or
Orders which such governmental authority or Regulatory Authority enforces,
where such noncompliance is reasonably likely to have, individually or in
the aggregate, a FIRST BANKING Material Adverse Effect, (ii) threatening to
revoke any Permits, the revocation of which is reasonably likely to have,
individually or in the aggregate, a FIRST BANKING Material Adverse Effect,
or (iii) requiring any FIRST BANKING Entity to enter into or consent to the
issuance of a cease and desist order, formal agreement, directive,
commitment or memorandum of understanding, or to adopt any Board resolution
or similar undertaking, which restricts materially the conduct of its
business, or in any manner relates to its capital adequacy, its credit or
reserve policies, its management, or the payment of dividends. Copies of
all material reports, correspondence, notices and other documents relating
to any inspection, audit, monitoring or other form of review or enforcement
action by a Regulatory Authority have been made available to WAYNE.
6.14 LABOR RELATIONS. No FIRST BANKING Entity is the subject of any
Litigation asserting that it or any other FIRST BANKING Entity has committed an
unfair labor practice (within the meaning of the National Labor Relations Act or
comparable state law) or seeking to compel it or any other FIRST BANKING Entity
to bargain with any labor organization as to wages or conditions of employment,
nor is any FIRST BANKING Entity party to any collective bargaining agreement,
nor is there any strike or other labor dispute involving any FIRST BANKING
Entity, pending or threatened, or to the Knowledge of FIRST BANKING, is there
any activity involving any FIRST BANKING Entity's employees seeking to certify a
collective bargaining unit or engaging in any other organization activity.
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6.15 EMPLOYEE BENEFIT PLANS.
(a) FIRST BANKING has disclosed in Section 6.15 of the FIRST BANKING
Disclosure Memorandum and has delivered or made available to WAYNE prior to
the execution of this Agreement copies in each case of all pension,
retirement, profit-sharing, deferred compensation, stock option, employee
stock ownership, severance pay, vacation, bonus, or other incentive plan,
all other written employee programs, arrangements, or agreements, all
medical, vision, dental, or other health plans, all life insurance plans,
and all other employee benefit plans or fringe benefit plans, including
"employee benefit plans" as that term is defined in Section 3(3) of ERISA,
currently adopted, maintained by, sponsored in whole or in part by, or
contributed to by any FIRST BANKING Entity or ERISA Affiliate thereof for
the benefit of employees, retirees, dependents, spouses, directors,
independent contractors, or other beneficiaries and under which employees,
retirees, dependents, spouses, directors, independent contractors, or other
beneficiaries are eligible to participate (collectively, the "FIRST BANKING
Benefit Plans"). Each FIRST BANKING Benefit Plan which is an "employee
pension benefit plan," as that term is defined in Section 3(2) of ERISA, is
referred to herein as a "FIRST BANKING ERISA Plan." Each FIRST BANKING
ERISA Plan which is also a "defined benefit plan" (as defined in Section
4140) of the Internal Revenue Code) is referred to herein as a "FIRST
BANKING Pension Plan." No FIRST BANKING Pension Plan is or has been a
multiemployer plan within the meaning of Section 3(37) of ERISA.
(b) All FIRST BANKING Benefit Plans are in compliance with the
applicable terms of ERISA, the Internal Revenue Code, and any other
applicable Laws the breach or violation of which are reasonably likely to
have, individually or in the aggregate, a FIRST BANKING Material Adverse
Effect. Each FIRST BANKING ERISA Plan which is intended to be qualified
under Section 401(a) of the Internal Revenue Code has received a favorable
determination letter from the Internal Revenue Service, and FIRST BANKING
is not aware of any circumstances likely to result in revocation of any
such favorable determination letter. To the Knowledge of First Banking, no
FIRST BANKING Entity has engaged in a transaction with respect to any FIRST
BANKING Benefit Plan that, assuming the taxable period of such transaction
expired as of the date hereof, would subject any FIRST BANKING Entity to a
Tax imposed by either Section 4975 of the Internal Revenue Code or Section
502(i) of ERISA in amounts which are reasonably likely to have,
individually or in the aggregate, a FIRST BANKING Material Adverse Effect.
(c) No FIRST BANKING Pension Plan has any "unfunded current
liability," as that term is defined in Section 302(d)(8)(A) of ERISA, based
on actuarial assumptions set forth for such plan's most recent actuarial
valuation. Since the date of the most recent actuarial valuation, there has
been (i) no material change in the financial position of a FIRST BANKING
Pension Plan, (ii) no change in the actuarial assumptions with respect to
any FIRST BANKING Pension Plan, and (iii) no increase in benefits under any
FIRST BANKING Pension Plan as a result of plan amendments or changes in
applicable Law which is reasonably likely to have, individually or in the
aggregate, a FIRST BANKING Material Adverse Effect or materially adversely
affect the funding status of any such plan. Neither any FIRST BANKING
Pension Plan nor any "single-employer plan," within the meaning of Section
4001(a)(15) of ERISA, currently or formerly maintained by any FIRST BANKING
Entity, or the single-employer plan of any ERISA Affiliate has an
"accumulated funding deficiency" within the meaning of Section 412 of the
Internal Revenue Code or Section 302 of ERISA, which is reasonably likely
to have a FIRST BANKING Material Adverse Effect. No FIRST BANKING Entity
has provided, or is required to provide, security to a FIRST BANKING
Pension Plan or to any
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single-employer plan of an ERISA Affiliate pursuant to Section 40 1 (a)(29)
of the Internal Revenue Code.
(d) Within the six-year period preceding the Effective Time, no
Liability under Subtitle C or D of Title IV of ERISA has been or is
expected to be incurred by any FIRST BANKING Entity with respect to any
ongoing, frozen or terminated single-employer plan or the single-employer
plan of any ERISA Affiliate, which Liability is reasonably likely to have a
FIRST BANKING Material Adverse Effect. No FIRST BANKING Entity has incurred
any withdrawal Liability with respect to a multiemployer plan under
Subtitle B of Title IV of ERISA (regardless of whether based on
contributions of an ERISA Affiliate), which Liability is reasonably likely
to have a FIRST BANKING Material Adverse Effect. No notice of a "reportable
event," within the meaning of Section 4043 of ERISA for which the 30-day
reporting requirement has not been waived, has been required to be filed
for any FIRST BANKING Pension Plan or by any ERISA Affiliate within the
12-month period ending on the date hereof.
(e) Except as disclosed in Section 6.15 of the FIRST BANKING
Disclosure Memorandum, no FIRST BANKING Entity has any Liability for
retiree health and life benefits under any of the FIRST BANKING Benefit
Plans and there are no restrictions on the rights of such FIRST BANKING
Entity to amend or terminate any such retiree health or benefit Plan
without incurring any Liability thereunder, which Liability is reasonably
likely to have a FIRST BANKING Material Adverse Effect.
(f) Except as disclosed in Section 6.15 of the FIRST BANKING
Disclosure Memorandum, neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will (i)
result in any payment (including severance, unemployment compensation,
golden parachute, or otherwise) becoming due to any director or any
employee of any FIRST BANKING Entity from any FIRST BANKING Entity under
any FIRST BANKING Benefit Plan or otherwise, (ii) increase any benefits
otherwise payable under any FIRST BANKING Benefit Plan, or (iii) result in
any acceleration of the time of payment or vesting of any such benefit,
where such payment, increase, or acceleration is reasonably likely to have,
individually or in the aggregate, a FIRST BANKING Material Adverse Effect.
(g) The actuarial present values of all accrued deferred compensation
entitlements (including entitlements under any executive compensation,
supplemental retirement, or employment agreement) of employees and former
employees of any FIRST BANKING Entity and their respective beneficiaries,
other than entitlements accrued pursuant to funded retirement plans subject
to the provisions of Section 412 of the Internal Revenue Code or Section
302 of ERISA, have been fully reflected on the FIRST BANKING Financial
Statements to the extent required by and in accordance with GAAP.
6.16 MATERIAL CONTRACTS. Except as disclosed in Section 6.16 of the FIRST
BANKING Disclosure Memorandum or otherwise reflected in the FIRST BANKING
Financial Statements, none of the FIRST BANKING Entities, nor any of their
respective Assets, businesses, or operations, is a party to, or is bound or
affected by, or receives benefits under, (i) any employment, severance,
termination, consulting or retirement Contract providing for aggregate payments
to any Person in any calendar year in excess of $50,000, (ii) any Contract
relating to the borrowing of money by any FIRST BANKING Entity or the guarantee
by any FIRST BANKING Entity of any such obligation (other than Contracts
evidencing deposit liabilities, purchases of federal funds, fully-secured
repurchase agreements, and Federal Home Loan Bank advances of depository
institution Subsidiaries, trade payables and Contracts relating to borrowings or
guarantees made in the ordinary course of business), (iii) any Contract which
prohibits or restricts any FIRST BANKING Entity from
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engaging in any business activities in any geographic area, line of business or
otherwise in competition with any other Person, (iv) any Contract between or
among FIRST BANKING Entities, (v) any Contract relating to the provision of data
processing, network communication, or other technical services to or by any
FIRST BANKING Entity, (vi) any exchange-traded or over-the-counter swap,
forward, future, option, cap, floor, or collar financial Contract, or any other
interest rate or foreign currency protection Contract not included on its
balance sheet which is a financial derivative Contract, or (vii) any other
Contract or amendment thereto that would be required to be filed as an exhibit
to a Form 10-K filed by FIRST BANKING with the SEC as of the date of this
Agreement that has not been filed as an exhibit to FIRST BANKING's Form 10-K
filed for the fiscal year ended December 31, 1997, or in an SEC Document and
identified to FIRST BANKING (together with all Contracts referred to in Sections
6.10 and 6.15(a), the "FIRST BANKING Contracts"). With respect to each FIRST
BANKING Contract and except as disclosed in Section 6.16 of the FIRST BANKING
Disclosure Memorandum: (i) the Contract is in full force and effect; (ii) no
FIRST BANKING Entity is in Default thereunder, other than Defaults which are not
reasonably likely to have, individually or in the aggregate, a FIRST BANKING
Material Adverse Effect; (iii) no FIRST BANKING Entity has repudiated or waived
any material provision of any such Contract; and (iv) no other party to any such
Contract is, to the Knowledge of FIRST BANKING, in Default in any respect, other
than Defaults which are not reasonably likely to have, individually or in the
aggregate, a FIRST BANKING Material Adverse Effect, or has repudiated or waived
any material provision thereunder. All of the indebtedness of any FIRST BANKING
Entity for money borrowed is prepayable at any time by such FIRST BANKING Entity
without penalty or premium.
6.17 LEGAL PROCEEDINGS. There is no Litigation instituted or pending or,
to the Knowledge of FIRST BANKING, threatened (or unasserted but considered
probable of assertion and which if asserted would have at least a reasonable
probability of an unfavorable outcome) against any FIRST BANKING Entity, or
against any director, employee or employee benefit plan of any FIRST BANKING
Entity, or against any Asset, interest, or right of any of them, that is
reasonably likely to have, individually or in the aggregate, a FIRST BANKING
Material Adverse Effect, nor are there any Orders of any Regulatory Authorities,
other governmental authorities, or arbitrators outstanding against any FIRST
BANKING Entity, that are reasonably likely to have, individually or in the
aggregate, a FIRST BANKING Material Adverse Effect. Section 6.17 of the FIRST
BANKING Disclosure Memorandum contains a summary of all Litigation as of the
date of this Agreement to which any FIRST BANKING Entity is a party and which
names a FIRST BANKING Entity as a defendant or cross-defendant or for which any
FIRST BANKING Entity has any potential Liability.
6.18 REPORTS. Since January 1, 1995, each FIRST BANKING Entity has timely
filed all reports and statements, together with any amendments required to be
made with respect thereto, that it was required to file with Regulatory
Authorities (except, in the case of state securities authorities, failures to
file which are not reasonably likely to have, individually or in the aggregate,
a FIRST BANKING Material Adverse Effect). As of their respective dates, each of
such reports and documents, including the financial statements, exhibits, and
schedules thereto, complied in all material respects with all applicable Laws.
As of its respective date, each such report and document did not, in all
material respects, contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. Since January 1, 1995, no FIRST BANKING Entity has not
filed any Suspicious Activity Report or any claim under any fidelity, blanket
bond, general liability, errors and omissions, directors and officers or other
insurance policies that pertain to the operations of its business or the
ownership of its assets.
6.19 STATEMENTS TRUE AND CORRECT. No statement, certificate, instrument or
other writing furnished or to be furnished by any FIRST BANKING Entity to WAYNE
pursuant to this
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Agreement or any other document, agreement or instrument referred to herein
contains or will contain any untrue statement of material fact or will omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. None of the
information supplied or to be supplied by any FIRST BANKING Entity for inclusion
in the Registration Statement to be filed by FIRST BANKING with the SEC, will,
when such Registration Statement becomes effective, be false or misleading with
respect to any material fact, or omit to state any material fact necessary to
make the statements therein not misleading. None of the documents to be filed by
any FIRST BANKING Entity with the SEC or any other Regulatory Authority in
connection with the transactions contemplated hereby, will, at the respective
time such documents are filed, be false or misleading with respect to any
material fact, or omit to state any material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. All documents that any FIRST BANKING Entity thereof is
responsible for filing with any Regulatory Authority in connection with the
transactions contemplated hereby will comply as to form in all material respects
with the provisions of applicable Law.
6.20 ACCOUNTING, TAX AND REGULATORY MATTERS. No FIRST BANKING Entity has
taken or agreed to take any action or has any knowledge of any fact or
circumstance that is reasonably likely to (i) prevent the Merger from qualifying
for pooling of interests accounting treatment and as a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code, or (ii) materially
impede or delay receipt of any Consents of Regulatory Authorities referred to in
Section 9.l(b) or result in the imposition of a condition or restriction of the
type referred to in the last sentence of such Section.
6.21 CHARTER PROVISIONS. Each FIRST BANKING Entity has taken all action so
that the entering into of this Agreement and the consummation of the Merger and
the other transactions contemplated by this Agreement do not and will not result
in the grant of any rights to any Person under the Charter, Articles of
Incorporation, Bylaws or other governing instruments of any FIRST BANKING Entity
or restrict or impair the ability of FIRST BANKING or any of its Subsidiaries to
vote, or otherwise to exercise the rights of a shareholder with respect to,
shares of any FIRST BANKING Entity that may be directly or indirectly acquired
or controlled by them.
6.22 BOARD RECOMMENDATION. The Board of Directors of FIRST BANKING, at a
meeting duly called and held, has by unanimous vote of those directors present
(who constituted all of the directors then in office) determined that this
Agreement and the transactions contemplated hereby, including the Merger, taken
together, are fair to and in the best interests of the FIRST BANKING
shareholders.
6.23 Y2K. Each FIRST BANKING Entity is in compliance with all policies and
directives issued by Regulatory Authorities with respect to preparedness for
year 2000 data processing and other operations. Section 6.23 of the FIRST
BANKING Disclosure Memorandum sets forth a summary of the steps taken by FIRST
BANKING to ensure such compliance.
ARTICLE 7.
CONDUCT OF BUSINESS PENDING CONSUMMATION
7.1 AFFIRMATIVE COVENANTS OF WAYNE. From the date of this Agreement until
the earlier of the Effective Time or the termination of this Agreement, unless
the prior written consent of FIRST BANKING shall have been obtained, and except
as otherwise expressly contemplated herein, WAYNE shall, and shall cause each of
its Subsidiaries to (a) operate its business only in the usual, regular, and
ordinary course, (b) preserve intact its business organization and Assets and
maintain its
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rights and franchises, and (c) take no action which would (i) materially
adversely affect the ability of any Party to obtain any Consents required for
the transactions contemplated hereby without imposition of a condition or
restriction of the type referred to in the last sentences of Section 9.1(b) or
9.1(c), or (ii) materially adversely affect the ability of any Party to perform
its covenants and agreements under this Agreement.
7.2 NEGATIVE COVENANTS OF WAYNE. From the date of this Agreement until the
earlier of the Effective Time or the termination of this Agreement, unless the
prior written consent of FIRST BANKING shall have been obtained, and except as
otherwise expressly contemplated herein, WAYNE covenants and agrees that it will
not do or agree or commit to do, or permit any of its Subsidiaries to do or
agree or commit to do, any of the following:
(a) amend the Articles of Incorporation, Bylaws or other governing
instruments of any WAYNE entity, or
(b) incur any additional debt obligation or other obligation for
borrowed money (other than indebtedness of a WAYNE Entity to another WAYNE
Entity) in excess of an aggregate of $100,000 (for WAYNE Entities on a
consolidated basis) except in the ordinary course of the business of the
WAYNE Subsidiaries consistent with past practices (which shall include, for
the WAYNE Subsidiaries that are depository institutions, creation of
deposit liabilities, purchases of federal funds, advances from the Federal
Reserve Bank or Federal Home Loan Bank, and entry into repurchase
agreements fully secured by U.S. government or agency securities), or
impose, or suffer the imposition, on any Asset of any WAYNE Entity of any
Lien or permit any such Lien to exist (other than in connection with
deposits, repurchase agreements, bankers acceptances, "treasury tax and
loan" accounts established in the ordinary course of business, the
satisfaction of legal requirements in the exercise of trust powers, and
Liens in effect as of the date hereof that are disclosed in Section 7.2(b)
of the WAYNE Disclosure Memorandum); or
(c) repurchase, redeem, or otherwise acquire or exchange (other than
exchanges in the ordinary course under employee benefit plans), directly or
indirectly, any shares, or any securities convertible into any shares, of
the capital stock of any WAYNE Entity, or, except as set forth in Section
7.2(c) of the WAYNE Disclosure Memorandum, declare or pay any dividend or
make any other distribution in respect of WAYNE's capital stock; or
(d) except for this Agreement, or pursuant to the exercise of warrants
outstanding as of the date hereof and pursuant to the terms thereof in
existence on the date hereof, or as disclosed in Section 7.2(d) of the
WAYNE Disclosure Memorandum, issue, sell, pledge, encumber, authorize the
issuance of, enter into any Contract to issue, sell, pledge, encumber, or
authorize the issuance of, or otherwise permit to become outstanding, any
additional shares of WAYNE Common Stock or any other capital stock of any
WAYNE Entity, or any stock appreciation rights, or any option, warrant, or
other Equity Right; or
(e) adjust, split, combine or reclassify any capital stock of any
WAYNE Entity or issue or authorize the issuance of any other securities in
respect of or in substitution for shares of WAYNE Common Stock, or sell,
lease, mortgage or otherwise dispose of or otherwise encumber any Asset
having a book value in excess of $100,000 other than in the ordinary course
of business for reasonable and adequate consideration or any shares of
capital stock of any WAYNE Subsidiary (unless any such shares of stock are
sold or otherwise transferred to another WAYNE Entity); or
(f) except for loans made in the ordinary course of its business, make
any material investment, either by purchase of stock or securities,
contributions to capital, Asset transfers, or purchase of any Assets, in
any Person other than a wholly owned WAYNE Subsidiary, or
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otherwise acquire direct or indirect control over any Person, other than in
connection with (i) foreclosures in the ordinary course of business, (ii)
acquisitions of control by a depository institution Subsidiary in its
fiduciary capacity, or (iii) the creation of new wholly owned Subsidiaries
organized to conduct or continue activities otherwise permitted by this
Agreement; or
(g) grant any increase in compensation or benefits to the employees or
officers of any WAYNE Entity, except in accordance with past practice
specifically disclosed in Section 7.2(g) of the WAYNE Disclosure Memorandum
or as required by Law; pay any severance or termination pay or any bonus
other than pursuant to written policies or written Contracts in effect on
the date of this Agreement and disclosed in Section 7.2(g) of the WAYNE
Disclosure Memorandum; and enter into or amend any severance agreements
with officers of any WAYNE Entity; grant any material increase in fees or
other increases in compensation or other benefits to directors of any WAYNE
Entity except in accordance with past practice disclosed in Section 7.2(g)
of the WAYNE Disclosure Memorandum; or voluntarily accelerate the vesting
of any stock options or other stock-based compensation or employee benefits
or other Equity Rights; or
(h) enter into or amend any employment Contract between any WAYNE
Entity and any Person having a salary thereunder in excess of $50,000 per
year (unless such amendment is required by Law) that the WAYNE Entity does
not have the unconditional right to terminate without Liability (other than
Liability for services already rendered), at any time on or after the
Effective Time; or
(i) adopt any new employee benefit plan of any WAYNE Entity or
terminate or withdraw from, or make any material change in or to, any
existing employee benefit plans of any WAYNE Entity other than any such
change that is required by Law or that, in the opinion of counsel, is
necessary or advisable to maintain the tax qualified status of any such
plan, or make any distributions from such employee benefit plans, except as
required by Law, the terms of such plans or consistent with past practice;
or
(j) make any significant change in any Tax or accounting methods or
systems of internal accounting controls, except as may be appropriate to
conform to changes in Tax Laws or regulatory accounting requirements or
GAAP; or
(k) commence any Litigation other than in accordance with past
practice or except as set forth in Section 7.2(k) of the WAYNE Disclosure
Memorandum, settle any Litigation involving any Liability of any WAYNE
Entity for material money damages or restrictions upon the operations of
any WAYNE Entity; or
(l) except in the ordinary course of business, enter into, modify,
amend or terminate any material Contract (including any loan Contract with
an unpaid balance exceeding $50,000) or waive, release, compromise or
assign any material rights or claims.
7.3 AFFIRMATIVE COVENANTS OF FIRST BANKING. From the date of this
Agreement until the earlier of the Effective Time or the termination of this
Agreement, unless the prior written consent of WAYNE shall have been obtained,
and except as otherwise expressly contemplated herein, FIRST BANKING shall and
shall cause each of its Subsidiaries to (a) operate its business only in the
usual, regular, and ordinary course, (b) preserve intact its business
organization and Assets and maintain its rights and franchises, and (c) take no
action which would (i) materially adversely affect the ability of any Party to
obtain any Consents required for the transactions contemplated hereby without
imposition of a condition or restriction of the type referred to in the last
sentences of
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Section 9.1(b) or 9.1(c), or (ii) materially adversely affect the ability of any
Party to perform its covenants and agreements under this Agreement.
7.4 NEGATIVE COVENANTS OF FIRST BANKING. From the date of this Agreement
until the earlier of the Effective Time or the termination of this Agreement,
unless the prior written consent of WAYNE shall have been obtained, and except
as otherwise expressly contemplated herein, FIRST BANKING covenants and agrees
that it will not amend the Articles of Incorporation or Bylaws of FIRST BANKING
in any manner adverse to the holders of WAYNE Common Stock, or take any action
which will materially adversely impact the ability of FIRST BANKING Entities to
consummate the transactions contemplated by this Agreement.
7.5 ADVERSE CHANGES IN CONDITION. Each of FIRST BANKING and WAYNE agrees
to give written notice promptly to the other upon becoming aware of the
occurrence or impending occurrence of any event or circumstance relating to it
or any of its Subsidiaries which (i) is reasonably likely to have, individually
or in the aggregate, a WAYNE Material Adverse Effect or a FIRST BANKING Material
Adverse Effect, as applicable, or (ii) would cause or constitute a material
breach of any of its representations, warranties, or covenants contained herein,
and to use its reasonable efforts to prevent or promptly to remedy the same.
7.6 REPORTS. Each of FIRST BANKING and WAYNE and their Subsidiaries shall
file all reports required to be filed by it with Regulatory Authorities between
the date of this Agreement and the Effective Time and shall deliver to the other
copies of all such reports promptly after the same are filed. If financial
statements are contained in any such reports filed with the SEC, such financial
statements will fairly present the consolidated financial position of the entity
filing such statements as of the dates indicated and the consolidated results of
operations, changes in shareholders' equity, and cash flows for the periods then
ended in accordance with GAAP (subject in the case of interim financial
statements to normal recurring year-end adjustments that are not material). As
of their respective dates, such reports filed with the SEC will comply in all
material respects with the Securities Laws and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. Any financial
statements contained in any other reports to another Regulatory Authority shall
be prepared in accordance with Laws applicable to such reports.
ARTICLE 8.
ADDITIONAL AGREEMENTS
8.1 REGISTRATION STATEMENT. As soon as practicable after execution of this
Agreement, FIRST BANKING shall prepare and file the Registration Statement with
the SEC, and shall use its reasonable efforts to cause the Registration
Statement to become effective under the 1933 Act and take any action required to
be taken under the applicable state Blue Sky or Securities Laws in connection
with the issuance of the shares of FIRST BANKING Common Stock upon consummation
of the Merger. WAYNE shall cooperate in the preparation and filing of the
Registration Statement and shall furnish all information concerning it and the
holders of its capital stock as FIRST BANKING may reasonably request in
connection with such action. FIRST BANKING and WAYNE shall make all necessary
filings with respect to the Merger under the Securities Laws.
8.2 NASDAQ LISTING. FIRST BANKING shall use its reasonable efforts to
list, prior to the Effective Time, on the Nasdaq National Market the shares of
FIRST BANKING Common Stock to be issued to the holders of WAYNE Common Stock
pursuant to the Merger, and FIRST
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BANKING shall give all notices and make all filings with the NASD required in
connection with the transactions contemplated herein.
8.3 SHAREHOLDER APPROVAL. WAYNE shall call a Shareholders' Meeting, to be
held as soon as reasonably practicable after the Registration Statement is
declared effective by the SEC, for the purpose of voting upon approval of this
Agreement and such other related matters as it deems appropriate. In connection
with the Shareholders' Meeting, the Board of Directors of WAYNE shall recommend
to its shareholders, subject to the conditions in such authorization and
recommendation by the Board of Directors, the approval of the matters submitted
for approval (subject to the Board of Directors of WAYNE, after having consulted
with and considered the advice of outside counsel, reasonably determining in
good faith that the making of such recommendation, or the failure to withdraw or
modify its recommendation, would constitute a breach of fiduciary duties of the
members of such Board of Directors to WAYNE's shareholders, under applicable
law), and the Board of Directors and officers of WAYNE shall use their
reasonable efforts to obtain such shareholders' approval (subject to the Board
of Directors of WAYNE, after having consulted with and considered the advice of
outside counsel, reasonably determining in good faith that the taking of such
actions would constitute a breach of fiduciary duties of the members of such
Board of Directors to the WAYNE shareholders, under applicable law).
8.4 APPLICATIONS. FIRST BANKING shall promptly prepare and file, and WAYNE
shall cooperate in the preparation and, where appropriate, filing of,
applications with all Regulatory Authorities having jurisdiction over the
transactions contemplated by this Agreement, including without limitation, the
Board of Governors of the Federal Reserve System and the Georgia Department of
Banking and Finance, seeking the requisite Consents necessary to consummate the
transactions contemplated by this Agreement. The Parties shall deliver to each
other copies of all filings, correspondence and orders to and from all
Regulatory Authorities in connection with the transactions contemplated hereby.
8.5 FILINGS WITH STATE OFFICES. Upon the terms and subject to the
conditions of this Agreement, FIRST BANKING shall cause to be filed the
Certificate of Merger with the Secretary of State of the State of Georgia.
8.6 AGREEMENT AS TO EFFORTS TO CONSUMMATE. Subject to the terms and
conditions of this Agreement, each Party agrees to use, and to cause its
Subsidiaries to use, its reasonable efforts to take, or cause to be taken, all
actions, and to do, or cause to be done, all things necessary, proper, or
advisable under applicable Laws to consummate and make effective, as soon as
reasonably practicable after the date of this Agreement, the transactions
contemplated by this Agreement, including using its reasonable efforts to lift
or rescind any Order adversely affecting its ability to consummate the
transactions contemplated herein and to cause to be satisfied the conditions
referred to in Article 9; provided, that nothing herein shall preclude either
Party from exercising its rights under this Agreement. Each Party shall use, and
shall cause each of its Subsidiaries to use, its reasonable efforts to obtain
all Consents necessary or desirable for the consummation of the transactions
contemplated by this Agreement. The parties agree to use reasonable efforts to
cause the Effective Date to occur prior to any record date set by FIRST BANKING
for the payment of any dividends in 1999 (such record date or dates in 1999
shall be referred to hereafter as the "1999 FIRST BANKING Record Date"). FIRST
BANKING agrees that, if the Effective Date does not occur prior to the 1999
FIRST BANKING Record Date, WAYNE will declare and pay a special dividend to its
shareholders as set forth in Section 7.2(c) of the WAYNE Disclosure Memorandum.
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8.7 INVESTIGATION AND CONFIDENTIALITY.
(a) Prior to the Effective Time, each Party shall keep the other Party
advised of all material developments relevant to its business and to
consummation of the Merger and shall permit the other Party to make or
cause to be made such investigation of the business and properties of it
and its Subsidiaries and of their respective financial and legal conditions
as the Party reasonably requests, provided that such investigation shall be
reasonably related to the transactions contemplated hereby, and shall not
interfere unnecessarily with normal operations. No investigation by a Party
shall affect the representations and warranties of any other Party.
(b) Each Party shall, and shall cause its advisers and agents to,
maintain the confidentiality of all confidential information furnished to
it by the other Party concerning its and its Subsidiaries' businesses,
operations, and financial positions and shall not use such information for
any purpose except in furtherance of the transactions contemplated by this
Agreement. If this Agreement is terminated prior to the Effective Time,
each Party shall promptly return or certify the destruction of all
documents and copies thereof, and all work papers containing confidential
information received from the other Party.
(c) Each Party shall use its reasonable efforts to exercise its rights
under confidentiality agreements entered into with Persons which were
considering an Acquisition Proposal with respect to such Party to preserve
the confidentiality of the information relating to such Party and its
Subsidiaries provided to such Persons and their Affiliates and
Representatives.
(d) Each Party agrees to give the other Party notice as soon as
practicable after any determination by it of any fact or occurrence
relating to the other Party which it has discovered through the course of
its investigation and which represents, or is reasonably likely to
represent, either a material breach of any representation, warranty,
covenant or agreement of the other Party or which has had or is reasonably
likely to have a WAYNE Material Adverse Effect or a FIRST BANKING Material
Adverse Effect, as applicable.
8.8 PRESS RELEASES. Prior to the Effective Time, WAYNE and FIRST BANKING
shall consult with each other as to the form and substance of any press release
or other public disclosure materially related to this Agreement or any other
transaction contemplated hereby; provided, that nothing in this Section 8.8
shall be deemed to prohibit any Party from making any disclosure which its
counsel deems necessary or advisable in order to satisfy such Party's disclosure
obligations imposed by Law.
8.9 CERTAIN ACTIONS. Except with respect to this Agreement and the
transactions contemplated hereby, no WAYNE Entity nor any Representatives
thereof retained by any WAYNE Entity shall directly or indirectly solicit any
Acquisition Proposal by any Person. Except to the extent the Board of Directors
of WAYNE, after having consulted with and considered the advice of outside
counsel, reasonably determines in good faith that the failure to take such
actions would constitute a breach of fiduciary duties of the members of such
Board of Directors to WAYNE's shareholders, under applicable Law, no WAYNE
Entity or Representative thereof shall furnish any non-public information that
it is not legally obligated to furnish, negotiate with respect to, or enter into
any Contract with respect to, any Acquisition Proposal, but WAYNE may
communicate information about such an Acquisition Proposal to its shareholders
if and to the extent that it is required to do so in order to comply with its
legal obligations. WAYNE shall promptly advise FIRST BANKING following the
receipt of any Acquisition Proposal and the details thereof, and advise FIRST
BANKING of any developments with respect to such Acquisition Proposal promptly
upon the occurrence thereof. WAYNE shall (i) immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any Persons
conducted heretofore with respect to any of the
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foregoing, and (ii) direct and use its reasonable efforts to cause its
Representatives not to engage in any of the foregoing.
8.10 ACCOUNTING AND TAX TREATMENT. Each of the Parties undertakes and
agrees to use its reasonable efforts to cause the Merger to, and to take no
action which would cause the Merger not to, qualify for pooling of interests
accounting treatment and as a "reorganization" within the meaning of Section
368(a) of the Internal Revenue Code for federal income tax purposes.
8.11 CHARTER PROVISIONS. Each Party shall take, and shall cause its
Subsidiaries to take, all necessary action to ensure that the entering into of
this Agreement and the consummation of the Merger and the other transactions
contemplated hereby do not and will not result in the grant of any rights to any
Person under the charter, articles of incorporation, bylaws or other governing
instruments of such Party or any of its Subsidiaries or restrict or impair the
ability of FIRST BANKING or any of its Subsidiaries to vote, or otherwise to
exercise the rights of a shareholder with respect to, shares of any WAYNE Entity
that may be directly or indirectly acquired by them.
8.12 AGREEMENTS OF AFFILIATES. WAYNE has disclosed in Section 8.12 of the
WAYNE Disclosure Memorandum each Person whom it reasonably believes is an
"affiliate" of WAYNE for purposes of Rule 145 under the 1933 Act. WAYNE shall
use its reasonable efforts to cause each such Person to deliver to FIRST BANKING
not later than 30 days after the date of this Agreement a written agreement,
substantially in the form of Exhibit 1, providing that such Person will not
sell, pledge, transfer, or otherwise dispose of the shares of the WAYNE Common
Stock held by such Person except as contemplated by such agreement or by this
Agreement and will not sell, pledge, transfer, or otherwise dispose of the
shares of FIRST BANKING Common Stock to be received by such Person upon
consummation of the Merger except in compliance with applicable provisions of
the 1933 Act and the rules and regulations thereunder and until such time as
financial results covering at least 30 days of combined operations of FIRST
BANKING and WAYNE have been published within the meaning of Section 201.01 of
the SEC's Codification of Financial Reporting Policies, except that transfers
may be made in compliance with Staff Accounting Bulletin No. 76 issued by the
SEC. Except for transfers made in compliance with Staff Accounting Bulletin No.
76, shares of FIRST BANKING Common Stock issued to such affiliates of WAYNE
shall not be transferable until such time as financial results covering at least
30 days of combined operations of FIRST BANKING and WAYNE have been published
within the meaning of Section 201.01 of the SEC's Codification of Financial
Reporting Policies, regardless of whether each such affiliate has provided the
written agreement referred to in this Section 8.12. FIRST BANKING shall be
entitled to place restrictive legends upon certificates for shares of FIRST
BANKING Common Stock issued to affiliates of WAYNE pursuant to this Agreement to
enforce the provisions of this Section 8.12. FIRST BANKING shall not be required
to maintain the effectiveness of the Registration Statement under the 1933 Act
for the purposes of resale of FIRST BANKING Common Stock by such affiliates.
8.13 EMPLOYEE BENEFITS AND CONTRACTS. Following the Effective Time, FIRST
BANKING shall either (i) continue to provide to officers and employees of the
WAYNE Entities employee benefits under WAYNE's existing employee benefit and
welfare plans or, (ii) if FIRST BANKING shall determine to provide to officers
and employees of the WAYNE Entities employee benefits under other employee
benefit plans and welfare plans, provide generally to officers and employees of
the WAYNE Entities employee benefits under employee benefit and welfare plans,
on terms and conditions which when taken as a whole are substantially similar to
those currently provided by the FIRST BANKING Entities to their similarly
situated officers and employees. For purposes of participation and vesting (but
not accrual of benefits) under FIRST BANKING's employee benefit plans, (i)
service under any qualified defined benefit plan of WAYNE shall be treated as
service under FIRST BANKING's defined benefit plan, if any, (ii) service under
any qualified defined
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contribution plans of WAYNE shall be treated as service under FIRST BANKING's
qualified defined contribution plans, and (iii) service under any other employee
benefit plans of WAYNE shall be treated as service under any similar employee
benefit plans maintained by FIRST BANKING. With respect to officers and
employees of the WAYNE Entities who, at or after the Effective Time, become
employees of a FIRST BANKING Entity and who, immediately prior to the Effective
Time, are participants in one or more employee welfare benefit plans maintained
by the WAYNE Entities, FIRST BANKING shall cause each comparable employee
welfare benefit plan which is substituted for a WAYNE welfare benefit plan to
waive any evidence of insurability or similar provision, to provide credit for
such participation prior to such substitution with regard to the application of
any pre-existing condition limitation, and to provide credit towards
satisfaction of any deductible or out-of-pocket provisions for expenses incurred
by such participants during the period prior to such substitution, if any, that
overlaps with the then current plan year for each such substituted employee
welfare benefit plans. FIRST BANKING also shall cause the Surviving Bank and its
Subsidiaries to honor in accordance with their terms all employment, severance,
consulting and other compensation Contracts disclosed in Section 8.13 of the
WAYNE Disclosure Memorandum to FIRST BANKING between any WAYNE Entity and any
current or former director, officer, or employee thereof, and all provisions for
vested benefits or other vested amounts earned or accrued through the Effective
Time under the WAYNE Benefit Plans.
8.14 INDEMNIFICATION.
(a) Subject to the conditions set forth in paragraph (b) below, for a
period of six years after the Effective Time, FIRST BANKING shall
indemnify, defend and hold harmless each person entitled to indemnification
from a WAYNE Entity (each, an "Indemnified Party") against all Liabilities
arising out of actions or omissions occurring at or prior to the Effective
Time (including the transactions contemplated by this Agreement) to the
fullest extent permitted under Georgia Law and by WAYNE's Articles of
Incorporation and Bylaws as in effect on the date hereof, including
provisions relating to advances of expenses incurred in the defense of any
Litigation. Without limiting the foregoing, in any case in which approval
by FIRST BANKING is required to effectuate any indemnification, FIRST
BANKING shall direct, at the election of the Indemnified Party, that the
determination of any such approval shall be made by independent counsel
mutually agreed upon between FIRST BANKING and the Indemnified Party.
(b) Any Indemnified Party wishing to claim indemnification under
paragraph (a) of this Section 8.14, upon learning of any such Liability or
Litigation, shall promptly notify FIRST BANKING thereof. In the event of
any such Liability or Litigation (whether arising before or after the
Effective Time), (i) FIRST BANKING shall have the right to assume the
defense thereof (provided FIRST BANKING acknowledges responsibility for
such indemnification) and FIRST BANKING shall not be liable to such
Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection
with the defense thereof, except that if FIRST BANKING elects not to assume
such defense or counsel for the Indemnified Parties advises that there are
substantive issues which raise conflicts of interest between FIRST BANKING
and the Indemnified Parties, the Indemnified Parties may retain counsel
satisfactory to them, and FIRST BANKING shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties promptly as statements
therefor are received; provided, that FIRST BANKING shall be obligated
pursuant to this paragraph (b) to pay for only one firm of counsel for all
Indemnified Parties in any jurisdiction, (ii) the Indemnified Parties will
cooperate in the defense of any such Litigation, and (iii) FIRST BANKING
shall not be liable for any settlement effected without its prior written
consent; and provided further that FIRST BANKING shall not have any
obligation hereunder to
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any Indemnified Party when and if a court of competent jurisdiction shall
determine, and such determination shall have become final, that the
indemnification of such Indemnified Party in the manner contemplated hereby
is prohibited by applicable Law.
ARTICLE 9.
CONDITIONS PRECEDENT TO OBLIGATIONS TO CONSUMMATE
9.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective obligations of
each Party to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by both Parties pursuant to Section 11.6:
(a) Shareholder Approval. The shareholders of WAYNE shall have
approved this Agreement, and the consummation of the transactions
contemplated hereby, including the Merger, as and to the extent required by
Law or by the provisions of any governing instruments. The shareholders of
FIRST BANKING shall have approved the issuance of shares of FIRST BANKING
Common Stock pursuant to the Merger, as and to the extent required by Law,
by the provisions of any governing instruments, or by the rules of the
NASD.
(b) Regulatory Approvals. All Consents of, filings and registrations
with, and notifications to, all Regulatory Authorities required for
consummation of the Merger shall have been obtained or made and shall be in
full force and effect and all waiting periods required by Law shall have
expired. No Consent obtained from any Regulatory Authority which is
necessary to consummate the transactions contemplated hereby shall be
conditioned or restricted in a manner (including requirements relating to
the raising of additional capital or the disposition of Assets) which in
the reasonable judgment of the Board of Directors of any Party would so
materially adversely impact the economic or business benefits of the
transactions contemplated by this Agreement that, had such condition or
requirement been known, such Party would not, in its reasonable judgment,
have entered into this Agreement.
(c) Consents and Approvals. Each Party shall have obtained any and
all Consents required for consummation of the Merger (other than those
referred to in Section 9.1 (b)) or for the preventing of any Default under
any Contract or Permit of such Party which, if not obtained or made, is
reasonably likely to have, individually or in the aggregate, a WAYNE
Material Adverse Effect or a FIRST BANKING Material Adverse Effect, as
applicable. No Consent so obtained which is necessary to consummate the
transactions contemplated hereby shall be conditioned or restricted in a
manner which in the reasonable judgment of the Board of Directors of any
Party would so materially adversely impact the economic or business
benefits of the transactions contemplated by this Agreement that, had such
condition or requirement been known, such Party would not, in its
reasonable judgment, have entered into this Agreement.
(d) Legal Proceedings. No court or governmental or regulatory
authority of competent jurisdiction shall have enacted, issued,
promulgated, enforced or entered any Law or Order (whether temporary,
preliminary or permanent) or taken any other action which prohibits,
restricts or makes illegal consummation of the transactions contemplated by
this Agreement.
(e) Registration Statement. The Registration Statement shall be
effective under the 1933 Act, and no stop orders suspending the
effectiveness of the Registration Statement shall have been issued, no
action, suit, proceeding or investigation by the SEC to suspend the
effectiveness thereof shall have been initiated and be continuing, and all
necessary approvals under state
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securities laws or the 1933 Act or 1934 Act relating to the issuance or
trading of the shares of FIRST BANKING Common Stock issuable pursuant to
the Merger shall have been received.
(f) Nasdaq Listing. The shares of FIRST BANKING Common Stock issuable
pursuant to the Merger shall have been approved for listing on the Nasdaq
National Market.
(g) Tax Matters. Each Party shall have received a written opinion of
counsel from Powell, Goldstein, Frazer & Murphy LLP, in form reasonably
satisfactory to such Parties (the "Tax Opinion"), to the effect that (i)
the Merger will constitute a reorganization within the meaning of Section
368(a) of the Internal Revenue Code, (ii) the exchange in the Merger of
WAYNE Common Stock for FIRST BANKING Common Stock will not give rise to
gain or loss to the shareholders of WAYNE with respect to such exchange
(except to the extent of any cash received), and (iii) neither WAYNE nor
FIRST BANKING will recognize gain or loss as a consequence of the Merger
(except for amounts resulting from any required change in accounting
methods and any income and deferred gain recognized pursuant to Treasury
regulations issued under Section 1502 of the Internal Revenue Code). In
rendering such Tax Opinion, such counsel shall be entitled to rely upon
representations of officers of WAYNE and FIRST BANKING reasonably
satisfactory in form and substance to such counsel.
(h) Harper Employee Agreement. Douglas R. Harper shall have
negotiated a mutually satisfactory employment relationship with FIRST
BANKING, as the Surviving Corporation.
9.2 CONDITIONS TO OBLIGATIONS OF FIRST BANKING. The obligations of FIRST
BANKING to perform this Agreement and consummate the Merger and the other
transactions contemplated hereby are subject to the satisfaction of the
following conditions, unless waived by FIRST BANKING pursuant to Section
11.6(a):
(a) Representations and Warranties. For purposes of this Section
9.2(a), the accuracy of the representations and warranties of WAYNE set
forth in this Agreement shall be assessed as of the date of this Agreement
and as of the Effective Time with the same effect as though all such
representations and warranties had been made on and as of the Effective
Time (provided that representations and warranties which are confined to a
specified date shall speak only as of such date). The representations and
warranties set forth in Section 5.3 shall be true and correct (except for
inaccuracies which are de minimus in amount). The representations and
warranties set forth in Sections 5.20 and 5.21 shall be true and correct in
all material respects. There shall not exist inaccuracies in the
representations and warranties of WAYNE set forth in this Agreement
(including the representations and warranties set forth in Sections 5.3,
5.20 and 5.21) such that the aggregate effect of such inaccuracies has, or
is reasonably likely to have, a WAYNE Material Adverse Effect; provided
that, for purposes of this sentence only, those representations and
warranties which are qualified by references to "material" or "Material
Adverse Effect" or to the "Knowledge" of any Person shall be deemed not to
include such qualifications.
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of WAYNE to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with in all material respects.
(c) Certificates. WAYNE shall have delivered to FIRST BANKING (i) a
certificate, dated as of the Effective Time and signed on its behalf by its
chief executive officer and its secretary, to the effect that to the best
of their Knowledge the conditions set forth in Section 9.1 as relates to
WAYNE and in Section 9.2(a) and 9.2(b) have been satisfied; provided,
however, that the representations, warranties and covenants to which such
certificate relates shall not been
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deemed to have survived the Closing, and (ii) certified copies of
resolutions duly adopted by WAYNE's Board of Directors and shareholders
evidencing the taking of all corporate action necessary to authorize the
execution, delivery and performance of this Agreement, and the consummation
of the transactions contemplated hereby, all in such reasonable detail as
FIRST BANKING and its counsel shall request.
(d) Opinion of Counsel. FIRST BANKING shall have received an opinion
of Nelson Mullins Riley & Scarborough, L.L.P., counsel to WAYNE, dated as
of the Closing Date, in form reasonably satisfactory to FIRST BANKING.
(e) Pooling Letters. FIRST BANKING shall have received an opinion of
Deloitte & Touche, dated as of the date of filing of the Registration
Statement with the SEC and as of the Closing Date, addressed to FIRST
BANKING and in form and substance reasonably acceptable to FIRST BANKING,
to the effect that the Merger, for accounting purposes, shall qualify for
treatment as a pooling of interests.
(f) Affiliates Agreements. FIRST BANKING shall have received, within
thirty (30) days of the execution of this Agreement, from each affiliate of
WAYNE the affiliates letter referred to in Section 8.12 and Exhibit 1.
(g) Claims Letters. Each of the directors and officers of WAYNE shall
have executed and delivered to FIRST BANKING letters in substantially the
form of Exhibit 2.
9.3 CONDITIONS TO OBLIGATIONS OF WAYNE. The obligations of WAYNE to
perform this Agreement and consummate the Merger and the other transactions
contemplated hereby are subject to the satisfaction of the following conditions,
unless waived by WAYNE pursuant to Section 11.6(b):
(a) Representations and Warranties. For purposes of this Section
9.3(a), the accuracy of the representations and warranties of FIRST BANKING
set forth in this Agreement shall be assessed as of the date of this
Agreement and as of the Effective Time with the same effect as though all
such representations and warranties had been made on and as of the
Effective Time (provided that representations and warranties which are
confined to a specified date shall speak only as of such date). The
representations and warranties set forth in Section 6.3 shall be true and
correct (except for inaccuracies which are de minimus in amount). The
representations and warranties of FIRST BANKING set forth in Section 6.20
and 6.21 shall be true and correct in all material respects. There shall
not exist inaccuracies in the representations and warranties of FIRST
BANKING set forth in this Agreement (including the representations and
warranties set forth in Sections 6.3, 6.20 and 6.21) such that the
aggregate effect of such inaccuracies has, or is reasonably likely to have,
a FIRST BANKING Material Adverse Effect; provided that, for purposes of
this sentence only, those representations and warranties which are
qualified by references to "material" or "Material Adverse Effect" or to
the "Knowledge" of any Person shall be deemed not to include such
qualifications.
(b) Performance of Agreements and Covenants. Each and all of the
agreements and covenants of FIRST BANKING to be performed and complied with
pursuant to this Agreement and the other agreements contemplated hereby
prior to the Effective Time shall have been duly performed and complied
with in all material respects.
(c) Certificates. FIRST BANKING shall have delivered to WAYNE (i) a
certificate, dated as of the Closing Date and signed on its behalf by its
chief executive officer and its chief financial officer, to the effect that
to the best of their knowledge the conditions set forth in Section 9.1 as
relates to FIRST BANKING and in Section 9.3(a) and 9.3(b) have been
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satisfied, provided, however, that the representations, warranties and
covenants to which such certificate relates shall not been deemed to have
survived the Closing, and (ii) certified copies of resolutions duty adopted
by FIRST BANKING's Board of Directors and shareholders evidencing the
taking of all corporate action necessary to authorize the execution,
delivery and performance of this Agreement, and the consummation of the
transactions contemplated hereby, all in such reasonable detail as WAYNE
and its counsel shall request.
(d) Opinion of Counsel. WAYNE shall have received an opinion of
Powell, Goldstein, Frazer & Murphy LLP, counsel to FIRST BANKING, dated as
of the Closing Date, in form reasonably acceptable to WAYNE.
(e) Fairness Opinion. WAYNE shall have received an opinion from
Stevens & Company that the Merger is fair from a financial point of view to
the WAYNE shareholders (the "Fairness Opinion"). Such Fairness Opinion
shall be received by WAYNE within 14 days of the date of this Agreement.
ARTICLE 10.
TERMINATION
10.1 TERMINATION. Notwithstanding any other provision of this Agreement,
and notwithstanding the approval of this Agreement by the shareholders of WAYNE,
this Agreement may be terminated and the Merger abandoned at any time prior to
the Effective Time:
(a) By mutual consent of FIRST BANKING and WAYNE; or
(b) By either Party (provided that the terminating Party is not then
in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event of a material breach by
the other Party of any representation or warranty contained in this
Agreement which cannot be or has not been cured within 30 days after the
giving of written notice to the breaching Party of such breach and which
breach is reasonably likely, in the opinion of the non-breaching Party, to
have, individually or in the aggregate, a WAYNE Material Adverse Effect or
a FIRST BANKING Material Adverse Effect, as applicable, on the breaching
Party; or
(c) By either Party (provided that the terminating Party is not then
in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event of a material breach by
the other Party of any covenant or agreement contained in this Agreement
which cannot be or has not been cured within 30 days after the giving of
written notice to the breaching Party of such breach; or
(d) By either Party (provided that the terminating Party is not then
in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event (i) any Consent of any
Regulatory Authority required for consummation of the Merger and the other
transactions contemplated hereby shall have been denied by final
non-appealable action of such authority or if any action taken by such
authority is not appealed within the time limit for appeal, or (ii) the
shareholders of WAYNE fail to vote their approval of the matters relating
to this Agreement and the transactions contemplated hereby at the
Shareholders' Meeting where such matters were presented to such
shareholders for approval and voted upon; or
(e) By either Party in the event that the Merger shall not have been
consummated by April 30, 1999, if the failure to consummate the
transactions contemplated hereby on or before
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such date is not caused by any breach of this Agreement by the Party
electing to terminate pursuant to this Section 10.1(e).
10.2 EFFECT OF TERMINATION. In the event of the termination and
abandonment of this Agreement pursuant to Section 10.1, this Agreement shall
become void and have no effect, except that (i) the provisions of this Section
10.2 and Article 11 and Section 8.7(b) shall survive any such termination and
abandonment, and (ii) a termination pursuant to Sections 10.1(b), 10.1(c) or
10.1(e) shall not relieve the breaching Party from Liability for an uncured
willful breach of a representation, warranty, covenant, or agreement giving rise
to such termination.
10.3 NON-SURVIVAL OF REPRESENTATIONS AND COVENANTS. The respective
representations, warranties, obligations, covenants, and agreements of the
Parties shall not survive the Effective Time except this Section 10.3 and
Articles 1, 2, 3, 4 and 11 and Section 8.10.
ARTICLE 11.
MISCELLANEOUS
11.1 DEFINITIONS.
(a) Except as otherwise provided herein, the capitalized terms set
forth below shall have the following meanings:
"1933 ACT" shall mean the Securities Act of 1933, as amended.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as amended.
"ACQUISITION PROPOSAL" with respect to a Party shall mean any tender
offer or exchange offer or any proposal for a merger, acquisition of all of
the stock or assets of, or other business combination involving the
acquisition of such Party or any of its Subsidiaries or the acquisition of
a substantial equity interest in, or a substantial portion of the assets
of, such Party or any of its Subsidiaries.
"AFFILIATE" of a Person shall mean: (i) any other Person directly, or
indirectly through one or more intermediaries, controlling, controlled by
or under common control with such Person; (ii) any officer, director,
partner, employer, or direct or indirect beneficial owner of any 10% or
greater equity or voting interest of such Person; or (iii) any other Person
for which a Person described in clause (ii) acts in any such capacity.
"AGREEMENT" shall mean this Agreement and Plan of Merger, including
the Exhibits, the FIRST BANKING Disclosure Memorandum and the WAYNE
Disclosure Memorandum delivered pursuant hereto and incorporated herein by
reference.
"ASSETS" of a Person shall mean all of the assets, properties,
businesses and rights of such Person of every kind, nature, character and
description, whether real, personal or mixed, tangible or intangible,
accrued or contingent, or otherwise relating to or utilized in such
Person's business, directly or indirectly, in whole or in part, whether or
not carried on the books and records of such Person, or any Affiliate of
such Person and wherever located.
"CERTIFICATE OF MERGER" shall mean the Certificate of Merger to be
executed by FIRST BANKING and WAYNE and filed with the Secretary of State
of the State of Georgia relating to the Merger as contemplated by Section
1.1.
"CLOSING DATE" shall mean the date on which the Closing occurs.
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"CONSENT" shall mean any consent, approval, authorization, clearance,
exemption, waiver, or similar affirmation by any Person pursuant to any
Contract, Law, Order, or Permit.
"CONTRACT" shall mean any written or oral agreement (provided such
oral agreement is, in any one year period, in excess of $5,000
individually, or $25,000 in the aggregate), arrangement, authorization,
commitment, contract, indenture, instrument, lease, obligation, plan,
practice, restriction, understanding, or undertaking of any kind or
character, or other document to which any Person is a party or that is
binding on any Person or its capital stock, Assets or business.
"DEFAULT" shall mean (i) any breach or violation of, default under,
contravention of, or conflict with, any Contract, Law, Order, or Permit,
after failing to cure any such breach, violation, default, contravention or
conflict within any applicable grace or cure period (ii) any occurrence of
any event that with the passage of time or the giving of notice or both
would constitute a breach or violation of, default under, contravention of,
or conflict with, any Contract, Law, Order, or Permit, or (iii) any
occurrence of any event that with or without the passage of time or the
giving of notice would give rise to a right of any Person to exercise any
remedy or obtain any relief under, terminate or revoke, suspend, cancel, or
modify or change the current terms of, or renegotiate, or to accelerate the
maturity or performance of, or to increase or impose any Liability under,
any Contract, Law, Order, or Permit.
"ENVIRONMENTAL LAWS" shall mean all Laws relating to pollution or
protection of human health or the environment (including ambient air,
surface water, ground water, land surface, or subsurface strata) and which
are administered, interpreted, or enforced by the United States
Environmental Protection Agency and other federal, state and local agencies
with jurisdiction over, and including common law in respect of, pollution
or protection of the environment, including the Comprehensive Environmental
Response Compensation and Liability Act, as amended, 42 U.S.C. 9601 et seq.
("CERCLA"), the Resource Conservation and Recovery Act, as amended, 42
U.S.C. 6901 et seq. ("RCRA"), and other Laws relating to emissions,
migrations, discharges, releases, or threatened releases of any Hazardous
Material, or otherwise relating to the manufacture, processing,
distribution use, treatment, storage, disposal, generation, recycling,
transport, or handling of any Hazardous Material.
"EQUITY RIGHTS" shall mean all arrangements, calls, commitments,
Contracts, options, rights to subscribe to, scrip, understandings,
warrants, or other binding obligations of any character whatsoever relating
to, or securities or rights convertible into or exchangeable for, shares of
the capital stock of a Person or by which a Person is or may be bound to
issue additional shares of its capital stock or other Equity Rights.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended.
"EXHIBITS 1 THROUGH 4," inclusive, shall mean the Exhibits so marked,
copies of which are attached to this Agreement. Such Exhibits are hereby
incorporated by reference herein and made a part hereof, and may be
referred to in this Agreement and any other related instrument or document
without being attached hereto.
"FIRST BANKING CAPITAL STOCK" shall mean, collectively, the FIRST
BANKING Common Stock and any other class or series of capital stock of
FIRST BANKING.
"FIRST BANKING COMMON STOCK" shall mean the $1.00 par value common
stock of FIRST BANKING.
"FIRST BANKING DISCLOSURE MEMORANDUM" shall mean the written
information entitled "First Banking Company of Southeast Georgia Disclosure
Memorandum" delivered prior to execution of this Agreement to WAYNE
describing in reasonable detail the matters contained
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therein and, with respect to each disclosure made therein, specifically
referencing each Section of this Agreement under which such disclosure is
being made. Information disclosed with respect to one Section shall not be
deemed to be disclosed for purposes of any other Section not specifically
referenced with respect thereto, unless it is clear from the disclosure of
such information that it applies to other Sections.
"FIRST BANKING ENTITIES" shall mean, collectively, FIRST BANKING and
all FIRST BANKING Subsidiaries.
"FIRST BANKING FINANCIAL STATEMENTS" shall mean (i) the consolidated
balance sheets (including related notes and schedules, if any) of FIRST
BANKING as of September 30, 1998 and as of December 31, 1997 and 1996, and
the related statements of income, changes in shareholders' equity, and cash
flows (including related notes and schedules, if any) for the three months
ended September 30, 1998, and for each of the three fiscal years ended
December 31, 1997, 1996 and 1995, as filed by FIRST BANKING in SEC
Documents, and (ii) the consolidated balance sheets of FIRST BANKING
(including related notes and schedules, if any) and related statements of
income, changes in shareholders' equity, and cash flows (including related
notes and schedules, if any) included in SEC Documents filed with respect
to periods ended subsequent to September 30, 1998.
"FIRST BANKING MATERIAL ADVERSE EFFECT" shall mean an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has a material adverse impact on (i) the financial position,
business, or results of operations of FIRST BANKING and its Subsidiaries,
taken as a whole, or (ii) the ability of FIRST BANKING Entities to perform
their obligations under this Agreement or to consummate the Merger or the
other transactions contemplated by this Agreement, provided that "Material
Adverse Effect" shall not be deemed to include the impact of (a) changes in
banking and similar Laws of general applicability or interpretations
thereof by courts or governmental authorities, (b) changes in generally
accepted accounting principles or regulatory accounting principles
generally applicable to savings associations, banks, and their holding
companies, and (c) actions and omissions of FIRST BANKING (or any of its
Subsidiaries) taken with the prior informed written Consent of WAYNE in
contemplation of the transactions contemplated hereby.
"FIRST BANKING SUBSIDIARIES" shall mean the Subsidiaries of FIRST
BANKING, which shall include the FIRST BANKING Subsidiaries described in
Section 6.4 and any corporation, bank, savings association, or other
organization acquired as a Subsidiary of FIRST BANKING in the future and
held as a Subsidiary by FIRST BANKING at the Effective Time.
"GAAP" shall mean generally accepted accounting principles,
consistently applied during the periods involved.
"GBCC" shall mean the Georgia Business Corporation Code.
"HAZARDOUS MATERIAL" shall mean (i) any hazardous substance, hazardous
constituent, hazardous waste, solid waste, special waste, regulated
substance, or toxic substance (as those terms are listed, defined or
regulated by any applicable Environmental Laws) and (ii) any chemicals,
pollutants, contaminants, petroleum, petroleum products, or oil (and
specifically shall include asbestos requiring abatement. removal, or
encapsulation pursuant to the requirements of governmental authorities and
any polychlorinated biphenyls).
"HSR ACT" shall mean Section 7A of the Clayton Act, as added by Title
II of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
and the rules and regulations promulgated thereunder.
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"INTELLECTUAL PROPERTY" shall mean copyrights, patents, trademarks,
service marks, service names, trade names, applications therefor, and
licenses, computer software (including any source or object codes therefor
or documentation relating thereto), trade secrets, franchises, inventions,
and other intellectual property rights.
"INTERNAL REVENUE CODE" shall mean the Internal Revenue Code of 1986,
as amended, and the rules and regulations promulgated thereunder.
"KNOWLEDGE" as used with respect to a FIRST BANKING Entity (including
references to being aware of a particular matter) shall mean those facts
that are known or should reasonably have been known after due inquiry by
the chairman, president, chief financial officer, chief accounting officer,
chief operating officer, chief credit officer, general counsel, any
assistant or deputy general counsel, or any senior, executive or other vice
president of such FIRST BANKING Entity. "Knowledge" as used with respect to
a WAYNE Entity (including references to being aware of a particular matter)
shall mean those facts that are actually known (with no obligation of
inquiry) by the president and chief executive officer of such WAYNE Entity.
"LAW" shall mean any code, law (including common law), ordinance,
regulation, decision, judicial interpretation, reporting or licensing
requirement, rule, or statute applicable to a Person or its Assets,
Liabilities, or business, including those promulgated, interpreted or
enforced by any Regulatory Authority.
"LIABILITY" shall mean any direct or indirect, primary or secondary,
liability, indebtedness, obligation, penalty, cost or expense (including
costs of investigation, collection and defense), claim, deficiency,
guaranty or endorsement of or by any Person (other than endorsements of
notes, bills, checks, and drafts presented for collection or deposit in the
ordinary course of business) of any type, whether accrued, absolute or
contingent, liquidated or unliquidated, matured or unmatured, or otherwise.
"LIEN" shall mean any conditional sale agreement, default of title,
easement, encroachment, encumbrance, hypothecation, infringement, lien,
mortgage, pledge, reservation, restriction, security interest, title
retention or other security arrangement, or any adverse right or interest,
charge, or claim of any nature whatsoever of, on, or with respect to any
property or property interest, other than (i) Liens for current property
Taxes not yet due and payable, (ii) for depository institution Subsidiaries
of a Party, pledges to secure deposits and other Liens incurred in the
ordinary course of the banking business, and (iii) Liens which do not
materially impair the use of or title to the Assets subject to such Lien.
"LITIGATION" shall mean any action, arbitration, cause of action.
claim, complaint investigation hearing, criminal prosecution, governmental
or other examination or other administrative or other proceeding relating
to or affecting a Party, its business. its Assets (including Contracts
related to it), or the transactions contemplated by this Agreement. but
shall not include regular. periodic examinations of depository institutions
and their Affiliates by Regulatory Authorities.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"NASDAQ NATIONAL MARKET" shall mean the National Market System of the
National Association of Securities Dealers Automated Quotations System.
"OPERATING PROPERTY" shall mean any property owned, leased, or
operated by the Party in question or by any of its Subsidiaries and, where
required by the context, includes the owner or operator of such property,
but only with respect to such property.
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"ORDER" shall mean any administrative decision or award, decree,
injunction, judgment, order, quasi-judicial decision or award, ruling, or
writ of any federal, state, local or foreign or other court, arbitrator,
mediator, tribunal, administrative agency, or Regulatory Authority.
"PARTICIPATION FACILITY" shall mean any facility or property in which
the Party in question or any of its Subsidiaries participates in the
management and, where required by the context, said term means the owner or
operator of such facility or property, but only with respect to such
facility or property.
"PARTY" shall mean either WAYNE or FIRST BANKING, and "Parties" shall
mean WAYNE and FIRST BANKING.
"PERMIT" shall mean any federal, state, local, and foreign
governmental approval, authorization, certificate, easement, filing,
franchise, license, notice, permit, or right to which any Person is a party
or that is or may be binding upon or inure to the benefit of any Person or
its securities, Assets, or business.
"PERSON" shall mean a natural person or any legal, commercial or
governmental entity, such as, but not limited to, a corporation, general
partnership, joint venture, limited partnership, limited liability company,
trust, business association, group acting in concert, or any person acting
in a representative capacity.
"REGISTRATION STATEMENT" shall mean the Registration Statement on Form
S-4, or other appropriate form, including any pre-effective or
post-effective amendments or supplements thereto, filed with the SEC by
FIRST BANKING under the 1933 Act with respect to the shares of FIRST
BANKING Common Stock to be issued to the shareholders of WAYNE in
connection with the transactions contemplated by this Agreement.
"REGULATORY AUTHORITIES" shall mean, collectively, the SEC, the NASD,
the Federal Trade Commission, the United States Department of Justice, the
Board of the Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the Georgia Department of Banking and Finance, and
all other federal, state, county, local or other governmental or regulatory
agencies, authorities (including self-regulatory authorities),
instrumentalities, commissions, boards or bodies having jurisdiction over
the Parties and their respective Subsidiaries.
"REPRESENTATIVE" shall mean any investment banker, financial advisor,
attorney, accountant, consultant, or other representative engaged by a
Person.
"SEC DOCUMENTS" shall mean all forms, proxy statements, registration
statements, reports, schedules, and other documents filed, or required to
be filed, by a Party or any of its Subsidiaries with any Regulatory
Authority pursuant to the Securities Laws.
"SECURITIES LAWS" shall mean the 1933 Act, the 1934 Act, the
Investment Company Act of 1940, as amended, the Investment Advisors Act of
1940, as amended, the Trust Indenture Act of 1939, as amended, and the
rules and regulations of any Regulatory Authority promulgated thereunder.
"SHAREHOLDERS MEETING" shall mean the meeting of the shareholders of
WAYNE to be held pursuant to Section 8.3, including any adjournment or
adjournments thereof.
"SUBSIDIARIES" shall mean all those corporations, associations, or
other business entities of which the entity in question either (i) owns or
controls 50% or more of the outstanding equity securities either directly
or through an unbroken chain of entities as to each of which 50% or
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more of the outstanding equity securities is owned directly or indirectly
by its parent (provided, there shall not be included any such entity the
equity securities of which are owned or controlled in a fiduciary
capacity), (ii) in the case of partnerships, serves as a general partner,
(iii) in the case of a limited liability company, serves as a managing
member, or (iv) otherwise has the ability to elect a majority of the
directors, trustees or managing members thereof.
"SURVIVING CORPORATION" shall mean FIRST BANKING as the surviving
corporation resulting from the Merger.
"TAX RETURN" shall mean any report, return, information return, or
other information required to be supplied to a taxing authority in
connection with Taxes, including any return of an affiliated or combined or
unitary group that includes a Party or its Subsidiaries.
"TAX" OR TAXES" shall mean any federal, state, county, local, or
foreign taxes, charges, fees, levies, imposts, duties, or other
assessments, including income, gross receipts, excise, employment, sales,
use, transfer, license, payroll, franchise, severance, stamp, occupation,
windfall profits, environmental, federal highway use, commercial rent,
customs duties, capital stock, paid-up capital, profits, withholding,
Social Security, single business and unemployment, disability, real
property, personal property, registration, ad valorem, value added,
alternative or add-on minimum, estimated, or other tax or governmental fee
of any kind whatsoever, imposed or required to be withheld by the United
States or any state, county, local or foreign government or subdivision or
agency thereof, including any interest, penalties, and additions imposed
thereon or with respect thereto.
"WAYNE COMMON STOCK" shall mean the $1.00 par value common stock of
WAYNE.
"WAYNE DISCLOSURE MEMORANDUM" shall mean the written information
entitled "WAYNE Disclosure Memorandum" delivered prior to execution of this
Agreement to FIRST BANKING describing in reasonable detail the matters
contained therein and, with respect to each disclosure made therein,
specifically referencing each Section of this Agreement under which such
disclosure is being made. Information disclosed with respect to one Section
shall not be deemed to be disclosed for purposes of any other Section not
specifically referenced with respect thereto, unless it is clear from the
disclosure of such information that it applies to other Sections.
"WAYNE ENTITIES" shall mean, collectively, WAYNE and all WAYNE
Subsidiaries.
"WAYNE FINANCIAL STATEMENTS" shall mean (i) the consolidated balance
sheets (including related notes and schedules, if any) of WAYNE as of
September 30, 1998, and as of December 31, 1997 and the related statements
of income, changes in shareholders' equity, and cash flows (including
related notes and schedules, if any) for the three months ended September
30, 1998, and for the Fiscal year ended December 31, 1997, and (ii) the
consolidated balance sheets of WAYNE (including related notes and
schedules, if any) and related statements of income, changes in
shareholders' equity, and cash flows (including related notes and
schedules, if any) with respect to periods ended subsequent to September
30, 1998.
"WAYNE MATERIAL ADVERSE EFFECT" shall mean an event, change or
occurrence which, individually or together with any other event, change or
occurrence, has a material adverse impact on (i) the financial position,
business, or results of operations of WAYNE and its Subsidiaries, taken as
a whole, or (ii) the ability of WAYNE to perform its obligations under this
Agreement or to consummate the Merger or the other transactions
contemplated by this Agreement, provided that an "WAYNE Material Adverse
Effect" shall not be deemed to include the impact of (a) changes in banking
and similar Laws of general applicability or
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interpretations thereof by courts or governmental authorities, (b) changes
in generally accepted accounting principles or regulatory accounting
principles generally applicable to banks and their holding companies, and
(c) actions and omissions of WAYNE (or any of its Subsidiaries) taken with
the prior informed written Consent of FIRST BANKING in contemplation of the
transactions contemplated hereby.
"WAYNE SUBSIDIARIES" shall mean the Subsidiaries of WAYNE, which shall
include the WAYNE Subsidiaries described in Section 5.4 and any
corporation, bank, savings association, or other organization acquired as a
Subsidiary of WAYNE in the future and held as a Subsidiary by WAYNE at the
Effective Time.
(b) The terms set forth below shall have the meanings ascribed thereto
in the referenced sections:
<TABLE>
<S> <C>
Allowance....................................... Section 5.9
Certificates.................................... Section 4.1
Closing......................................... Section 1.2
Effective Time.................................. Section 1.3
ERISA Affiliate................................. Section 5.15(c)
Exchange Agent.................................. Section 4.1
Exchange Ratio.................................. Section 3.1(b)
FIRST BANKING Benefit Plans..................... Section 6.15(a)
FIRST BANKING ERISA Plan........................ Section 6.15(a)
FIRST BANKING Pension Plan...................... Section 6.15(a)
FIRST BANKING SEC Reports....................... Section 6.5(a)
Indemnified Party............................... Section 8.14(a)
Merger.......................................... Section 1.1
Tax Opinion..................................... Section 9.1(g)
WAYNE Benefit Plans............................. Section 5.15(a)
WAYNE Contracts................................. Section 5.16
WAYNE ERISA Plan................................ Section 5.15(a)
WAYNE Pension Plan.............................. Section 5.15(a)
WAYNE SEC Reports............................... Section 5.5 (a)
</TABLE>
(c) Any singular term in this Agreement shall be deemed to include the
plural, and any plural term the singular. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed
followed by the words "without limitation."
11.2 EXPENSES.
(a) Except as otherwise provided in this Section 11.2, each Party
shall bear and pay all direct costs and expenses incurred by it or on its
behalf in connection with the transactions contemplated hereunder,
including filing, registration and application fees, printing fees, and
fees and expenses of its own financial or other consultants, investment
bankers, accountants, and counsel.
(b) If this Agreement is terminated by FIRST BANKING (i) pursuant to
Sections 10.1(b), (c) or (d)(ii), or (ii) due to the failure of the
condition in Section 9.2(e) solely because of the exercise of dissenters'
rights by any director of WAYNE or any member of any such director's
immediate family, WAYNE shall pay to FIRST BANKING an amount equal to the
lesser of $100,000 or FIRST BANKING's actual out-of-pocket expenses
incurred in connection with the transactions contemplated by this
Agreement.
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(c) If this Agreement is terminated by WAYNE pursuant to Sections
10.1(b) or (c), FIRST BANKING shall pay to WAYNE an amount equal to the
lesser of $100,000 or WAYNE's actual out-of-pocket expenses incurred in
connection with the transactions contemplated by this Agreement.
(d) Nothing contained in this Section 11.2 shall constitute or shall
be deemed to constitute liquidated damages for the willful breach by a
Party of the terms of this Agreement or otherwise limit the rights of the
nonbreaching Party.
11.3 BROKERS AND FINDERS. Except as set forth in Section 11.3 of the WAYNE
Disclosure Memorandum with respect to Stevens & Company, each of the Parties
represents and warrants that neither it nor any of its officers, directors,
employees, or Affiliates has employed any broker or finder or incurred any
Liability for any financial advisory fees, investment bankers' fees, brokerage
fees, commissions, or finders' fees in connection with this Agreement or the
transactions contemplated hereby. In the event of a claim by any broker or
finder based upon his or its representing or being retained by or allegedly
representing or being retained by WAYNE or by FIRST BANKING, each of WAYNE and
FIRST BANKING, as the case may be, agrees to indemnify and hold the other Party
harmless of and from any Liability in respect of any such claim.
11.4 ENTIRE AGREEMENT. Except as otherwise expressly provided herein, this
Agreement (including the documents and instruments referred to herein)
constitutes the entire agreement between the Parties with respect to the
transactions contemplated hereunder and supersedes all prior arrangements or
understandings with respect thereto, written or oral. Nothing in this Agreement,
expressed or implied, is intended to confer upon any Person, other than the
Parties or their respective successors, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement.
11.5 AMENDMENTS. To the extent permitted by Law, this Agreement may be
amended by a subsequent writing signed by each of the Parties upon the approval
of each of the Parties, whether before or after shareholder approval of this
Agreement has been obtained; provided, that after any such approval by the
holders of WAYNE Common Stock, there shall be made no amendment that, pursuant
to the GBCC, requires further approval by such shareholders without the further
approval of such shareholders; and further provided, that after any such
approval by the holders of FIRST BANKING Common Stock, the provisions of this
Agreement relating to the manner or basis in which shares of WAYNE Common Stock
will be exchanged for shares of FIRST BANKING Common Stock shall not be amended
after the Shareholders' Meeting in a manner adverse to the holders of FIRST
BANKING Common Stock without any requisite approval of the holders of the issued
and outstanding shares of FIRST BANKING Common Stock entitled to vote thereon.
11.6 WAIVERS.
(a) Prior to or at the Effective Time, FIRST BANKING, acting through
its Board of Directors, chief executive officer or other authorized
officer, shall have the right to waive any Default in the performance of
any term of this Agreement by WAYNE, to waive or extend the time for the
compliance or fulfillment by WAYNE of any and all of its obligations under
this Agreement, and to waive any or all of the conditions precedent to the
obligations of FIRST BANKING under this Agreement, except any condition
which, if not satisfied, would result in the violation of any Law. No such
waiver shall be effective unless in writing signed by a duly authorized
officer of FIRST BANKING.
(b) Prior to or at the Effective Time, WAYNE, acting through its Board
of Directors, chief executive officer or other authorized officer, shall
have the right to waive any Default in the performance of any term of this
Agreement by FIRST BANKING, to waive or extend the time for the compliance
or fulfillment by FIRST BANKING, of any and all of its obligations under
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this Agreement, and to waive any or all of the conditions precedent to the
obligations of WAYNE under this Agreement, except any condition which, if
not satisfied, would result in the violation of any Law. No such waiver
shall be effective unless in writing signed by a duly authorized officer of
WAYNE.
(c) The failure of any Party at any time or times to require
performance of any provision hereof shall in no manner affect the right of
such Party at a later time to enforce the same or any other provision of
this Agreement. No waiver of any condition or of the breach of any term
contained in this Agreement in one or more instances shall be deemed to be
or construed as a further or continuing waiver of such condition or breach
or a waiver of any other condition or of the breach of any other term of
this Agreement.
11.7 ASSIGNMENT. Except as expressly contemplated hereby, neither this
Agreement nor any of the rights, interests or obligations hereunder shall be
assigned by any Party hereto (whether by operation of Law or otherwise) without
the prior written consent of the other Party. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the Parties and their respective successors and assigns.
11.8 NOTICES. All notices or other communications which are required or
permitted hereunder shall be in writing and sufficient if delivered by hand, by
facsimile transmission, by registered or certified mail, postage pre-paid, or by
courier or overnight carrier, to the persons at the addresses set forth below
(or at such other address as may be provided hereunder), and shall be deemed to
have been delivered as of the date so delivered:
<TABLE>
<S> <C>
WAYNE: Wayne Bancorp, Inc.
818 S. First Street
Jesup, Georgia 31545
Attention: J. Ashley Dukes
Copy to Counsel: Nelson Mullins Riley &
Scarborough, L.L.P.
First Union Plaza, Suite 1400
999 Peachtree Street, N.E.
Atlanta, GA 30309
Telecopy Number: (404) 817-6225
Attention: Neil E. Grayson, Esq.
FIRST BANKING: First Banking Company
of Southeast Georgia
P.O. Box 878
40 North Main Street
Statesboro, Georgia 30458
Attention: James Eli Hodges
Copy to Counsel: Powell, Goldstein,
Frazer & Murphy LLP
Sixteenth Floor
191 Peachtree Street, N.E.
Atlanta, GA 30303
Telecopy Number: (404) 572-5954
Attention: Walter G. Moeling IV, Esq.
</TABLE>
11.9 GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the Laws of the State of Georgia, without regard to any
applicable conflicts of Laws.
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11.10 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same instrument.
11.11 CAPTIONS, ARTICLES AND SECTIONS. The captions contained in this
Agreement are for reference purposes only and are not part of this Agreement.
Unless otherwise indicated, all references to particular Articles or Sections
shall mean and refer to the referenced Articles and Sections of this Agreement.
11.12 INTERPRETATIONS. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against any party, whether under
any rule of construction or otherwise. No party to this Agreement shall be
considered the draftsman. The parties acknowledge and agree that this Agreement
has been reviewed, negotiated, and accepted by all parties and their attorneys
and shall be construed and interpreted according to the ordinary meaning of the
words used so as fairly to accomplish the purposes and intentions of all parties
hereto.
11.13 ENFORCEMENT OF AGREEMENT. The Parties hereto agree that irreparable
damage would occur in the event that any of the provisions of this Agreement was
not performed in accordance with its specific terms or was otherwise breached.
It is accordingly agreed that the Parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions hereof in any court of the United States or any state
having jurisdiction, this being in addition to any other remedy to which they
are entitled at law or in equity.
11.14 SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
IN WITNESS WHEREOF, each of the Parties has caused this Agreement to be
executed on its behalf by its duly authorized officers as of the day and year
first above written.
FIRST BANKING COMPANY OF SOUTHEAST
GEORGIA
By: /s/ JAMES ELI HODGES
------------------------------------
James Eli Hodges
President & Chief Executive Officer
WAYNE BANCORP, INC.
By: /s/ J. ASHLEY DUKES
------------------------------------
J. Ashley Dukes
Chairman of the Board
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EXHIBIT 1
AFFILIATE AGREEMENT
First Banking Company of Southeast Georgia
40 North Main Street
Statesboro, GA 30458
Attention: James Eli Hodges, President and Chief Executive Officer
Gentlemen:
The undersigned is a shareholder of Wayne Bancorp, Inc. ("WAYNE"), a
Georgia Corporation, and will become a shareholder of First Banking Company of
Southeast Georgia ("FIRST BANKING"), a Georgia corporation, pursuant to the
transactions described in the Agreement and Plan of Merger, dated as of November
30, 1998 (the "Agreement"), by and between FIRST BANKING and WAYNE. Under the
terms of the Agreement, WAYNE will be merged with and into FIRST BANKING (the
"Merger"), and the shares of the $ . par value common stock of WAYNE
("WAYNE Common Stock") will be converted into and exchanged for shares of the
$ . par value common stock of FIRST BANKING ("FIRST BANKING Common
Stock"). This Affiliate Agreement represents an agreement between the
undersigned and FIRST BANKING regarding certain rights and obligations of the
undersigned in connection with the shares of FIRST BANKING to be received by the
undersigned as a result of the Merger.
In consideration of the Merger and the mutual covenants contained herein,
the undersigned and FIRST BANKING hereby agree as follows:
1. Affiliate Status. The undersigned understands and agrees that as
to WAYNE he is an "affiliate" under Rule 145(c) as defined in Rule 405 of
the Rules and Regulations of the Securities and Exchange Commission ("SEC")
under the Securities Act of 1933, as amended ("1933 Act"), and the
undersigned anticipates that he will be such an "affiliate" at the time of
the Merger.
2. Initial Restrictions on Disposition. The undersigned agrees that
he will not sell, transfer or otherwise dispose of his interests in, or
reduce his risk relative to, any of the shares of FIRST BANKING Common
Stock into which his shares of WAYNE Common Stock are converted upon
consummation of the Merger until such time as FIRST BANKING notifies the
undersigned that the requirements of SEC Accounting Series Release Nos. 130
and 135 ("ASR 130 and 135") have been met, except that transfers may be
made in compliance with Staff Accounting Bulletin No. 76 issued by the SEC.
The undersigned understands that ASR 130 and 135 relate to publication of
financial results of post-Merger combined operations of FIRST BANKING and
WAYNE. FIRST BANKING agrees that it will publish such results within 45
days after the end of the first fiscal quarter of FIRST BANKING containing
the required period of post-Merger combined operations and that it will
notify the undersigned promptly following such publication.
3. Covenants and Warranties of Undersigned. The undersigned
represents, warrants and agrees that:
(a) At any meeting of shareholders of WAYNE called to vote upon the
Merger and the Merger Agreement or at any adjournment thereof or in any
other circumstances upon
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which a vote, consent or other approval with respect to the Merger and
the Merger Agreement is sought (the "Shareholders' Meeting"), the
undersigned shall vote (or cause to be voted) the Shareholder's Shares
in favor of the Merger, the execution and delivery by WAYNE of the
Merger Agreement, and the approval of the terms thereof and each of the
other transactions contemplated by the Merger Agreement, provided that
the terms of the Merger Agreement shall not have been amended to reduce
the consideration payable in the Merger to a lesser amount of FIRST
BANKING Common Stock or otherwise to materially and adversely impair the
Shareholder's rights or increase the Shareholder's obligations
thereunder. The undersigned hereby waives any rights of appraisal, or
rights to dissent from the Merger, that the undersigned may have.
(b) The FIRST BANKING Common Stock received by the undersigned as a
result of the Merger will be taken for his own account and not for
others, directly or indirectly, in whole or in part.
(c) FIRST BANKING has informed the undersigned that any
distribution by the undersigned of FIRST BANKING Common Stock has not
been registered under the 1933 Act and that shares of FIRST BANKING
Common Stock received pursuant to the Merger can only be sold by the
undersigned (1) following registration under the 1933 Act, or (2) in
conformity with the volume and other requirements of Rule 145(d)
promulgated by the SEC as the same now exist or may hereafter be
amended, or (3) to the extent some other exemption from registration
under the 1933 Act might be available. The undersigned understands that
FIRST BANKING is under no obligation to file a registration statement
with the SEC covering the disposition of the undersigned's shares of
FIRST BANKING Common Stock or to take any other action necessary to make
compliance with an exemption from such registration available.
(d) The undersigned will, and will cause each of the other parties
whose shares are deemed to be beneficially owned by the undersigned
pursuant to Section 9 hereof, have all shares of WAYNE Common Stock
beneficially owned by the undersigned registered in the name of the
undersigned or such parties, as applicable, prior to the effective date
of the Merger and not in the name of any bank, broker-dealer, nominee or
clearinghouse.
(e) During the thirty (30) days immediately preceding the Effective
Time of the Merger, the undersigned has not sold, transferred, or
otherwise disposed of his interests in, or reduced his risk relative to,
any of the shares of WAYNE Common Stock beneficially owned by the
undersigned as of the record date for determination of shareholders
entitled to vote at the Shareholders' Meeting of WAYNE held to approve
the Merger.
(f) The undersigned is aware that FIRST BANKING intends to treat
the Merger as a tax-free reorganization under Section 368 of the Code
for federal income tax purposes. The undersigned agrees to treat the
transaction in the same manner as FIRST BANKING for federal income tax
purposes.
4. Restrictions on Transfer. The undersigned understands and agrees
that stop-transfer instructions with respect to the shares of FIRST BANKING
Common Stock received by the undersigned pursuant to the Merger will be
given to FIRST BANKING's Transfer Agent and that there will be placed on
the certificates for such shares, or shares issued in substitution thereof,
a legend stating in substance:
The shares represented by this certificate were issued pursuant to
a business combination which is accounted for as a "pooling of
interests" and may not be sold, nor may the owner thereof reduce his
risks relative thereto in any way, until such time as First
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Banking Company of Southeast Georgia ("FIRST BANKING") has published the
financial results covering at least 30 days of combined operations after
the effective date of the merger through which the business combination
was effected. In addition, the shares represented by this certificate
may not be sold, transferred or otherwise disposed of except or unless
(1) covered by an effective registration statement under the Securities
Act of 1933, as amended, (2) in accordance with (i) Rule 145(d) (in the
case of shares issued to an individual who is an affiliate of FIRST
BANKING) of the Rules and Regulations of such Act, or (3) in accordance
with a legal opinion satisfactory to counsel for FIRST BANKING that such
sale or transfer is otherwise exempt from the registration requirements
of such Act.
Such legend will also be placed on any certificate representing FIRST
BANKING securities issued subsequent to the original issuance of FIRST
BANKING Common Stock pursuant to the Merger as a result of any transfer of
such shares or any stock dividend, stock split, or other recapitalization
as long as the FIRST BANKING Common Stock issued to the undersigned
pursuant to the Merger has not been transferred in such manner as to
justify the removal of the legend therefrom. Upon the request of the
undersigned, FIRST BANKING shall cause the certificates representing the
shares of FIRST BANKING Common Stock issued to the undersigned in
connection with the Merger to be reissued free of any legend relating to
restrictions on transfer by virtue of ASR 130 and 135 as soon as
practicable after the requirements of ASR 130 and 135 have been met. In
addition, if the provisions of Rules 144 and 145 are amended to eliminate
restrictions applicable to the FIRST BANKING Common Stock received by the
undersigned pursuant to the Merger, or at the expiration of the restrictive
period set forth in Rule 145(d), FIRST BANKING, upon the request of the
undersigned, will cause the certificates representing the shares of FIRST
BANKING Common Stock issued to the undersigned in connection with the
Merger to be reissued free of any legend relating to the restrictions set
forth in Rules 144 and 145(d) upon receipt by FIRST BANKING of an opinion
of its counsel to the effect that such legend may be removed.
5. Understanding of Restrictions on Disposition. The undersigned has
carefully read the Agreement and this Affiliate Agreement and has discussed
their requirements and impact upon his ability to sell, transfer or
otherwise dispose of the shares of FIRST BANKING Common Stock received by
the undersigned, to the extent he believes necessary, with his counsel or
counsel for WAYNE.
6. Filing of Reports by FIRST BANKING. FIRST BANKING agrees, for a
period of three years after the effective date of the Merger, to file on a
timely basis all reports required to be filed by it pursuant to Section 13
of the Securities Exchange Act of 1934, as amended, so that the public
information provisions of Rule 145(d) promulgated by the SEC as the same
are presently in effect will be available to the undersigned in the event
the undersigned desires to transfer any shares of FIRST BANKING Common
Stock issued to the undersigned pursuant to the Merger.
7. Transfer Under Rule 145(d). If the undersigned desires to sell or
otherwise transfer the shares of FIRST BANKING Common Stock received by him
in connection with the Merger at any time during the restrictive period set
forth in Rule 145(d), the undersigned will provide the necessary
representation letter to the transfer agent for FIRST BANKING Common Stock,
together with such additional information as the transfer agent may
reasonably request. If FIRST BANKING's counsel concludes that such proposed
sale or transfer complies with the requirements of Rule 145(d), FIRST
BANKING shall cause such counsel to provide such
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opinions as may be necessary to FIRST BANKING's transfer agent so that the
undersigned may complete the proposed sale or transfer.
8. Acknowledgments. The undersigned recognizes and agrees that the
foregoing provisions also apply to all shares of the capital stock of WAYNE
and FIRST BANKING that are deemed to be beneficially owned by the
undersigned pursuant to applicable federal securities laws, which the
undersigned agrees may include, without limitation, shares owned or held in
the name of (i) the undersigned's spouse, (ii) any relative of the
undersigned or of the undersigned's spouse who has the same home as the
undersigned, (iii) any trust or estate in which the undersigned, the
undersigned's spouse and any such relative collectively own at least a ten
percent (10%) beneficial interest or of which any of the foregoing serves
as trustee, executor, or in any similar capacity, and (iv) any corporation
or other organization in which the undersigned, the undersigned's spouse
and any such relative collectively own at least ten percent (10%) of any
class of equity securities or of the equity interest. The undersigned
further recognizes that, in the event that the undersigned is a director or
officer of FIRST BANKING or becomes a director or officer of FIRST BANKING
upon consummation of the Merger, among other things, any sale of FIRST
BANKING Common Stock by the undersigned within a period of less than six
(6) months following the Effective Time of the Merger may subject the
undersigned to liability pursuant to Section 16(b) of the Securities
Exchange Act of 1934, as amended.
9. Miscellaneous. This Affiliate Agreement is the complete agreement
between FIRST BANKING and the undersigned concerning the subject matter
hereof. Any notice required to be sent to any party hereunder shall be sent
by registered or certified mail, return receipt requested, using the
addresses set forth herein or such other address as shall be furnished in
writing by the parties. This Affiliate Agreement shall be governed by the
laws of the State of Georgia.
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This Affiliate Agreement is executed as of the day of ,
1998.
Very truly yours,
--------------------------------------
Signature
--------------------------------------
Print Name
Address:
------------------------------
--------------------------------------
--------------------------------------
[add below the signatures of all
registered owners of shares deemed
beneficially owned by the affiliate]
--------------------------------------
Name
--------------------------------------
Name
--------------------------------------
Name
AGREED TO AND ACCEPTED as of
the day of , 1998.
FIRST BANKING COMPANY OF
SOUTHEAST GEORGIA
By:
----------------------------------
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<PAGE> 225
EXHIBIT 2
, 1998
First Banking Company of Southeast Georgia, Inc.
40 North Main Street
Statesboro, GA 30458
RE: Merger between First Banking Company of Southeast Georgia,
Inc. ("FIRST BANKING"), Statesboro, Georgia, and
Wayne Bancorp, Inc. "(WAYNE"), Jesup, Georgia
Ladies and Gentlemen:
This letter is delivered pursuant to Section 9.2(g) of the Agreement and
Plan of Merger, dated as of November 30, 1998, by and between FIRST BANKING and
WAYNE.
In my capacity as an officer or a director of WAYNE, and as of the date of
this letter, I do not, to the best of my knowledge, have any claims, and I am
not aware of any facts or circumstances that I believe are likely to give rise
to any claim, for indemnification under WAYNE'S Articles of Incorporation or
Bylaws as existing on the date hereof or as may be afforded by the laws of the
State of Georgia or the United States.
Very truly yours,
--------------------------------------
Signature of Officer or Director
--------------------------------------
Name of Officer or Director
--------------------------------------
Position at WAYNE
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APPENDIX B
EXCERPTS FROM THE GEORGIA BUSINESS CORPORATION
CODE RELATING TO DISSENTING SHAREHOLDERS
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<PAGE> 227
EXCERPTS FROM THE GEORGIA BUSINESS CORPORATION
CODE RELATING TO DISSENTING SHAREHOLDERS
14-2-1301. DEFINITIONS.
As used in this article, the term:
(1) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.
(2) "Corporate action" means the transaction or other action by the
corporation that creates dissenters' rights under Code Section 14-2-1302.
(3) "Corporation" means the issuer of shares held by a dissenter
before the corporate action, or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(4) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Code Section 14-2-1302 and who exercises that right
when and in the manner required by Code Sections 14-2-1320 through
14-2-1327.
(5) "Fair value," with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action.
(6) "Interest" means interest from the effective date of the corporate
action until the date of payment, at a rate that is fair and equitable
under all the circumstances.
(7) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder.
14-2-1302. RIGHT TO DISSENT.
(a) A record shareholder of the corporation is entitled to dissent from,
and obtain payment of the fair value of his or her shares in the event of, any
of the following corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party:
(A) If approval of the shareholders of the corporation is required
for the merger by Code Section 14-2-1103 or the articles of
incorporation and the shareholder is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged with its
parent under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of
the property of the corporation if a shareholder vote is required on the
sale or exchange pursuant to Code Section 14-2-1202, but not including a
sale pursuant to court order or a sale for cash pursuant to a plan by which
all or substantially all of the net proceeds of the sale will be
distributed to the shareholder within one year after the date of sale;
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(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(D) Excludes or limits the rights of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution
through issuance of shares or other securities with similar voting
rights;
(E) Reduces the number of shares owned by the shareholder to a
fraction of a share if the fractional share so created is to be acquired
for cash under Code Section 14-2-604; or
(F) Cancels, redeems, or repurchases all or part of the shares of
the class; or
(5) Any corporate action taken pursuant to a shareholder vote to the
extent that Article 9 of this chapter, the articles of incorporation,
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(b) A shareholder entitled to dissent and obtain payment for his or her
shares under this article may not challenge the corporate action creating his or
her entitlement unless the corporate action fails to comply with procedural
requirements of this chapter or the articles of incorporation or bylaws of the
corporation or the vote required to obtain approval of the corporate action was
obtained by fraudulent and deceptive means, regardless of whether the
shareholder has exercised dissenter's rights.
(c) Notwithstanding any other provision of this article, there shall be no
right of dissent in favor of the holder of shares of any class or series which,
at the record date fixed to determine the shareholders entitled to receive
notice of and to vote at a meeting at which a plan of merger or share exchange
or a sale or exchange of property or an amendment of the articles of
incorporation is to be acted on, were either listed on a national securities
exchange or held of record by more than 2,000 shareholders, unless:
(1) In the case of a plan of merger or share exchange, the holders of
shares of the class or series are required under the plan of merger or
share exchange to accept for their shares anything except shares of the
surviving corporation or another publicly held corporation which at the
effective date of the merger or share exchange are either listed on a
national securities exchange or held of record by more than 2,000
shareholders, except for scrip or cash payments in lieu of fractional
shares; or
(2) The articles of incorporation or a resolution of the board of
directors approving the transaction provides otherwise.
14-2-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his or her name only if he dissents with respect to all
shares beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf
asserts dissenters' rights. The rights of a partial dissenter under this Code
section are
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determined as if the shares as to which dissents and his or her other shares
were registered in the names of different shareholders.
14-2-1320. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the meeting
notice must state that shareholders are or may be entitled to assert dissenters'
rights under this article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under Code Section
14-2-1302 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Code Section
14-2-1322.
14-2-1321. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his or her intent to demand payment for his or her shares if the
proposed action is effectuated; and
(2) Must not vote his or her shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of
subsection (a) of this Code section is not entitled to payment for his or her
shares under this article.
14-2-1322. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is authorized at a shareholders' meeting, the corporation
shall deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after the
corporate action was taken and must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days after the
date the notice required in subsection (a) of this Code section is
delivered; and
(4) Be accompanied by a copy of this article.
14-2-1323. DUTY TO DEMAND PAYMENT.
(a) A record shareholder sent a dissenters' notice described in Code
Section 14-2-1322 must demand payment and deposit his or her certificates in
accordance with the terms of the notice.
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(b) A record shareholder who demands payment and deposits his or her shares
under subsection (a) of this Code section retains all other rights of a
shareholder until these rights are canceled or modified by the taking of the
proposed corporate action.
(c) A record shareholder who does not demand payment or deposit his or her
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for his or her shares under this article.
14-2-1324. SHARE RESTRICTIONS.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under Code Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are canceled or modified by the taking of the proposed corporate action.
14-2-1325. OFFER OF PAYMENT.
(a) Except as provided in Code Section 14-2-1327, within ten days of the
later of the date the proposed corporate action is taken or receipt of a payment
demand, the corporation shall offer to pay each dissenter who complied with Code
Section 14-2-1323 the amount the corporation estimates to be the fair value of
his or her shares, plus accrued interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of payment, an income
statement for that year, a statement of changes in shareholders' equity for
that year, and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written notice to
the corporation within 30 days after the corporation's offer, payment for his or
her shares shall be made within 60 days after the making of the offer or the
taking of the proposed corporate action, whichever is later.
14-2-1326. FAILURE TO TAKE ACTION.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section 14-2-1422 and repeat the payment demand
procedure.
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14-2-1327. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(a) A dissenter may notify the corporation in writing of his or her own
estimate of the fair value of his or her shares and amount of interest due, and
demand payment of his or her estimate of the fair value of his or her shares and
interest due, if:
(1) The dissenter believes that the amount offered under Code Section
14-2-1325 is less than the fair value of his or her shares or that the
interest due is incorrectly calculated; or
(2) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within 60 days after the date set for
demanding payment.
(b) A dissenter waives his or her right to demand payment under this Code
section unless he notifies the corporation of his or her demand in writing under
subsection (a) of this Code section within 30 days after the corporation made or
offered payment for his or her shares.
(c) If the corporation does not offer payment within the time set forth in
subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under
subsection (b) of Code Section 14-2-1325, and the corporation shall provide
the information to the shareholder within ten days after receipt of a
written demand for the information; and
(2) The shareholder may at any time, subject to the limitations period
of Code Section 14-2-1332, notify the corporation of his or her own
estimate of the fair value of his or her shares and the amount of interest
due and demand payment of his or her estimate of the fair value of his or
her shares and interest due.
14-2-1330. COURT ACTION.
(a) If a demand for payment under Code Section 14-2-1327 remains unsettled,
the corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the 60 day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a nonjury
equitable valuation proceeding, in the superior court of the county where a
corporation's registered office is located. If the surviving corporation is a
foreign corporation without a registered office in this state, it shall commence
the proceeding in the county in this state where the registered office of the
domestic corporation merged with or whose shares were acquired by the foreign
corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided by
law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail and publication,
or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this Code section is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them or in any amendment to it. Except as otherwise
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provided in this chapter, Chapter 11 of the Title 9, known as the "Georgia Civil
Practice Act," applies to any proceeding with respect to dissenters' rights
under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his or her shares,
plus interest to the date of judgment.
14-2-1331. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Code Section
14-2-1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective parties.
The court shall assess the costs against the corporation, except that the court
may assess the costs against all or some of the dissenters, in amounts the court
finds equitable, to the extent the court finds the dissenters acted arbitrarily,
vexatiously, or not in good faith in demanding payment under Code Section
14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and
experts for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of Code Sections 14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this article.
(c) If the court finds that the services of attorneys for any dissenter
were of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these attorneys reasonable fees to be paid out of the amounts
awarded the dissenters who were benefited.
14-2-1332. LIMITATION OF ACTIONS.
No action by any dissenter to enforce dissenters' rights shall be brought
more than three years after the corporate action was taken, regardless of
whether notice of the corporate action and of the right to dissent was given by
the corporation in compliance with the provisions of Code Section 14-2-1320 and
Code Section 14-2-1322.
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APPENDIX C
FAIRNESS OPINION
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December 14, 1998
Board of Directors
Wayne Bancorp, Inc.
818 South First Street
Jessup, Georgia 31545
Ladies and Gentlemen:
You have asked us to advise you with respect to the fairness to the
shareholders of Wayne Bancorp, Inc. ("WAYNE"), from a financial point of view,
of the exchange ratio (the "Exchange Ratio") provided for in the Agreement and
Plan of Merger dated as of November 30, 1998 (the "Merger Agreement") between
the WAYNE and First Banking Company of Southeast Georgia ("FBCG"). The Merger
Agreement provides for a merger (the "Merger") of WAYNE and FBCG pursuant to
which the common shareholders of WAYNE will receive 1.57024 common shares of
FBCG for every common share of WAYNE.
Holders of stock options, stock appreciation rights, or stock warrants
granted by WAYNE ("WAYNE Rights") not exercised prior to the effective time of
the merger shall be forfeited.
Termination rights to the Merger are available, as fully described in
Section 10 of the Merger Agreement, at any time prior to the effective time:
(a) By mutual consent of FBCG and WAYNE; or
(b) By either Party (provided that the terminating Party is not then
in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event of a material breach by
the other Party of any representation or warranty contained in this
Agreement which cannot be or has not been cured within 30 days after the
giving of written notice to the breaching Party of such breach and which
breach is reasonably likely, in the opinion of the non-breaching Party to
have, individually or in the aggregate, a WAYNE Material Adverse Effect or
a FBCG Material Adverse Effect, as applicable, on the breaching Party; or
(c) By either Party (provided that the terminating Party is not then
in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event of a material breach by
the other Party of any covenant or agreement contained in this Agreement
which cannot be or has not been cured within 30 days after giving of
written notice to the breaching Party of such breach; or
(d) By either Party (provided that the terminating Party is not then
in material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event (i) any Consent of any
Regulatory Authority required for consummation of the Merger and the other
transactions contemplated hereby shall have been denied by final
non-appealable action of such authority or if any action taken by such
authority is not appealed within the time limit for appeal, or (ii) the
shareholders of WAYNE fail to vote their approval of the matters relating
to this Agreement and the transactions contemplated hereby at the
Shareholders' Meeting where such matters were presented to such
shareholders for approval and voted upon; or
(e) By either Party in the event that the Merger shall not have been
consummated by April 30, 1999, if the failure to consummate the
transactions contemplated hereby on or before such date is not caused by
any breach of this Agreement by the Party electing to terminate pursuant to
this section 10.1(e).
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In arriving at our opinion, we have reviewed certain publicly available
business and financial information relating to FBCG and WAYNE. We have also
reviewed certain other information, including financial forecasts and budgets
and have discussed with WAYNE's management the business and prospects of WAYNE.
We have also considered certain financial and stock market data of FBCG and
we have compared that data with similar data for other publicly held bank
holding companies and we have considered the financial terms of certain other
comparable transactions which have recently been effected. We also considered
such other information, financial studies, analyses and investigations and
financial, economic and market criteria which we deemed relevant. In connection
with our review, we have not independently verified any of the foregoing
information and have relied on its being complete and accurate in all material
respects. With respect to the financial forecasts and budgets, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of WAYNE's management as to the future
financial performance of WAYNE. We have not made an independent evaluation or
appraisal of the assets of FBCG or WAYNE and we have assumed that the aggregate
allowances for loan losses for FBCG and WAYNE are adequate to cover such losses.
We have not solicited third party indications of interest in acquiring WAYNE.
It should be noted that this opinion is based on market conditions and
other circumstances existing on the date hereof and this opinion does not
represent our view as to what the value of the FBCG common stock necessarily
will be when the FBCG common stock is issued to the stockholders of WAYNE upon
consummation of the Merger.
Stevens & Company is a financial consulting and investment banking firm
that specializes in community bank transactions. We have acted as financial
advisor to WAYNE in connection with the Merger and will receive a fee for our
services, a significant portion of which is contingent upon the consummation of
the Merger.
Based on the above, it is our opinion that the Exchange Ratio to be
received of the Merger is fair, as of the date hereof, from a financial point of
view, to the common shareholders of WAYNE.
This opinion is being delivered to the Board of Directors of WAYNE, and is
not to be reproduced or, delivered to any third party without the expressed
written consent of Stevens & Company, except as required by law. However, it is
understood that this opinion may be included in its entirety in any
communication by WAYNE or its Board of Directors to WAYNE's shareholders.
STEVENS & COMPANY
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PROXY
WAYNE BANCORP, INC.
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby constitutes and appoints Douglas R. Harper and J.
Ashley Dukes, or either of them, as proxies, each with full power of
substitution, to vote the number of shares of common stock of Wayne Bancorp,
Inc. ("Wayne"), which the undersigned would be entitled to vote if personally
present at the Special Meeting of Wayne Shareholders to be held at the main
office of Wayne located at 818 S. First Street, Jesup, Georgia 31545 on
, 1999 at , local time, and at any adjournment or postponement thereof (the
"Special Meeting") upon the proposals described in the Proxy
Statement/Prospectus and the Notice of Special Meeting of Shareholders, dated
, 1999, the receipt of which is acknowledged in the manner specified
below.
1. Merger. To approve, ratify, confirm and adopt the Agreement and Plan of
Merger, dated as of November 30, 1998 (the "Merger Agreement"), by and among
First Banking Company of Southeast Georgia ("First Banking") and Wayne
pursuant to which (i) Wayne will merge with and into First Banking, and (ii)
each share of the $1.00 par value common stock of Wayne issued and
outstanding at the effective time of the merger will be exchanged for
1.57024 shares of $1.00 par value common stock of First Banking.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In the discretion of the proxies on such other matters as may properly come
before the Special Meeting or any adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1 ABOVE.
Please sign this proxy exactly as your name appears below. When shares are
held jointly, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
DATED:
------------------, 1999
-------------------------------
Signature
-------------------------------
Signature if held jointly
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF WAYNE BANCORP, INC.,
AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
I will will not attend the Special Meeting.
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<PAGE> 237
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20 -- INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The provisions of the Georgia Code and the Registrant's Bylaws set forth
the extent to which the Registrant's directors and officers may be indemnified
against liabilities they may incur while serving in such capacities. Under the
Registrant's Bylaws, the Registrant is required to indemnify its officers and
directors against reasonable expenses (including attorneys' fees) incurred by
them in the defense of any action, suit or proceeding to which they were made a
party, or in defense of any claim, issue or matter therein, by reason of the
fact that they are or were officers, directors, employees or agents of the
Registrant, to the extent that they have been successful, on the merits or
otherwise, in such defense. The Registrant's Bylaws also permit indemnification
of its directors and officers against any liability incurred in connection with
any threatened, pending or completed action, suit or proceeding by reason of the
fact that they are or were directors or officers of the Registrant or who, while
directors or officers of the Registrant, are or were serving at the Registrant's
request as directors, officers, partners, trustees, employees or agents of
another entity, if they acted in a manner they reasonably believed to be in, or
not opposed to, the best interests of the Registrant, or, with respect to any
criminal proceeding, had no reasonable cause to believe their conduct was
unlawful, if a determination has been made that they have met these standards of
conduct. Such indemnification in connection with a proceeding by or in the right
of the Registrant, however, is limited to reasonable expenses, including
attorneys' fees, incurred in connection with the proceeding. The Registrant must
also provide advancement of expenses incurred by any director or officer in
defending any such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such officer or director to repay such advances if it is
ultimately determined that he or she is not entitled to indemnification by the
Registrant.
The Registrant may not indemnify a director or officer in connection with a
proceeding by or in the right of the Registrant in which the director or officer
was adjudged liable to the Registrant, for appropriation of a business
opportunity, for payment of unlawful dividends, in connection with a proceeding
in which he or she was adjudged liable on the basis that he or she improperly
received a personal benefit or for intentional misconduct or a knowing violation
of law.
The indemnification provisions of the Georgia Code are essentially
identical to those set forth above, except that the Georgia Code permits, but
does not require, a corporation to advance expenses under the circumstances for
such payments described above.
The Registrant maintains an insurance policy insuring the Registrant and
its directors and officers against certain liabilities, including liabilities
under the Securities Act of 1933.
The Registrant's Articles of Incorporation provide that no director of the
Registrant shall be personally liable to the Registrant or its shareholders for
monetary damages for a breach of the duty of care or of any other duty as a
director, except in the case of: (i) wrongful appropriation of any business
opportunity of the Registrant; (ii) acts or omissions not in good faith or
involving intentional misconduct or a knowing violation or law; (iii) liability
for unlawful distributions; or (iv) any transaction from which the director
derived an improper personal benefit. The Georgia Code currently permits a
corporation to limit the liability of its directors to the foregoing extent. If
the Georgia Code is amended to permit additional limitations on liability in the
future, the liability of directors of the Registrant will be limited to the
fullest extent permitted under the Georgia Code.
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ITEM 21 -- EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits (See exhibit index immediately preceding the exhibits for the
page number where each exhibit can be found)
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S> <C>
1 -- Agreement and Plan of Merger dated November 30, 1998 between
First Banking and Wayne (included as Appendix A to the Proxy
Statement/Prospectus contained herein).
5.1 -- Opinion of Powell, Goldstein, Frazer & Murphy LLP, including
consent
8.1 -- Opinion of Powell, Goldstein, Frazer & Murphy LLP, including
consent
10.1 -- Profit Sharing Plan, as restated December 29, 1994.
10.2 -- Trust Agreement related to the Registrant's Profit Sharing
Plan, as amended and restated December 30, 1988, effective
January 1, 1989.
10.3 -- Target Benefit Retirement Plan, as restated December 29,
1994.
10.4 -- Trust Agreement related to the Registrant's Target Benefit
Retirement Plan, as amended and restated December 30, 1988,
effective January 1, 1989.
10.5 -- Employment Agreement dated as of February 20, 1996 among the
Registrant, First Bulloch Bank & Trust Company and James Eli
Hodges.(1)
10.6 -- Employment Agreement dated as of April 9, 1996 among the
Registrant, Metter Banking Company and Julian C. Lane,
Jr.(2)
10.7 -- Employment Agreement dated as of October 20, 1998 among the
Registrant, First Bulloch Bank & Trust Company and Douglas
E. Wren.
10.8 -- 1997 Stock Option Plan (3)
23.1 -- Consent of Powell, Goldstein, Frazer & Murphy LLP (included
in Exhibits 5.1 and 8.1)
23.2 -- Consent of Deloitte & Touche LLP
23.3 -- Consent of McNair, McLemore, Middlebrooks & Co. LLP
23.4 -- Consent of Stevens & Company
24 -- Power of Attorney (see signature page to the Registration
Statement)
99.1 -- Form of Proxy of Wayne
99.2 -- Consent of J. Ashley Dukes to be named in Proxy
Statement/Prospectus
</TABLE>
- ---------------
(1) Incorporated by reference to the exhibit of the same number to the
Registrant's Annual Report on Form 10-KSB for the year ended December 31,
1995.
(2) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-QSB for the quarter ended March 31,
1996.
(3) Incorporated by reference to Appendix A to the Registrant's Proxy Statement
filed under cover of Schedule 14-A for the 1997 Annual Meeting of
Shareholders.
(b) Financial Statement Schedules
Schedules are omitted because they are not required or are not applicable,
or the required information is shown in the financial statements or notes
thereto.
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ITEM 22 -- UNDERTAKINGS.
(1) The undersigned Registrant hereby undertakes:
(a) 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 a 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.
(b) 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.
(c) 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.
(d) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
the Registrant's Annual Report pursuant to Section 13(a) or 15(d) of
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
Registration Statement shall be deemed to be a new Registration Statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(e) The undersigned registrant hereby undertakes as follows: that
prior to any public reoffering of the securities registered hereunder
through use of a prospectus which is a part of this registration statement,
by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
(f) The registrant undertakes that every prospectus: (i) that is filed
pursuant to paragraph (1) immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be
filed as a part of an amendment to the registration statement and will not
be used until such
II-3
<PAGE> 240
amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(2) The undersigned Registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of Form S-4, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the Registration Statement through the date
of responding to the request.
(3) The undersigned Registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(4) 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 (see Item 20), or otherwise,
the Registrant has been informed that in the opinion of the Commission such
indemnification is against public policy as expressed in the Securities Act of
1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act of 1933 and will be governed by the final adjudication of such issue.
II-4
<PAGE> 241
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Statesboro, State of
Georgia, on February 8, 1999.
FIRST BANKING COMPANY OF SOUTHEAST
GEORGIA
By: /s/ JAMES ELI HODGES
------------------------------------
James Eli Hodges
President
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JAMES ELI HODGES President and Director February 8, 1999
- -------------------------------------------------------- (principal executive
James Eli Hodges officer)
/s/ JULIAN C. LANE, JR. Vice President and February 8, 1999
- -------------------------------------------------------- Director
Julian C. Lane, Jr.
/s/ DOUGLAS E. WREN Vice President and February 8, 1999
- -------------------------------------------------------- Director
Douglas E. Wren
/s/ DWAYNE E. ROCKER Secretary and Treasurer February 8, 1999
- -------------------------------------------------------- (principal financial
Dwayne E. Rocker and accounting officer)
/s/ E. RAYBON ANDERSON Director February 8, 1999
- --------------------------------------------------------
E. Raybon Anderson
Director February , 1999
- --------------------------------------------------------
A. M. Braswell, Jr.
/s/ W. A. CRIDER, JR. Director February 8, 1999
- --------------------------------------------------------
W. A. Crider, Jr.
/s/ C. ARTHUR HOWARD Director February 8, 1999
- --------------------------------------------------------
C. Arthur Howard
/s/ LANIER A. HUNNICUTT Director February 8, 1999
- --------------------------------------------------------
Lanier A. Hunnicutt
</TABLE>
II-5
<PAGE> 242
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ JOE P. JOHNSTON Director February 8, 1999
- --------------------------------------------------------
Joe P. Johnston
/s/ DAN J. PARRISH, JR. Director February 8, 1999
- --------------------------------------------------------
Dan J. Parrish, Jr.
/s/ CHARLES M. ROBBINS, JR. Director February 8, 1999
- --------------------------------------------------------
Charles M. Robbins, Jr.
Director February , 1999
- --------------------------------------------------------
Larry D. Weddle
/s/ ALVIN WILLIAMS Director February 8, 1999
- --------------------------------------------------------
Alvin Williams
/s/ HARRY S. MATHEWS Director February 8, 1999
- --------------------------------------------------------
Harry S. Mathews
</TABLE>
II-6
<PAGE> 243
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
- ------- -----------------------
<C> <S> <C>
1 -- Agreement and Plan of Merger dated November 30, 1998 between
First Banking and Wayne (included as Appendix A to the Proxy
Statement/Prospectus contained herein).
5.1 -- Opinion of Powell, Goldstein, Frazer & Murphy LLP, including
consent
8.1 -- Opinion of Powell, Goldstein, Frazer & Murphy LLP, including
consent
10.1 -- Profit Sharing Plan, as restated December 29, 1994.
10.2 -- Trust Agreement related to the Registrant's Profit Sharing
Plan, as amended and restated December 30, 1988, effective
January 1, 1989.
10.3 -- Target Benefit Retirement Plan, as restated December 29,
1994.
10.4 -- Trust Agreement related to the Registrant's Target Benefit
Retirement Plan, as amended and restated December 30, 1988,
effective January 1, 1989.
10.5 -- Employment Agreement dated as of February 20, 1996 among the
Registrant, First Bulloch Bank & Trust Company and James Eli
Hodges.(1)
10.6 -- Employment Agreement dated as of April 9, 1996 among the
Registrant, Metter Banking Company and Julian C. Lane,
Jr.(2)
10.7 -- Employment Agreement dated as of October 20, 1998 among the
Registrant, First Bulloch Bank & Trust Company and Douglas
E. Wren.
10.8 -- 1997 Stock Option Plan.(3)
23.1 -- Consent of Powell, Goldstein, Frazer & Murphy LLP (included
in Exhibits 5.1 and 8.1)
23.2 -- Consent of Deloitte & Touche LLP
23.3 -- Consent of McNair, McLemore, Middlebrooks & Co. LLP
23.4 -- Consent of Stevens & Company
24 -- Power of Attorney (see signature page to the Registration
Statement)
99.1 -- Form of Proxy of Wayne
99.2 -- Consent of J. Ashley Dukes to be named in Proxy
Statement/Prospectus
</TABLE>
- ---------------
(1) Incorporated by reference to the exhibit of the same number to the
Registrant's Annual Report on Form 10-KSB for the year ended December 31,
1995.
(2) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-QSB for the quarter ended March 31,
1996.
(3) Incorporated by reference to Appendix A to Registrant's Proxy Statement
filed under cover of Schedule 14-A for the 1997 Annual Meeting of
Shareholders.
<PAGE> 1
EXHIBIT 5.1
OPINION OF POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
<PAGE> 2
OPINION OF POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
191 PEACHTREE STREET, N.E., Suite 1600
ATLANTA, GEORGIA 30303
(404) 572-6600
February 8, 1999
First Banking Company of Southeast Georgia
40 North Main Street
Statesboro, Georgia 30458
Re: Registration Statement on Form S-4
Ladies and Gentlemen:
This opinion is given in connection with the filing by First Banking
Company of Southeast Georgia ("First Banking"), a corporation organized and
existing under the laws of the State of Georgia, with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, of a
Registration Statement on Form S-4 ("Registration Statement") with respect to
the shares of the $1.00 par value common stock of First Banking to be issued in
connection with the proposed merger of Wayne Bancorp, Inc. ("Wayne") with and
into First Banking (the "Merger").
The Merger is intended to be effected pursuant to an Agreement and Plan
of Merger dated as of November 30, 1998 (the "Agreement") between First Banking
and Wayne, pursuant to which each outstanding share of Wayne common stock (other
than shares held by Wayne, First Banking or their subsidiaries or by
shareholders who perfect their dissenters' rights) will be converted into and
exchanged for the right to receive 1.57024 shares of First Banking common stock.
In rendering this opinion, we have examined such corporate records and
documents, including the Agreement, as we have deemed relevant and necessary as
the basis for the opinion set forth herein.
Based upon the foregoing, it is our opinion that the shares of First
Banking common stock, when issued to the holders of Wayne common stock in
accordance with the terms and upon the fulfillment of the conditions set forth
in the Agreement, such shares will be validly issued, fully paid and
non-assessable under the Georgia Business Corporation Code.
We hereby consent to the use of this opinion and to the reference made
to our Firm under the caption "Legal Matters" in the Proxy Statement/Prospectus
constituting part of the Registration Statement.
Very truly yours,
/S/ POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
<PAGE> 1
EXHIBIT 8.1
OPINION OF POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
<PAGE> 2
POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
191 PEACHTREE STREET, N.E., Suite 1600
ATLANTA, GEORGIA 30303
(404) 572-6600
February 8, 1999
First Banking Company of Southeast Georgia
400 North Main Street
Statesboro, Georgia 30458
Wayne Bancorp, Inc.
818 S. First Street
Jesup, Georgia 31545
Re: Merger of Wayne Bancorp, Inc. into First Banking Company of Southeast
Georgia
Ladies and Gentlemen:
You have requested our opinion as to the tax consequences under the Internal
Revenue Code of 1986, as amended (the "Code") of the proposed merger (the
"Merger") of Wayne Bancorp, Inc., a corporation organized and existing under the
laws of the State of Georgia ("Wayne"), with and into First Banking Company of
Southeast Georgia, a corporation organized and existing under the laws of the
State of Georgia ("First Banking"), with First Banking as the surviving entity,
in accordance with that certain Agreement and Plan of Merger (the "Merger
Agreement"), dated November 30, 1998. Specifically, you have requested us to
opine that the Merger will constitute a "tax-free" reorganization within the
meaning of Section 368 of the Code.
In rendering the opinions expressed below, we have examined the following
documents (the "Documents"):
(a) The Merger Agreement and amendments thereto;
(b) The Statements of Facts and Representations of Wayne
Bancorp, Inc. and First Banking Company of Southeast Georgia,
that have been delivered to the undersigned and are incorporated
herein by reference; and
(c) Such other documents and records as we have deemed
necessary in order to enable us to render the opinions expressed below.
Terms not otherwise defined in this opinion letter have the meaning
given those terms in the Documents.
In rendering the opinions expressed below, we have assumed, without any
independent investigation or verification of any kind, that all of the
information as to factual matters contained in the Documents is true, correct,
and complete. Any inaccuracy with respect to factual matters contained in the
Documents or incompleteness in our understanding of the facts could alter the
conclusion reached in this opinion.
In addition, for purposes of rendering the opinions expressed below, we
have assumed with your permission, that (i) all signatures on all Documents
reviewed by us are genuine, (ii) all Documents submitted to us as originals are
true and correct, (iii) all Documents submitted to us as copies are true and
correct copies
<PAGE> 3
First Banking Company of Southeast Georgia
Wayne Bancorp, Inc.
February 8, 1999
Page - 2 -
of the originals thereof, (iv) each natural person signing any Document reviewed
by us had the legal capacity to do so, and (v) the Merger and the transactions
contemplated in the Merger Agreement will be effected in accordance with the
terms thereof.
Finally, with your permission we have assumed that the sum of the
amount of cash and the value of any property other than First Banking stock paid
to Wayne shareholders who exercise their statutory right to dissent to the
Merger, the amount of cash and the value of any property other than First
Banking stock given as consideration by First Banking (or a person related to
First Banking within the meaning of Treasury Regulation Section 1.368-1(e)(2))
in exchange for Wayne stock prior to, but in contemplation of, the Merger or in
redemption of First Banking stock after the Merger, and the amount of cash paid
to Wayne shareholders in lieu of the issuance of fractional shares of First
Banking stock will not exceed fifty percent (50%) of the value of all of the
formerly outstanding shares of Wayne stock as of the time of the Merger.
OPINION
Based upon the foregoing, it is our opinion that, provided the Merger
qualifies as a statutory merger under the GBCC, the Merger will constitute a
reorganization within the meaning of Code Section 368(a)(1)(A).
Accordingly, it is our opinion that:
a. No gain or loss will be recognized for federal
income tax purposes by Wayne shareholders upon the exchange of
shares of Wayne stock for shares of First Banking stock. Code
Section 354(a).
b. Cash received in lieu of fractional shares will be
treated for federal income tax purposes as if the fractional
shares were distributed and then redeemed by First Banking.
The cash payments will be treated as having been received as a
distribution in exchange for the fractional shares redeemed.
Code Section 302(a); Rev. Rul. 66-365, 1966-2 C.B. 116.
c. Wayne shareholders that receive First Banking
stock, including fractional shares, will have a basis in that
First Banking stock equal to their basis in the Wayne stock
surrendered therefore. Code Section 358(a)(1).
e. The holding period of the First Banking stock
received by Wayne shareholders will include the period during
which the Wayne shareholders held the Wayne stock surrendered
therefore, provided the Wayne stock was held as a capital
asset. Code Section 1223(1).
f. Wayne shareholders who receive solely cash
pursuant to their statutory right to dissent will be treated
as having received such payment in redemption of their stock,
as provided in Code Section 302(a). Generally, any gain or
loss recognized by any such Wayne shareholder will be capital
gain or loss, provided (i) the Wayne common stock constitutes
a capital asset in the hands of such shareholder, and (ii) the
requirements of Section 302(b)(1), (2) or (3) of the Code are
met. Each affected Wayne shareholder should consult such
shareholder's own tax advisor for the tax effect of such
redemption (i.e., exchange treatment or dividend).
<PAGE> 4
First Banking Company of Southeast Georgia
Wayne Bancorp, Inc.
February 8, 1999
Page - 3 -
g. No gain or loss will be recognized by Wayne as a
consequence of the Merger, except for gain or loss recognized
pursuant to Treasury Regulations issued under Code Section
1502. Code Section 361(a).
h. First Banking's basis in the assets received from
Wayne as part of the Merger will equal Wayne's basis in the
assets immediately prior to the Merger. Code Section 362(b).
i. The holding period of the Wayne assets transferred
to First Banking as part of the Merger shall include the
period during which such assets were held by Wayne, provided
the assets were held as capital assets. Code Section 1223(2).
* * * * *
Our opinions are based upon the facts as they exist today, the existing
provisions of the Code, Treasury Regulations issued or proposed thereunder,
published Revenue Rulings and releases of the Internal Revenue Service, and
existing federal case law, any of which could be changed at any time. Any such
change may be retroactive in application and could modify the legal conclusion
upon which our opinions are based.
In addition, this opinion does not address any tax considerations under
foreign, state, or local laws, or the tax considerations to certain Wayne
shareholders in light of their particular circumstances, including persons who
are not United States persons, dealers in securities, tax-exempt entities,
shareholders who do not hold Wayne common stock as "capital assets" within the
meaning of Section 1221 of the Internal Revenue Code, and shareholders who
acquired their shares of Wayne common stock pursuant to the exercise of Wayne
options or otherwise as compensation.
This opinion letter is being furnished only to the parties to which it
is addressed and is solely for their benefit. No other person shall be entitled
to rely on the opinions without our prior express written consent. This opinion
letter may not be used, circulated, quoted, published, or otherwise referred to
for any purpose without our prior express written consent, except that we
consent to the inclusion of this opinion as an exhibit to the registration
statements required under the Securities Act of 1933 (the "Securities Act") in
connection with the Distribution and the Merger. In giving such consent, we do
not thereby admit that we are acting within the category of persons whose
consent is required under Section 7 of the Securities Act and the rules and
regulations of the Securities and Exchange Commission thereunder. Our opinions
are limited to the matters stated herein, and no opinion is implied or may be
inferred beyond the opinions expressly stated herein.
Very truly yours,
/s/ POWELL, GOLDSTEIN, FRAZER & MURPHY LLP
<PAGE> 1
EXHIBIT 10.1
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
PROFIT SHARING PLAN
THIS INDENTURE made on the 29th day of December, 1994, by FIRST BANKING
COMPANY OF SOUTHEAST GEORGIA, a corporation duly organized and existing under
the laws of the State of Georgia (hereinafter called the "Primary Sponsor");
W I T N E S S E T H:
WHEREAS, the Primary Sponsor established the First Banking Company of
Southeast Georgia Uniform Profit Sharing Plan under an indenture dated December
11, 1985 (the "Old Plan"); and
WHEREAS, First Bulloch Bank & Trust Company ("First Bulloch") adopted
the Old Plan by execution of an Adoption Agreement dated December 11, 1985 (the
"First Bulloch Plan"); and
WHEREAS, Metter Banking Company ("Metter") established the Metter
Banking Company Profit Sharing Plan under an amended and restated indenture
effective January 1, 1984 (the "Metter Plan"); and
WHEREAS, the Primary Sponsor, First Bulloch and Metter amended and
restated the Old Plan, the First Bulloch Plan, and the Metter Plan into the
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA PROFIT SHARING PLAN (the "Plan") by
indenture dated December 30, 1988, and further amended and restated the Plan by
indenture dated December 28, 1989; and
WHEREAS, the Plan is intended to be a profit sharing plan within the
meaning of Treasury Regulation Section 1.401-1(b)(1)(ii) and also contains a
cash or deferred arrangement as described in Section 401(k) of the Internal
Revenue Code of 1986; and
WHEREAS, the Primary Sponsor now wishes to amend and restate the Plan
primarily to comply with the provisions of the Tax Reform Act of 1986,
subsequent legislation, and various regulations and rulings issued by government
agencies thereon; and
WHEREAS, the provisions of the Plan, as amended and restated herein,
shall apply only to Plan years beginning after December 31, 1988, and only with
respect to members who perform an Hour of Service (as defined in the Plan) in
Plan years beginning after December 31, 1988, except to the extent the
provisions are required to apply at another date or to any other members to
comply with applicable law;
NOW, THEREFORE, the Primary Sponsor does hereby amend and restate the
Plan in its entirety, effective as of January 1, 1989, except as otherwise
provided herein, to read as follows:
<PAGE> 2
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
PROFIT SHARING PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1 DEFINITIONS.....................................................................................1
SECTION 2 ELIGIBILITY....................................................................................11
SECTION 3 CONTRIBUTIONS..................................................................................12
SECTION 4 ALLOCATIONS....................................................................................14
SECTION 5 PLAN LOANS.....................................................................................16
SECTION 6 HARDSHIP DISTRIBUTIONS.........................................................................18
SECTION 7 DEATH BENEFITS.................................................................................20
SECTION 8 PAYMENT OF BENEFITS ON RETIREMENT OR DEATH.....................................................21
SECTION 9 PAYMENT OF BENEFITS ON TERMINATION
OF EMPLOYMENT..................................................................................25
SECTION 10 CONDITIONS OF DISTRIBUTION OF COMPANY STOCK....................................................27
SECTION 11 ADMINISTRATION OF THE PLAN.....................................................................28
SECTION 12 CLAIM REVIEW PROCEDURE.........................................................................31
SECTION 13 LIMITATION OF ASSIGNMENT, PAYMENTS TO LEGALLY
INCOMPETENT DISTRIBUTEE AND UNCLAIMED PAYMENTS.................................................32
SECTION 14 PROHIBITION AGAINST DIVERSION..................................................................33
SECTION 15 LIMITATION OF RIGHTS...........................................................................33
SECTION 16 AMENDMENT TO OR TERMINATION OF THE PLAN
AND THE TRUST..................................................................................34
SECTION 17 ADOPTION OF PLAN BY AFFILIATES.................................................................35
SECTION 18 QUALIFICATION AND RETURN OF CONTRIBUTIONS......................................................36
SECTION 19 INCORPORATION OF SPECIAL LIMITATIONS...........................................................36
APPENDIX A SPECIAL NONDISCRIMINATION RULES ..............................................................A-1
APPENDIX B LIMITATION ON ALLOCATIONS ....................................................................B-1
APPENDIX C TOP-HEAVY PROVISIONS..........................................................................C-1
</TABLE>
<PAGE> 3
SECTION 1
DEFINITIONS
Wherever used herein, the masculine pronoun shall be deemed to include
the feminine, and the singular to include the plural, unless the context clearly
indicates otherwise and the following words and phrases shall, when used herein,
have the meanings set forth below:
1.1 "Account" means the account established and maintained by the
Plan Administrator to reflect the interest of a Member in the Fund. In addition
to any other accounts as the Plan Administrator may establish and maintain, the
Plan Administrator shall establish and maintain separate accounts (each of which
shall be adjusted pursuant to the Plan to reflect income, gains, losses and
other credits or charges attributable thereto) for each Member to be designated
as follows:
(a) "Employee Deferral Account" which shall reflect a
Member's interest in contributions made by a Plan Sponsor under Plan
Section 3.1.
(b) "Matching Account" which shall reflect a Member's
interest in matching contributions made by a Plan Sponsor under Plan
Section 3.2.
(c) "ROA Account" which shall reflect a Member's interest
in contributions made by a Plan Sponsor under Plan Section 3.3.
(d) "Voluntary Contribution Account" which shall reflect
a Member's interest in Voluntary Contributions made by a Member to the
Fund.
(e) "Rollover Account" which shall reflect a Member's
interest in Rollover Amounts.
(f) "Metter Profit Sharing Account" which shall reflect a
Member's interest in his account under the Metter Plan.
The Matching Accounts and ROA Accounts shall each consist of a Company
Stock Subaccount and an Other Investment Subaccount. The Employee Deferral
Accounts, Voluntary Contribution Accounts and Metter Profit Sharing Accounts
shall each consist solely of an Other Investment Subaccount. In addition, the
Plan Administrator shall allocate the interest of a Member in any funds
transferred to the Plan in a trust-to-trust transfer (other than Rollover
Amounts) or pursuant to the merger of another tax-qualified retirement plan with
the Plan among the above accounts as the Plan Administrator determines best
reflects the interest of the Member.
1.2 "Accrued Benefit" means the balance of a Member's Account.
1.3 "Affiliate" means (a) any corporation which is a member of the
same controlled group of corporations (within the meaning of Code Section
414(b)) as is a Plan Sponsor, (b) any other trade or business (whether or not
incorporated) under common control (within the meaning of Code Section 414(c))
with a Plan Sponsor, (c) any other corporation, partnership or other
organization which is a member of an affiliated service group (within the
meaning of Code Section 414(m)) with a Plan Sponsor, and (d) any other entity
required to be aggregated with a Plan Sponsor pursuant to regulations under Code
Section 414(o).
<PAGE> 4
1.4 "Anniversary Date" means the first day of each Plan Year.
1.5 "Annual Compensation" means the amount paid to an Employee by
a Plan Sponsor and Affiliates during a Plan Year as wages, salaries for
professional services, and other amounts received for personal services actually
rendered (including, but not limited to, commissions paid salesmen, compensation
for services on the basis of percentage of profits, commissions on insurance
premiums, tips and bonuses), to the extent not in excess of the Annual
Compensation Limit. For purposes of the preceding sentence, income from sources
outside the United States otherwise excluded from gross income under Code
Section 911 shall be included in Annual Compensation. Annual Compensation does
not include deferred compensation, stock options, and other amounts which
receive special tax benefits. Notwithstanding the above, Annual Compensation
shall be determined as follows:
(a) in determining with respect to each Plan Sponsor the
amount of contributions under Plan Section 3 made by or on behalf of an
Employee and allocations under Plan Section 4, and for purposes of
applying the provisions of Appendix A hereto for such Plan Years as the
Secretary of the Treasury may allow, Annual Compensation shall only
include amounts received from that Plan Sponsor for the portion of the
Plan Year during which the Employee was a Member;
(b) for purposes of applying the Annual Compensation
Limit, with respect to Plan Section 3 and Appendix A, the rules
contained in Subsection (c) of the Plan Section 1.28 shall apply,
except that in applying such rules, the term "family" shall include
only the spouse of the Member and any lineal descendants of the Member
who have not attained age 19 before the close of the Plan Year;
(c) for all purposes under the Plan except Appendices B
and C hereto, Annual Compensation shall include any amount which would
have been paid during a Plan Year, but was contributed by a Plan
Sponsor on behalf of an Employee pursuant to a salary reduction
agreement which is not includable in the gross income of the Employee
under Section 125, 402(e)(3), or 402(h) of the Code; and
(d) for purposes of applying the annual addition limits
set forth in Appendix B, the term Plan Sponsor as used in Plan Section
1.5 shall mean Plan Sponsor as that term is defined in Section 4 of
Appendix B.
1.6 "Annual Compensation Limit" means (1) $200,000 for
the Plan Year beginning in 1989, which amount may be adjusted in subsequent Plan
Years through the Plan Year beginning in 1993, based on changes in the cost of
living as announced by the Secretary of the Treasury, and (2) $150,000 for the
Plan Year beginning in 1994, which amount may be adjusted in subsequent Plan
Years based on changes in the cost of living as announced by the Secretary of
the Treasury.
1.7 "Beneficiary" means the person or trust that a Member
designated most recently in writing to the Plan Administrator; provided,
however, that if the Member has failed to make a
-2-
<PAGE> 5
designation, no person designated is alive, no trust has been established, or no
successor Beneficiary has been designated who is alive, the term "Beneficiary"
means (a) the Member's spouse or (b) if no spouse is alive, the Member's
surviving children, or (c) if no children are alive, the Member's parent or
parents, or (d) if no parent is alive, the legal representative of the deceased
Member's estate. Notwithstanding the preceding sentence, the spouse of a married
Member shall be his Beneficiary unless that spouse has consented in writing to
the designation by the Member of some other person or trust and the spouse's
consent acknowledges the effect of the designation and is witnessed by a notary
public. A Member may change his designation at any time. However, a Member may
not change his designation without further consent of his spouse under the terms
of the preceding sentence unless the spouse's consent permits designation of
another person or trust without further spousal consent and acknowledges that
the spouse has the right to limit consent to a specific beneficiary and that the
spouse voluntarily relinquishes this right. Notwithstanding the above, the
spouse's consent shall not be required if the Member establishes to the
satisfaction of the Plan Administrator that the spouse cannot be located, if the
Member has a court order indicating that he is legally separated or has been
abandoned (within the meaning of local law) unless a "qualified domestic
relations order" (as defined in Code Section 414(p)) provides otherwise, or if
there are other circumstances as the Secretary of the Treasury prescribes. If
the spouse is legally incompetent to give consent, consent by the spouse's legal
guardian shall be deemed to be consent by the spouse. 1.8 "Board of Directors"
means the Board of Directors of the Primary Sponsor.
1.9 "Break in Service" means the failure of an Employee, in
connection with a termination of employment other than by reason of death or
attainment of a Retirement Date, to complete more than 500 Hours of Service in
any Plan Year.
1.10 "Code" means the Internal Revenue Code of 1986, as amended.
1.11 "Company Stock" means shares of any class of stock issued by
the Primary Sponsor or any Affiliate and constituting Qualifying Employer
Securities within the meaning of ERISA Section 407(d)(5).
1.12 "Company Stock Subaccount" means the subaccount within each
Matching Account and ROA Account invested in Company Stock. A Company Stock
Subaccount shall be expressed in terms of whole shares and any fractional share
or right to a fractional share of Company Stock and shall be adjusted pursuant
to the Plan to reflect any change in the number of shares of Company Stock
attributable to the Company Stock Subaccount.
1.13 "Deferral Amount" means a contribution of a Plan Sponsor on
behalf of a Member pursuant to Plan Section 3.1.
1.14 "Direct Rollover" means a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
1.15 "Disability" means a disability of a Member within the meaning
of Code Section 72(m)(7), to the extent that the Member is, or would be,
entitled to disability retirement benefits under the federal Social Security Act
or to the extent that the Member is entitled to recover benefits
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<PAGE> 6
under any long term disability plan or policy maintained by the Plan Sponsor.
The determination of whether or not a Disability exists shall be made by the
Plan Administrator and shall be substantiated by competent medical evidence.
1.16 "Distributee" means an Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order (as defined in Code Section
414(p)), are Distributees with regard to the interest of the spouse or former
spouse.
1.17 "Elective Deferrals" means, with respect to any taxable year
of the Member, the sum of
(a) any Deferral Amounts;
(b) any contributions made by or on behalf of a Member
under any other qualified cash or deferred arrangement as defined in
Code Section 401(k), whether or not maintained by a Plan Sponsor, to
the extent such contributions are not or would not, but for Code
Section 402(g)(1) be included in the Member's gross income for the
taxable year; and
(c) any other contributions made by or on behalf of a
Member pursuant to Code Section 402(g)(3).
1.18 "Eligibility Service" means a twelve-consecutive-month period
during which the Employee completes no less than 1,000 Hours of Service
beginning on the date on which the Employee first performs an Hour of Service
upon his employment or reemployment with a Plan Sponsor, or, in the event an
Employee fails to complete 1,000 Hours of Service in that
twelve-consecutive-month period, any Plan Year thereafter during which an
Employee completes no less than 1,000 Hours of Service, including the Plan Year
which includes the first anniversary of the date the Employee first performed an
Hour of Service upon his employment or reemployment.
1.19 "Eligible Employee" means any Employee of a Plan Sponsor other
than an Employee who is (a) covered by a collective bargaining agreement between
a union and a Plan Sponsor, provided that retirement benefits were the subject
of good faith bargaining, unless the collective bargaining agreement provides
for participation in the Plan, (b) a leased employee within the meaning of Code
Section 414(n)(2), or (c) any other individual who is deemed to be an Employee
of a Plan Sponsor pursuant to regulations under Code Section 414(o).
1.20 "Eligible Retirement Plan" means an individual retirement
account described in Code Section 408(a), an individual retirement annuity
described in Code Section 408(b), an annuity plan described in Code Section
403(a) or a qualified trust described in Code Section 401(a) that accepts the
Distributee's Eligible Rollover Distribution. However, in the case of an
Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement
Plan is an individual retirement account or individual retirement annuity.
1.21 "Eligible Rollover Distribution" means any distribution of all
or any portion of the
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Distributee's Account, except that an Eligible Rollover Distribution does not
include: any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for the life (or life
expectancy) of the Distributee or the joint lives (or joint life expectancies)
of the Distributee and the Distributee's designated Beneficiary, or for a
specified period of ten years or more; any distribution to the extent such
distribution is required under Code Section 401(a)(9); and the portion of any
distribution that is not includable in gross income (determined without regard
to the exclusion for net unrealized appreciation with respect to employer
securities).
1.22 "Employee" means any person who is employed by a Plan Sponsor
or an Affiliate for purposes of the Federal Insurance Contributions Act, who is
a leased employee within the meaning of Code Section 414(n)(2) with respect to a
Plan Sponsor, or who is deemed to be an employee of a Plan Sponsor pursuant to
regulations under Code Section 414(o).
1.23 "Entry Date" means January 1 and July 1.
1.24 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
1.25 "Fair Market Value of Company Stock" means the value of
Company Stock as determined by the Plan Administrator pursuant to Plan Section
11.4(d).
1.26 "Fiduciary" means each Named Fiduciary and any other person
who exercises or has any discretionary authority or control regarding management
or administration of the Plan, any other person who renders investment advice
for a fee or has any authority or responsibility to do so with respect to any
assets of the Plan, or any other person who exercises or has any authority or
control respecting management or disposition of assets of the Plan.
1.27 "Fund" means the amount at any given time of cash and other
property held by the Trustee pursuant to the Plan.
1.28 "Highly Compensated Employee" means each Employee who is
described in Subsection (a), unless the Plan Sponsor makes an election pursuant
to Subsection (b).
(a) (1)The Employee during the Plan Year immediately
preceding the Plan Year in question:
(A) was at any time an owner of more than five
percent (5%) of the outstanding stock of a Plan Sponsor or
Affiliate or more than five percent (5%) of the total combined
voting power of all stock of a Plan Sponsor or Affiliate; or
(B) received Annual Compensation in excess of
$81,720 (for the Plan Year beginning in 1989) which amount
shall be adjusted for changes in the cost of living as
provided in regulations issued by the Secretary of the
Treasury; or
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<PAGE> 8
(C) received Annual Compensation in excess of
$54,480 (for the Plan Year beginning in 1989) which amount
shall be adjusted for changes in the cost of living as
provided in regulations issued by the Secretary of the
Treasury, and who was in the group consisting of the most
highly compensated twenty percent (20%) of the Employees; or
(D) was at any time an officer of the Plan
Sponsor or of any Affiliate whose Annual Compensation was
greater than fifty percent (50%) of the amount in effect under
Code Section 415(b)(1)(A) for the calendar year in which the
Plan Year ends, where the term "officer" means an
administrative executive in regular and continual service to
the Plan Sponsor or Affiliate; provided, however, that in no
event shall the number of officers exceed the lesser of Clause
(i) or (ii) of this Subparagraph (D), where:
(i) equals fifty (50) Employees; and
(ii) equals the greater of (I) three (3)
Employees or (II) ten percent (10%) of the number of
Employees during the Plan Year, with any non-integer
being increased to the next integer.
If for any year no officer of the Plan Sponsor meets the
requirements of this Subparagraph (D), the highest paid
officer of the Plan Sponsor for the Plan Year shall be
considered an officer for purposes of this Subparagraph (D).
(2) The Employee during the Plan Year in question (A) is
described in Subsection (a)(1)(A), or (B) is both (i) described in
Subsection (a)(1)(B), (a)(1)(C), or (a)(1)(D), and (ii) one of the 100
Employees who received the most Annual Compensation during that Plan
Year.
The Plan Administrator may make an election to substitute $54,480 (as
adjusted) for $81,720 (as adjusted) in Subparagraph (B) of Subsection (a)(1)
provided that at all times during the Plan Year the Plan Sponsor and its
Affiliates maintain significant business activities and have Employees in at
least two significantly separate geographic areas and satisfy such other
conditions as the Secretary of the Treasury prescribes.
For purposes of Subparagraphs (C) and (D) of Subsection (a)(1), the
following shall be excluded when determining the number of Employees in the most
highly compensated twenty percent (20%) of the Employees and the number of
officers:
(A) Employees who have not completed six (6)
months of service,
(B) Employees who normally work less than 17-1/2
hours per week,
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<PAGE> 9
(C) Employees who normally work during not more
than six (6) months during any Plan Year,
(D) Employees who have not attained age 21,
(E) Employees who are included in a unit of
employees covered by an agreement which the Secretary of Labor
finds to be a collective bargaining agreement between employee
representatives and the Plan Sponsor or its Affiliates,
provided 90% or more of the Employees are covered under
collective bargaining agreements and the Plan only covers
Employees who are not covered under the collective bargaining
agreements.
(b) Notwithstanding the provisions of Subsection (a), the
Primary Sponsor may elect to determine each Highly Compensated Employee
to be each Employee who during the Plan Year in question is described
in Subsection (a) (determined without regard to the head language of
Subsection (a)(1)), pursuant to the provisions of Treas. Reg. Section
1.414(q)-1T, Q&A-14(b).
(c) For purposes of this Section, if any Employee is a
member of the family of a five percent (5%) owner as defined in
Subsection (a)(1) of this Section or of a Highly Compensated Employee
whose Annual Compensation is such that he is among the ten (10) Highly
Compensated Employees receiving the greatest amount of Annual
Compensation during the Plan Year, then (1) the Employee shall not be
considered a separate Employee, and (2) any Annual Compensation paid to
the Employee, and any applicable contribution or benefit on behalf of
the Employee, shall be treated as if it were paid to, or on behalf of,
the five percent (5%) owner or the Employee who is among the ten (10)
Highly Compensated Employees receiving the greatest amount of Annual
Compensation during the Plan Year. For purposes of this Section (b),
the term "family" means with respect to any Employee, the Employee's
spouse and lineal descendants or ascendants and the spouses of lineal
descendants or ascendants.
(d) For purposes of this Section, a former Employee shall
be treated as a Highly Compensated Employee if (1) the former Employee
was a Highly Compensated Employee at the time the former Employee
separated from service with the Plan Sponsor or Affiliate or (2) the
former Employee was a Highly Compensated Employee at any time after the
former Employee attained age 55.
(e) For purposes of this Section, Employees who are
nonresident aliens and who receive no earned income from the Plan
Sponsor or an Affiliate from sources within the United States shall not
be treated as Employees.
(f) For purposes of this Section, Annual Compensation
shall include amounts paid by Affiliates and shall be determined
without regard to the Annual Compensation Limit, as adjusted.
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<PAGE> 10
1.29 "Hour of Service" means:
(a) Each hour for which an Employee is paid, or entitled
to payment, for the performance of duties for a Plan Sponsor or any
Affiliate during the applicable computation period, and such hours
shall be credited to the computation period in which the duties are
performed;
(b) Each hour for which an Employee is paid, or entitled
to payment, by a Plan Sponsor or any Affiliate on account of a period
of time during which no duties are performed (irrespective of whether
the employment relationship has terminated) due to vacation, holiday,
illness, incapacity (including disability), layoff, jury duty, military
duty or leave of absence;
(c) Each hour for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to by a Plan Sponsor
or any Affiliate, and such hours shall be credited to the computation
period or periods to which the award or agreement for back pay pertains
rather than to the computation period in which the award, agreement or
payment is made; provided, that the crediting of Hours of Service for
back pay awarded or agreed to with respect to periods described in
Subsection (b) of this Section shall be subject to the limitations set
forth in Subsection (f);
(d) Solely for purposes of determining whether a Break in
Service has occurred, each hour during any period that the Employee is
absent from work (1) by reason of the pregnancy of the Employee, (2) by
reason of the birth of a child of the Employee, (3) by reason of the
placement of a child with the Employee in connection with the adoption
of the child by the Employee, or (4) for purposes of caring for such
child for a period immediately following its birth or placement. The
hours described in this Subsection (d) shall be credited (A) only in
the computation period in which the absence from work begins, if the
Employee would be prevented from incurring a Break in Service in that
year solely because of that credit, or (B), in any other case, in the
next following computation period. In no event shall an Employee be
credited with more than 501 Hours of Service during any single
continuous period during which he performs no duties for the Plan
Sponsor or Affiliate;
(e) Without duplication of the Hours of Service counted
pursuant to Subsection (d) hereof and solely for such purposes as
required pursuant to the Family and Medical Leave Act of 1993 and the
regulations thereunder (the "Act"), each hour (as determined pursuant
to the Act) for which an Employee is granted leave under the Act (1)
for the birth of a child, (2) for placement with the Employee of a
child for adoption or foster care, (3) to care for the Employee's
spouse, child or parent with a serious health condition, or (4) for a
serious health condition that makes the Employee unable to perform the
functions of the Employee's job;
(f) The Plan Administrator shall credit Hours of Service
in accordance with the provisions of Section 2530.200b-2(b) and (c) of
the U.S. Department of Labor Regulations or such other federal
regulations as may from time to time be applicable and determine Hours
of
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<PAGE> 11
Service from the employment records of a Plan Sponsor or in any other
manner consistent with regulations promulgated by the Secretary of
Labor, and shall construe any ambiguities in favor of crediting
Employees with Hours of Service. Notwithstanding any other provision of
this Section, in no event shall an Employee be credited with more than
501 Hours of Service during any single continuous period during which
he performs no duties for the Plan Sponsor or Affiliate; and
(g) In the event that a Plan Sponsor or an Affiliate
acquires substantially all of the assets of another corporation or
entity or a controlling interest of the stock of another corporation or
merges with another corporation or entity and is the surviving entity,
then service of an Employee who was employed by the prior corporation
or entity and who is employed by the Plan Sponsor or an Affiliate at
the time of the acquisition or merger shall be counted in the manner
provided, with the consent of the Primary Sponsor, in resolutions
adopted by the Plan Sponsor authorizing the counting of such service.
1.30 "Investment Committee" means a committee which may be
established to direct the Trustee with respect to investments of the Fund.
1.31 "Investment Manager" means a Fiduciary, other than the
Trustee, the Plan Administrator, or a Plan Sponsor, who may be appointed by the
Primary Sponsor:
(a) who has the power to manage, acquire, or dispose of
any assets of the Fund or a portion thereof; and
(b) who (1) is registered as an investment adviser under
the Investment Advisers Act of 1940, (2) is a bank as defined in that
Act, or (3) is an insurance company qualified to perform services
described in Subsection (a) above under the laws of more than one
state; and
(c) who has acknowledged in writing that he is a
Fiduciary with respect to the Plan.
1.32 "Member" means any Employee or former Employee who has become
a participant in the Plan for so long as his vested Accrued Benefit has not been
fully distributed pursuant to the Plan.
1.33 "Named Fiduciary" means only the following:
(a) the Plan Administrator;
(b) the Trustee;
(c) the Investment Committee; and
(d) the Investment Manager.
1.34 "Normal Retirement Age" means the later of (a) age 65 and (b)
the fifth anniversary
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of the date a Member commenced participation in the Plan. For purposes of
determining the fifth anniversary of a Member's commencement of participation,
service under any pension or profit sharing plan of a Plan Sponsor shall be
counted; however, the same service shall not be counted twice.
1.35 "Other Investment Subaccount" means the subaccount within each
Account invested in other than Company Stock. The balance of an Other Investment
Subaccount shall be expressed as a dollar amount and shall be adjusted pursuant
to the Plan to reflect income, gains, losses and other credits or charges
attributable thereto.
1.36 "Plan Administrator" means the organization or person
designated to administer the Plan.
1.37 "Plan Sponsor" means individually the Primary Sponsor, First
Bulloch Bank & Trust Company, Metter Banking Company, and any Affiliate or other
entity which has adopted the Plan and Trust.
1.38 "Plan Year" means the calendar year.
1.39 "Prior Plan" means the Old Plan, the First Bulloch Plan, the
Metter Plan, or any other plan previously adopted by a Plan Sponsor which has
been approved by the Internal Revenue Service under Code Sections 401(a) and
501(a) and which the Plan Sponsor has amended and restated into the Plan.
1.40 "Retirement Date" means the date on which the Member retires
on or after (a) attaining Normal Retirement Age, or (b) becoming subject to a
Disability.
1.41 "Return on Assets" means the ratio of (a) the after-tax net
income of the Plan Sponsors on a consolidated basis excluding extraordinary
items but including the Plan Sponsors' contributions under the Plan to (b) the
Plan Sponsors' average assets during their fiscal years ending within or
coincident with the Plan Year, as determined in accordance with generally
accepted accounting principles.
1.42 "Rollover Amount" means any amount transferred to the Fund by
a Member, which amount qualifies as an eligible rollover distribution under Code
Section 402(c)(4), or for rollover treatment under Code Sections 403(a)(4) or
408(d)(3)(A)(ii) and any regulations issued thereunder.
1.43 "Termination Completion Date" means the last day of the fifth
consecutive Break in Service computation period, determined under the Plan
Section 1.9, in which a Member completes a Break in Service.
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1.44 "Trust" means the trust established under an agreement dated
December 30, 1988, between the Primary Sponsor and the Trustee to hold the Fund
or any successor agreement.
1.45 "Trustee" means the trustee under the Trust.
1.46 "Valuation Date" means the last day of each Plan Year or any
other day which the Plan Administrator declares to be a Valuation Date as
determined to preserve the interest of Members in the Fund.
1.47 "Vesting Service" means each Plan Year during which an
Employee has completed no less than 1,000 Hours of Service. Notwithstanding
anything contained herein to the contrary, Vesting Service shall not include:
(a) In the case of an Employee who for each of five
consecutive Plan Years completes a Break in Service and who is not
reemployed by a Plan Sponsor or an Affiliate on or prior to his
Termination Completion Date, for purposes of determining the vested
portion of his Accrued Benefit derived from Plan Sponsor contributions
which accrued before his Termination Completion Date, all service in
Plan Years after his Termination Completion Date; and
(b) In the case of an Employee who, at the time of his
Termination Completion Date following termination of employment (other
than by reason of attainment of a Retirement Date or death) does not
have any vested right in Plan Sponsor contributions, all service in
Plan Years before the Plan Year in which the first of the five
consecutive Breaks in Service commenced, if the number of consecutive
Plan Years in which the Employee incurred a Break in Service equals or
exceeds five.
1.48 "Voluntary Contribution" means a non-deductible contribution
to the Fund made by the Member.
SECTION 2
ELIGIBILITY
2.1 Each individual who was a participant in a Prior Plan on the
day immediately preceding January 1, 1989 shall be a Member as of January 1,
1989.
2.2 Each individual who was an Eligible Employee on July 1, 1988
and who was still an Eligible Employee on January 1, 1989 shall become a Member
as of January 1, 1989.
2.3 Each former Member who is reemployed by a Plan Sponsor shall
become a Member as of the date of his reemployment as an Eligible Employee.
2.4 Each former Employee who completes his Eligibility Service but
terminates employment with a Plan Sponsor before becoming a Member shall become
a Member as of the latest
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of the date he (a) is reemployed, (b) would have become a Member if he had not
terminated employment, or (c) becomes an Eligible Employee.
2.5 Each other Eligible Employee shall become a Member as of the
Entry Date coinciding with or next following the date he completes his
Eligibility Service.
2.6 Solely for the purpose of contributing a Rollover Amount to
the Plan, an Eligible Employee who has not yet become a Member pursuant to any
other provision of this Section 2 shall become a Member as of the date on which
the Rollover Amount is contributed to the Plan.
SECTION 3
CONTRIBUTIONS
3.1 (a) The Plan Sponsor shall make a contribution to the
Fund on behalf of each Member who is an Eligible Employee and has
elected to defer a portion of Annual Compensation otherwise payable to
him for the Plan Year and to have such portion contributed to the Fund.
The election must be made before the Annual Compensation is payable and
may only be made pursuant to an agreement between the Member and the
Plan Sponsor which shall be in such form and subject to such rules and
limitations as the Plan Administrator may prescribe and shall specify
the amount of what would otherwise be Annual Compensation that the
Member desires to defer and to have contributed to the Fund. The
contribution made by a Plan Sponsor on behalf of a Member under this
Section 3.1 shall be in an amount equal to the amount specified in the
Member's deferral agreement, but not greater than ten percent (10%) of
the Member's Annual Compensation.
(b) Elective Deferrals shall in no event exceed $7,627
(for 1989) in any one taxable year of the Member, which amount shall be
adjusted for changes in the cost of living as provided by the Secretary
of the Treasury. In the event the amount of Elective Deferrals exceeds
$7,627 (for 1989) as adjusted, in any one taxable year then, (1) not
later than the immediately following March 1, the Member may designate
to the Plan the portion of the Member's Deferral Amount which consists
of excess Elective Deferrals, and (2) not later than the immediately
following April 15, the Plan may distribute the amount designated to it
under Paragraph (1) above, as adjusted to reflect income, gain, or loss
attributable to it through the date of the distribution, and reduced by
any "Excess Deferral Amounts," as defined in Appendix A hereto,
previously distributed or recharacterized with respect to the Member
for the Plan Year beginning with or within that taxable year. The
payment of the excess Elective Deferrals, as adjusted and reduced, from
the Plan shall be made to the Member without regard to any other
provision in the Plan. In the event that a Member's Elective Deferrals
exceed $7,627, as adjusted, in any one taxable year under the Plan and
other plans of the Plan Sponsor and its Affiliates, the Member shall be
deemed to have designated for distribution under the Plan the amount of
excess Elective Deferrals, as adjusted and reduced, by taking into
account only Elective Deferral amounts under the Plan and other plans
of the Plan Sponsor and its Affiliates.
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3.2 The Plan Sponsor proposes to make contributions to the Fund
with respect to each Plan Year on behalf of each Member who is an Eligible
Employee in an amount equal to (a) fifty percent (50%) of the amount up to the
first one percent (1%) of Annual Compensation deferred by the Member pursuant to
Plan Section 3.1, (b) one hundred percent (100%) of the amount over one percent
(1%) but not more than two percent (2%) of Annual Compensation deferred by the
Member pursuant to Plan Section 3.1, (c) two hundred percent (200%) of the
amount over two percent (2%) but not more than three percent (3%) of Annual
Compensation deferred by a Member pursuant to Plan Section 3.1, and (d) four
hundred percent (400%) of the amount over three percent (3%) but not more than
four percent (4%) of Annual Compensation deferred by a Member pursuant to Plan
Section 3.1.
3.3 Commencing January 1, 1990, the Plan Sponsors propose to make
an additional contribution to be allocated to the ROA Accounts of Members. The
amount of these contributions for a Plan Year will be based (a) on the prior
year's Return on Assets ("ROA"), with respect to Plan Years beginning before
January 1, 1994, and (b) on the current year's ROA, with respect to Plan Years
commencing on and after January 1, 1994, in accordance with the following
formula:
(a) 1% of the total Annual Compensation of all Members
entitled to allocations under Plan Section 4.1(c) if ROA is equal to or
greater than 0.9% but less than 1.0%;
(b) 2% of the total Annual Compensation of all Members
entitled to allocations under Plan Section 4.1(c) if ROA is equal to or
greater than 1.0% but less than 1.1%;
(c) 3% of the total Annual Compensation of all Members
entitled to allocations under Plan Section 4.1(c) if ROA is equal to or
greater than 1.1% but less than 1.2%;
(d) 4% of the total Annual Compensation of all Members
entitled to allocations under Plan Section 4.1(c) if ROA is equal to or
greater than 1.2% but less than 1.3%;
(e) 5% of the total Annual Compensation of all Members
entitled to allocations under Plan Section 4.1(c) if ROA is equal to or
greater than 1.3% but less than 1.4%;
(f) 6% of the total Annual Compensation of all Members
entitled to allocations under Plan Section 4.1(c) if ROA is equal to or
greater than 1.4% but less than 1.5%;
(g) 7% of the total Annual Compensation of all Members
entitled to allocations under Plan Section 4.1(c) if ROA is equal to or
greater than 1.5% but less than 1.6%;
(h) 8% of the total Annual Compensation of all Members
entitled to allocations under Plan Section 4.1(c) if ROA is equal to or
greater than 1.6% but less than 1.7%;
(i) 9% of the total Annual Compensation of all Members
entitled to allocations under Plan Section 4.1(c) if ROA is equal to or
greater than 1.7% but less 1.8%; and
(j) 10% of the total Annual Compensation of all Members
entitled to allocations
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<PAGE> 16
under Plan Section 4.1(c) if ROA is equal to or greater than
1.8%.
3.4 Forfeitures shall be used to reduce Plan Sponsor contributions
and not to increase benefits.
3.5 Any Member may, with the consent of the Plan Administrator and
subject to such rules and conditions as the Plan Administrator may prescribe,
transfer a Rollover Amount to the Fund.
3.6 Notwithstanding any other provisions of the Plan,
contributions to the Fund may be made only in cash, Company Stock or other
property which is acceptable to the Trustee. In no event will the sum of
contributions under Plan Sections 3.1, 3.2 and 3.3 exceed the deductible limits
under Code Section 404.
SECTION 4
ALLOCATIONS
4.1 (a) As soon as reasonably practicable following the date of
withholding by the Plan Sponsor, if applicable, and receipt by the
Trustee, Plan Sponsor contributions made on behalf of each Member under
Plan Section 3.1, and Rollover Amounts contributed by the Member shall
be allocated to the Employee Deferral Account and Rollover Account,
respectively, of the Member on behalf of whom the contributions were
made.
(b) As of the last day of each Plan Year, Plan Sponsor
contributions made under Plan Section 3.2 shall be allocated to the
Matching Accounts of Members on behalf of whom allocations are made
under Subsection (a) of this Section.
(c) As of the last day of each Plan Year, Plan Sponsor
contributions made under Plan Section 3.3 and forfeitures used to
reduce Plan Sponsor contributions shall be allocated to the ROA Account
of each Member who is employed by a Plan Sponsor on the last day of the
Plan Year, or whose death or Retirement Date occurred during the Plan
Year and who individually or through his Beneficiary did not elect to
have payments commence immediately thereafter, in the proportion that
the Member's Annual Compensation bears to the Annual Compensation of
all Members entitled to an allocation under this Subsection (c) and
Subsection (d) hereof.
(d) As of the last day of each Plan Year, if necessary to
satisfy with respect to the Plan Year, the minimum coverage
requirements prescribed in Code Section 410(b) or the minimum
participation requirements under Code Section 401(a)(26) and
regulations issued thereunder, Plan Sponsor contributions made under
Plan Section 3.3 shall be allocated to the ROA Account of each Member
who completed more than 500 Hours of Service during that Plan Year, but
who terminated employment before the last day of the Plan Year, in the
proportion set forth in Subsection (c) hereof.
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<PAGE> 17
(e) Allocations of contributions shall be based on the
amount of cash contributed for the Plan Year which has not been used to
purchase Company Stock as of the Valuation Date plus the average
purchase price or value upon contribution of Company Stock contributed
for the Plan Year or purchased during the Plan Year with cash
contributed on or before the Valuation Date.
(f) As of the Valuation Date in each Plan Year, any
shares of Company Stock which the Trustee has purchased since the last
Valuation Date with cash or other property of the Fund which was not
contributed for the Plan Year shall be allocated to each Member's
Company Stock Subaccounts in the proportion that the amount to be
invested from each Account in Company Stock as of the date of purchase
bears to the aggregate amount to be invested from all such Accounts in
Company Stock on the date of purchase.
4.2 Except as otherwise provided in the Plan and the Trust, as of
the Valuation Date in each Plan Year, the Trustee shall allocate to each Account
its share of the net income or net loss of the Fund as hereinafter set forth.
(a) Any cash dividends paid with respect to Company Stock
allocated to the Account of a Member as of the record date on which the
cash dividend was declared shall be immediately allocated to the Other
Investment Subaccount of the Account.
(b) Any additional shares of Company Stock which are
issued with respect to any Company Stock held in a Company Stock
Subaccount for any reason, including, but not limited to, stock
dividends, mergers or stock splits, shall be immediately credited to
each Company Stock Subaccount as of the date on which the additional
shares of Company Stock are delivered to the Trustee. The additional
shares of Company Stock shall be credited to each Company Stock
Subaccount based upon the number of shares of Company Stock in each
Company Stock Subaccount as of the record date on which the stock
dividend or other issuance was declared or received, as the case may
be.
(c) The net income or net loss of the Other Investment
Subaccounts shall be determined separately by the Trustee and allocated
as of each Valuation Date as follows:
(1) To the cash income, if any, since the last
Valuation Date, there shall be added or subtracted, as the
case may be, any net increase or decrease, since the last
Valuation Date, in the fair market value of the assets of the
Fund, any gain or loss on the sale or exchange of assets of
the Fund since the last Valuation Date, accrued interest since
the last Valuation Date with respect to any interest-bearing
security, the amount of any dividend which shall have been
declared since the last Valuation Date but not paid on shares
of stock owned by the Fund if the market quotation used in
determining the value of such shares is ex-dividend, and the
amount of any other assets of the Fund determined by the
Trustee to be income since the last Valuation Date.
(2) From the sum thereof there shall be deducted
all charges, expenses,
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<PAGE> 18
and liabilities accrued since the last Valuation Date which
are proper under the provisions of the Plan and Trust and
which in the discretion of the Trustee are properly chargeable
against income for the period.
(3) Except as otherwise provided in the Plan and
the Trust, the net income or net loss so determined shall be
allocated as of the Valuation Date to the Other Investment
Subaccounts in the proportion that the value of the Other
Investment Subaccount of each Member as of the preceding
Valuation Date, increased by one-half of the Elective
Deferrals and Rollover Amounts allocated to that Member's
Other Investment Subaccount since the preceding Valuation Date
and reduced by the full amount of any withdrawals from that
Member's Other Investment Subaccount since that Valuation
Date, bears to the Other Investment Subaccounts of all Members
as of the preceding Valuation Date, as so increased and
reduced.
SECTION 5
PLAN LOANS
5.1 Subject to the provisions of the Plan and the Trust, effective
for Plan Years beginning on and after January 1, 1995, each Member who is an
Employee shall have the right, subject to prior approval by the Plan
Administrator, to borrow from the Fund an amount equal to the lesser of (a) 50%
of the value of the Member's vested Account, or (b) the value of the Member's
Employee Deferral Account. In addition, each "party in interest," as defined in
ERISA Section 3(14), who is (1) a Member but no longer an Employee, (2) the
Beneficiary of a deceased Member, or (3) an alternate payee of a Member pursuant
to the provisions of a "qualified domestic relations order," as defined in Code
Section 414(p), shall also have the right, subject to prior approval by the Plan
Administrator, to borrow from the Fund an amount equal to that described above;
provided, however, that loans to such parties in interest may not discriminate
in favor of Highly Compensated Employees.
5.2 In order to apply for a loan, a borrower must complete and
submit to the Plan Administrator documents provided by the Plan Administrator
for this purpose.
5.3 Loans shall be available to all eligible borrowers on a
reasonably equivalent basis which may take into account the borrower's
creditworthiness, ability to repay, and ability to provide adequate security.
Loans shall not be made available to Highly Compensated Employees, officers or
shareholders of a Plan Sponsor in an amount greater than the amount made
available to other borrowers. This provision shall be deemed to be satisfied if
all borrowers have the right to borrow the same percentage of their interest in
the Member's vested Accrued Benefit, notwithstanding that the dollar amount of
such loans may differ as a result of differing values of Members' vested Accrued
Benefits.
5.4 Each loan shall bear a "reasonable rate of interest" and
provide that the loan be amortized in substantially level payments, made no less
frequently than quarterly, over a specified period of time. A "reasonable rate
of interest" shall be that rate that provides the Plan with a return
-16-
<PAGE> 19
commensurate with the interest rates charged by persons in the business of
lending money for loans which would be made under similar circumstances.
5.5 Each loan shall be adequately secured, with the security for
the outstanding balance of all loans to the borrower to consist of one-half
(1/2) of the borrower's interest in the Member's vested Account, or such other
security as the Plan Administrator deems acceptable. No portion of the Member's
Employee Deferral Account shall be used as security for any loan hereunder
unless and until such time as the loan amount exceeds the value of the
borrower's interest in the Member's vested Account in all other Accounts.
5.6 Each loan, when added to the outstanding balance of all other
loans to the borrower from all retirement plans of the Plan Sponsor and its
Affiliates which are qualified under Section 401 of the Code, shall not exceed
the lesser of:
(a) $50,000, reduced by the excess, if any, of
(1) the highest outstanding balance of loans
made to the borrower from all retirement plans qualified under
Code Section 401 of the Plan Sponsor and its Affiliates during
the one (1) year period immediately preceding the day prior to
the date on which such loan was made, over
(2) the outstanding balance of loans made to the
borrower from all retirement plans qualified under Code
Section 401 of the Plan Sponsor and its Affiliates on the date
on which such loan was made, or
(b) one-half (1/2) of the value of the borrower's
interest in the vested Account attributable to the Member's Account.
For purposes of this Section, the value of the vested Account attributable to a
Member's Account shall be established as of the latest preceding Valuation Date,
or any later date on which an available valuation was made, and shall be
adjusted for any distributions or contributions made through the date of the
origination of the loan.
5.7 Each loan, by its terms, shall be repaid within five (5)
years, except that any loan which is used to acquire any dwelling unit which
within a reasonable time is to be used (determined at the time the loan is made)
as the principal residence of the borrower may, by its terms, be repaid within a
longer period of time.
5.8 Each loan shall be made in an amount of no less than $1,000.
5.9 A borrower is permitted to have only one loan existing under
this Plan at any one time.
5.10 The entire unpaid principal sum and accrued interest shall, at
the option of the Plan Administrator, become due and payable if (a) a borrower
fails to make any loan payment when due,
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<PAGE> 20
(b) a borrower ceases to be a "party in interest", as defined in ERISA Section
3(14), (c) the vested Account held as security under the Plan for the borrower
will, as a result of an impending distribution or withdrawal, be reduced to an
amount less than the amount of all unpaid principal and accrued interest then
outstanding under the loan, or (d) a borrower makes any untrue representations
or warranties in connection with the obtaining of the loan. In that event, the
Plan Administrator may take such steps as it deems necessary to preserve the
assets of the Plan, including, but not limited to, the following: (1) direct the
Trustee to deduct the unpaid principal sum, accrued interest, and any other
applicable charge under the note evidencing the loan from any benefits that may
become payable out of the Plan to the borrower, (2) direct the Plan Sponsor to
deduct and transfer to the Trustee the unpaid principal balance, accrued
interest, and any other applicable charge under the note evidencing the loan
from any amounts owed by the Plan Sponsor to the borrower, or (3) liquidate the
security given by the borrower, other than amounts attributable to a Member's
Employee Deferral Account, and deduct from the proceeds the unpaid principal
balance, accrued interest, and any other applicable charge under the note
evidencing the loan. If any part of the indebtedness under the note evidencing
the loan is collected by law or through an attorney, the borrower shall be
liable for attorneys' fees in an amount equal to ten percent of the amount then
due and all costs of collection.
5.11 Each loan shall be made only in accordance with regulations
and rulings of the Internal Revenue Service and the Department of Labor. The
Plan Administrator shall be authorized to administer the loan program of this
Section and shall act in his sole discretion to ascertain whether the
requirements of such regulations and rulings and this Section have been met.
SECTION 6
HARDSHIP DISTRIBUTIONS
6.1 The Trustee shall, upon the direction of the Plan
Administrator, distribute all or a portion of a Member's Employee Deferral
Account or his Voluntary Contribution Account prior to the time such accounts
are otherwise distributable in accordance with the other provisions of the Plan;
provided, however, that any such distribution shall be made only if the Member
is an Employee and demonstrates that he is suffering from "hardship" as
determined herein. That portion of a Member's Employee Deferral Account which
shall be available for a distribution under this Section shall be that portion
consisting of Deferral Amounts (but not earnings thereon) less the unpaid
principal sum of any outstanding loan made to the Participant pursuant to Plan
Section 5. For purposes of this Section, a distribution will be deemed to be an
account of hardship if the distribution is on account of:
(a) (1) medical expenses described in Section 213(d)
of the Code incurred by the Member, his spouse, or any
dependents of the Member (as defined in Section 152 of the
Code) or necessary for these persons to obtain medical care
described in Section 213(d) of the Code;
(2) purchase (excluding mortgage payments) of a
principal residence for the Member;
(3) payment of tuition and related educational
fees for the next twelve
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<PAGE> 21
months of post-secondary education for the Member, his spouse,
children, or dependents;
(4) the need to prevent the eviction of the
Member from his principal residence or foreclosure on the
mortgage of the Member's principal residence; or
(5) any other contingency determined by the
Internal Revenue Service to constitute an "immediate and heavy
financial need" within the meaning of Regulations Section
1.401(k)-1(d).
6.2 In addition to the requirements set forth in Plan Section 6.1,
any distribution pursuant to Plan Section 6.1 shall not be in excess of the
amount necessary to satisfy the need determined under Section 6.1 and shall also
be subject to the requirements of Subsection (a) or (b) of this Section.
(a) (1) the Member shall first obtain all distributions,
other than hardship distributions, and all nontaxable loans
currently available under all plans maintained by the Plan
Sponsor;
(2) the Plan Sponsor shall not permit Elective
Deferrals or after-tax employee contributions to be made to
the Plan or any other plan maintained by the Plan Sponsor, for
a period of twelve (12) months after the Member receives the
distribution pursuant to this Section; and
(3) the Plan Sponsor shall not permit Elective
Deferrals to be made to the Plan or any other plan maintained
by the Plan Sponsor for the Member's taxable year immediately
following the taxable year of the hardship distribution in
excess of the limit under Plan Section 3.1(b) for the taxable
year, less the amount of the Elective Deferrals made to the
Plan or any other plan maintained by the Plan Sponsor for the
taxable year in which the distribution under this Section
occurs.
(b) (1) The Member first obtains all other distributions,
other than hardship distributions, and all nontaxable loans
under all plans maintained by the Plan Sponsor; and
(2) The Plan Administrator determines that it
can reasonably rely on the Member's certification by execution
of a form provided by the Plan Administrator that the need
determined under Plan Section 6.1 cannot be relieved --
(A) through reimbursement or
compensation by insurance or otherwise,
(B) by reasonable liquidation of the
assets of the Member, his spouse and minor children,
to the extent that the liquidation would not itself
cause an immediate and heavy financial need and to
the extent that the assets
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<PAGE> 22
of the spouse and minor children are reasonably
available to the Member,
(C) by cessation of Elective Deferrals,
or
(D) by other distributions or
nontaxable (at the time of the distribution) loans
from plans maintained by the Plan Sponsor or any
other employer, or by borrowing from commercial
sources on reasonable commercial terms.
Such distribution shall be made only in accordance with such rules, policies,
procedures, restrictions, and conditions as the Plan Administrator may from time
to time adopt. Any determination of the existence of hardship and the amount to
be distributed on account thereof shall be made by the Plan Administrator (or
such other person as may be required to make such decisions) in accordance with
the foregoing rules as applied in a uniform and nondiscriminatory manner. A
distribution under this Section shall be made in a lump sum to the Member and
shall be subject to the Eligible Rollover Distribution requirements set forth in
Plan Section 8.8 to the extent required by applicable law.
SECTION 7
DEATH BENEFITS
7.1 Upon the death of a Member who is an Employee at the time of
his death, his Beneficiary shall be entitled to the full value of his Accrued
Benefit.
7.2 Upon the death of a Member who is not an Employee at the time
of his death, prior to the distribution of his vested Accrued Benefit, his
Beneficiary shall be entitled to his vested Accrued Benefit.
7.3 If, subsequent to the death of a Member, the Member's
Beneficiary dies while entitled to receive benefits under the Plan, the
successor Beneficiary, if any, or the Beneficiary listed under Subsection (a),
(b) or (c) of Plan Section 1.7 shall generally be entitled to receive benefits
under the Plan. However, if the deceased Beneficiary was the Member's spouse at
the time of the Member's death, or if no successor Beneficiary shall have been
designated by the Member and be alive and no Beneficiary listed under Subsection
(a), (b) or (c) of Plan Section 1.7 shall be alive, the Member's unpaid vested
Accrued Benefit shall be paid to the personal representative of the deceased
Beneficiary's estate.
7.4 Any benefit payable under this Section 7 shall be paid in
accordance with and subject to the provisions of Plan Section 8 or Section 9,
whichever is applicable, after receipt by the Trustee from the Plan
Administrator of due notice of the death of the Member.
-20-
<PAGE> 23
SECTION 8
PAYMENT OF BENEFITS ON RETIREMENT OR DEATH
8.1 The Accrued Benefit of a Member who has attained his
Retirement Date or has attained Normal Retirement Age or died while an Employee
shall be fully vested and nonforfeitable. As of a Member's Retirement Date or
death while an Employee he or his Beneficiary shall be entitled to his Accrued
Benefit to be paid in accordance with this Section 8.
8.2 (a) The Accrued Benefit of a Member which is to be paid under
this Section 8 shall be determined as of the Valuation Date coinciding
with or next following the Member's Retirement Date or death and shall
be equal to (1) the value of all of the Other Investment Subaccounts of
his Account determined as of such Valuation Date plus (2) the number of
shares of Company Stock in the Company Stock Subaccounts of his
Account, determined as of that Valuation Date. No Plan Sponsor
contributions shall be allocated to the Account of the Member after
that Valuation Date. Payments to a Member, or to the Beneficiary of a
deceased Member, shall commence no later than sixty (60) days after the
end of the Plan Year in which Retirement Date or death of the Member
occurs. A Member or the Beneficiary of a deceased Member may elect by a
written notice to the Plan Administrator to have payments commence
immediately after the Retirement Date or death of a Member, in which
event, the Accrued Benefit of the Member shall be determined as of the
Valuation Date next preceding the Member's Retirement Date or death and
shall be equal to (i) the value of all the Other Investment Subaccounts
of his Account determined as of that Valuation Date reduced by any
amount withdrawn from the Other Investment Subaccounts which was used
to purchase Company Stock since that Valuation Date, plus (ii) the
number of shares of Company Stock in the Company Stock Subaccounts of
his Account determined as of that Valuation Date increased by the
number of shares of Company Stock purchased with assets from his Other
Investment Subaccounts since that Valuation Date, plus (iii)
contributions under Plan Section 3.1 and Rollover Amounts transferred
to the Fund for the Member since that Valuation Date.
(b) Notwithstanding the foregoing, if the amount of the
payment required to commence on a date cannot be ascertained by that
date, payment shall commence retroactively to that date and shall
commence no later than sixty (60) days after the earliest date on which
the amount of payment can be ascertained under the Plan.
8.3 (a) The payment of a Member's Accrued Benefit shall be in the
form of one lump sum, except that a Member whose Accrued Benefit
exceeds $3,500 may elect to have his Accrued Benefit, to the extent
consisting of his Metter Profit Sharing Account, distributed pursuant
to Subsection (b) of this Section. Whole shares of Company Stock in the
Company Stock Subaccount of a Member's Account shall be distributed to
the Member in kind, the value of the Other Investment Subaccount of a
Member's Account shall be paid in cash, and the value of any fractional
share or right to a fractional share in the Member's Company Stock
Subaccount shall be paid in cash to the extent that cash is available
for distribution. If cash is not available, then a fractional share
shall be distributed in kind.
(b) If a Member's Accrued Benefit exceeds $3,500, he may
elect to have his Accrued Benefit, to the extent consisting of his
Metter Profit Sharing Account, paid in
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<PAGE> 24
substantially equal monthly installments over a specified
period which shall not exceed:
(1) when the installments are first payable to a
Member,
(A) the Member's life expectancy, or
(B) the joint life and last survivor
expectancy of the Member and the Member's designated
Beneficiary;
(2) when the installments are first payable to a
designated Beneficiary, the life expectancy of the Member's
designated Beneficiary;
(3) when the installments are first payable to a
Beneficiary other than a designated Beneficiary, five (5)
years; and
(4) when the installments are first paid to a
Member who dies before all installments have been paid, the
period remaining at the Member's death.
8.4 In order to distribute the value of any fractional share or
right to a fractional share in a Member's Company Stock Subaccount, the Trustee
may exchange any fractional share or right to a fractional share for cash in the
Other Investment Subaccounts of all of the Matching Accounts and ROA Accounts to
the extent that the required amount of cash is available and shall immediately
allocate the fractional share or right to a fractional share to the Company
Stock Subaccounts of all such Accounts. The fractional share or right to a
fractional share shall be treated as having been purchased by the Trustee on the
date of such exchange.
8.5 Shares of Company Stock distributed pursuant to this Section 8
shall be subject to the conditions and restrictions described in Plan Section 9.
8.6 Notwithstanding any provision of the Plan to the contrary, if
a Member's vested Accrued Benefit exceeds $3,500, it shall not be distributed
before the Member's Normal Retirement Age or death without the consent of the
Member.
8.7 Notwithstanding any other provisions of the Plan,
(a) Prior to the death of a Member, all retirement
payments hereunder shall --
(1) be distributed to the Member not later than
the required beginning date (as defined below) or,
(2) be distributed, commencing not later than
the required beginning date (as defined below)--
(A) in accordance with regulations
prescribed by the Secretary of the Treasury, over the
life of the Member
-22-
<PAGE> 25
or over the lives of the Member and his designated
individual Beneficiary, if any, or
(B) in accordance with regulations
prescribed by the Secretary of the Treasury, over a
period not extending beyond the life expectancy of
the Member or the joint life and last survivor
expectancy of the Member and his designated
individual Beneficiary, if any.
(b) (1) If --
(A) the distribution of a Member's
retirement payments have begun in accordance with
Subsection (a)(2) of this Section, and
(B) the Member dies before his entire
vested Accrued Benefit has been distributed to him,
then the remaining portion of his vested Accrued Benefit shall
be distributed at least as rapidly as under the method of
distribution being used under Subsection (a)(2) of this
Section as of the date of his death.
(2) If a Member dies before the commencement of
retirement payments hereunder, the entire interest of the
Member shall be distributed within five (5) years after his
death.
(3) If --
(A) any portion of a Member's vested
Accrued Benefit is payable to or for the benefit of
the Member's designated individual Beneficiary, if
any,
(B) that portion is to be distributed,
in accordance with regulations prescribed by the
Secretary of the Treasury, over the life of the
designated individual Beneficiary or over a period
not extending beyond the life expectancy of the
designated individual Beneficiary, and
(C) the distributions begin not later
than one (1) year after the date of the Member's
death or such later date as the Secretary of the
Treasury may by regulations prescribe,
then, for purposes of Paragraph (2) of this Subsection (b),
the portion referred to in Subparagraph (A) of this Paragraph
(3) shall be treated as distributed on the date on which the
distributions to the designated individual Beneficiary begin.
(4) If the designated individual Beneficiary
referred to in Paragraph (3)(A) of this Subsection (b) is the
surviving spouse of the Member, then --
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<PAGE> 26
(A) the date on which the distributions
are required to begin under Paragraph (3)(C) of this
Subsection (b) shall not be earlier than the date on
which the Member would have attained age 70-1/2, and
(B) if the surviving spouse dies before
the distributions to such spouse begin, this
Subsection (b) shall be applied as if the surviving
spouse were the Member.
(c) For purposes of this Section, the term "required
beginning date" means April 1 of the calendar year following the
calendar year in which the Member attains age 70-1/2. Notwithstanding
the foregoing, in the case of a Member who is not described in Section
1(b)(3) of Appendix C hereto and who has attained age 70-1/2 before
January 1, 1988, the term "required beginning date" means April 1 of
the calendar year following the calendar year in which the Member
retires or otherwise terminates employment.
(d) Distributions will be made in accordance with the
regulations under Code Section 401(a)(9), including the minimum
distribution incidental benefit requirement of Treas. Reg. Section
1.401(a)(9)-2.
8.8 Notwithstanding any provisions of the Plan to the contrary
that would otherwise limit a Distributee's election under this Section 8,
effective January 1, 1993, a Distributee may elect, at the time and in the
manner prescribed by the Plan Administrator, to have any portion of a
distribution pursuant to this Section which is an Eligible Rollover Distribution
paid directly to an Eligible Retirement Plan specified by the Distributee in a
Direct Rollover so long as all Eligible Rollover Distributions to a Distributee
for a calendar year total or are expected to total at least $200 and, in the
case of a Distributee who elects to directly receive a portion of an Eligible
Rollover Distribution and directly roll the balance over to an Eligible
Retirement Plan, the portion that is to be directly rolled over totals at least
$500. If the Eligible Rollover Distribution is one to which Code Sections
401(a)(11) and 417 do not apply, such Eligible Rollover Distribution may
commence less than 30 days after the notice required under Treasury Regulations
Section 1.411(a)-11(c) is given, provided that:
(a) the Plan Administrator clearly informs the
Distributee that the Distributee has a right to a period of at least 30
days after receiving the notice to consider the decision of whether or
not to elect a distribution (and, if applicable, a particular
distribution option), and
(b) the Distributee, after receiving the notice,
affirmatively elects a distribution.
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<PAGE> 27
SECTION 9
PAYMENT OF BENEFITS ON TERMINATION OF EMPLOYMENT
9.1 Transfer of a Member from one Plan Sponsor to another Plan
Sponsor or to an Affiliate shall not be deemed for any purpose under the Plan to
be a termination of employment of the Member.
9.2 In the event of the termination of employment of a Member for
reasons other than death or attainment of a Retirement Date, the Member's
Accrued Benefit shall be determined as of the Valuation Date coinciding with or
immediately following the Member's termination of employment and shall be equal
to (a) the value of his Other Investment Subaccounts determined as of that
Valuation Date plus (b) the number of shares of Company Stock in his Company
Stock Subaccounts determined as of that Valuation Date. No further Plan Sponsor
contributions or forfeitures shall be allocated to the Member's Account after
that Valuation Date, but until the Valuation Date immediately preceding the date
it is paid, his Account shall be credited with its pro rata share of any income,
gains, and losses attributable thereto and his Company Stock Subaccounts shall
be credited with their pro rata share of any stock dividends, mergers or stock
splits attributable thereto.
9.3 That portion of a Member's Accrued Benefit in which he is
vested shall be:
(a) his Employee Deferral Account, Matching Account,
Voluntary Contribution Account, Rollover Account, and Metter Profit
Sharing Account, which shall be fully vested and nonforfeitable at all
times; and
(b) that portion of the value of the Other Investment
Subaccounts of his ROA Account and the number of shares of Company
Stock in the Company Stock Subaccount of his ROA Account computed
according to the following vesting schedule taking into account any
Vesting Service subsequent to such Valuation Date until the date of his
termination of employment:
-25-
<PAGE> 28
<TABLE>
<CAPTION>
Full Years of Percentage
Vesting Service Vested
--------------- ------
<S> <C>
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 100%
</TABLE>
9.4 The Member shall be entitled to payment in the manner provided
in Plan Section 8.3. Payment shall be made as soon as administratively feasible
after the Member completes his first Break in Service; provided, however,
effective for terminations of employment occurring on and after January 1, 1994,
payment shall be made as soon as administratively feasible after the Valuation
Date coinciding with or next following the Member's termination of employment.
Notwithstanding the preceding, if the Member's vested Accrued Benefit exceeds
$3,500 it will not be distributed before the Member's Normal Retirement Age or
death without the Member's consent. In no event shall payment be made later than
sixty (60) days after the end of the Plan Year in which the Normal Retirement
Age of the Member occurs. Payment shall be subject to the minimum distribution
requirements and Eligible Rollover Distribution requirements set forth in Plan
Section 8.
9.5 In order to distribute the value of any fractional share or
right to a fractional share in the Company Stock Subaccount of the Member's
Account, the Trustee may exchange any such fractional share or right to a
fractional share for cash in the Other Investment Subaccounts of all of the
Matching Accounts and ROA Accounts to the extent that the required amount of
cash is available, and shall immediately allocate such fractional share or right
to a fractional share to the Company Stock Subaccounts of all such Accounts. The
fractional share or right to a fractional share shall be treated as having been
purchased by the Trustee on the date of the exchange.
9.6 (a) If any portion of a Member's vested Account derived from
Plan Sponsor contributions is paid prior to his Termination Completion
Date, a portion of his Account equal to his total non-vested Account
derived from Plan Sponsor contributions multiplied by a fraction, the
numerator of which is the amount of the distribution attributable to
Plan Sponsor contributions and the denominator of which is the total
vested Account attributable to Plan Sponsor contributions, shall be
immediately forfeited. The amount forfeited shall not exceed the
Member's nonvested Account. Upon the Termination of Employment of a
Member who is not vested in any part of his Account, the Member shall
be deemed to have received a distribution and his Account shall be
immediately forfeited.
(b) If the Member is reemployed by a Plan Sponsor or an
Affiliate prior to his Termination Completion Date and (1) if the
Member's Account was partially vested and the Member repays to the Fund
no later than the fifth anniversary of the Member's reemployment by the
Plan Sponsor or an Affiliate all of that portion of his vested Account
which was paid to him or (2) if the Member's Account was not vested
upon his termination
-26-
<PAGE> 29
of employment, then any portion of his Account which was not forfeited
shall be restored effective on the Valuation Date coinciding with or
next following the repayment or the Member's reemployment,
respectively. The restoration on any Valuation Date of the forfeited
portion of the Account of a Member pursuant to the preceding sentence
shall be made first from forfeitures available, and secondly from net
income calculated as of that Valuation Date, to the extent available,
and secondly from net income calculated as of that Valuation Date, if
any. Only after restorations have been made shall the remaining net
income be available for allocation under Plan Section 4.
(c) If a Member who is partially vested in his Account
does not receive, prior to his Termination Completion Date, a
distribution of any portion of his vested Account, then no forfeiture
of that Member's nonvested portion of his Account shall occur until the
Member's Termination Completion Date.
9.7 In the event that a Plan amendment directly or indirectly
changes the vesting schedule, the vesting percentage for each Member in his
Accrued Benefit accumulated to the date when the amendment is adopted shall not
be reduced as a result of the amendment. In addition, any Member with at least
three (3) years of Vesting Service may irrevocably elect to remain under the
pre-amendment vesting schedule with respect to all of his benefits accrued both
before and after the amendment.
9.8 Shares of Company Stock distributed from the Fund pursuant to
this Section 9 shall be subject to the conditions and restrictions described in
Plan Section 10.
9.9 If a Member has a termination of employment and is
subsequently reemployed by a Plan Sponsor or an Affiliate prior to receiving a
distribution of his Accrued Benefit under the Plan, such Member shall not be
entitled to a distribution under this Section while he is an Employee.
SECTION 10
CONDITIONS OF DISTRIBUTION OF COMPANY STOCK
10.1 To the extent appropriate, each share certificate for Company
Stock distributed from the Fund pursuant to the Plan shall be clearly marked
"RESTRICTED" on its face and, to the extent appropriate at the time, each
certificate shall bear on its reverse side legends to the following effect:
(a) That the securities evidenced by the certificate were
issued without registration under the federal Securities Act of 1933
(the "1933 Act") or under the applicable laws of any state or states
(collectively referred to as the "State Acts"), in reliance upon
certain exemptive provisions of the 1933 Act or any applicable State
Acts; and
(b) That the securities cannot be sold or transferred
unless, in the opinion of counsel reasonably acceptable to the Primary
Sponsor any such sale or transfer would be:
(1) pursuant to an effective registration
statement under the 1933 Act or pursuant to an exemption from
such registration; and
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(2) a transaction which is exempt under any
applicable State Acts or pursuant to an effective registration
statement under or in a transaction which is otherwise in
compliance with such State Acts.
10.2 If necessary to comply with the 1933 Act or any applicable
State Acts, shares of Company Stock distributable under the Plan must be
acquired for investment and not with a view to the public distribution thereof.
In furtherance thereof, as a condition of receiving a distribution of whole
shares of Company Stock under the Plan, the distributee may be required to
execute an investment letter and any other documents that in the opinion of
counsel reasonably acceptable to the Primary Sponsor, as issuer, are necessary
to comply with the 1933 Act or any applicable State Acts or any other applicable
laws regulating the issuance or transfer of securities.
10.3 A Member shall have the option to require the Primary Sponsor
or its designee to purchase any shares of Company Stock which have been
distributed to the Member from the Plan (the "Put"). The Put shall be
exercisable at any time following the distribution by giving written notice to
the Primary Sponsor which shall specify the number of shares of Company Stock
which the Member intends to sell to the Primary Sponsor or its designee. The
purchase price for the shares of Company Stock pursuant to the Put shall be an
amount equal to the Fair Market Value of Company Stock, determined as of the
date of the closing. The time and date of the closing shall be no later than
sixty (60) days from the date of the notice of the Put and shall be held at the
principal office of the Primary Sponsor.
The Primary Sponsor or its designee shall pay the purchase price of
the Company Stock to the Member, to the extent permitted by state law, as
follows:
(a) all in cash at the closing, if the purchase price is
$50,000 or less, or
(b) if the purchase price exceeds $50,000 by means of
delivery of a promissory note in a principal amount equal to the
purchase price, payable in installments over a period not greater than
ten (10) years from the date of purchase. The period of time over which
installments shall be paid shall be determined, within the limitations
set forth above in this Subsection (b), solely in the discretion of the
Primary Sponsor, or its designee, which shall also have sole discretion
to pay all or any part of the purchase price in cash in lieu of by
delivery of a promissory note.
SECTION 11
ADMINISTRATION OF THE PLAN
11.1 Trust Agreement. The Primary Sponsor shall establish a Trust
with the Trustee designated by the Board of Directors for the management of the
Fund, which Trust shall form a part of the Plan and is incorporated herein by
reference.
11.2 Operation of the Plan Administrator. The Primary Sponsor shall
appoint a Plan Administrator. If an organization is appointed to serve as the
Plan Administrator, then the Plan Administrator may designate in writing a
person who may act on behalf of the Plan Administrator.
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The Primary Sponsor shall have the right to remove the Plan Administrator at any
time by notice in writing. The Plan Administrator may resign at any time by
written notice of resignation to the Trustee and the Primary Sponsor. Upon
removal or resignation, or in the event of the dissolution of the Plan
Administrator, the Primary Sponsor shall appoint a successor.
11.3 Fiduciary Responsibility.
(a) The Plan Administrator, as a Named Fiduciary, may
allocate its fiduciary responsibilities among Fiduciaries other than
the Trustee, designated in writing by the Plan Administrator and may
designate in writing other persons (other than the Trustee) to carry
out its fiduciary responsibilities under the Plan. The Plan
Administrator may at any time and from time to time remove any such
person designated to carry out its fiduciary responsibilities under the
Plan by notice in writing to such person.
(b) The Plan Administrator and each other Fiduciary may
employ persons to perform services and to render advice with regard to
any of the Fiduciary's responsibilities under the Plan. Charges for all
such services performed and advice rendered may be directly paid by
each Plan Sponsor but until paid shall constitute a charge against the
Fund.
(c) Each Plan Sponsor shall indemnify and hold harmless
each person constituting the Plan Administrator or the Investment
Committee, if any, from and against any and all claims, losses, costs,
expenses (including, without limitation, attorney's fees and court
costs), damages, actions or causes of action arising from, on account
of or in connection with the performance by such person of his duties
in such capacity, other than such of the foregoing arising from, on
account of or in connection with the willful neglect or willful
misconduct of such person so acting.
(d) The purpose of the Plan is to invest primarily in
Company Stock if and to the extent shares are available. The Trustee
shall have the authority to invest up to one hundred (100%) of the
assets of the Fund in Company Stock.
11.4 Duties of the Plan Administrator.
(a) The Plan Administrator shall advise the Trustee with
respect to all payments under the terms of the Plan and shall direct
the Trustee in writing to make such payments from the Fund; provided,
however, in no event shall the Trustee be required to make such
payments if the Trustee has actual knowledge that such payments are
contrary to the terms of the Plan and the Trust.
(b) The Plan Administrator shall from time to time
establish rules, not contrary to the provisions of the Plan and the
Trust, for the administration of the Plan and the transaction of its
business. All elections and designations under the Plan by a
Participant or Beneficiary shall be made on forms prescribed by the
Plan Administrator. The Plan Administrator shall have discretionary
authority to construe the terms of the Plan and shall determine all
questions arising in the administration, interpretation and application
of the Plan, including, but not limited to, those concerning
eligibility for benefits and it shall not
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act so as to discriminate in favor of any person. All determinations of
the Plan Administrator shall be conclusive and binding on all
Employees, Members, Beneficiaries and Fiduciaries, subject to the
provisions of the Plan and the Trust and subject to applicable law.
(c) The Plan Administrator shall furnish Members and
Beneficiaries with all disclosures now or hereafter required by ERISA
or the Code. The Plan Administrator shall file, as required, the
various reports and disclosures concerning the Plan and its operations
as required by ERISA and by the Code, and shall be solely responsible
for establishing and maintaining all records of the Plan and the Trust.
(d) Effective January 1, 1994, the Plan Administrator
shall value shares of Company Stock on the following basis:
(1) The Plan Administrator shall determine the
value of shares of Company Stock held in the Fund on the basis
of a good faith determination of value based upon all relevant
factors for determining fair market value and shall consider,
where applicable, among other factors: prices bid, asked, or
paid for Company Stock listed on any nationally recognized
securities exchange or quoted through the National Market
System of the National Association of Securities Dealers, Inc.
Automatic Quotation System; the existence of restrictions upon
the sale of shares of Company Stock; the existence of any
right in Members and Beneficiaries to require the Plan Sponsor
to purchase shares of Company Stock distributed from the Plan
to such Members and Beneficiaries at fair market value; the
existence and extent of a private market for shares of Company
Stock; the price at which shares of Company Stock were
acquired; the estimated period of time during which shares of
Company Stock would not be freely marketable; the currently
available returns on comparable securities; the financial
condition and prospects of the Primary Sponsor; the existence
of merger proposals or tender offers affecting the Primary
Sponsor. To accomplish the foregoing valuation of shares of
Company Stock held in the Fund, the Plan Administrator may
employ an appraiser to make an annual appraisal of the shares
of Company Stock as of each Valuation Date. If, upon
investigation, the Plan Administrator makes a good faith
determination that such appraiser is experienced in the
valuation of shares of stock of companies similar to the
Primary Sponsor, that such appraiser utilizes acceptable
methods and that such appraiser has an excellent reputation
within the appraisal industry, the Plan Administrator may give
great weight to such appraiser's report and may make a good
faith determination that such appraiser's report of the value
of shares of Company Stock is a determination of the fair
market value of such shares of Company Stock.
(2) In the event of a purchase or sale of shares
of Company Stock by the Trustee as of a date other than as of
the date of an appraisal as described above, the Plan
Administrator shall value shares of Company Stock as of the
date of such transaction on the basis of a good faith
determination of value, based upon all relevant factors to be
used for determining the fair market value of securities,
including those above.
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(e) The statement of specific duties for a Plan
Administrator in this Section is not in derogation of any other duties
which a Plan Administrator has under the provisions of the Plan or the
Trust or under applicable law.
11.5 Investment Manager. The Primary Sponsor may, by action in
writing certified by notice to the Trustee, appoint an Investment Manager. Any
Investment Manager may be removed in the same manner in which appointed, and in
the event of any removal, the Investment Manager shall, as soon as possible, but
in no event more than thirty (30) days after notice of removal, turn over all
assets managed by it to the Trustee or to any successor Investment Manager
appointed, and shall make a full accounting to the Primary Sponsor with respect
to all assets managed by it since its appointment as an Investment Manager.
11.6 Investment Committee. The Primary Sponsor may, by action in
writing certified by notice to the Trustee, appoint an Investment Committee. The
Primary Sponsor shall have the right to remove any person on the Investment
Committee at any time by notice in writing to such person. A person on the
Investment Committee may resign at any time by written notice of resignation to
the Primary Sponsor. Upon such removal or resignation, or in the event of the
death of a person on the Investment Committee, the Primary Sponsor may appoint a
successor. Until a successor has been appointed, the remaining persons on the
Investment Committee may continue to act as the Investment Committee.
11.7 Action by the Primary Sponsor or a Plan Sponsor. Any action to
be taken by the Primary Sponsor or a Plan Sponsor shall be taken by resolution
or written direction duly adopted by its board of directors or appropriate
governing body, as the case may be; provided, however, that by such resolution
or written direction, the board of directors or appropriate governing body, as
the case may be, may delegate to any officer or other appropriate person of a
Plan Sponsor the authority to take any such actions as may be specified in such
resolution or written direction, other than the power to amend, modify or
terminate the Plan or the Trust or to determine the basis of any Plan Sponsor
contributions.
11.8 Voting of Company Stock. The Trustee shall vote all shares of
Company Stock allocated to the Company Stock Subaccounts of Members as directed
by the administrative committee of the Plan Administrator, subject to the
requirements of the Plan, the Trust and ERISA.
SECTION 12
CLAIM REVIEW PROCEDURE
12.1 In the event that a Member or Beneficiary is denied a claim
for benefits under a Plan, the Plan Administrator shall provide to the claimant
written notice of the denial which shall set forth:
(a) the specific reasons for the denial;
(b) specific references to the pertinent provisions of
the Plan on which the denial is based;
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(c) a description of any additional material or
information necessary for the claimant to perfect the claim and an
explanation of why the material or information is necessary; and
(d) an explanation of the Plan's claim review procedure.
12.2 After receiving written notice of the denial of a claim, a
claimant or his representative may:
(a) request a full and fair review of the denial by
written application to the Plan Administrator;
(b) review pertinent documents; and
(c) submit issues and comments in writing to the Plan
Administrator.
12.3 If the claimant wishes a review of the decision denying his
claim to benefits under the Plan, he must submit the written application to the
Plan Administrator within sixty (60) days after receiving written notice of the
denial.
12.4 Upon receiving the written application for review, the Plan
Administrator may schedule a hearing for purposes of reviewing the claimant's
claim, which hearing shall take place not more than thirty (30) days from the
date on which the Plan Administrator received the written application for
review.
12.5 At least ten (10) days prior to the scheduled hearing, the
claimant and his representative designated in writing by him, if any, shall
receive written notice of the date, time, and place of the scheduled hearing.
The claimant or his representative may request that the hearing be rescheduled
for his convenience on another reasonable date or at another reasonable time or
place.
12.6 All claimants requesting a review of the decision denying
their claim for benefits may employ counsel for purposes of the hearing.
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12.7 No later than sixty (60) days following the receipt of the
written application for review, the Plan Administrator shall submit its decision
on the review in writing to the claimant involved and to his representative, if
any; provided, however, a decision on the written application for review may be
extended, in the event special circumstances such as the need to hold a hearing
require an extension of time, to a day no later than one hundred twenty (120)
days after the date of receipt of the written application for review. The
decision shall include specific reasons for the decision and specific references
to the pertinent provisions of the Plan on which the decision is based.
SECTION 13
LIMITATION OF ASSIGNMENT, PAYMENTS TO LEGALLY
INCOMPETENT DISTRIBUTEE AND UNCLAIMED PAYMENTS
13.1 No benefit which shall be payable under the Plan to any person
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and any attempt to anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge the same shall be
void; and no such benefit shall in any manner be liable for, or subject to, the
debts, contracts, liabilities, engagements or torts of any person, nor shall it
be subject to attachment or legal process for, or against, such person, and the
same shall not be recognized under the Plan, except to such extent as may be
required by law. Notwithstanding the above, this Section shall not apply to a
"qualified domestic relations order" (as defined in Code Section 414(p)), and
benefits may be paid pursuant to the provisions of such an order. The Plan
Administrator shall develop procedures (in accordance with applicable federal
regulations) to determine whether a domestic relations order is qualified, and,
if so, the method and the procedures for complying therewith.
13.2 If any person who shall be entitled to any benefit under the
Plan shall become bankrupt or shall attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber or charge such benefit under the Plan, then
the payment of any such benefit in the event a Member or Beneficiary is entitled
to payment shall, in the discretion of the Plan Administrator, cease and
terminate and in that event the Trustee shall hold or apply the same for the
benefit of such person, his spouse, children, other dependents or any of them in
such manner and in such proportion as the Plan Administrator shall determine.
13.3 Whenever any benefit which shall be payable under the Plan is
to be paid to or for the benefit of any person who is then a minor or determined
to be incompetent by qualified medical advice, the Plan Administrator need not
require the appointment of a guardian or custodian, but shall be authorized to
cause the same to be paid over to the person having custody of such minor or
incompetent, or to cause the same to be paid to such minor or incompetent
without the intervention of a guardian or custodian, or to cause the same to be
paid to a legal guardian or custodian of such minor or incompetent if one has
been appointed or to cause the same to be used for the benefit of such minor or
incompetent.
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13.4 If the Plan Administrator cannot ascertain the whereabouts of
any Member to whom a payment is due under the Plan, the Plan Administrator may
direct that the payment and all remaining payments otherwise due to the Member
be cancelled on the records of the Plan and the amount thereof applied as a
forfeiture in accordance with Plan Section 3.4, except that, in the event the
Member later notifies the Plan Administrator of his whereabouts and requests the
payments due to him under the Plan, the Plan Sponsor shall contribute to the
Plan an amount equal to the payment to be paid to him as soon as
administratively feasible.
SECTION 14
PROHIBITION AGAINST DIVERSION
At no time shall any part of the Fund be used for or diverted to
purposes other than the exclusive benefit of the Members or their Beneficiaries,
subject, however, to the payment of all taxes and administrative expenses and
subject to the provisions of the Plan with respect to returns of contributions.
SECTION 15
LIMITATION OF RIGHTS
Membership in the Plan shall not give any Employee any right or claim
except to the extent that such right is specifically fixed under the terms of
the Plan. The adoption of the Plan and the Trust by any Plan Sponsor shall not
be construed to give any Employee a right to be continued in the employ of a
Plan Sponsor or as interfering with the right of a Plan Sponsor to terminate the
employment of any Employee at any time.
SECTION 16
AMENDMENT TO OR TERMINATION OF THE PLAN AND THE TRUST
16.1 The Primary Sponsor reserves the right at any time to modify
or amend or terminate the Plan or the Trust in whole or in part by notice
thereof in writing delivered to the Trustee; provided, however, that the Primary
Sponsor shall have no power to modify or amend the Plan in such manner as would
cause or permit any portion of the funds held under a Plan to be used for, or
diverted to, purposes other than for the exclusive benefit of Members or their
Beneficiaries, or as would cause or permit any portion of a fund held under the
Plan to become the property of a Plan Sponsor; and provided further, that the
duties or liabilities of the Trustee shall not be increased without its written
consent. No such modifications or amendments shall have the effect of
retroactively changing or depriving Members or Beneficiaries of rights already
accrued under the Plan. No Plan Sponsor other than the Primary Sponsor shall
have the right to so modify, amend or terminate the Plan or the Trust.
Notwithstanding the foregoing, each Plan Sponsor may terminate its own
participation in the Plan and Trust pursuant to the Plan.
16.2 Each Plan Sponsor other than the Primary Sponsor shall have
the right to terminate its participation in the Plan and Trust by resolution of
its board of directors or other appropriate governing body and notice in writing
to the Primary Sponsor and the Trustee unless such termination
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would result in the disqualification of the Plan or the Trust or would adversely
affect the exempt status of the Plan or the Trust as to any other Plan Sponsor.
If contributions by or on behalf of a Plan Sponsor are completely terminated,
the Plan and Trust shall be deemed terminated as to such Plan Sponsor. Any
termination by a Plan Sponsor, shall not be a termination as to any other Plan
Sponsor.
16.3 (a) If the Plan is terminated by the Primary Sponsor or
if contributions to the Trust should be permanently discontinued, it
shall terminate as to all Plan Sponsors and the Fund shall be used,
subject to the payment of expenses and taxes, for the benefit of
Members and Beneficiaries, and for no other purposes, and the Account
of each affected Member shall be fully vested and nonforfeitable,
notwithstanding the provisions of the Section of the Plan which sets
forth the vesting schedule.
(b) In the event of the partial termination of the Plan,
each affected Member's Account shall be fully vested and
nonforfeitable, notwithstanding the provisions of the Section of the
Plan which sets forth the vesting schedule.
16.4 In the event of the termination of the Plan or the Trust with
respect to a Plan Sponsor, the Accounts of the Members with respect to the Plan
as adopted by such Plan Sponsor shall be held subject to the instructions of the
Plan Administrator; provided that the Trustee shall not be required to make any
distribution until it receives a copy of an Internal Revenue Service
determination letter to the effect that the termination does not affect the
qualified status of the Plan or the exempt status of the Trust or, in the event
that such letter is applied for and is not issued, until the Trustee is
reasonably satisfied that adequate provision has been made for the payment of
all taxes which may be due and owing by the Trust.
16.5 In the case of any merger or consolidation of the Plan with,
or any transfer of the assets or liabilities of the Plan to, any other plan
qualified under Code Section 401, the terms of the merger, consolidation or
transfer shall be such that each Member would receive (in the event of
termination of the Plan or its successor immediately thereafter) a benefit which
is no less than the benefit which the Member would have received in the event of
termination of the Plan immediately before the merger, consolidation or
transfer.
16.6 Notwithstanding any other provision of the Plan, an amendment
to the Plan --
(a) which eliminates or reduces an early retirement
benefit, if any, or which eliminates or reduces a retirement-type
subsidy (as defined in regulations issued by the Department of the
Treasury), if any, or
(b) which eliminates an optional form of benefit
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shall not be effective with respect to benefits attributable to service before
the amendment is adopted. In the case of a retirement-type subsidy described in
Subsection (a) above, this Section shall be applicable only to a Member who
satisfies, either before or after the amendment, the preamendment conditions for
the subsidy.
SECTION 17
ADOPTION OF PLAN BY AFFILIATES
Any corporation or other business entity related to the Primary
Sponsor by function or operation and any Affiliate, if the corporation, business
entity or Affiliate is authorized to do so by written direction adopted by the
Board of Directors, may adopt the Plan and the related Trust by action of the
board of directors or other appropriate governing body of such corporation,
business entity or Affiliate. Any adoption shall be evidenced by certified
copies of the resolutions of the foregoing board of directors or governing body
indicating the adoption and by the execution of the Trust by the adopting
corporation, or business entity or Affiliate. The resolution shall state and
define the effective date of the adoption of the Plan by the Plan Sponsor and,
for the purpose of Code Section 415, the "limitation year" as to such Plan
Sponsor. Notwithstanding the foregoing, however, if the Plan and Trust as
adopted by an Affiliate or other corporation or business entity under the
foregoing provisions shall fail to receive the initial approval of the Internal
Revenue Service as a qualified Plan and Trust under Code Sections 401(a) and
501(a), any contributions by the Affiliate or other corporation or business
entity after payment of all expenses will be returned to such Plan Sponsor free
of any trust, and the Plan and Trust shall terminate, as to the adopting
Affiliate or other corporation or business entity.
SECTION 18
QUALIFICATION AND RETURN OF CONTRIBUTIONS
18.1 If the Plan and the related Trust fail to receive the initial
approval of the Internal Revenue Service as a qualified plan and trust within
one (1) year after the date of denial of qualification (a) the contribution of a
Plan Sponsor after payment of all expenses will be returned to a Plan Sponsor
free of the Plan and Trust, (b) contributions made by a Member shall be returned
to the Member who made the contributions, and (c) the Plan and Trust shall
thereupon terminate.
18.2 If and to the extent permitted by the Code and other
applicable laws and regulations thereunder, upon a Plan Sponsor's request, a
contribution which was made by reason of a mistake of fact or upon the
deductibility of the contribution under Code Section 404, shall be returned to a
Plan Sponsor within one (1) year after the payment of the contribution, or the
disallowance of the deduction (to the extent disallowed), whichever is
applicable.
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In the event of a contribution which was made by reason of a mistake
of fact or which was conditioned upon the deductibility of the contribution, the
amount to be returned to the Plan Sponsor shall be the excess of the
contribution above the amount that would have been contributed had the mistake
of fact or the mistake in determining the deduction not occurred, less any net
loss attributable to the excess. Any net income attributable to the excess shall
not be returned to the Plan Sponsor. No return of any portion of the excess
shall be made to the Plan Sponsor if the return would cause the balance in a
Member's Account to be less than the balance would have been had the mistaken
contribution not been made.
SECTION 19
INCORPORATION OF SPECIAL LIMITATIONS
Appendices A, B, and C to the Plan, attached hereto, are incorporated
by reference and the provisions of the same shall apply notwithstanding anything
to the contrary contained herein.
IN WITNESS WHEREOF, the Primary Sponsor has caused this indenture to
be executed as of the date first above written.
FIRST BANKING COMPANY OF
SOUTHEAST GEORGIA
By: /s/ James E. Hodges
----------------------------------------
Title: President
-------------------------------------
ATTEST:
/s/
- --------------------------------
Title: Secretary
--------------------------
[CORPORATE SEAL]
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<PAGE> 40
APPENDIX A
SPECIAL NONDISCRIMINATION RULES
SECTION 1
As used in this Appendix, the following words shall have the
following meanings:
(a) "Eligible Member" means a Member who is an Employee
during any particular Plan Year.
(b) "Highly Compensated Eligible Member" means any
Eligible Member who is a Highly Compensated Employee.
(c) "Matching Contribution" means any contribution made
by a Plan Sponsor to a Matching Account and any other contribution made
to a plan by a Plan Sponsor or an Affiliate on behalf of an Employee on
account of a contribution made by an Employee or on account of an
Elective Deferral.
(d) "Qualified Matching Contributions" means Matching
Contributions which are immediately nonforfeitable when made, and which
would be nonforfeitable, regardless of the age or service of the
Employee or whether the Employee is employed on a certain date, and
which may not be distributed, except upon one of the events described
under Section 401(k)(2)(B) of the Code and the regulations thereunder.
(e) "Qualified Nonelective Contributions" means
contributions of the Plan Sponsor or an Affiliate, other than Matching
Contributions or Elective Deferrals, which are nonforfeitable when
made, and which would be nonforfeitable regardless of the age or
service of the Employee or whether the Employee is employed on a
certain date, and which may not be distributed, except upon one of the
events described under Code Section 401(k)(2)(B) and the regulations
thereunder.
SECTION 2
In addition to any other limitations set forth in the Plan, for each
Plan Year one of the following tests must be satisfied:
(a) the actual deferral percentage for the Highly
Compensated Eligible Members must not be more than the actual deferral
percentage of all other Eligible Members multiplied by 1.25; or
(b) the excess of the actual deferral percentage for the
Highly Compensated Eligible Members over that of all other Eligible
Members must not be more than two (2) percentage points, and the actual
deferral percentage for the Highly Compensated Eligible Members must
not be more than the actual deferral percentage of all other Eligible
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<PAGE> 41
Members multiplied by two (2).
The "actual deferral percentage" for the Highly Compensated Eligible Members and
all other Eligible Members for a Plan Year is the average in each group of the
ratios, calculated separately for each Employee, of the Deferral Amounts
contributed by the Plan Sponsor on behalf of an Employee for the Plan Year to
the Annual Compensation of the Employee in the Plan Year. In addition, for
purposes of calculating the "actual deferral percentage" as described above,
Deferral Amounts of Employees who are not Highly Compensated Employees which are
prohibited by Code Section 401(a)(30) shall not be taken into consideration.
Except to the extent limited by Treasury Regulation section 1.401(k)-1(b)(5) and
any other applicable regulations promulgated by the Secretary of the Treasury,
all or part of the Qualified Matching Contributions and Qualified Nonelective
Contributions made pursuant to the Plan may be treated as Deferral Amounts for
purposes of determining the "actual deferral percentage."
SECTION 3
If the Deferral Amounts contributed on behalf of any Highly
Compensated Eligible Member exceeds the amount permitted under the "actual
deferral percentage" test described in Section 2 of this Appendix A for any
given Plan Year, then before the end of the Plan Year following the Plan Year
for which the Excess Deferral Amount was contributed, (a) the amount of the
Excess Deferral Amount for the Plan Year, as adjusted to reflect income, gain,
or loss attributable to it through the date the Excess Deferral Amount is
distributed to the Member and reduced by any excess Elective Deferrals as
determined pursuant to Plan Section 3.1 previously distributed to the Member for
the Member's taxable year ending with or within the Plan Year, may be
distributed to the Highly Compensated Eligible Member or (b) to the extent
provided in regulations issued by the Secretary of the Treasury, the Plan
Administrator may permit the Member to elect, within two and one-half months
after the end of the Plan Year for which the Excess Deferral Amount was
contributed, to treat the Excess Deferral Amount, unadjusted for earnings,
gains, and losses, but as so reduced, as an amount distributed to the Member and
then contributed as an after-tax contribution by the Member to the Plan
("recharacterized amounts"). The income allocable to such Excess Deferral Amount
shall be determined in a similar manner as described in Section 4.2 of the Plan.
The Excess Deferral Amount to be distributed or recharacterized shall be reduced
by Deferral Amounts previously distributed or recharacterized for the taxable
year ending in the same Plan Year, and shall also be reduced by Deferral Amounts
previously distributed or recharacterized for the Plan Year beginning in such
taxable year. For all other purposes under the Plan other than this Appendix A
recharacterized amounts shall continue to be treated as Deferral Amounts. In the
event the multiple use of limitations contained in Sections 2(b) and 5(b) of
this Appendix, pursuant to Treasury Regulations section 1.401(m)-2 as
promulgated by the Secretary of the Treasury, requires a corrective
distribution, such distribution shall be made pursuant to this Section 3, and
not Section 6 of Appendix A.
For purposes of this Section 3, "Excess Deferral Amount" means, with respect to
a Plan Year, the excess of:
(a) the aggregate amount of Deferral Amounts contributed
by a Plan Sponsor on
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<PAGE> 42
behalf of Highly Compensated Eligible Members for the Plan Year, over
(b) the maximum amount of Deferral Amounts permitted
under Section 2 of this Appendix A for the Plan Year, which shall be
determined by reducing the Deferral Amounts contributed on behalf of
Highly Compensated Eligible Members in order of the actual deferral
percentages beginning with the highest of such percentages.
Distribution of the Excess Deferral Amounts for any Plan Year shall be made to
the Highly Compensated Eligible Members on the basis of the respective portions
of the Excess Deferral Amount attributable to each Highly Compensated Eligible
Member. As to any Highly Compensated Employee who is subject to the family
aggregation rules of subsection (b) of the Plan Section containing the
definition of the term "Highly Compensated Employee," any distribution of such
Highly Compensated Employee's allocable portion of the Excess Deferral Amount
for a Plan Year shall be allocated among the family members of such Highly
Compensated Employee who are combined to determine the actual deferral
percentage in proportion to the Deferral Amounts taken into account under this
Section 3.
SECTION 4
The Plan Administrator shall have the responsibility of monitoring
the Plan's compliance with the limitations of this Appendix A and shall have the
power to take all steps it deems necessary or appropriate to ensure compliance,
including, without limitation, restricting the amount which Highly Compensated
Eligible Members can elect to have contributed pursuant to Plan Section 3.1. Any
actions taken by the Plan Administrator pursuant to this Section 4 shall be
pursuant to non-discriminatory procedures consistently applied.
SECTION 5
In addition to any other limitations set forth in the Plan, Matching
Contributions under the Plan and the amount of nondeductible employee
contributions under the Plan, for each Plan Year must satisfy one of the
following tests:
(a) The contribution percentage for Highly Compensated
Eligible Members must not exceed 125% of the contribution percentage
for all other Eligible Members; or
(b) The contribution percentage for Highly Compensated
Eligible Members must not exceed the lesser of (1) 200% of the
contribution percentage for all other Eligible Members, and (2) the
contribution percentage for all other Eligible Members plus two (2)
percentage points.
Notwithstanding the foregoing, for purposes of this Section 5, the terms Highly
Compensated Eligible Member and Eligible Member shall not include any Member who
is not eligible to receive a Matching Contribution under the provisions of the
Plan, other than as a result of the Member failing to contribute to the Plan or
failing to have an Elective Deferral contributed to the Plan on the
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Member's behalf. Notwithstanding the foregoing, if Qualified Matching
Contributions are taken into account for purposes of applying the test contained
in Section 2 of this Appendix A, they shall not be taken into account under this
Section 5. In applying the above tests, the Plan Administrator shall comply with
any regulations promulgated by the Secretary of the Treasury which prevent or
restrict the use of the test contained in Section 2(b) of this Appendix A and
the test contained in Section 5(b) of this Appendix A. The "contribution
percentage" for Highly Compensated Eligible Members and for all other Eligible
Members for a Plan Year shall be the average of the ratios, calculated
separately for each Member, of (A) to (B), where (A) is the amount of Matching
Contributions under the Plan (excluding Qualified Matching Contributions which
are used to apply the test set forth in Section 2 of this Appendix A or Matching
Contributions which are used to satisfy the minimum required contributions to
the Accounts of Eligible Members who are not Key Employees pursuant to Section 1
of Appendix C to the Plan) and nondeductible employee contributions made under
the Plan for the Eligible Member for the Plan Year, and where (B) is the Annual
Compensation of the Eligible Member for the Plan Year. Except to the extent
limited by Treasury Regulation Section 1.401(m)-1(b)(5) and any other applicable
regulations promulgated by the Secretary of the Treasury, a Plan Sponsor may
elect to treat Deferral Amounts and Qualified Nonelective Contributions as
Matching Contributions for purpose of determining the "contribution percentage,"
provided the Deferral Amounts, excluding those treated as Matching
Contributions, satisfy the test set forth in Section 2 of Appendix A.
SECTION 6
If the Matching Contributions and nondeductible employee
contributions and, if taken into account under Section 5 of this Appendix A, the
Deferral Amounts made by or on behalf of Highly Compensated Eligible Members
exceed the amount permitted under the "contribution percentage test" for any
given Plan Year, then, before the close of the Plan Year following the Plan Year
for which the excess aggregate contributions were made, the amount of the excess
aggregate contributions attributable to the Plan for the Plan Year, as adjusted
to reflect any income, gain or loss attributable to such contributions through
the date the excess aggregate contributions are distributed or forfeited, shall
be distributed or, if the excess aggregate contributions are forfeitable,
forfeited. The income allocable to such contributions shall be determined in a
similar manner as described in Section 4.2 of the Plan. As to any Highly
Compensated Employee, any distribution or forfeiture of his allocable portion of
the excess aggregate contributions for a Plan Year shall first be attributed to
any nondeductible employee contributions made by the Member during the Plan Year
for which no corresponding Plan Sponsor contribution is made and then to any
remaining nondeductible employee contributions made by the Member during the
Plan Year and any Matching Contributions thereon. As between the Plan and any
other plan or plans maintained by the Plan Sponsor in which excess aggregate
contributions for a Plan Year are held, each such plan shall distribute or
forfeit a pro-rata share of each class of contribution based on the respective
amounts of a class of contribution made to each plan during the Plan Year. The
payment of the excess aggregate contributions shall be made without regard to
any other provision in the Plan. In the event the multiple use of limitations
contained in Sections 2(b) and 5(b) of this Appendix, pursuant to Treasury
Regulation section 1.401(m)-2 as promulgated by the Secretary of the Treasury,
requires a corrective distribution, such distribution shall be made pursuant to
Section 3 of Appendix A, and not this Section 6.
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For purposes of this Section 6, with respect to any Plan Year,
"excess aggregate contributions" means the excess of:
(a) the aggregate amount of the Matching Contributions
and nondeductible employee contributions and, if taken into account
under Section 5 of this Appendix A, the Deferral Amounts actually made
on behalf of Highly Compensated Eligible Members for the Plan Year,
over
(b) the maximum amount of the contributions permitted
under the limitations of Section 5 of this Appendix A, determined by
reducing contributions made on behalf of Highly Compensated Eligible
Members in order of their contribution percentages beginning with the
highest of such percentages.
Distribution or forfeiture of nondeductible employee contributions or Matching
Contributions in the amount of the excess aggregate contributions for any Plan
Year shall be made with respect to Highly Compensated Employees on the basis of
the respective portions of the excess aggregate contributions attributable to
each Highly Compensated Employee. Forfeitures of excess aggregate contributions
may not be allocated to Members whose contributions are reduced under this
Section 6. As to any Highly Compensated Employee who is subject to the family
aggregation rules of subsection (b) of the Plan Section containing the
definition of the term "Highly Compensated Employee," any distribution or
forfeiture of such Highly Compensated Employee's allocable portion of the excess
aggregate contributions for a Plan Year shall be allocated among the family
members of such Highly Compensated Employee which are combined to determine the
contribution percentage in proportion to the contributions taken into account
under this Section 6.
The determination of the amount of excess aggregate contributions under this
Section 6 shall be made after (1) first determining the excess Elective
Deferrals under Section 3.1(b) of the Plan, and (2) then determining the Excess
Deferral Amounts under Section 3 of this Appendix A.
SECTION 7
Except to the extent limited by rules promulgated by the Secretary of
the Treasury, if a Highly Compensated Eligible Member is a participant in any
other plan of the Plan Sponsor or any Affiliate which includes Matching
Contributions, deferrals under a cash or deferred arrangement pursuant to Code
Section 401(k), or nondeductible employee contributions, any contributions made
by or on behalf of the Member to the other plan shall be allocated with the same
class of contributions under the Plan for purposes of determining the "actual
deferral percentage" and "contribution percentage" under the Plan; provided,
however, contributions that are made under an "employee stock ownership plan"
(within the meaning of Code Section 4975(e)(7)) shall not be combined with
contributions under any plan which is not an employee stock ownership plan
(within the meaning of Code Section 4975(e)(7)).
Except to the extent limited by rules promulgated by the Secretary of the
Treasury, if the Plan and any other plans which include Matching Contributions,
deferrals under a cash or deferred arrangement pursuant to Code Section 401(k),
or nondeductible employee contributions are
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<PAGE> 45
considered as one plan for purposes of Code Section 401(a)(4) and 410(b)(1), any
contributions under the other plans shall be allocated with the same class of
contributions under the Plan for purposes of determining the "contribution
percentage" and "actual deferral percentage" under the Plan; provided, however,
contributions that are made under an "employee stock ownership plan" (within the
meaning of Code Section 4975(e)(7)) shall not be combined with contributions
under any plan which is not an employee stock ownership plan (within the meaning
of Code Section 4975(e)(7)).
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<PAGE> 46
APPENDIX B
LIMITATION ON ALLOCATIONS
SECTION 1
The "annual addition" for any Member for any one limitation year may
not exceed the lesser of:
(a) $30,000 (or, if greater, one-quarter of the dollar
limitation in effect under Code Section 415(b)(1)(A)), which amount
shall be adjusted for changes in the cost of living as provided in
regulations issued by the Secretary of the Treasury; or
(b) 25% of the Member's Annual Compensation.
SECTION 2
For the purposes of this Appendix B, the term "annual addition" for
any Member means for any limitation year, the sum of certain Plan Sponsor and
Member contributions, forfeitures, and other amounts as determined in Code
Section 415(c)(2) in effect for that limitation year.
SECTION 3
In the event that a Plan Sponsor maintains a defined benefit plan
under which a Member also participates, the sum of the defined benefit plan
fraction and the defined contribution plan fraction for any limitation year for
any Member may not exceed 1.0.
(a) The defined benefit plan fraction for any limitation
year is a fraction:
(1) the numerator of which is the projected
annual benefit of the Member under the defined benefit plan
(determined as of the close of such year); and
(2) the denominator of which is the lesser of
(A) the product of 1.25, multiplied by
the maximum annual benefit allowable under Code
Section 415(b)(1)(A), or
(B) the product of
(i) 1.4, multiplied by
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(ii) the maximum amount which
may be taken into account under Section
415(b)(1)(B) of the Code with respect to the
Member under the defined benefit plan for
the limitation year (determined as of the
close of the limitation year).
(b) The defined contribution plan fraction for any
limitation year is a fraction:
(1) the numerator of which is the sum of a
Member's annual additions as of the close of the year; and
(2) the denominator of which is the sum of the
lesser of the following amounts determined for the year and
for all prior limitation years during which the Member was
employed by a Plan Sponsor:
(A) the product of 1.25, multiplied by
the dollar limitation in effect under Code Section
415(c)(1)(A) for the limitation year (determined
without regard to Section 415(c)(6) of the Code); or
(B) the product of
(i) 1.4, multiplied by
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<PAGE> 48
(ii) the amount which may be
taken into account under Code Section
415(c)(1)(B) (or Code Section 415(c)(7), if
applicable) with respect to the Member for
the limitation year.
SECTION 4
For purposes of this Appendix B, the term "limitation year" shall
mean a Plan Year unless a Plan Sponsor elects, by adoption of a written
resolution, to use any other twelve-month period adopted in accordance with
regulations issued by the Secretary of the Treasury. For purposes of applying
the limitations set forth in this Appendix B, the term "Plan Sponsor" shall mean
a Plan Sponsor and any other corporations which are members of the same
controlled group of corporations (as described in Section 414(b) of the Code, as
modified by Code Section 415(h)) as is a Plan Sponsor, any other trades or
businesses (whether or not incorporated) under common control (as described in
Code Section 414(c), as modified by Code Section 415(h)) with a Plan Sponsor,
any other corporations, partnerships, or other organizations which are members
of an affiliated service group (as described in Section 414(m) of the Code) with
a Plan Sponsor, and any other entity required to be aggregated with a Plan
Sponsor pursuant to regulations under Code Section 414(o).
SECTION 5
For purposes of applying the limitations of this Appendix B, all
defined contribution plans maintained or deemed to be maintained by a Plan
Sponsor shall be treated as one defined contribution plan, and all defined
benefit plans now or previously maintained or deemed to be maintained by a Plan
Sponsor shall be treated as one defined benefit plan. In the event the Plan
Sponsor maintains more than one defined contribution plan and the limitations of
this Appendix B would otherwise be exceeded with respect to both this Plan and
the other defined contribution plans, this Appendix B shall be applied first to
reduce allocations of contributions to this Plan.
SECTION 6
In the event that as a result of either the allocation of forfeitures
to the Account of a Member or a reasonable error in estimating the Member's
Annual Compensation, the annual addition allocated to the Account of a Member
exceeds the limitations set forth in Section 1 of this Appendix B or in the
event that the aggregate contributions made on behalf of a Member under both a
defined benefit plan and a defined contribution plan, subject to the reduction
of allocations in other defined contribution plans required by Section 5 of this
Appendix B, cause the aggregate limitation fraction set forth in Section 3 of
this Appendix B to be exceeded, the Plan Administrator shall, in writing, direct
the Trustee to take such of the following actions as the Plan Administrator
shall deem appropriate, specifying in each case the amount or amounts of
contributions involved:
(a) A Member's annual addition shall be reduced by
distributing to the Member
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<PAGE> 49
contributions made by the Plan Sponsor on behalf of the Member pursuant
to Plan Section 3.1, with respect to which no contribution is made
under Plan Section 3.2, which cause the annual addition to exceed such
limitations;
(b) If further reduction is necessary, contributions made
by the Plan Sponsor on behalf of the Member pursuant to Plan Section
3.1 and contributions of the Plan Sponsor thereon pursuant to Plan
Section 3.2 shall be reduced in the amount of the remaining excess. The
amount of the reduction under Plan Section 3.1 shall be distributed to
the Member. The amount of the reduction under Plan Section 3.2 shall be
reallocated to the Matching Accounts of Members who are not affected by
the limitation in the same proportion as the contribution of the Plan
Sponsor for the year is allocated under Plan Section 4.1 to the
Accounts of such Members;
(c) If further reduction is necessary, contributions made
by the Plan Sponsor on behalf of the Member pursuant to Plan Section
3.3 shall be reduced in the amount of the remaining excess. The amount
of the reduction shall be reallocated to the Accounts of Members who
are not affected by the limitations in the same proportion as the
contribution of the Plan Sponsor for the year is allocated under Plan
Section 4.1 to the Accounts of such Members; and
(d) If the contribution of the Plan Sponsor would cause
the annual addition to exceed the limitations set forth herein with
respect to all Members under the Plan, the portion of such contribution
in excess of the limitations shall be segregated in a suspense account.
While the suspense account is maintained, (1) no Plan Sponsor
contributions under the Plan shall be made which would be precluded by
this Appendix B, (2) income, gains and loses of the Fund shall not be
allocated to such suspense account and (3) amounts in the suspense
account shall be allocated in the same manner as Plan Sponsor
contributions and forfeitures under the Plan as of each Valuation Date
on which Plan Sponsor contributions may be allocated until the suspense
account is exhausted. In the event of the termination of the Plan, the
amounts in the suspense account shall be returned to the Plan Sponsor
to the extent that such amounts may not then be allocated to the
Members' Accounts.
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APPENDIX C
TOP-HEAVY PROVISIONS
SECTION 1
As used in this Appendix, the following words shall have the
following meanings:
(a) "Determination Date" means, with respect to any Plan
Year, the last day of the preceding Plan Year, or, in the case of the
first Plan Year, means the last day of the first Plan Year.
(b) "Key Employee" means an Employee or former Employee
(including a Beneficiary of a Key Employee or former Key Employee) who
at any time during the Plan Year containing the Determination Date or
any of the four (4) preceding Plan Years is:
(1) An officer described in the Subsection of
the Plan Section containing the definition of the term "Highly
Compensated Employee";
(2) One of the ten (10) Employees owning both
(A) more than one-half percent (1/2%) of the outstanding stock
of the Plan Sponsor, more than one-half percent (1/2%) of the
total combined voting power of all stock of the Plan Sponsor,
or more than one-half percent (1/2%) of the capital or profits
interest in the Plan Sponsor, and (B) the largest percentage
ownership interests in the Plan Sponsor or any of its
Affiliates, and whose Annual Compensation is equal to or
greater than the amount in effect under Section 1(a) of
Appendix B to the Plan for the calendar year in which the
Determination Date falls; or
(3) An owner of more than five percent (5%) of
the outstanding stock of the Plan Sponsor or more than five
percent (5%) of the total combined voting power of all stock
of the Plan Sponsor; or
(4) An owner of more than one percent (1%) of
the outstanding stock of the Plan Sponsor or more than one
percent (1%) of the total combined voting power of all stock
of the Plan Sponsor, and who in such Plan Year had Annual
Compensation from the Plan Sponsor and all of its Affiliates
of more than $150,000.
Employees other than Key Employees are sometimes referred to in this
Appendix as "non-key employees."
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(c) "Required Aggregation Group" means:
(1) each plan of the Plan Sponsor and its
Affiliates which qualifies under Code Section 401(a) in which
a Key Employee is a participant, and
(2) each other plan of the Plan Sponsor and its
Affiliates which qualifies under Code Section 401 (a) and
which enables any plan described in Subsection (a) of this
Section to meet the requirements of Section 401(a)(4) or 410
of the Code.
(d) (1) "Top-Heavy" means:
(A) if the Plan is not included in a
Required Aggregation Group, the Plan's condition in a
Plan Year for which, as of the Determination Date:
(i) the present value of the
cumulative Accrued Benefits under the Plan
for all Key Employees exceeds 60 percent of
the present value of the cumulative Accrued
Benefits under the Plan for all Members; and
(ii) the Plan, when included
in every potential combination, if any, with
any or all of:
(I) any Required Aggregation
Group, and
(II) any plan of the Plan
Sponsor which is not part of any Required
Aggregation Group and which qualifies under
Code Section 401 (a)
is part of a Top-Heavy Group (as defined in
Paragraph (2) of this Subsection); and
(B) if the Plan is included in a
Required Aggregation Group, the Plan's condition in a
Plan Year for which, as of the Determination Date:
(i) the Required Aggregation
Group is a Top-Heavy Group (as defined in
Paragraph (2) of this Subsection); and
(ii) the Required Aggregation
Group, when included in every potential
combination, if any, with any or all of the
plans of the Plan Sponsor and its Affiliates
which are not part of the Required
Aggregation Group and which qualify under
Code Section 401(a), is part of a Top-Heavy
Group (as defined in Paragraph (2) of this
Subsection).
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(C) For purposes of Subparagraphs
(A)(i) and (B)(ii) of this Paragraph (1), any
combination of plans must satisfy the requirements of
Sections 401(a)(4) and 410 of the Code.
(2) A group shall be deemed to be a Top-Heavy
Group if:
(A) the sum, as of the Determination
Date, of the present value of the cumulative accrued
benefits for all Key Employees under all plans
included in such group exceeds
(B) 60 percent of a similar sum
determined for all participants in such plans.
(3) (A) For purposes of this Section, the
present value of the accrued benefit for any participant in a
defined contribution plan as of any Determination Date or last
day of a plan year shall be the sum of:
(i) as to any defined
contribution plan other than a simplified
employee pension, the account balance as of
the most recent valuation date occurring
within the plan year ending on the
Determination Date or last day of a plan
year, and
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<PAGE> 53
(ii) as to any simplified
employee pension, the aggregate employer
contributions, and
(iii) an adjustment for
contributions due as of the Determination
Date or last day of a plan year.
In the case of a plan that is not subject to the
minimum funding requirements of Code Section 412, the
adjustment in Clause (iii) of this Subparagraph (A)
shall be the amount of any contributions actually
made after the valuation date but on or before the
Determination Date or last day of the plan year to
the extent not included under Clause (i) or (ii) of
this Subparagraph (A); provided, however, that in the
first plan year of the plan, the adjustment in Clause
(iii) of this Subparagraph (A) shall also reflect the
amount of any contributions made thereafter that are
allocated as of a date in such first plan year. In
the case of a plan that is subject to the minimum
funding requirements, the account balance in Clause
(i) and the aggregate contributions in Clause (ii) of
this Subparagraph (A) shall include contributions
that would be allocated as of a date not later than
the Determination Date or last day of a plan year,
even though those amounts are not yet required to be
contributed, and the adjustment in Clause (iii) of
this Subparagraph (A) shall be the amount of any
contribution actually made (or due to be made) after
the valuation date but before the expiration of the
extended payment period in Code Section 412(c)(10) to
the extent not included under Clause (i) or (ii) of
this Subparagraph (A).
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(B) For purposes of this Subsection,
the present value of the accrued benefit for any
participant in a defined benefit plan as of any
Determination Date or last day of a plan year must be
determined as of the most recent valuation date which
is within a 12-month period ending on the
Determination Date or last day of a plan year as if
such participant terminated as of such valuation
date; provided, however, that in the first plan year
of a plan, the present value of the accrued benefit
for a current participant must be determined either
(i) as if the participant terminated service as of
the Determination Date or last day of a plan year or
(ii) as if the participant terminated service as of
such valuation date, but taking into account the
estimated accrued benefit as of the Determination
Date or last day of a plan year. For purposes of this
Subparagraph (B), the valuation date must be the same
valuation date used for computing plan costs for
minimum funding, regardless of whether a valuation is
performed that year. The actuarial assumptions
utilized in calculating the present value of the
accrued benefit for any participant in a defined
benefit plan for purposes of this Subparagraph (B)
shall be established by the Plan Administrator after
consultation with the actuary for the plan, and shall
be reasonable in the aggregate and shall comport with
the requirements set forth by the Internal Revenue
Service in Q&A T-26 and T-27 of Regulation Section
1.416-1.
(C) For purposes of determining the
present value of the cumulative accrued benefit under
a plan for any participant in accordance with this
Subsection, the present value shall be increased by
the aggregate distributions made with respect to the
participant (including distributions paid on account
of death to the extent they do not exceed the present
value of the cumulative accrued benefit existing
immediately prior to death) under each plan being
considered, and under any terminated plan which if it
had not been terminated would have been in a Required
Aggregation Group with the Plan, during the 5-year
period ending on the Determination Date or last day
of the plan year that falls within the calendar year
in which the Determination Date falls.
(D) For purposes of this Paragraph (3),
participant contributions which are deductible as
"qualified retirement contributions" within the
meaning of Code Section 219 or any successor, as
adjusted to reflect income, gains, losses, and other
credits or charges attributable thereto, shall not be
considered to be part of the accrued benefits under
any plan.
(E) For purposes of this Paragraph (3),
if any employee is not a Key Employee with respect to
any plan for any plan year, but such employee was a
Key Employee with respect to such plan for any prior
plan year, any accrued benefit for such employee
shall not be taken into account.
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<PAGE> 55
(F) For purposes of this Paragraph (3),
if any employee has not performed any service for any
Plan Sponsor or Affiliate maintaining the plan during
the five-year period ending on the Determination
Date, any accrued benefit for that employee shall not
be taken into account.
under this Section; and
(G) (i) In the case of an "unrelated
rollover" (as defined below) between plans
which qualify under Code Section 401(a), (a)
the plan providing the distribution shall
count the distribution as a distribution
under Subparagraph (C) of this Paragraph
(3), and (b) the plan accepting the
distribution shall not consider the
distribution part of the accrued benefit
(ii) in the case of a "related
rollover" (as defined below) between plans
which qualify under Code Section 401(a), (a)
the plan providing the distribution shall
not count the distribution as a distribution
under Subparagraph (C) of this Paragraph
(3), and (b) the plan accepting the
distribution shall consider the distribution
part of the accrued benefit under this
Section.
For purposes of this Subparagraph (G), an "unrelated rollover" is a rollover as
defined in Code Section 402(a)(5) or 408(d)(3) or a plan-to-plan transfer which
is both initiated by the participant and made from a plan maintained by one
employer to a plan maintained by another employer where the employers are not
Affiliates. For purposes of this Subparagraph (G), a "related rollover" is a
rollover as defined in Code Section 402(a)(5) or 408(d)(3) or a plan-to-plan
transfer which is either not initiated by the participant or made to a plan
maintained by the employer or an Affiliate.
SECTION 2
(a) Notwithstanding anything contained in the Plan to the
contrary, except as otherwise provided in Subsection (b) of this
Section, in any Plan Year during which the Plan is Top-Heavy,
allocations of Plan Sponsor contributions for the Plan Year for the
Account of each Member who is not a Key Employee and who has not
separated from service with the Plan Sponsor prior to the end of the
Plan Year shall not be less than 3 percent of the Member's Annual
Compensation. For purposes of this Subsection, an allocation to a
Member's Account resulting from any Plan Sponsor contribution
attributable to a salary reduction or similar arrangement shall not be
taken into account.
(b) (1) The percentage referred to in Subsection (a) of
this Section for any Plan Year shall not exceed the percentage
at which allocations are made or required to be made under the
Plan for the Plan Year for the Key Employee for whom the
percentage is highest for the Plan Year. For purposes of this
Paragraph, an allocation to the Account of a Key Employee
resulting from any Plan Sponsor contribution attributable to a
salary reduction or similar agreement shall be taken into
account.
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<PAGE> 56
(2) For purposes of this Subsection (b), all
defined contribution plans which are members of a Required
Aggregation Group shall be treated as part of the Plan.
(3) This Subsection (b) shall not apply to any
plan which is a member of a Required Aggregation Group if the
plan enables a defined benefit plan which is a member of the
Required Aggregation Group to meet the requirements of Code
Section 401(a)(4) or 410.
SECTION 3
In any limitation year (as defined in Section 4 of Appendix B to the
Plan) which contains any portion of a Plan Year in which the Plan is Top-Heavy,
the number "1.0" shall be substituted for the number "1.25" in Section 3 of
Appendix B to the Plan.
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<PAGE> 1
EXHIBIT 10.2
FIRST BANKING COMPANY OF
SOUTHEAST GEORGIA PROFIT SHARING PLAN
TRUST AGREEMENT
THIS AGREEMENT (hereinafter referred to as the "Trust") made on the
30th day of December, 1988, by and between FIRST BANKING COMPANY OF SOUTHEAST
GEORGIA, a corporation organized and existing under the laws of the State of
Georgia (hereinafter referred to as the "Primary Sponsor"); FIRST BULLOCH BANK &
TRUST COMPANY ("First Bulloch"), METTER BANKING COMPANY ("Metter") and each
corporation or Affiliate hereafter adopting the First Banking Company of
Southeast Georgia Profit Sharing Plan (the "Plan") as provided therein (First
Bulloch, Metter, and each such corporation or Affiliate being hereinafter
sometimes individually referred to as a "Plan Sponsor"); and FIRST BULLOCH BANK
& TRUST COMPANY (hereinafter referred to as the "Trustee"):
W I T N E S S E T H:
WHEREAS, the Primary Sponsor established a trust agreement under the
First Banking Company of Southeast Georgia Uniform Profit Sharing Plan under an
indenture dated December 11, 1985 (the "Old Trust" and "Old Plan",
respectively); and
WHEREAS, First Bulloch adopted the Old Plan and Old Trust; and
WHEREAS, Metter maintains the Metter Banking Company Profit Sharing
Plan under an indenture effective January 1, 1984 (the "Metter Plan"); and
WHEREAS, the Primary Sponsor, First Bulloch, and Metter will amend and
restate the Old Plan and the Metter Plan into the Plan effective January 1,
1989; and
WHEREAS, the Primary Sponsor, First Bulloch, and Metter desire to amend
and restate the Old Trust and the trust under the Metter Plan into the Trust;
NOW, THEREFORE, the Primary Sponsor, First Bulloch, and Metter, hereby
amend and restate the Old Trust and the trust under the Metter Plan into the
Trust, effective January 1, 1989, as follows:
SECTION I.
DEFINITIONS
All terms and definitions contained in the Plan are hereby incorporated
in the Trust by reference except to the extent that the terms of the Trust
clearly indicate to the contrary.
<PAGE> 2
SECTION II.
THE FUND
The Primary Sponsor hereby establishes the Fund with the Trustee. The
Fund shall be held, managed and administered by the Trustee in trust in
accordance with the provisions of the Plan and of the Trust without distinction
between principal and income. At no time shall any part of the Fund be used for
or diverted to purposes other than the exclusive benefit of the Members or their
Beneficiaries, subject, however, to the payment of taxes and administrative
expenses and to the return of contributions to a Plan Sponsor under the specific
conditions set forth in the Plan.
SECTION III.
MAINTENANCE OF AND DISTRIBUTIONS FROM ACCOUNTS
(a) The Plan Administrator shall maintain Accounts in accordance with
the Plan.
(b) A written notice, direction, statement or certificate to the
Trustee, to the extent authorized in and given in accordance with the terms and
conditions of the Plan, is the notice, direction, statement or certificate of
the person so giving it, and the Trustee may rely upon the notice, direction,
statement or certificate, and the authenticity and genuineness thereof and of
the signatures thereon, and the authority of the person or persons executing and
delivering it, without making inquiry in regard thereto. The Trustee is not
charged with any notice of any direction, statement or certificate whatsoever
unless given in accordance with the Plan, including, without limitation,
notification of any changes in the identity or authority of any Fiduciary (other
than the Trustee) or any other person acting in regard to the Plan.
(c) The Trustee shall from time to time, on the written direction of
the Plan Administrator, make payments out of the Fund to the persons, in the
manner and in the amounts, as may be specified in the written directions of the
Plan Administrator, and upon any payments being made, the amount thereof shall
no longer constitute a part of the Fund. The Plan Administrator assumes all
responsibility with respect to the directions and the application of the
payments. The Trustee is under no duty to enforce payments of any contributions
to the Fund and is not responsible for the adequacy of the Fund to meet and
discharge any or all liabilities arising in connection with the Plan or the
Trust.
(d) In the event that any dispute arises as to the persons to whom the
payment of any funds or delivery of any assets shall be made by the Trustee, the
Trustee may withhold such payment or delivery until the dispute has been
determined by a court of competent jurisdiction or has been settled by the
parties concerned and may, in its sole discretion, submit any such dispute to a
court of competent jurisdiction.
2
<PAGE> 3
SECTION IV.
INVESTMENTS
(a) Subject to the provisions of Sections IV, V and VI hereof, the
Trustee agrees to invest the assets of the Fund with the care, skill and
diligence under the circumstances then prevailing that a prudent man acting in
like capacity and familiar with such matters pursuant to the Trust would use in
the conduct of an enterprise of a like character and with like aims.
(b) The Trustee shall invest the assets of the Fund held in the
Matching Accounts and ROA Accounts of Members primarily in shares of Company
Stock to the extent such Company Stock is available. The number of shares of
Company Stock purchased by the Trustee using all or any portion of a Member's
Matching Account or ROA Account shall be allocated to the Company Stock
Subaccount of each such Account, as appropriate, as of the Valuation Date
coinciding with or next following the date of acquisition.
(c) Since from time to time shares of Company Stock may not be
available and since all of the assets of the Fund will not be invested in shares
of Company Stock, the Primary Sponsor shall give written notice to the Trustee
of the other investment goals and objectives of the Plan upon which notice the
Trustee shall be entitled to rely in investing and reinvesting the Fund until
the Trustee receives a subsequent notice in regard to such investment goals and
objectives. In order to attain the other investment goals and objectives of the
Plan, or, if the Primary Sponsor has not given the Trustee the notice, to attain
the "Normal Investment Goals and Objectives of the Trustee" as set out in
Paragraph (e) of this Section IV, subject, however, to the terms of the Plan and
the Trust and the provisions of ERISA, the Trustee has the authority to invest
and reinvest the principal and income of the Fund and keep the Fund invested,
without distinction between principal and income, in securities or in property,
real or personal and wherever situated, as the Trustee deems advisable, in its
sole discretion. The Trustee may make investments and reinvestments in, and may
purchase, acquire, obtain, retain, sell, transfer, pledge, hypothecate or
encumber common or preferred stocks, shares of mutual funds, trust and
participation certificates, bonds and mortgages, other evidences of indebtedness
or ownership, certificates of deposit and savings accounts or plans, including,
without limitation, certificates of deposit and savings accounts or plans
established or to be established by the Trustee, and group trusts or collective
investment funds including, without limitation, group trusts or collective
investment funds operated or to be operated by the Trustee, covered call
options, put options, and financial futures contracts, irrespective of whether
such securities or property shall be of a character authorized from time to time
by applicable state law for trust investments.
(d) Notwithstanding any language in the Trust to the contrary, the
Trustee shall not invest in any securities issued by the Primary Sponsor or any
affiliate (as defined in ERISA Section 407(d)(7)) of the Primary Sponsor unless
the securities are "Qualifying Employer Securities" which means, for purposes of
the Plan and the Trust, securities of the Primary Sponsor or any Affiliate which
are stock; provided, however, that, in no event shall the Trustee be required to
invest in Qualifying Employer Securities if the Trustee makes a good faith
determination that the investment would be contrary to ERISA Section 406 or
Section 4975 or
3
<PAGE> 4
the Code, taking into consideration, however, only the relative merits of the
Qualifying Employer Securities without considering other investment
alternatives. Notwithstanding anything herein to the contrary, the Trustee may
not be required to invest in any real property leased to or used by a Plan
Sponsor or any Affiliate of a Plan Sponsor.
(e) The Normal Investment Goals and Objectives of the Trustee when the
acquisition of shares of Company Stock is not possible are capital growth,
conservation of principal and production of income through the receipt of
interest or dividends from investments.
(f) In addition to any other investments proper under the Trust, the
Trustee may, after receiving the prior approval of the Primary Sponsor, from
time to time invest all or any part of the Fund in one or more group trusts or
collective investment funds now existing or hereafter established (including,
without limitation, trusts or funds established by the Trustee), which
contemplate the commingling for investment purposes of the funds therein with
trust assets of other pension plans as defined in ERISA which are qualified
under Section 401 of the Code and established by other businesses, institutions
and organizations. The terms and provisions of the declaration of trust creating
any group trust or collective investment fund in which all or any part of the
Fund is invested, as in force and effect at the time of the investment and as
thereafter amended, are hereby adopted and made a part hereof, and any part of
the Fund so invested shall be subject to all of the terms and provisions, as in
force and effect at the time of the investment and as thereafter amended, of any
declaration of trust creating the group trust or collective investment fund. The
Trustee shall, after receiving written approval from the Primary Sponsor, from
time to time withdraw from the group trust or collective investment fund all or
a part of the Fund as the Trustee may deem advisable.
SECTION V.
INVESTMENT MANAGER
(a) In the event an Investment Manager is designated in accordance with
the provisions of the Plan, the Trustee shall either (i) turn over to the
Investment Manager for investment, all or the portion of the Fund as is
specified in a written direction to the Trustee from the Primary Sponsor, in
which case the assets shall continue to be a part of the Fund, even though not
in the possession of the Trustee, or (ii) invest and reinvest all or the portion
of the Fund as shall be specified in a written direction to the Trustee from the
Primary Sponsor in the manner as the Investment Manager directs the Trustee in
writing. In either event, whether the Trustee actually gives the Investment
Manager possession of all or any portion of the Fund or is required to invest
all or any portion of the Fund as directed by the Investment Manager, the
Trustee has no discretion with respect to the investment or reinvestment of such
portion and is not liable for that portion of the Fund invested by or under the
direction of the Investment Manager or for any acts or omissions of the
Investment Manager or for following or for taking or refraining from taking any
action at any direction of the Investment Manager given prior to receipt by the
Trustee of written notice from the Primary Sponsor of revocation of the
designation of the Investment Manager or for the failure of the Investment
Manager to give a
4
<PAGE> 5
direction or for any act or omission in connection with such failure. The
Trustee has no responsibility for any assets of the Fund while in the possession
of the Investment Manager or while the assets have not been returned to the
possession of the Trustee, and the Trustee is entitled to rely upon notice of
the designation of an Investment Manager from the Primary Sponsor until notified
in writing by the designating party that the designation is no longer in effect.
(b) During any period of time in which an Investment Manager directs
the investment of a portion of the Fund, the Trustee shall continue to receive
all securities purchased against payment therefor and to deliver all securities
sold against receipt of the proceeds therefrom. Any duly designated Investment
Manager authorized to direct investments may from time to time issue orders on
behalf of the Trustee for the purchase or sale of securities directly to a
broker or dealer and for that purpose the Trustee shall, upon request, execute
and deliver to such Investment Manager one or more trading authorizations.
Written notification of the issuance of each order shall be given promptly to
the Trustee by the Investment Manager and the execution of each order shall be
confirmed by the broker to the Investment Manager and to the Trustee. The
notification is the authority of the Trustee to receive securities purchased
against payment therefor and to deliver securities sold against receipt of the
proceeds therefrom, as the case may be. All directions concerning investments of
the Investment Manager shall be signed by the person acting on behalf of the
Investment Manager, as may be duly authorized in writing; provided, however,
that the transmission by the Investment Manager to the Trustee of directions by
photostatic teletransmission with duplicate or facsimile signature or signatures
is considered a delivery in writing of the directions until the Trustee is
notified in writing by the Primary Sponsor that the use of such devices with
duplicate or facsimile signatures is no longer authorized. The Trustee shall be
entitled to rely upon directions which it receives by such means prior to
receipt of notice from the Primary Sponsor that they are no longer authorized,
and the Trustee shall not be responsible for the consequences of any
unauthorized use of a device which use was not known by the Trustee at the time
to be unauthorized.
(c) Notwithstanding any other provision of the Trust or the Plan, the
Trustee is under no duty to make any review of investments acquired for the Plan
at the direction or order of an Investment Manager or to make any recommendation
with respect to disposing of or continuing to retain any such investment.
(d) Notwithstanding any other provision of the Trust or the Plan, the
Trustee has no obligation to determine the existence of any conversion,
redemption, exchange, subscription or other right relating to any securities
purchased, of which notice was given prior to the purchase of the securities,
and shall have no obligation to exercise the right unless the Trustee is
informed of the existence thereof by the Investment Manager and is requested in
writing by the Investment Manager to exercise the right within a reasonable time
before the time for the exercise thereof expires.
(e) Notwithstanding any other provision of the Trust or the Plan, in
the event that the Trustee is directed to purchase securities issued by any
foreign government or agency thereof, or by any corporation domiciled outside of
the continental limits of the United States or
5
<PAGE> 6
its territories, it is the responsibility of the Investment Manager to advise
the Trustee in writing with respect to any laws or regulations of any foreign
countries which applies, in any manner whatsoever, to the securities, including,
but not limited to, receipt of dividends or interest by the Trustee from the
securities.
SECTION VI.
INVESTMENT COMMITTEE
(a) In the event an Investment Committee is designated in accordance
with the Plan, the Trustee shall, unless otherwise directed in writing, invest
and reinvest all of the Fund in the manner directed by the Investment Committee;
provided, however, that the Trustee shall only be subject to proper directions
of the Investment Committee which are made in accordance with the terms of the
Plan and which are not contrary to ERISA and the Code.
(b) The Board of Directors may in writing direct that only a portion of
the Fund shall be invested and reinvested as the Investment Committee designated
by it shall direct, in which case the Trustee shall invest and reinvest the
balance of the Fund pursuant to Section IV hereof, subject to Sections V and VI
hereof.
SECTION VII.
TRUSTEE POWERS
In the administration of the Trust, in addition to, and not in
limitation of, any powers or authority of the Trustee under the Trust or which
the Trustee has under applicable law in addition thereto (all such additional
powers and authority being specifically hereby granted to the Trustee), the
Trustee is authorized and empowered to do the following, without advertisement
and without order of court and without having to post bond or make any returns
or report of its doings to any court:
(a) To purchase or subscribe for any securities or property, including,
without limitation, shares of mutual funds, and to retain the same in trust;
(b) To sell, exchange, convey, transfer, or otherwise dispose of, any
securities or property held by it, by private contract or at public auction,
with or without advertising, and no person dealing with the Trustee shall be
bound to see to the application of the purchase money or to inquire into the
validity, expediency or propriety of any sale or other disposition;
(c) To vote any stocks, bonds or other securities except for these
securities held at the direction of the Investment Manager as described in
Section V hereof; to give general or special proxies or powers of attorney with
or without power of substitution; to exercise any conversion privileges,
subscription rights or other options, and to make any payments incidental
thereto; to oppose or to consent to, or otherwise participate in, corporate
6
<PAGE> 7
reorganizations or other changes affecting corporate securities, and to delegate
discretionary powers, and to pay any assessments or charges in connection
therewith; and generally to exercise any of the powers of an owner with respect
to stocks, bonds, securities or other property held as part of the Fund;
(d) To register any investment held as a part of the Fund in its own
name or in the name of a nominee, and to hold any investment in bearer form or
through or by a central clearing corporation maintained by institutions active
in the national securities markets, but the books and records of the Trustee
shall at all times show that all investments are part of the Fund;
(e) To write covered call options and to purchase or sell put options and
financial futures contracts;
(f) To employ and act through suitable agents, accountants, appraisers
and attorneys (who may be counsel for the Trustee) and to pay their reasonable
expenses and compensation, and the Trustee may from time to time consult with
counsel (who, without limitations may be counsel to the Trustee or to a Plan
Sponsor), and shall be protected to the extent the law permits in acting upon
the advice of counsel in regard to legal questions, and may also from time to
time employ agents and expert assistants and delegate to them the ministerial
duties which it sees fit, and in which event the Trustee shall periodically
review the performance of the persons to whom these duties have been delegated;
(g) To borrow or raise moneys for the purposes of the Trust in such
amounts, and upon such terms and conditions, as the Trustee in its absolute
discretion may deem advisable; and for any sums so borrowed to issue its
promissory note as Trustee, and to secure the repayment thereof by pledging all
or any part of the Fund; and no person lending money to the Trustee shall be
bound to see to the application of the money lent or to require into the
validity, expediency or propriety of the borrowing;
(h) To make, execute, acknowledge and deliver any and all documents of
transfer and conveyance and any and all other instruments or agreements that may
be necessary or appropriate to carry out the powers of the Trustee under this
Trust or incidental thereto;
(i) To settle, compromise or submit to arbitration any claims, debts or
damages due or owing to or from the Fund, to commence or defend any suits or
legal or administrative proceedings arising or necessary or appropriate in
connection with the Plan, the Trust, the Fund, the administration and operation
thereof or the powers or authority of the Trustee under the Trust, and to
represent the Plan, the Trust, and the Fund in all suits and legal and
administrative proceedings;
(j) To keep such Portions of the Fund in cash or cash balances as the
Trustee may, from time to time, deem to be in the best interest of the Trust, it
being understood that the Trustee shall not be required to pay any interest on
any cash balances; and
7
<PAGE> 8
(k) Generally, to do all such acts and to execute and deliver all such
instruments as in the judgment of the Trustee may be necessary or desirable to
carry out any powers or authority of the Trustee, without advertisement and
without order of court and without having to post bond or make any returns or
report of its doings to any court.
Notwithstanding any other term or condition of the Trust or the Plan,
the Trustee shall neither engage in any transaction with the assets of the Fund
in violation of the provisions of Section 406 of ERISA nor violate the
provisions of Section 406 of ERISA, nor may the Trustee purchase or sell Company
Stock or determine the price at which Company Stock will be purchased or sold,
except at the proper direction of the Investment Committee, or, in the event an
Investment Committee has not been appointed, the Board of Directors or an
appropriate committee thereof, which direction is given in accordance with the
terms of the Plan and is not contrary to ERISA.
SECTION VIII.
TRUSTEE COMPENSATION
(a) The Trustee's compensation shall be such as may be agreed upon from
time to time in a separate written agreement between the Primary Sponsor and the
Trustee and shall be paid by the Primary Sponsor, but until paid shall
constitute a charge on the assets held by the Trustee under the Trust. In the
event the Primary Sponsor shall fail to pay to the Trustee its compensation and
expenses within ninety (90) days of invoicing of the same to the Primary Sponsor
by the Trustee, the Trustee is authorized to use the assets held by the Trustee
under the Trust to pay its unpaid compensation and expenses. Notwithstanding the
foregoing, no person, if any, who serves as the Trustee and who receives
full-time pay from a Plan Sponsor shall be entitled to receive any compensation
from the Fund, except for the reimbursement of expenses properly and actually
incurred by him in his role as Trustee.
(b) All taxes of whatever kind or nature that may be levied or assessed
under existing or future laws upon, or in respect of, the Plan, the Trust, the
Fund or the income or gains thereof or therefrom shall be paid from the Fund.
SECTION IX.
TRUSTEE RESPONSIBILITY
The Trustee is not responsible for the application, investment or other
disposition of any funds or property held or managed by, or otherwise subject to
direction by, any person other than the Trustee. The Trustee is not responsible
for the application of any funds or property held by it under the Trust which
have been paid to the Plan Administrator or which have been paid pursuant to the
Plan and the Trust or as directed by the Plan Administrator. The Trustee has no
responsibility with respect to any administration of the Plan or the payment of
any benefits under the Plan.
8
<PAGE> 9
SECTION X.
RECORDKEEPING
The Trustee shall keep accurate and detailed accounts of all
investments, receipts, disbursements and other transactions pursuant to the Plan
and the Trust, and all accounts, books and records relating thereto shall be
open to inspection and audit at all reasonable times by the Plan Administrator.
Within ninety (90) days following the later of the close of each Plan Year or
the receipt of a Plan Sponsor's contribution, and within ninety (90) days after
(a) the removal or resignation of the Trustee, (b) the death, removal or
resignation of an individual trustee, if any, or (c) the termination of the
Trust (hereinafter the date of an event described in Subsection (a), (b) or (c)
of this Section is referred to as a "Report Date"), the Trustee shall file with
the Plan Administrator a written account setting forth (i) all investments,
receipts, disbursements and other transactions effected by it during such Plan
Year or during the period from the last Valuation Date to the Report Date and
(ii) the determination of the Trustee of the net income or net loss of the Fund
pursuant to the Plan for such Plan Year or during the period from the last
Valuation Date to the Report Date and the determination of the Trustee of the
fair market value of the assets of the Fund pursuant to the Plan as at the
Valuation Date or as at the Report Date, as the case may be, except that unless
the Report Date is also a Valuation Date, no allocation of net income, net loss,
earnings, gains or losses shall be made to the Account of a Member.
SECTION XI.
REMOVAL OR RESIGNATION OF TRUSTEE AND
AMENDMENT OR TERMINATION OF TRUST
(a) Any Trustee may be removed by the Primary Sponsor at any time upon
ninety (90) days' notice in writing to such Trustee and to the Plan
Administrator, given by the Primary Sponsor. Any Trustee may resign at any time
upon ninety (90) days' notice in writing to the Primary Sponsor and the Plan
Administrator.
(b) Upon the death, removal or resignation of an individual trustee,
the Primary Sponsor may appoint a successor to the individual trustee who shall
have the same powers and duties under this Trust as the individual trustee;
provided, however, upon the death of the last remaining individual trustee the
Primary Sponsor shall appoint a successor as soon as possible. Until a
successor, if any, is appointed the remaining person or persons constituting the
Trustee may continue to act as Trustee.
(c) Upon the removal or resignation of the Trustee the Primary Sponsor
shall appoint a successor who shall have the same powers and duties as those
conferred upon the Trustee under this Trust, and, upon receipt by the Trustee of
a written acceptance of such appointment by the successor trustee, the Trustee
shall assign, transfer and pay over to the successor trustee the funds and
properties then constituting the Fund; provided, however, the
9
<PAGE> 10
Trustee shall not be required to pay over funds and properties to a successor
trustee unless the Trustee shall be discharged from all liability for any taxes
which may be due and owing by the Plan and Trust, or unless either (i) the
successor trustee, who must be acceptable to the Trustee, indemnifies the
Trustee against any liability or (ii) each Plan Sponsor so indemnifies the
Trustee and the Trustee in its sole discretion agrees to accept indemnification.
In the event that by the end of the ninety (90) day notice period, the Primary
Sponsor fails to appoint a successor trustee or the Trustee has not received a
written acceptance from a successor trustee, then at any time after the end of
the ninety (90) day notice period the Trustee may file an appropriate action in
a court of competent jurisdiction and assign, transfer and pay over to the
custody of the court the funds and properties then held by the Trustee
constituting the Fund. Upon assignment, transfer and payment to a successor
trustee or to the court, as the case may be, the Trustee shall be relieved of
all further duties, responsibilities, obligations and liabilities in connection
with the Plan, the Trust or the Fund. The Trustee is authorized, however, to
reserve therefrom such money or property as it may deem advisable for payment of
its fees and expenses in connection with the settlement of its account or
otherwise, and any balance of the reserve remaining after the payment of the
Trustee's fees and expenses shall be paid over to the successor trustee or to
the court.
(d) The Primary Sponsor reserves the right at any time to amend, in
whole or in part, any or all of the provisions of this Trust by notice thereof
delivered in writing to the Trustee, provided that any amendment which affects
the rights, duties or responsibilities of the Trustee may not be made without
the consent of the Trustee.
(e) The Trust shall continue for such time as may be necessary to
accomplish the purposes for which it was created and shall terminate only upon
the complete distribution of the Fund. This Trust may be terminated as of any
date (and shall in fact terminate upon the complete distribution of the Fund on
such date or thereafter) by the Primary Sponsor by notice to the Trustee and the
Plan Administrator, which notice shall specify the date as of which this Trust
shall terminate, must be received by the Trustee prior to such date and must be
given in the manner prescribed for notices in the Plan. Upon termination of the
Trust, provided that the Trustee has not received instructions to the contrary
from the Primary Sponsor, the Trustee shall liquidate the Fund and, after paying
the reasonable expenses of the Trust, including expenses involved in the
termination, distribute the balance thereof according to the written directions
of the Plan Administrator; provided, however, that the Trustee shall not be
required to make any distribution until it receives a copy of an Internal
Revenue Service determination letter to the effect that the termination does not
affect the qualified status of the Plan and the Trust nor the exempt status of
the Plan and the Trust or, in the event that such letter is not issued, until
the Trustee is reasonably satisfied that adequate provision has been made for
the payment of all taxes which may be due and owing by the Plan and the Trust;
and provided, further, that in no event shall any distribution be made by the
Trustee unless and until the Trustee is reasonably satisfied that the
distribution will not be contrary to the applicable provisions of the Plan
dealing with terminations of the Plan and the Trust.
(f) The Trust and the contributions made by a Plan Sponsor to the
Trustee pursuant to the Plan and the Trust are conditioned upon the conditions
set forth in the Plan as to
10
<PAGE> 11
qualification and returns of contributions, and the returns of contributions
by the Trustee to a Plan Sponsor in certain events shall be governed by such
provisions of the Plan.
(g) In the event more than one person or entity is serving as the
Trustee, the persons or entities so serving shall act by the action of a
majority, with or without a meeting, and any action may be evidenced by a
writing executed by a majority of the persons or entities constituting the
Trustee.
(h) Any notice, direction, statement or certificate to be given to the
Trustee in connection with the Plan, this Trust or the Fund shall be promptly
given and shall be given in accordance with the Plan.
(i) Each Plan Sponsor agrees at its sole cost and expense to indemnify
and hold harmless the Plan, the Trust, the Fund and the Trustee from and against
any claim, liability, loss, cost, expense, action or cause of action resulting
from or in connection with any claim asserted by any person or persons where the
Trustee has acted in good faith pursuant to this Trust or in reliance on a
written notice, direction or certificate to the extent the notice, direction, or
certificate is authorized in the Plan or the Trust and has been given in
accordance with the terms and conditions of the Plan.
(j) The Trust shall be administered, construed and enforced according
to the laws of the State of Georgia and the laws of the United States to the
extent they preempt state law or are otherwise applicable to this Trust, and the
Trustee shall be liable to account only in the courts of that state and in any
court of appropriate jurisdiction of the United States. All transfers of funds
or other property to or from the Trustee shall be deemed to take place in the
State of Georgia.
IN WITNESS WHEREOF, the parties hereto have caused this Trust to be
duly executed as of the day and year first above written.
PRIMARY SPONSOR: FIRST BANKING COMPANY
OF SOUTHEAST GEORGIA
By: James Eli Hodges
---------------------------
Title: President
----------------------------
ATTEST:
Mary C. Olliff
- ---------------------
Secretary - Treasurer
[CORPORATE SEAL]
11
<PAGE> 12
PLAN SPONSORS: FIRST BULLOCH BANK
& TRUST COMPANY
By: James Eli Hodges
-------------------------------
Title: President
-------------------------------
ATTEST:
Mary C. Olliff
- -------------------------------
Secretary
[CORPORATE SEAL]
METTER BANKING COMPANY
By: Julian C. Lane
-------------------------------
Title: President
-------------------------------
ATTEST:
Dan Parrish, Jr.
- ------------------------------------
Secretary
[CORPORATE SEAL]
TRUSTEE: FIRST BULLOCH BANK
& TRUST COMPANY
By: John B. Barton
---------------------------------
Title: Vice President & Trust Officer
--------------------------------
ATTEST:
Debra R. Standridge
- ------------------------------------
Title: Trust Administrative Officer
------------------------------
[SEAL]
<PAGE> 1
EXHIBIT 10.3
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
TARGET BENEFIT RETIREMENT PLAN
THIS INDENTURE made on the 29th day of December, 1994, by FIRST BANKING
COMPANY OF SOUTHEAST GEORGIA, a corporation duly organized and existing under
the laws of the State of Georgia (hereinafter called the "Primary Sponsor");
W I T N E S S E T H:
WHEREAS, the Primary Sponsor established the First Banking Company of
Southeast Georgia Uniform Target Benefit Retirement Plan under an indenture
dated July 14, 1986 (the "Old Plan"); and
WHEREAS, First Bulloch Bank & Trust Company ("First Bulloch") adopted the
Old Plan by execution of an Adoption Agreement dated July 14, 1986 (the "First
Bulloch Plan"); and
WHEREAS, Metter Banking Company ("Metter") established the Metter Banking
Company Retirement Plan and Trust under an amended and restated indenture
effective January 1, 1984 (the "Metter Plan"); and
WHEREAS, the Primary Sponsor and First Bulloch amended and restated the Old
Plan and the First Bulloch Plan into the First Banking Company of Southeast
Georgia Target Benefit Retirement Plan (the "Plan") by indenture dated December
30, 1988; and
WHEREAS, First Bulloch and Metter have adopted the Plan and are Plan
Sponsors; and
WHEREAS, the Plan was amended and restated by indenture dated December 28,
1989, and was further amended by indenture dated December 30, 1991; and
WHEREAS, the Plan is intended to be a target benefit pension plan which is
a form of money purchase pension plan as described in Revenue Ruling 76-464; and
WHEREAS, the Primary Sponsor now desires to amend and restate the Plan
primarily to comply with the provisions of the Tax Reform Act of 1986,
subsequent legislation, and various regulations and rulings issued by government
agencies since the Plan was last amended; and
WHEREAS, the provisions of the Plan, as amended and restated herein, shall
apply only to Plan years beginning after December 31, 1988, and only with
respect to Members who perform an Hour of Service after Plan years beginning
after December 31, 1988, except to the extent the provisions are required to
apply at an earlier or later date or to any other Members to comply with
applicable law;
NOW, THEREFORE, the Primary Sponsor does hereby amend and restate the Plan
in its entirety, effective January 1, 1989, to read as follows:
<PAGE> 2
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
TARGET BENEFIT RETIREMENT PLAN
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
SECTION 1 DEFINITIONS...................................................................................1
SECTION 2 ELIGIBILITY..................................................................................11
SECTION 3 CONTRIBUTIONS................................................................................11
SECTION 4 ALLOCATIONS..................................................................................12
SECTION 5 DEATH BENEFITS...............................................................................13
SECTION 6 PAYMENT OF BENEFITS ON RETIREMENT OR DEATH...................................................13
SECTION 7 PAYMENT OF BENEFITS ON TERMINATION OF EMPLOYMENT.............................................18
SECTION 8 ADMINISTRATION OF THE PLAN...................................................................20
SECTION 9 CLAIM REVIEW PROCEDURE.......................................................................22
SECTION 10 LIMITATION OF ASSIGNMENT, PAYMENTS TO
LEGALLY INCOMPETENT DISTRIBUTEES AND
UNCLAIMED PAYMENTS...........................................................................23
SECTION 11 PROHIBITION AGAINST DIVERSION................................................................24
SECTION 12 LIMITATION OF RIGHTS.........................................................................24
SECTION 13 AMENDMENT TO OR TERMINATION OF THE PLAN
AND THE TRUST................................................................................24
SECTION 14 ADOPTION OF PLAN BY AFFILIATES...............................................................26
SECTION 15 QUALIFICATION AND RETURN OF CONTRIBUTIONS....................................................26
SECTION 16 INCORPORATION OF SPECIAL LIMITATIONS.........................................................27
APPENDIX A LIMITATION ON ALLOCATIONS...................................................................A-1
APPENDIX B TOP-HEAVY PROVISIONS........................................................................B-1
APPENDIX C PRIOR TARGET BENEFIT FORMULAS...............................................................C-1
APPENDIX D ACTUARIAL TABLES............................................................................D-1
</TABLE>
<PAGE> 3
SECTION 1
DEFINITIONS
Wherever used herein, the masculine pronoun shall be deemed to include the
feminine, and the singular to include the plural, unless the context clearly
indicates otherwise, and the following words and phrases shall, when used
herein, have the meanings set forth below:
1.1 "Account" means the accounts as may be established and
maintained by the Plan Administrator to reflect the interest of a Member in the
Fund. In addition to any other Accounts as the Plan Administrator may establish
and maintain, the Plan Administrator shall establish and maintain separate
accounts each of which shall be adjusted pursuant to the Plan to reflect income,
gains, losses and other credits or charges attributable thereto for each Member
to be designated as follows:
(a) "Target Account" which shall reflect a Member's
interest in contributions made by a Plan Sponsor under Plan Section
3.1.
(b) "Metter Account" which shall reflect a Member's
interest in his accrued benefit transferred to the Plan from the Metter
Plan in a trust-to-trust transfer.
1.2 "Accrued Benefit" means the balance of a Member's Account.
1.3 "Actuarial Assumptions" shall be calculated using the 1983
Group Annuity Mortality Tables (1983 GAM) (Unisex based on a 50% male/50% female
mix) as set forth in Appendix D, and using a standard interest rate equal to (a)
6.0% for Plan Years beginning before January 1, 1991, and (b) 7.5% for Plan
Years beginning on and after January 1, 1991.
1.4 "Affiliate" means (a) any corporation which is a member of the
same controlled group of corporations (within the meaning of Code Section
414(b)) as is a Plan Sponsor, (b) any other trade or business (whether or not
incorporated) under common control (within the meaning of Code Section 414(c))
with a Plan Sponsor, (c) any other corporation, partnership or other
organization which is a member of an affiliated service group (within the
meaning of Code Section 414(m)) with a Plan Sponsor, and (d) any other entity
required to be aggregated with a Plan Sponsor pursuant to regulations under Code
Section 414(o).
1.5 "Annual Compensation" means
(a) for Plan Years beginning before January 1, 1991, the
amount paid to an Employee by a Plan Sponsor and Affiliates during a
Plan Year as wages, salaries for professional services, and other
amounts received for personal services actually rendered (including,
but not limited to, commissions paid salesman, compensation for
services on the basis of percentage of profits, commissions on
insurance premiums, tips and bonuses), to the extent not in excess of
the Annual Compensation Limit. For purposes of the preceding sentence,
income from sources without the United States otherwise excluded from
gross income under Code Section 911 shall be included in Annual
Compensation. Annual Compensation does not
<PAGE> 4
include deferred compensation, stock options, and other amounts which
receive special tax benefits. Notwithstanding the above, Annual
Compensation shall be determined as follows:
(1) in determining with respect to each Plan
Sponsor the amount of contributions made by or on behalf of an
Employee under Plan Section 3 and allocations under Plan
Section 4, Annual Compensation shall only include amounts
received from that Plan Sponsor for the portion of the Plan
Year during which the Employee was a Member;
(2) for purposes of applying the Annual
Compensation Limit, with respect to Plan Sections 3 and 4, the
rules of Code Section 414(a)(6) shall apply, except that in
applying such rules, the term "family" shall include only the
spouse of the Member and any lineal descendents of the Member
who have not attained age 19 before the close of the Plan
Year;
(3) for all purposes under the Plan except
Appendices A and B hereto, Annual Compensation shall include
any amount contributed by a Plan Sponsor on behalf of an
Employee pursuant to a salary reduction agreement which is not
includable in the gross income of the Employee under Code
Section 125, 402(a)(8), or 402(h); and
(4) for purposes of applying the annual addition
limits set forth in Appendix A, the term Plan Sponsor as used
in Plan Section 1.5 shall mean Plan Sponsor as that term is
defined in Section 4 of Appendix.
(b) for Plan Years beginning on and after January 1,
1991, the amount paid to an Employee by a Plan Sponsor and Affiliates
during a Plan Year as wages, salaries, fees for professional services,
and other amounts received for personal services actually rendered
(including, but not limited to, commissions paid salesmen, compensation
for services on the basis of percentage of profits, commissions on
insurance premiums, tips, bonuses, fringe benefits and reimbursements
or other expense allowances under a nonaccountable plan), to the extent
not in excess of the Annual Compensation Limit. Annual Compensation
does not include compensation deferred under an unfunded, nonqualified
plan, amounts realized from the exercise or sale of stock options or
other amounts described by Treas. Reg. Section 1.415-2(d)(3).
Notwithstanding the above, Annual Compensation shall be determined as
follows:
(1) in determining with respect to each Plan
Sponsor the amount of contributions made by or on behalf of an
Employee under Plan Section 3 and allocations under Plan
Section 4 --
(A) for Plan Years through the Plan Year ending December
31, 1993, Annual Compensation shall be measured on the basis of the
twelve-consecutive-month period ending January 31 within the Plan Year;
(B) for Plan Years beginning on and after January 1,
1994, Annual Compensation shall be measured on the basis of a
twelve-consecutive-month period ending January 1 within the Plan Year;
2
<PAGE> 5
(2) for purposes of applying the Annual
Compensation Limit, with respect to Plan Sections 3 and 4, the
rules of Code Section 414(a)(6) shall apply, except that in
applying such rules, the term "family" shall include only the
spouse of the Member and any lineal descendants of the Member
who have not attained age 19 before the close of the Plan
Year;
(3) for all purposes under the Plan except
Appendices A and B hereto, Annual Compensation shall include
any amount which would have been paid during a Plan Year, but
was contributed by a Plan Sponsor on behalf of an Employee
pursuant to a salary reduction agreement which is not
includable in the gross income of the Employee under Code
Section 125, 402(e)(3), or 402(h); and
(4) for purposes of applying the annual addition
limits set forth in Appendix A, the term Plan Sponsor as used
in Plan Section 1.5 shall mean Plan Sponsor as that term is
defined in Section 4 of Appendix.
1.6 "Annual Compensation Limit" means (1) $200,000 for the Plan
Year beginning in 1989, which amount may be adjusted in subsequent Plan Years
through the Plan Year beginning in 1993, based on changes in the cost of living
as announced by the Secretary of the Treasury, and (2) $150,000 for the Plan
Year beginning in 1994, which amount may be adjusted in subsequent Plan Years
based on changes in the cost of living as announced by the Secretary of the
Treasury.
1.7 "Average Annual Compensation" means (a) for purposes of a
Member who terminates employment before January 1, 1996, the average of a
Member's Annual Compensation over the nine-consecutive twelve-month periods
ending as of the January 1 which falls within the Plan Year in which the Member
terminates employment, and (b) for purposes of a Member who terminates
employment on or after January 1, 1996, the average of a Member's Annual
Compensation over the ten-consecutive twelve-month periods ending as of the
January 1 which falls within the current Plan Year. Notwithstanding the
preceding, if a Member's entire compensation history with the Plan Sponsor is
less than the period indicated in Clause (a) or (b) herein, as applicable, the
Member's Annual Compensation shall be averaged over the fewer number of
consecutive twelve-month periods ending January 1, and if that Member's entire
compensation history is less than the twelve-consecutive month period ending as
of the January 1 which falls within the current Plan Year, then the Member's
compensation history shall be annualized.
1.8 "Beneficiary" means the person or trust that a Member
designated most recently in writing to the Plan Administrator; provided,
however, that if the Member has failed to make a designation, no person
designated is alive, no trust has been established, or no successor Beneficiary
has been designated who is alive, the term "Beneficiary" means (a) the Member's
spouse or (b) if no spouse is alive, the Member's surviving children, or (c) if
no children are alive, the Member's parent or parents, or (d) if no parent is
alive, the legal representative of the deceased Member's estate. Notwithstanding
the preceding sentence, the spouse of a married Member shall be his Beneficiary
unless that spouse has consented in writing to the designation by the Member of
some other person or trust and the spouse's consent acknowledges the effect of
3
<PAGE> 6
the designation and is witnessed by a notary public. A Member may change his
designation at any time. However, a Member may not change his designation
without further consent of his spouse under the terms of the preceding sentence
unless the spouse's consent permits designation of another person or trust
without further spousal consent and acknowledges that the spouse has the right
to limit consent to a specific beneficiary and that the spouse voluntarily
relinquishes this right. Notwithstanding the above, the spouse's consent shall
not be required if the Member establishes to the satisfaction of the Plan
Administrator that the spouse cannot be located, if the Member has a court order
indicating that he is legally separated or has been abandoned (within the
meaning of local law) unless a "qualified domestic relations order" (as defined
in Code Section 414(p)) provides otherwise, or if there are other circumstances
as the Secretary of the Treasury prescribes. If the spouse is legally
incompetent to give consent, consent by the spouse's legal guardian shall be
deemed to be consent by the spouse.
1.9 "Board of Directors" means the Board of Directors of the
Primary Sponsor.
1.10 "Break in Service" means the failure of an Employee, in
connection with a termination of employment other than by reason of death,
Disability or retirement, to complete more than 500 Hours of Service in any Plan
Year.
1.11 "Code" means the Internal Revenue Code of 1986, as amended.
1.12 "Credited Service" means each Plan Year during which an
Employee has completed no less than 1,000 Hours of Service as a Member in the
Plan or the Old Plan.
1.13 "Direct Rollover" means a payment by the Plan to the Eligible
Retirement Plan specified by the Distributee.
1.14 "Disability" means a disability of a Member within the meaning
of Code Section 72(m)(7), to the extent that the Member is, or would be,
entitled to disability retirement benefits under the federal Social Security Act
or to the extent that the Member is entitled to recover benefits under any long
term disability plan or policy maintained by the Plan Sponsor. The determination
of whether a Disability exists shall be made by the Plan Administrator and shall
be substantiated by competent medical advice.
1.15 "Distributee" means an Employee or former Employee. In
addition, the Employee's or former Employee's surviving spouse and the
Employee's or former Employee's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Code Section
414(p), are Distributees with regard to the interest of the spouse or former
spouse.
1.16 "Eligible Retirement Plan" means an individual retirement
account described in Code Section 408(a), an individual retirement annuity
described in Code Section 408(b), an annuity plan described in Code Section
403(a) or a qualified trust described in Code Section 401(a) that accepts the
Distributee's Eligible Rollover Distribution. However, in the case of an
Eligible Rollover Distribution to the surviving spouse, an Eligible Retirement
Plan is an individual retirement account or individual retirement annuity.
4
<PAGE> 7
1.17 "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 Code Section
401(a)(9); and the portion of any distribution that is not includable in gross
income (determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
1.18 "Eligibility Service" means a twelve-consecutive-month period
during which the Employee completes no less than 1,000 Hours of Service,
beginning on the date on which the Employee first performs an Hour of Service
upon his employment or reemployment with a Plan Sponsor, or, in the event the
Employee fails to complete 1,000 Hours of Service in that
twelve-consecutive-month period, any Plan Year thereafter during which the
Employee completes no less than 1,000 Hours of Service, including the Plan Year
which includes the first anniversary of the date the Employee first performed an
Hour of Service upon his employment or reemployment.
1.19 "Eligible Employee" means any Employee of a Plan Sponsor other
than an Employee who is (a) covered by a collective bargaining agreement between
a union and a Plan Sponsor, provided that retirement benefits were the subject
of good faith bargaining (unless such agreement provides for participation by
Employees covered thereby under the Plan), (b) a leased employee within the
meaning of Code Section 414(n)(2), or (c) any other individual deemed to be an
Employee of a Plan Sponsor pursuant to regulations under Code Section 414(o).
1.20 "Employee" means any person who is employed by a Plan Sponsor
or Affiliate for purposes of the Federal Insurance Contributions Act, who is a
leased employee within the meaning of Code Section 414(n)(2) with respect to a
Plan Sponsor, or who is deemed to be an employee of a Plan Sponsor pursuant to
regulations under Code Section 414(o).
1.21 "Entry Date" means January 1 and July 1.
1.22 "ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
1.23 "Fiduciary" means each Named Fiduciary and any other person
who exercises or has any discretionary authority or control regarding management
or administration of the Plan, any other person who renders investment advice
for a fee or has any authority or responsibility to do so with respect to any
Plan assets, or any other person who exercises or has any authority or control
respecting management or disposition of Plan assets.
1.24 "Fund" means the total amount at any given time of the cash
and other property held by the Trustee pursuant to the Plan.
5
<PAGE> 8
1.25 "Hour of Service" means:
(a) Each hour for which an Employee is paid, or entitled
to payment, for the performance of duties for a Plan Sponsor or any
Affiliate during the applicable computation period, and such hours
shall be credited to the computation period in which the duties are
performed;
(b) Each hour for which an Employee is paid, or entitled
to payment, by a Plan Sponsor or any Affiliate on account of a period
of time during which no duties are performed (irrespective of whether
the employment relationship has terminated) due to vacation, holiday,
illness, incapacity (including disability), layoff, jury duty, military
duty or leave of absence;
(c) Each hour for which back pay, irrespective of
mitigation of damages, is either awarded or agreed to by a Plan Sponsor
or any Affiliate, and such hours shall be credited to the computation
period or periods to which the award or agreement for back pay pertains
rather than to the computation period in which the award, agreement or
payment is made; provided, that the crediting of Hours of Service for
back pay awarded or agreed to with respect to periods described in
Subsection (b) of this Section shall be subject to the limitations set
forth in that Subsection (f);
(d) Solely for purposes of determining whether a Break in
Service has occurred, each hour during any period that the Employee is
absent from work (1) by reason of the pregnancy of the Employee, (2) by
reason of the birth of a child of the Employee, (3) by reason of the
placement of a child with the Employee in connection with the adoption
of the child by the Employee, or (4) for purposes of caring for a child
for a period immediately following its birth or placement. The hours
described in this Subsection (d) shall be credited (A) only in the
computation period in which the absence from work begins, if the
Employee would be prevented from incurring a Break in Service in a year
solely because of the credit, or (B) in any other case, in the next
following computation period;
(e) Without duplication of the Hours of Service counted
pursuant to Subsection (d) hereof and solely for such purposes as
required pursuant to the Family and Medical Leave Act of 1993 and the
regulations thereunder (the "Act"), each hour (as determined pursuant
to the Act) for which an Employee is granted leave under the Act (1)
for the birth of a child, (2) for placement with the Employee of a
child for adoption or foster case, (3) to care for the Employee's
spouse, child or parent with a serious health condition, or (4) for a
serious health condition that makes the Employee unable to perform the
functions of the Employee's job;
(f) The Plan Administrator shall credit Hours of Service
in accordance with the provisions of Section 2530.200b-2(b) and (c) of
the U.S. Department of Labor Regulations or such other federal
regulations as may from time to time be applicable and determine Hours
of Service from the employment records of a Plan Sponsor or in any
other manner consistent with regulations promulgated by the Secretary
of Labor, and shall construe any ambiguities in favor of crediting
Employees with Hours of Service. Notwithstanding any other provision of
this Section, in no event shall an Employee be credited with more than
501 Hours of
6
<PAGE> 9
Service during any single continuous period during which he performs no
duties for the Plan Sponsor or Affiliate; and
(g) In the event that a Plan Sponsor or an Affiliate
acquires substantially all of the assets of another corporation or
entity or a controlling interest of the stock of another corporation or
merges with another corporation or entity and is the surviving entity,
then service of an Employee who was employed by the prior corporation
or entity and who is employed by the Plan Sponsor or an Affiliate at
the time of the acquisition or merger shall be counted in the manner
provided, with the consent of the Primary Sponsor, in resolutions
adopted by the Plan Sponsor authorizing the counting of such service.
1.26 "Investment Committee" means a committee which may be
established to direct the Trustee with respect to investments of the Fund.
1.27 "Investment Manager" means a Fiduciary, other than the
Trustee, the Plan Administrator, or a Plan Sponsor, who may be appointed by the
Primary Sponsor:
(a) who has the power to manage, acquire, or dispose of
any assets of the Fund or a portion thereof; and
(b) who (1) is registered as an investment adviser under
the Investment Advisers Act of 1940, (2) is a bank as defined in that
Act, or (3) is an insurance company qualified to perform services
described in Subsection (a) above under the laws of more than one
state; and
(c) who has acknowledged in writing that he is a
Fiduciary with respect to the Plan.
1.28 "Member" means any Employee who has become a participant in
the Plan for so long as his Accrued Benefit has not been fully distributed
pursuant to the Plan.
1.29 "Named Fiduciary" means only the following persons:
(a) the Plan Administrator;
(b) the Trustee;
(c) the Investment Committee; and
(d) the Investment Manager.
1.30 "Normal Fund Payment" means:
(a) In the case of a Member who is not married on the
date payments to the Member are to commence under the terms of the
Plan, a single life annuity, payable in monthly installments for the
life of the Member, which is the actuarial equivalent of an immediate
lump sum payment of the Member's vested Accrued Benefit;
7
<PAGE> 10
(b) In the case of a Member who is married on the date
payments are to commence under the terms of the Plan, a joint and
survivor annuity, payable in monthly installments, which is an
immediate annuity for the life of the Member with a survivor annuity
for the life of his spouse which is fifty percent (50%) of the amount
of the annuity payable during the joint lives of the Member and his
spouse and which is the actuarial equivalent of an immediate lump sum
payment of the Member's vested Accrued Benefit;
(c) In the case of a Member who is married and who dies
before payments are to commence under the terms of the Plan, an
immediate single life annuity, payable in monthly installments for the
life of his spouse, which is the actuarial equivalent of an immediate
lump sum payment of the Member's vested Accrued Benefit;
(d) In the case of a Member who dies while not married
before payments are to commence, a single lump sum payment in cash; and
(e) Notwithstanding anything contained in this Section,
if the Member's vested Accrued Benefit as of the date payments are to
commence is $3,500 or less, a lump sum payment in cash.
Any annuity may be purchased from an insurance company designated by the
Plan Administrator in writing to the Trustee, and may be distributed to the
Member, his spouse, or his Beneficiary as the case may be. The distribution, if
any, shall be in full satisfaction of the benefits to which the Member, his
spouse, or his Beneficiary is entitled under the Plan. For purposes of this
Section, actuarial equivalence shall be determined based on factors employed by
the insurance company from which the annuity is purchased and any commissions or
other costs associated with the purchase.
1.31 "Normal Retirement Age" means the later of (a) age 65 and (b)
the fifth anniversary of the date a Member commenced participation in the Plan.
For purposes of determining the fifth anniversary of a Member's commencement of
participation, service under any pension or profit sharing plan of a Plan
Sponsor shall be counted; however, the same service shall not be counted twice.
1.32 "Plan Administrator" means the organization or person
appointed to administer the Plan.
1.33 "Plan Sponsor" means individually the Primary Sponsor, First
Bulloch, Metter and each Affiliate or other entity which has adopted the Plan
and Trust.
1.34 "Plan Year" means the calendar year.
1.35 "Prior Plan" means the Old Plan, the First Bulloch Plan, the
Metter Plan, or any other plan previously adopted by a Plan Sponsor which has
been approved by the Internal Revenue Service under Code Sections 401(a) and
501(a) and which the Plan Sponsor has amended and restated into the Plan.
8
<PAGE> 11
1.36 "Retirement Date" means the date on which the Member retires
on or after (a) attaining Normal Retirement Age, or (b) becoming subject to a
Disability.
1.37 "Target Benefit" means
(a) with respect to Members who terminate employment in
Plan Years beginning before January 1, 1994, a hypothetical amount
determined in accordance with the applicable formula set forth in
Appendix C; and
(b) with respect to Members who terminate employment in
Plan Years beginning on and after January 1, 1994, a hypothetical
amount equal to forty-five percent (45%) of the Member's Average Annual
Compensation (reduced pro rata for each Year of Projected Participation
less than twenty-five (25)), payable as a straight life annuity
beginning at Normal Retirement Age.
1.38 "Termination Completion Date" means the last day of the fifth
consecutive Break in Service computation period, determined under Plan Section
1.10, in which a Member completes a Break in Service.
1.39 "Theoretical Reserve" means an amount determined, as of the
last day of each Plan Year, in accordance with (a) and (b) below:
(a) Initial Theoretical Reserve means and shall be
determined as follows:.
(1) with respect to a Member who first performs
an Hour of Service on or after January 1, 1994, zero;
(2) with respect to a Member who first performs
an Hour of Service prior to January 1, 1994, the amount which
is the excess of (A) over (B) (but not below zero), where:
(A) is the present value of the
Member's Target Benefit, calculated as of December
31, 1993, using the Actuarial Assumptions, the
provisions of the Plan and the Member's Average
Annual Compensation as of such date. For a Member who
attains Normal Retirement Age on or before December
31, 1994, the Target Benefit will be determined using
the Actuarial Assumptions, the provisions of the Plan
and the Member's Average Annual Compensation as of
such date, except that the straight life annuity
factor used in that determination will be the factor
applicable for the Member's Normal Retirement Age;
and
(B) is the present value of future Plan
Sponsor contributions, calculated as of December 31,
1993, using the Actuarial Assumptions, the provisions
of the Plan (disregarding limitations contained in
Appendices A and B), and the Member's Average Annual
Compensation as of such date, beginning with the Plan
Year commencing January 1, 1994 and continuing
through the end of the Plan Year in
9
<PAGE> 12
which the Member attains Normal Retirement Age.
(b) Accumulate a Member's Initial Theoretical Reserve and
the Plan Sponsor contribution made on behalf of such Member (calculated
in accordance with Plan Section 3.1, as limited by Appendix A, but
without regard to any minimum contribution required by Appendix B) for
each Plan Year beginning with the Plan Year commencing January 1, 1994
up through the last day of the current Plan Year (excluding Plan
Sponsor contributions for the current Plan Year) using the interest
rate assumption set forth in Plan Section 1.2. Notwithstanding the
preceding, in any Plan Year following the Plan Year in which the Member
attains Normal Retirement Age, the accumulation is calculated assuming
an interest rate of 0%.
1.40 "Trust" means the trust established under an agreement between
the Primary Sponsor and the Trustee to hold the Fund.
1.41 "Trustee" means the trustee under the Trust.
1.42 "Valuation Date" means the last day of each Plan Year, or any
other day which the Plan Administrator may, in the interest of preserving the
interests of Members and Beneficiaries in the Fund from time to time declare to
be a Valuation Date.
1.43 "Vesting Service" means each calendar year during which an
Employee has completed no less than 1,000 Hours of Service. Notwithstanding
anything contained herein to the contrary, Vesting Service shall not include:
(a) In the case of a Member who for each of five
consecutive Plan Years completes a Break in Service and who is not
reemployed by a Plan Sponsor or an Affiliate on or prior to his
Termination Completion Date, for purposes of determining the vested
portion of his Accrued Benefit derived from Plan Sponsor contributions
which accrued before his Termination Completion Date, all service in
Plan Years after his Termination Completion Date; and
(b) In the case of an Employee who, at the time of his
Termination Completion Date following termination of employment (other
than by reason of attainment of a Retirement Date or death) does not
have any vested right in Plan Sponsor contributions, all service in
Plan Years before the Plan Year in which the first of the five
consecutive Breaks in Service commenced, if the number of consecutive
Plan Years in which the Employee incurred a Break in Service equals or
exceeds five.
1.44 "Years of Projected Participation" means the sum of (a) and
(b), where
(a) equals the number of years of Credited Service earned
by a Member beginning with the latest of (1) the first Plan Year for
which the Member earned a year of Credited Service, or (2) the first
Plan Year beginning on January 1, 1994, and ending with the last day of
the current Plan Year; and
10
<PAGE> 13
(b) equals the number of years, if any, subsequent to the
current Plan Year through the end of the Plan Year in which the Member
will attain Normal Retirement Age.
SECTION 2
ELIGIBILITY
2.1 Each individual who was a participant in a Prior Plan on the
day immediately preceding January 1, 1989 shall be a Member as of January 1,
1989.
2.2 Each individual who was an Eligible Employee on July 1, 1988
and who was still an Eligible Employee on January 1, 1989 shall become a Member
as of January 1, 1989.
2.3 Each former Member who is reemployed by a Plan Sponsor shall
become a Member as of the date of his reemployment as an Eligible Employee.
2.4 Each former Employee who completed his Eligibility Service but
terminated employment with a Plan Sponsor before becoming a Member shall become
a Member as of the latest of the date he (a) is reemployed, (b) would have
become a Member if he had not terminated employment, or (c) becomes an Eligible
Employee.
2.5 Each other Eligible Employee shall become a Member as of the
Entry Date coinciding with or next following the later of the date he (a)
completes his Eligibility Service or (b) attains age 21.
SECTION 3
CONTRIBUTIONS
3.1 Each Plan Sponsor, subject to its right to terminate its
participation in the Plan, shall make contributions to the Fund with respect to
each Plan Year on behalf each Member who is an Eligible Employee an amount
necessary to fund the Member's Target Benefit. For Plan Years commencing on and
after January 1, 1994, a Plan Sponsor's contribution on behalf of each such
Member shall be determined as follows:
(a) Calculate the present value of the Member's Target
Benefit as follows:
(1) if the Member has not attained his Normal
Retirement Age, multiply the Member's Target Benefit by the
factor which is the product of the applicable discount factor
in Table 1 (set forth in Appendix D) multiplied by the
applicable life annuity factor in Table 2 (set forth in
Appendix D);
(2) if the Member has attained his Normal
Retirement Age, multiply the Target Benefit by the applicable
life annuity factor in Table 2 (set forth in Appendix D)
corresponding to the Member's Normal Retirement Age.
(b) Determine the excess, if any, of the amount
determined in Subsection (a), over the Theoretical Reserve.
11
<PAGE> 14
(c) Amortize the result in Subsection (b) by multiplying
it by the applicable amortization factor in Table 3 (set forth in
Appendix D). Notwithstanding anything to the contrary, the applicable
amortization factor for the Plan Year in which the Member attains
Normal Retirement Age and for any subsequent Plan Year shall be 1.0.
3.2 Forfeitures shall be used to reduce Plan Sponsor contributions
and not to increase benefits.
3.3 Notwithstanding any other provision of the Plan, contributions
may be made only in cash or other property as is acceptable to the Trustee.
SECTION 4
ALLOCATIONS
4.1 As of the last date of each Plan Year, Plan Sponsor
contributions determined under Plan Section 3.1 shall be allocated to the
Account of each Member who is employed by a Plan Sponsor on the last day of the
Plan Year, or whose death or Retirement Date occurred during the Plan Year and
who individually or through his Beneficiary did not elect to have payments
commence immediately thereafter.
4.2 As of the last day of each Plan Year, if, and to the extent,
necessary to satisfy with respect to the Plan Year, the minimum coverage
requirements prescribed in Code Section 410(b) or the minimum participation
requirements under Code Section 401(a)(26) and regulations issued thereunder,
Members who are not Highly Compensated Employees who completed more than 500
Hours of Service during the Plan Year, but who terminated employment before the
last day of the Plan Year, shall be entitled to an allocation under Plan Section
4.1, beginning with the individual receiving the least Annual Compensation for
the Plan Year.
4.3 Except as otherwise provided in the Plan and the Trust, as of
each Valuation Date, the Trustee shall allocate to each Account its share of the
net income or net loss of the Fund as follows:
(a) To the cash income, if any, since the last Valuation
Date, there shall be added or subtracted, as the case may be, any net
increase or decrease, since the last Valuation Date, in the fair market
value of the assets of the Fund, any gain or loss on the sale or
exchange of assets of the Fund since the last Valuation Date, accrued
interest since the last Valuation Date with respect to any
interest-bearing security, the amount of any dividend which shall have
been declared since the last Valuation Date but not paid on shares of
stock attributable to the Fund if the market quotation used in
determining the value of such shares is ex-dividend, and the amount of
any other assets of Fund determined by the Trustee to be income since
the last Valuation Date.
(b) From the sum thereof there shall be deducted all
charges, expenses, and liabilities accrued since the last Valuation
Date which are proper under the provisions of the Plan and Trust and
which in the discretion of the Trustee are properly chargeable against
income for the period.
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<PAGE> 15
The net income or net loss so determined shall be allocated as of the Valuation
Date to the Account of each Member in the proportion that the value of the
Account of each Member as of the preceding Valuation Date bears to the total
value of the Accounts of all Members as of the preceding Valuation Date.
SECTION 5
DEATH BENEFITS
5.1 Upon the death of a Member while an Employee, his Beneficiary
shall be entitled to the full value of his Accrued Benefit.
5.2 Upon the death of a Member who is no longer an Employee, prior
to the distribution of his vested Accrued Benefit, his Beneficiary shall be
entitled to the Member's Accrued Benefit.
5.3 If subsequent to the death of a Member, the Member's
Beneficiary dies while entitled to receive benefits under the Plan, the
successor Beneficiary, if any, or the Beneficiary listed under Subsection (a),
(b) or (c) of Plan Section 1.8 shall generally be entitled to receive benefits
under the Plan. However, if the deceased Beneficiary was the Member's spouse at
the time of the Member's spouse at the time of the Member's death, or if no
successor Beneficiary shall have been designated by the Member and be alive and
no Beneficiary listed under Subsection (a), (b) and (c) of Plan Section 1.8
shall be alive, the Member's unpaid vested Accrued Benefit shall be paid to the
personal representative of the deceased Beneficiary's estate.
5.4 Any benefit payable under this Plan Section shall be paid in
accordance with and subject to the provisions of Plan Section 6 or 7, whichever
is applicable, after receipt by the Trustee from the Plan Administrator of due
notice of the death of the Member.
SECTION 6
PAYMENT OF BENEFITS ON RETIREMENT OR DEATH
6.1 The Accrued Benefit of a Member who has attained his
Retirement Date or has attained Normal Retirement Age or died while an Employee
shall be fully vested and nonforfeitable. As of a Member's Retirement Date or
death while an Employee, he or his Beneficiary shall be entitled to his Accrued
Benefit to be paid in accordance with this Plan Section 6.
6.2 The Accrued Benefit of the Member which is to be paid pursuant
to this Plan Section 6 shall be determined as of the Valuation Date coinciding
with or next following the Member's Retirement Date or date of death, adjusted
for a pro rata share of any income, gains, and losses attributable thereto
through the Valuation Date coinciding with or immediately preceding the date the
Accrued Benefit is paid. Payments to a Member, or to the Beneficiary of a
deceased Member shall commence within 60 days after the end of the Plan Year in
which the Retirement Date or the date of death of the Member occurs. A Member or
the Beneficiary of a deceased Member may alternatively elect by a written notice
to the Plan Administrator to have payments commence immediately after the
Retirement Date or death of a Member, in which event, the
13
<PAGE> 16
Accrued Benefit of the Member shall be determined as of the Valuation Date next
preceding the Member's Retirement Date or death and shall be equal to his
Account determined as of that Valuation Date.
6.3 (a) The payment of a Member's Accrued Benefit shall be in the
form of a Normal Fund Payment, except that a Member whose Accrued
Benefit exceeds $3,500 as of the date payments are to commence may
elect during the applicable election period not to receive the Normal
Fund Payment by execution and delivery to the Plan Administrator of a
written instrument provided by the Plan Administrator in which the
Member identifies the particular alternate form of payment desired and,
if applicable, the specific nonspouse Beneficiary. For purposes of this
Section 6.3, the term "applicable election period" shall mean, with
respect to a Normal Fund Payment described in Subsection (a) or (b) of
Plan Section 1.30, the 90 day period ending on the first date on which
the Member is entitled to payment from the Fund, and with respect to a
Normal Fund Payment described in Subsection (c) of Plan Section 1.30,
the period which begins on the first day of the Plan Year in which an
Eligible Employee becomes a Member and which ends on the date of his
death. In the case of a married Member, no election shall be effective
unless spousal consent is obtained in accordance with the provisions of
Plan Section 1.8.
If an election is made, the Member's vested Accrued Benefit
shall be paid in the form set forth in Subsection (b) or (c) of this
Section chosen by the Member by written instrument delivered to the
Plan Administrator prior to the date payments are otherwise to
commence. Any waiver of a Normal Fund Payment under Plan Section 1.8,
made prior to the first day of the Plan Year in which the Member
attains age 35 shall become invalid as of the first day of the Plan
Year in which the Member attains age 35 (unless the Member has earlier
separated from service) and the provisions of Plan Section 1.8 shall
apply unless a new waiver is obtained.
(b) A Member may select one of the following alternate
forms of payment to be paid upon the attainment of the Member's
Retirement Date:
(1) One lump sum payment in cash; or
(2) Cash payments, in annual or more frequent
installments over a period certain of five, 10, 15, 20, or 25
years; provided, however, this alternate form of payment shall
only be available to a Member upon his Retirement Date. The
initial value of the obligation for the installment payments
shall be the amount of the Member's vested Accrued Benefit on
the date on which he is entitled to commencement of payments
from the Fund which amount, or the balance thereof after
payment of any installments, shall be credited with its pro
rata share of the net income, gain, or loss of the Fund during
the period over which installments are paid.
(c) A Member may select a lump sum payment in cash as an
alternate form of payment to be paid to his Beneficiary upon his death.
(d) The Plan Administrator shall furnish to the Member a
written explanation of:
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<PAGE> 17
(1) the terms and conditions of the Normal Fund
Payment including a general description of the eligible
conditions and other material features of the alternate forms
of payment under the Plan,
(2) the Member's right to make, and the effect
of, an election not to receive the Normal Fund Payment,
including a general description of the conditions and other
material features of the alternate forms of payment under the
Plan,
(3) the rights of the Member's spouse as
described in Subsection (a) of this Section of the Plan, and
(4) the right to make, and the effect of, a
revocation of an election pursuant to this Section.
In the case of a Normal Fund Payment described under
Subsection (a) or (b) of Plan Section 1.30, the written explanation
shall be provided to the Member within 90 days prior to the first date
on which he is entitled to payment from the Fund. In the case of a
Normal Fund Payment described under Subsection (c) of Plan Section
1.30, the written explanation shall be provided to the Member in
whichever of the following periods ends last:
(A) the period beginning with the first day of
the Plan Year in which the Member attains age 32 and ending
with the close of the Plan Year preceding the Plan Year in
which the Member attains age 35;
(B) the period beginning one year before and
ending one year after the Employee first becomes a Member;
(C) the period beginning one year before and
ending one year after the provisions of this Subsection (c)
apply to the Member; or
(D) the period beginning one year before and
ending one year after separation from service in the case of a
Member who separates from service before attaining age 35.
(e) A Member may revoke any election not to receive payment in the
form of a Normal Fund Payment at any time prior to commencement of payments from
the Fund, and may make a new election at any time prior to the commencement of
payments from the Fund.
6.4 In the event that the Member elects an alternate form of
payment described in Plan Section 6.3 and the joint survivor dies after the
election but before benefit payments have actually commenced to the Member, the
election will be null and void and the Member shall be deemed to have made no
election pursuant to the Plan Section containing the definition of the term
"Beneficiary" until and unless a subsequent election is made by the Member.
15
<PAGE> 18
6.5 Payments under the Normal Fund Payment shall be determined
according to the amount of the Accrued Benefit of the Member on the date on
which the Member is entitled to commencement of payments from the Fund.
6.6 Notwithstanding anything to the contrary contained in the
Plan, if a Member's vested Accrued Benefit exceeds $3,500, it shall not be
distributed before the Member's Normal Retirement Age or death without the
consent of the Member and, if the Member is married and elects a form of payment
other than a Normal Fund Payment, his spouse.
6.7 Notwithstanding any other provisions of this Plan,
(a) Prior to the death of a Member, all retirement
payments hereunder shall --
(1) be distributed to the Member not later than
the required beginning date (as defined below) or,
(2) be distributed, commencing not later than
the required beginning date (as defined below) --
(A) in accordance with regulations
prescribed by the Secretary of the Treasury, over the
life of the Member or over the lives of the Member
and his designated individual Beneficiary, if any, or
(B) in accordance with regulations
prescribed by the Secretary of the Treasury, over a
period not extending beyond the life expectancy of
the Member or the joint life and last survivor
expectancy of the Member and his designated
individual Beneficiary, if any.
(b) (1) If --
(A) the distribution of a Member's
retirement payments has begun in accordance with
Subsection (a)(2) of this Section, and
(B) the Member dies before his entire
vested Accrued Benefit has been distributed to him,
then the remaining portion of his vested Accrued Benefit shall
be distributed at least as rapidly as under the method of
distribution being used under Subsection (a)(2) of this
Section as of the date of his death.
(2) If a Member dies before the commencement of
retirement payments hereunder, the entire interest of the
Member shall be distributed within five (5) years after his
death.
(3) If --
16
<PAGE> 19
(A) any portion of a Member's vested Accrued
Benefit is payable to or for the benefit of the Member's
designated individual Beneficiary, if any,
(B) that portion is to be distributed, in
accordance with regulations prescribed by the Secretary of the
Treasury, over the life of the designated individual
Beneficiary or over a period not extending beyond the life
expectancy of the designated individual Beneficiary, and
(C) the distributions begin not later than one
year after the date of the Member's death or such later date
as the Secretary of the Treasury may by regulations prescribe,
then, for purposes of Paragraph (2) of this Subsection (b), the portion
referred to in Subparagraph (A) of this Paragraph (3) shall be treated
as distributed on the date on which the distributions to the designated
individual Beneficiary begin.
(4) If the designated individual Beneficiary referred to
in Paragraph (3)(A) of this Subsection (b) is the surviving spouse of
the Member, then --
(A) the date on which the distributions are
required to begin under Paragraph (3)(C) of this Subsection
(b) shall not be earlier than the date on which the Member
would have attained Age 70-1/2, and
(B) if the surviving spouse dies before the
distributions to such spouse begin, this Subsection (b) shall
be applied as if the surviving spouse were the Member.
(c) For purposes of this Section, the term "required
beginning date" means April 1 of the calendar year following the
calendar year in which the Member attains Age 70-1/2. Notwithstanding
the foregoing, in the case of a Member who has attained age 70-1/2
before January 1, 1988, other than a Member who is described in Section
1(b)(3) of Appendix B, the term "required beginning date" means April 1
of the calendar year following the calendar year in which the Member
retires or otherwise terminates employment.
(d) Distributions will be made in accordance with the
regulations under Code Section 401(a)(9), including the minimum
distribution incidental death benefit requirement of Treas. Reg.
Section 1.401(a)(9)-2.
6.8 Notwithstanding any provisions of the Plan to the contrary
that would otherwise limit a Distributee's election under this Section 6, a
Distributee may elect, at the time and in the manner prescribed by the
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 so long as all Eligible Rollover Distributions to a Distributee for a
calendar year total or are expected to total at least $200 and, in the case of a
Distributee who elects to directly receive a portion of an Eligible Rollover
Distribution and directly roll the balance over to an Eligible Retirement Plan,
the portion that is to be directly rolled over totals at least $500. If the
Eligible
17
<PAGE> 20
Rollover Distribution is one to which Code Sections 401(a)(11) and 417 do not
apply, such Eligible Rollover Distribution may commence less than 30 days after
the notice required under Treasury Regulations Section 1.411(a)-11(c) is given,
provided that:
(a) the Plan Administrator clearly informs the
Distributee that the Distributee has a right to a period of at least 30
days after receiving the notice to consider the decision of whether or
not to elect a distribution (and, if applicable, a particular
distribution option), and
(b) the Distributee, after receiving the notice,
affirmatively elects a distribution.
SECTION 7
PAYMENT OF BENEFITS ON TERMINATION OF EMPLOYMENT
7.1 Transfer of a Member from one Plan Sponsor to another Plan
Sponsor or to an Affiliate shall not be deemed for any purpose under the Plan to
be a termination of employment of the Member.
7.2 In the event of the termination of employment of a Member for
reasons other than death or attainment of a Retirement Date, the Member's
Accrued Benefit shall be determined as of the Valuation Date coinciding with or
immediately preceding the Member's termination of employment. No further Plan
Sponsor contributions or forfeitures shall be allocated to the Member's Account
after that Valuation Date, but until the Valuation Date immediately preceding
the date it is paid, his Account shall be credited with its pro rata share of
any income, gains and losses attributable thereto.
7.3 That portion of a Member's Accrued Benefit in which he is
vested shall be:
(a) his Metter Account, which shall be fully vested and
nonforfeitable at all times; and
(b) that portion of the value of his Target Account
computed according to the following vesting schedules taking into
account any Vesting Service subsequent to the Valuation Date until the
date of his termination of employment:
<TABLE>
<CAPTION>
Full Years of Percentage
Vesting Service Vested
--------------- ------
<S> <C>
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or more 100%
</TABLE>
7.4 The Member's Accrued Benefit shall be payable in the form of a
Normal Fund Payment, unless he elects otherwise under Plan Section 6. Payment
shall be made as soon as administratively feasible after the Member completes
his first Break in Service; provided, however, effective for terminations of
employment occurring on and after January 1, 1994,
18
<PAGE> 21
payment shall be made as soon as administratively feasible after the Valuation
Date coinciding with or next following such Member's termination of employment.
Notwithstanding the preceding, if the Member's vested Account exceeds $3,500,
payment of such benefit will not be distributed without the Member's consent
before Normal Retirement Age or death (and if the Member is married and elects a
form of payment other than a Normal Fund Payment, without the spouse's consent).
If a Member who has a termination of employment has not previously received a
distribution of his Account under Plan Section 7.4(b), payment of his vested
Account shall be made on or before 60 days following the end of the Plan Year in
which the Member attains Normal Retirement Age or dies, whichever is the first
to occur. Payment shall be subject to the minimum distribution and Eligible
Rollover Distribution requirements set forth in Plan Section 6.
7.5 (a) If any portion of a Member's vested Account derived from
Plan Sponsor contributions is paid prior to his Termination Completion
Date, a portion of his Account equal to his total non-vested Account
derived from Plan Sponsor contributions multiplied by a fraction, the
numerator of which is the amount of the distribution attributable to
Plan Sponsor contributions and the denominator of which is the total
vested Account attributable to Plan Sponsor contributions, shall be
immediately forfeited. The amount forfeited shall not exceed the
Member's nonvested Account. Upon the Termination of Employment of a
Member who is not vested in any part of his Account, the Member shall
be deemed to have received a distribution and his Account shall be
immediately forfeited.
(b) If the Member is reemployed by a Plan Sponsor or an
Affiliate prior to his Termination Completion Date and (1) if the
Member's Account was partially vested and the Member repays to the Fund
no later than the fifth anniversary of the Member's reemployment by the
Plan Sponsor or an Affiliate all of that portion of his vested Account
which was paid to him or (2) if the Member's Account was not vested
upon his termination of employment, then any portion of his Account
which was not forfeited shall be restored effective on the Valuation
Date coinciding with or next following the repayment or the Member's
reemployment, respectively. The restoration on any Valuation Date of
the forfeited portion of the Account of a Member pursuant to the
preceding sentence shall be made first from forfeitures available, and
secondly from net income calculated as of that Valuation Date, to the
extent available, and secondly from net income calculated as of that
Valuation Date, if any. Only after restorations have been made shall
the remaining net income be available for allocation under Plan Section
4.
(c) If a Member who is partially vested in his Account
does not receive, prior to his Termination Completion Date, a
distribution of any portion of his vested Account, then no forfeiture
of that Member's nonvested portion of his Account shall occur until the
Member's Termination Completion Date.
7.6 In the event that an amendment to the Plan directly or
indirectly changes the vesting schedule, the vesting percentage for each Member
in his Accrued Benefit accumulated to the date when the amendment is adopted
shall not be reduced as a result of the amendment. In addition, any Member with
at least three years of Vesting Service may irrevocably elect to remain under
the pre-amendment vesting schedule with respect to all of his benefits accrued
both before and after the amendment.
19
<PAGE> 22
7.7 If a Member has a termination of employment and is
subsequently reemployed by a Plan Sponsor or an Affiliate prior to receiving a
distribution of his Account under the Plan, such Member shall not be entitled to
a distribution under this Section while he is an Employee.
SECTION 8
ADMINISTRATION OF THE PLAN
8.1 Trust Agreement. Each Plan Sponsor shall enter into a Trust
with the Trustee designated by the Board of Directors for the management of the
Fund, which Trust shall form a part of the Plan and is incorporated herein by
reference.
8.2 Operation of the Plan Administrator. The Primary Sponsor shall
appoint a Plan Administrator. If an organization is appointed to serve as the
Plan Administrator, then the Plan Administrator may designate in writing a
person who may act on behalf of the Plan Administrator. The Primary Sponsor
shall have the right to remove the Plan Administrator at any time by notice in
writing. The Plan Administrator may resign at any time by written notice of
resignation to the Trustee and the Primary Sponsor. Upon removal or resignation,
or in the event of the dissolution of the Plan Administrator, the Primary
Sponsor shall appoint a successor.
8.3 Fiduciary Responsibility.
(a) The Plan Administrator, as a Named Fiduciary, may
allocate its fiduciary responsibilities among Fiduciaries other than
the Trustee, designated in writing by the Plan Administrator and may
designate in writing other persons (other than the Trustee) to carry
out its fiduciary responsibilities under the Plan. The Plan
Administrator may at any time and from time to time remove any such
person designated to carry out its fiduciary responsibilities under the
Plan by notice in writing to such person.
(b) The Plan Administrator and each other Fiduciary may
employ persons to perform services and to render advice with regard to
any of the Fiduciary's responsibilities under the Plan.
(c) Each Plan Sponsor shall indemnify and hold harmless
each person constituting the Plan Administrator from and against any
and all claims, losses, costs, expenses (including, without limitation,
attorney's fees and court costs), damages, actions or causes of action
arising from, on account of or in connection with the performance by
such person of his duties in such capacity, other than such of the
foregoing arising from, on account of or in connection with the willful
neglect or willful misconduct of such person so acting.
8.4 Duties of the Plan Administrator.
(a) The Plan Administrator shall advise the Trustee with
respect to all payments under the terms of the Plan and shall direct
the Trustee in writing to make such payments from the Fund; provided,
however, in no event shall the Trustee be required to make such
payments if
20
<PAGE> 23
the Trustee has actual knowledge that such payments are contrary to the
terms of the Plan and the Trust.
(b) The Plan Administrator shall from time to time
establish rules, not contrary to the provisions of the Plan and the
Trust, for the administration of the Plan and the transaction of its
business. All elections and designations under the Plan by a
Participant or Beneficiary shall be made on forms prescribed by the
Plan Administrator. The Plan Administrator shall have discretionary
authority to construe the terms of the Plan and shall determine all
questions arising in the administration, interpretation and application
of the Plan, including, but not limited to, those concerning
eligibility for benefits, and it shall not act so as to discriminate in
favor of any person. All determinations of the Plan Administrator shall
be conclusive and binding on all Employees, Members, Beneficiaries and
Fiduciaries, subject to the provisions of the Plan and the Trust and
subject to applicable law.
(c) The Plan Administrator shall furnish Members and
Beneficiaries with all disclosures now or hereafter required by ERISA
or the Code. The Plan Administrator shall file, as required, the
various reports and disclosures concerning the Plan and its operations
as required by ERISA and by the Code, and shall be solely responsible
for establishing and maintaining all records of the Plan and the Trust.
(d) The statement of specific duties for a Plan
Administrator in this Section is not in derogation of any other duties
which a Plan Administrator has under the provisions of the Plan or the
Trust or under applicable law.
8.5 Investment Manager. The Primary Sponsor may, by action in
writing certified by notice to the Trustee, appoint an Investment Manager. Any
Investment Manager may be removed in the same manner in which appointed, and in
the event of any removal, the Investment Manager shall, as soon as possible, but
in no event more than 30 days after notice of removal, turn over all assets
managed by it to the Trustee or to any successor Investment Manager appointed,
and shall make a full accounting to the Primary Sponsor with respect to all
assets managed by it since its appointment as an Investment Manager.
8.6 Investment Committee. The Primary Sponsor may, by action in
writing certified by notice to the Trustee, appoint an Investment Committee. The
Primary Sponsor shall have the right to remove any person on the Investment
Committee at any time by notice in writing to such person. A person on the
Investment Committee may resign at any time by written notice of resignation to
the Primary Sponsor. Upon such removal or resignation, or in the event of the
death of a person on the Investment Committee, the Primary Sponsor may appoint a
successor. Until a successor has been appointed, the remaining persons on the
Investment Committee may continue to act as the Investment Committee.
8.7 Action by the Primary Sponsor or a Plan Sponsor. Any action to
be taken by the Primary Sponsor or a Plan Sponsor shall be taken by resolution
or written direction duly adopted by its board of directors or appropriate
governing body, as the case may be; provided, however, that by such resolution
or written direction, the board of directors or appropriate governing body, as
the case may be, may delegate to any officer or other appropriate person of a
Plan Sponsor the
21
<PAGE> 24
authority to take any such actions as may be specified in such resolution or
written direction, other than the power to amend, modify or terminate the Plan
or the Trust or to determine the basis of any Plan Sponsor contributions.
SECTION 9
CLAIM REVIEW PROCEDURE
9.1 If a Member or Beneficiary is denied a claim for benefits
under a Plan, the Plan Administrator shall provide to the claimant written
notice of the denial within 90 days after the Plan Administrator receives the
claim, unless special circumstances require an extension of time for processing
the claim. If such an extension of time for processing is required, written
notice of the extension shall be furnished to the claimant prior to the
termination of the initial 90-day period. In no event shall the extension exceed
a period of 90 days from the end of such initial period. The extension notice
shall indicate the special circumstances requiring an extension of time and the
date by which the Plan Administrator expects to render the final decision.
9.2 In the event that a Member or Beneficiary is denied a claim
for benefits under a Plan, the Plan Administrator shall provide to such claimant
written notice of the denial which shall set forth:
(a) the specific reasons for the denial;
(b) specific references to the pertinent provisions of
the Plan on which the denial is based;
(c) a description of any additional material or
information necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary; and
(d) an explanation of the Plan's claim review procedure.
9.3 After receiving written notice of the denial of a claim, a
claimant or his representative may:
(a) request a full and fair review of such denial by
written application to the Plan Administrator;
(b) review pertinent documents; and
(c) submit issues and comments in writing to the Plan
Administrator.
9.4 If the claimant wishes such a review of the decision denying
his claim to benefits under the Plan, he must submit such written application to
the Plan Administrator within 60 days after receiving written notice of the
denial.
9.5 Upon receiving such written application for review, the Plan
Administrator may schedule a hearing for purposes of reviewing the claimant's
claim, which hearing shall take place not
22
<PAGE> 25
more than 30 days from the date on which the Plan Administrator received such
written application for review.
9.6 At least 10 days prior to the scheduled hearing, the claimant
and his representative designated in writing by him, if any, shall receive
written notice of the date, time, and place of such scheduled hearing. The
claimant or his representative, if any, may request that the hearing be
rescheduled, for his convenience, on another reasonable date or at another
reasonable time or place.
9.7 All claimants requesting a review of the decision denying
their claim for benefits may employ counsel for purposes of the hearing.
9.8 No later than 60 days following the receipt of the written
application for review, the Plan Administrator shall submit its decision on the
review in writing to the claimant involved and to his representative, if any;
provided, however, a decision on the written application for review may be
extended, in the event special circumstances such as the need to hold a hearing
require an extension of time, to a day no later than 120 days after the date of
receipt of the written application for review. The decision shall include
specific reasons for the decision and specific references to the pertinent
provisions of the Plan on which the decision is based.
SECTION 10
LIMITATION OF ASSIGNMENT, PAYMENTS TO LEGALLY INCOMPETENT
DISTRIBUTEES AND UNCLAIMED PAYMENTS
10.1 No benefit which shall be payable under the Plan to any person
shall be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance or charge, and any attempt to anticipate,
alienate, sell, transfer, assign, pledge, encumber or charge the same shall be
void; and no such benefit shall in any manner be liable for, or subject to, the
debts, contracts, liabilities, engagements or torts of any person, nor shall it
be subject to attachment or legal process for, or against, such person, and the
same shall not be recognized under the Plan, except to such extent as may be
required by law. Notwithstanding the above, this Section shall not apply to a
"qualified domestic relations order" (as defined in Code Section 414(p)), and
benefits may be paid pursuant to the provisions of such an order. The Plan
Administrator shall develop procedures (in accordance with applicable federal
regulations) to determine whether a domestic relations order is qualified, and,
if so, the method and the procedures for complying therewith.
10.2 If any person who shall be entitled to any benefit under the
Plan shall become bankrupt or shall attempt to anticipate, alienate, sell,
transfer, assign, pledge, encumber or charge such benefit under the Plan, then
the payment of any such benefit in the event a Member or Beneficiary is entitled
to payment shall, in the discretion of the Plan Administrator, cease and
terminate and in that event the Trustee shall hold or apply the same for the
benefit of such person, his spouse, children, other dependents or any of them in
such manner and in such proportion as the Plan Administrator shall determine.
10.3 Whenever any benefit which shall be payable under the Plan is
to be paid to or for
23
<PAGE> 26
the benefit of any person who is then a minor or determined to be incompetent by
qualified medical advice, the Plan Administrator need not require the
appointment of a guardian or custodian, but shall be authorized to cause the
same to be paid over to the person having custody of such minor or incompetent,
or to cause the same to be paid to such minor or incompetent without the
intervention of a guardian or custodian, or to cause the same to be paid to a
legal guardian or custodian of such minor or incompetent if one has been
appointed or to cause the same to be used for the benefit of such minor or
incompetent.
10.4 If the Plan Administrator cannot ascertain the whereabouts of
any person to whom a payment is due under the Plan, the Plan Administrator may
direct that the payment and all remaining payments otherwise due to the person
be cancelled on the records of the Plan and the amount thereof applied as a
forfeiture in accordance with Plan Section 3.2, except that, in the event the
person later notifies the Plan Administrator of his whereabouts and requests the
payments due to him under the Plan, the Plan Sponsor shall contribute to the
Plan an amount equal to be paid to him as soon as administratively feasible.
SECTION 11
PROHIBITION AGAINST DIVERSION
At no time shall any part of the Fund be used for or diverted to
purposes other than the exclusive benefit of the Members or their Beneficiaries,
subject, however, to the payment of all taxes and administrative expenses and
subject to the provisions of the Plan with respect to returns of contributions.
SECTION 12
LIMITATION OF RIGHTS
Membership in the Plan shall not give any Employee any right or claim
except to the extent that such right is specifically fixed under the terms of
the Plan. The adoption of the Plan and the Trust by any Plan Sponsor shall not
be construed to give any Employee a right to be continued in the employ of a
Plan Sponsor or as interfering with the right of a Plan Sponsor to terminate the
employment of any Employee at any time.
24
<PAGE> 27
SECTION 13
AMENDMENT TO OR TERMINATION OF THE PLAN AND THE TRUST
13.1 The Primary Sponsor reserves the right at any time to modify
or amend or terminate the Plan or the Trust in whole or in part by notice
thereof in writing delivered to the Trustee; provided, however, that the Primary
Sponsor shall have no power to modify or amend the Plan in such manner as would
cause or permit any portion of the funds held under a Plan to be used for, or
diverted to, purposes other than for the exclusive benefit of Members or their
Beneficiaries, or as would cause or permit any portion of a fund held under the
Plan to become the property of a Plan Sponsor; and provided further, that the
duties or liabilities of the Trustee shall not be increased without its written
consent. No such modifications or amendments shall have the effect of
retroactively changing or depriving Members or Beneficiaries of rights already
accrued under the Plan. No Plan Sponsor other than the Primary Sponsor shall
have the right to so modify, amend or terminate the Plan or the Trust.
Notwithstanding the foregoing, each Plan Sponsor may terminate its own
participation in the Plan and Trust pursuant to the Plan.
13.2 Each Plan Sponsor other than the Primary Sponsor shall have
the right to terminate its participation in the Plan and Trust by resolution of
its board of directors or other appropriate governing body and notice in writing
to the Primary Sponsor and the Trustee unless such termination would result in
the disqualification of the Plan or the Trust or would adversely affect the
exempt status of the Plan or the Trust as to any other Plan Sponsor. If
contributions by or on behalf of a Plan Sponsor are completely terminated, the
Plan and Trust shall be deemed terminated as to such Plan Sponsor. Any
termination by a Plan Sponsor shall not be a termination as to any other Plan
Sponsor.
(a) If the Plan is terminated by the Primary Sponsor or
if contributions to the Trust should be permanently discontinued, it
shall terminate as to all Plan Sponsors and the Fund shall be used,
subject to the payment of expenses and taxes, for the benefit of
Members and Beneficiaries, and for no other purposes, and the Account
of each affected Member shall be fully vested and nonforfeitable,
notwithstanding the provisions of the Section of the Plan which sets
forth the vesting schedule.
(b) In the event of the partial termination of the Plan,
each affected Member's Account shall be fully vested and
nonforfeitable, notwithstanding the provisions of the Section of the
Plan which sets forth the vesting schedule.
13.3 In the event of the termination of the Plan or the Trust with
respect to a Plan Sponsor, the Accounts of the Members with respect to the Plan
as adopted by such Plan Sponsor shall be held subject to the instructions of the
Plan Administrator; provided that the Trustee shall not be required to make any
distribution until it receives a copy of an Internal Revenue Service
determination letter to the effect that the termination does not affect the
qualified status of the Plan or the exempt status of the Trust or, in the event
that such letter is applied for and is not issued, until the Trustee is
reasonably satisfied that adequate provision has been made for the payment of
all taxes which may be due and owing by the Trust.
25
<PAGE> 28
13.4 In the case of any merger or consolidation of the Plan with,
or any transfer of the assets or liabilities of the Plan to any other plan
qualified under Code Section 401, the terms of such merger, consolidation or
transfer shall be such that each Member in the Plan would receive (in the event
of termination of the Plan or its successor immediately thereafter) a benefit
which is no less than the benefit which such Member would have received in the
event of termination of the Plan immediately before the merger, consolidation or
transfer.
13.5 Notwithstanding any other provision of the Plan, an amendment
to the Plan --
(a) which eliminates or reduces an early retirement
benefit, if any, or which eliminates or reduces a retirement-type
subsidy (as defined in regulations issued by the Department of the
Treasury), if any, or
(b) which eliminates an optional form of benefit
shall not be effective with respect to benefits attributable to service
before the amendment is adopted. In the case of a retirement-type
subsidy described in Subsection (a) above, this Section shall be
applicable only to a Member who satisfies, either before or after the
amendment, the preamendment conditions for the subsidy.
SECTION 14
ADOPTION OF PLAN BY AFFILIATES
Any corporation or other business entity related to the Primary Sponsor
by function or operation and any Affiliate, if the corporation, business entity
or Affiliate is authorized to do so by written direction adopted by the Board of
Directors, may adopt the Plan and the related Trust by action of the board of
directors or other appropriate governing body of such corporation, business
entity or Affiliate. Any adoption shall be evidenced by certified copies of the
resolutions of the foregoing board of directors or governing body indicating the
adoption and by the execution of the Trust by the adopting corporation, or
business entity or affiliate. The resolution shall state and define the
effective Date of the adoption of the Plan by the Plan Sponsor and, for the
purpose of Code Section 415, the "limitation year" as to such Plan Sponsor.
Notwithstanding the foregoing, however, if the Plan and Trust as adopted by an
Affiliate or other corporation or business entity under the foregoing provisions
shall fail to receive the initial approval of the Internal Revenue Service as a
qualified Plan and Trust under Code Sections 401(a) and 501(a), any
contributions by the Affiliate or other corporation or business entity after
payment of all expenses will be returned to such Plan Sponsor free of any trust,
and the Plan and Trust shall terminate, as to the adopting Affiliate or other
corporation or business entity.
26
<PAGE> 29
SECTION 15
QUALIFICATION AND RETURN OF CONTRIBUTIONS
15.1 If the Plan and the related Trust fail to receive the initial
approval of the Internal Revenue Service as a qualified plan and trust within
one year after the date of denial of qualification (a) the contribution of a
Plan Sponsor after payment of all expenses will be returned to a Plan Sponsor
free of the Plan and Trust, (b) contributions made by a Member shall be returned
to the Member who made the contributions, and (c) the Plan and Trust shall
thereupon terminate.
15.2 If and to the extent permitted by the Code and other
applicable laws and regulations thereunder, upon a Plan Sponsor's request, a
contribution which was made by reason of a mistake of fact or upon the
deductibility of the contribution under Code Section 404, shall be returned to a
Plan Sponsor within one year after the payment of the contribution, or the
disallowance of the deduction (to the extent disallowed), whichever is
applicable.
In the event of a contribution which was made by reason of a mistake of
fact or which was conditioned upon the deductibility of the contribution, the
amount to be returned to the Plan Sponsor shall be the excess of the
contribution above the amount that would have been contributed had the mistake
of fact or the mistake in determining the deduction not occurred, less any net
loss attributable to the excess. Any net income attributable to the excess shall
not be returned to the Plan Sponsor. No return of any portion of the excess
shall be made to the Plan Sponsor if the return would cause the balance in a
Member's Account to be less than the balance would have been had the mistaken
contribution not been made.
SECTION 16
INCORPORATION OF SPECIAL LIMITATIONS
Appendices A, B and C to the Plan, attached hereto, are incorporated by
reference and the provisions of the same shall apply notwithstanding anything to
the contrary contained herein.
IN WITNESS WHEREOF, the Primary Sponsor has caused this indenture to be
executed as of the day and year first above written.
FIRST BANKING COMPANY OF SOUTHEAST
GEORGIA
By: /s/ James E. Hodges
----------------------------------------
Title: /s/ President
-------------------------------------
ATTEST:
/s/
- -----------------------------
Title: Secretary
-----------------------
[CORPORATE SEAL](C)
27
<PAGE> 30
APPENDIX A
LIMITATION ON ALLOCATIONS
SECTION 1
The "annual addition" for any Member for any one limitation year may not
exceed the lesser of:
(a) $30,000 (or, if greater, one-quarter of the dollar limitation in
effect under Code Section 415(b)(1)(A), as adjusted for changes in the cost
of living as provided in regulations issued by the Secretary of the
Treasury); or
(b) 25% of the Member's Annual Compensation.
SECTION 2
For the purposes of this Appendix A, the term "annual addition" for any
Member means for any limitation year, the sum of certain Plan Sponsor and Member
contributions, forfeitures, and other amounts as determined in Code Section
415(c)(2) in effect for that limitation year.
SECTION 3
In the event that a Plan Sponsor maintains a defined benefit plan under
which a Member also participates, the sum of the defined benefit plan fraction
and the defined contribution plan fraction for any limitation year for any
Member may not exceed 1.0.
(a) The defined benefit plan fraction for any limitation year is a
fraction:
(1) the numerator of which is the projected annual benefit of the
Member under the defined benefit plan (determined as of the close of
such year); and
(2) the denominator of which is the lesser of
(A) the product of 1.25, multiplied by the maximum annual
benefit allowable under Code Section 415(b)(1)(A), or
(B) the product of
(i) 1.4, multiplied by
(ii) the maximum amount which may be taken into
account under Code Section 415(b)(1)(B) with respect to the
Member under the defined benefit plan for the limitation
year (determined as of the close of the limitation year).
(b) The defined contribution plan fraction for any limitation year is
a fraction:
<PAGE> 31
(1) the numerator of which is the sum of a Member's annual
additions as of the close of the year; and
(2) the denominator of which is the sum of the lesser of the
following amounts determined for the year and for all prior limitation
years during which the Member was employed by a Plan Sponsor:
(A) the product of 1.25, multiplied by the dollar limitation
in effect under Section 415(c)(1)(A) of the Code for the
limitation year (determined without regard to Code Section
415(c)(6)); or
(B) the product of
(i) 1.4, multiplied by
(ii) the amount which may be taken into account under
Code Section 415(c)(1)(B) (or Code Section 415(c)(7), if
applicable) with respect to the Member for the limitation
year.
SECTION 4
For purposes of this Appendix A, the term "limitation year" shall mean a
Plan Year unless a Plan Sponsor elects, by adoption of a written resolution, to
use any other twelve-month period adopted in accordance with regulations issued
by the Secretary of the Treasury. For purposes of applying the limitations set
forth in this Appendix A, the term "Plan Sponsor" shall mean a Plan Sponsor and
any other corporations which are members of the same controlled group of
corporations (as described in Code Section 414(b), as modified by Code Section
415(h)) as is a Plan Sponsor, any other trades or businesses (whether or not
incorporated) under common control (as described in Code Section 414(c), as
modified by Code Section 415(h)) with a Plan Sponsor, any other corporations,
partnerships, or other organizations which are members of an affiliated service
group (as described in Code Section 414(m)) with a Plan Sponsor, and any other
entity required to be aggregated with a Plan Sponsor pursuant to regulations
under Code Section 414(o).
SECTION 5
For purposes of applying the limitations of this Appendix A, all defined
contribution plans maintained or deemed to be maintained by a Plan Sponsor shall
be treated as one defined contribution plan, and all defined benefit plans now
or previously maintained or deemed to be maintained by a Plan Sponsor shall be
treated as one defined benefit plan.
A-2
<PAGE> 32
SECTION 6
In the event that as a result of either the allocation of forfeitures to
the Account of a Member or a reasonable error in estimating the Member's Annual
Compensation, the annual addition allocated to the Account of a Member exceeds
the limitations set forth in Section 1 of this Appendix A or in the event that
the aggregate contributions made on behalf of a Member under both a defined
benefit plan and a defined contribution plan, subject to the reduction of
allocations in other defined contribution plans required by Section 5 of this
Appendix A, cause the aggregate limitation fraction set forth in Section 3 of
this Appendix A to be exceeded, the Plan Administrator shall, in writing, direct
the Trustee to take such of the following actions as the Plan Administrator
shall deem appropriate, specifying in each case the amount or amounts of
contributions involved:
(a) If reduction is necessary, contributions made by the Plan Sponsor
on behalf of the Member pursuant to Plan Section 3.1 shall be reduced in
the amount of the excess. The amount of the reduction of contributions
shall be reallocated to the Accounts of Members who are not affected by the
limitations in the same manner as the contribution of the Plan Sponsor for
the year is allocated under Plan Section 3.1 to the Accounts of the
Members; and
(b) If the contribution of the Plan Sponsor would cause the annual
addition to exceed the limitations set forth herein with respect to all
Members under the Plan, the portion of the contribution in excess of the
limitations shall be segregated in a suspense account. While the suspense
account is maintained, (1) no Plan Sponsor contributions under the Plan
shall be made which would be precluded by this Appendix A, (2) income,
gains and losses of the Fund shall not be allocated to such suspense
account and (3) amounts in the suspense account shall be allocated in the
same manner as Plan Sponsor contributions under the Plan as of each
Valuation Date on which Plan Sponsor contributions may be allocated until
the suspense account is exhausted. In the event of the termination of the
Plan, the amounts in the suspense account shall be returned to the Plan
Sponsor to the extent that such amounts may not then be allocated to the
Members' Accounts.(C)
A-3
<PAGE> 33
APPENDIX B
TOP-HEAVY PROVISIONS
SECTION 1
As used in this Appendix B, the following words shall have the following
meanings:
(a) "Determination Date" means, with respect to any Plan Year, the
last day of the preceding Plan Year, or, in the case of the first Plan
Year, means the last day of the first Plan Year.
(b) "Key Employee" means an Employee or former Employee (including a
Beneficiary of a Key Employee or former Key Employee) who at any time
during the Plan Year containing the Determination Date or any of the four
(4) preceding Plan Years is:
(1) An officer described in Code Section 414(q)(1)(D);
(2) One of the ten (10) Employees owning both (A) more than
one-half percent (1/2%) of the outstanding stock of the Plan Sponsor,
more than one-half percent (1/2%) of the total combined voting power
of all stock of the Plan Sponsor, or more than one-half percent (1/2%)
of the capital or profits interest in the Plan Sponsor, and (B) the
largest percentage ownership interests in the Plan Sponsor or any of
its Affiliates, and whose Annual Compensation is equal to or greater
than the amount in effect under Section 1(a) of Appendix A to the Plan
for the calendar year in which the Determination Date falls; or
(3) An owner of more than five (5%) percent of the outstanding
stock of the Plan Sponsor or more than five (5%) percent of the total
combined voting power of all stock of such Plan Sponsor; or
(4) An owner of more than one (1%) percent of the outstanding
stock of the Plan Sponsor or more than one (1%) percent of the total
combined voting power of all stock of such Plan Sponsor, and who in
such Plan Year had Annual Compensation from such Plan Sponsor and all
of its Affiliates of more than $150,000.
Employees other than Key Employees are sometimes referred to in this
Appendix as "non-key employees."
(c) "Required Aggregation Group" means:
(1) each plan of the Plan Sponsor and its Affiliates which
qualifies under Code Section 40l(a) in which a Key Employee is a
participant, and
(2) each other plan of the Plan Sponsor and its Affiliates which
qualifies under Code Section 401 (a) and which enables any plan
described in Subsection (a) of this Section to meet the requirements
of Section 401(a)(4) or 410 of the Code.
B-1
<PAGE> 34
(d) (1) "Top-Heavy" means:
(A) if the Plan is not included in a Required Aggregation
Group, the Plan's condition in a Plan Year for which, as of the
Determination Date:
(i) the present value of the cumulative Accrued Benefits
under the Plan for all Key Employees exceeds 60 percent of the
present value of the cumulative Accrued Benefits under the Plan
for all Members; and
(ii) the Plan, when included in every potential
combination, if any, with any or all of:
(I) any Required Aggregation Group, and
(II) any plan of the Plan Sponsor which is not
part of any Required Aggregation Group and which
qualifies under Code Section 401 (a)
is part of a Top-Heavy Group (as defined in Paragraph (2) of
this Subsection); and
(B) if the Plan is included in a Required Aggregation Group,
the Plan's condition in a Plan Year for which, as of the
Determination Date:
(i) the Required Aggregation Group is a Top-Heavy Group
(as defined in Paragraph (2) of this Subsection); and
(ii) the Required Aggregation Group, when included in
every potential combination, if any, with any or all of the
plans of the Plan Sponsor and its Affiliates which are not
part of the Required Aggregation Group and which qualify
under Code Section 401(a), is part of a Top-Heavy Group (as
defined in Paragraph (2) of this Subsection).
(C) For purposes of Subparagraphs (A)(i) and (B)(ii) of this
Paragraph (1), any combination of plans must satisfy the
requirements of Code Sections 401(a)(4) and 410.
(2) A group shall be deemed to be a Top-Heavy Group if:
(A) the sum, as of the Determination Date, of the present
value of the cumulative accrued benefits for all Key Employees
under all plans included in such group exceeds
(B) 60 percent of a similar sum determined for all
participants in such plans.
(3) (A) For purposes of this Section, the present value of the
accrued benefit for
B-2
<PAGE> 35
any participant in a defined contribution plan as of any
Determination Date or last day of a plan year shall be the sum of:
(i) as to any defined contribution plan other than a
simplified employee pension, the account balance as of the
most recent valuation date occurring within the plan year
ending on the Determination Date or last day of a plan year,
and
(ii) as to any simplified employee pension, the
aggregate employer contributions, and
(iii) an adjustment for contributions due as of the
Determination Date or last day of a plan year.
In the case of a plan that is not subject to the minimum funding
requirements of Code Section 412, the adjustment in Clause (iii)
of this Subparagraph (A) shall be the amount of any contributions
actually made after the valuation date but on or before the
Determination Date or last day of the plan year to the extent not
included under Clause (i) or (ii) of this Subparagraph (A);
provided, however, that in the first plan year of the plan, the
adjustment in Clause (iii) of this Subparagraph (A) shall also
reflect the amount of any contributions made thereafter that are
allocated as of a date in such first plan year. In the case of a
plan that is subject to the minimum funding requirements, the
account balance in Clause (i) and the aggregate contributions in
Clause (ii) of this Subparagraph (A) shall include contributions
that would be allocated as of a date not later than the
Determination Date or last day of a plan year, even though those
amounts are not yet required to be contributed, and the
adjustment in Clause (iii) of this Subparagraph (A) shall be the
amount of any contribution actually made (or due to be made)
after the valuation date but before the expiration of the
extended payment period in Code Section 4l2(c)(10) to the extent
not included under Clause (i) or (ii) of this Subparagraph (A).
(B) For purposes of this Subsection, the present value of
the accrued benefit for any participant in a defined benefit plan
as of any Determination Date or last day of a plan year must be
determined as of the most recent valuation date which is within a
12-month period ending on the Determination Date or last day of a
plan year as if such participant terminated as of such valuation
date; provided, however, that in the first plan year of a plan,
the present value of the accrued benefit for a current
participant must be determined either (i) as if the participant
terminated service as of the Determination Date or last day of a
plan year or (ii) as if the participant terminated service as of
such valuation date, but taking into account the estimated
accrued benefit as of the Determination Date or last day of a
plan year. For purposes of this Subparagraph (B), the valuation
date must be the same valuation date used for computing plan
costs for minimum funding, regardless of whether a valuation is
performed that year. The actuarial assumptions utilized in
calculating the present value of the accrued benefit for any
participant in a defined benefit plan for purposes of this
Subparagraph (B) shall be established by the Plan Administrator
after
B-3
<PAGE> 36
consultation with the actuary for the plan, and shall be
reasonable in the aggregate and shall comport with the
requirements set forth by the Internal Revenue Service in Q&A T-26
and T-27 of Regulation Section 1.416-1.
(C) For purposes of determining the present value of the
cumulative accrued benefit under a plan for any participant in
accordance with this Subsection, the present value shall be
increased by the aggregate distributions made with respect to the
participant (including distributions paid on account of death to
the extent they do not exceed the present value of the cumulative
accrued benefit existing immediately prior to death) under each
plan being considered, and under any terminated plan which if it
had not been terminated would have been in a Required Aggregation
Group with the Plan, during the 5-year period ending on the
Determination Date or last day of the plan year that falls within
the calendar year in which the Determination Date falls.
(D) For purposes of this Paragraph (3), participant
contributions which are deductible as "qualified retirement
contributions" within the meaning of Code Section 219 or any
successor, as adjusted to reflect income, gains, losses, and
other credits or charges attributable thereto, shall not be
considered to be part of the accrued benefits under any plan.
(E) For purposes of this Paragraph (3), if any employee is
not a Key Employee with respect to any plan for any plan year,
but such employee was a Key Employee with respect to such plan
for any prior plan year, any accrued benefit for such employee
shall not be taken into account.
(F) For purposes of this Paragraph (3), if any employee has
not performed any service for any Plan Sponsor or Affiliate
maintaining the plan during the five-year period ending on the
Determination Date, any accrued benefit for that employee shall
not be taken into account.
(G) (i) In the case of an "unrelated rollover" (as
defined below) between plans which qualify under Code
Section 401(a), (a) the plan providing the distribution
shall count the distribution as a distribution under
Subparagraph (C) of this Paragraph (3), and (b) the plan
accepting the distribution shall not consider the
distribution part of the accrued benefit under this Section;
and
(ii) in the case of a "related rollover" (as defined
below) between plans which qualify under Code Section
401(a), (a) the plan providing the distribution shall not
count the distribution as a distribution under Subparagraph
(C) of this Paragraph (3), and (b) the plan accepting the
distribution shall consider the distribution part of the
accrued benefit under this Section.
For purposes of this Subparagraph (G), an "unrelated
rollover" is a rollover as defined in Code Section 402(a)(5) or
408(d)(3) or a plan-to-plan transfer which is both initiated by
the participant and made from a plan maintained by one employer
B-4
<PAGE> 37
to a plan maintained by another employer where the employers are
not Affiliates. For purposes of this Subparagraph (G), a "related
rollover" is a rollover as defined in Code Section 402(a)(5) or
408(d)(3) or a plan-to-plan transfer which is either not
initiated by the participant or made to a plan maintained by the
employer or an Affiliate.
SECTION 2
(a) Notwithstanding anything contained in the Plan to the contrary,
except as otherwise provided in Subsection (b) of this Section, in any Plan
Year during which the Plan is Top-Heavy, allocations of Plan Sponsor
contributions for the Plan Year for the Account of each Member who is not a
Key Employee and who has not separated from service with the Plan Sponsor
prior to the end of the Plan Year shall not be less than 3 percent of the
Member's Annual Compensation.
(b) (1) The percentage referred to in Subsection (a) of this Section
for any Plan Year shall not exceed the percentage at which allocations
are made or required to be made under the Plan for the Plan Year for
the Key Employee for whom the percentage is highest for the Plan Year.
(2) For purposes of this Subsection (b), all defined contribution
plans which are members of a Required Aggregation Group shall be
treated as part of the Plan.
(3) This Subsection (b) shall not apply to any plan which is a
member of a Required Aggregation Group if the plan enables a defined
benefit plan which is a member of the Required Aggregation Group to
meet the requirements of Code Section 401(a)(4) or 410.
SECTION 3
In any limitation year (as defined in Section 4 of Appendix A to the Plan)
which contains any portion of a Plan Year in which the Plan is Top-Heavy, the
number "1.0" shall be substituted for the number "1.25" in Section 3 of Appendix
A to the Plan.(C)
B-5
<PAGE> 38
APPENDIX C
PRIOR TARGET BENEFIT FORMULAS
SECTION 1
With respect to Members who terminated employment in Plan Years beginning
before January 1, 1991, a hypothetical amount providing a past service benefit
for Credited Service performed on and after January 1, 1986 and prior to January
1, 1989, and a future service benefit for Credited Service performed on and
after January 1, 1989. This amount shall be determined according to the
following formulas:
(a) The past service benefit shall equal the sum of:
(1) 0.95% of that portion of a Member's Annual Compensation for
the preceding Plan Year which is not in excess of 50% of the Maximum
Taxable Wage Base (as defined in the Prior Plan) for the preceding
Plan Year, and
(2) 1.90% of that portion, if any, of the Member's Annual
Compensation for the preceding Plan Year which is in excess of 50% of
the Maximum Taxable Wage Base for the preceding Plan Year,
for each year of Credited Service prior to January 1, 1989.
(b) The future service benefit shall equal the sum of:
(1) 1.17% of that portion of the Member's Annual Compensation for
the preceding Plan Year which is not in excess of the Integration
Level for the preceding Plan Year, plus
(2) 1.65% of that portion, if any, of the Member's Annual
Compensation for the preceding Plan Year which is in excess of
the Integration Level for the preceding Plan Year,
for each year of Credited Service performed on and after January 1, 1989;
provided, however, that in the case of an Employee whose Social Security
Normal Retirement Age is 66, the 1.17% base percent in (b)(1) increases to
1.202% and for an Employee whose Social Security Normal Retirement Age is
67, it increases to 1.234%.
If a Member's Years of Credited Service exceed 20, then years of Credited
Service shall be reduced to 20 by eliminating, in order, the earliest of such
years; and provided further that, if a Member's years of Credited Service are
less than 20, then an additional future service benefit for the Member shall be
determined by adding to the future service benefit provided above an additional
future service benefit equal to the product of (x) multiplied by (y), where
(x) is the benefit calculated above for the most recent year of
Credited Service, and
C-1
<PAGE> 39
(y) is the lesser of
(i) the number of years by which the Member's years of Credited
Service are less than 20, and
(ii) the Member's projected remaining years of Credited Service
until the Plan Year in which the Member's Normal Retirement Age will
occur, or the current Plan Year if later.
In the case of an Employee who becomes a Member on a date other than the first
day of the Plan Year in which he becomes a Member, his benefit shall be 50% of
the sum set forth above.
SECTION 2
With respect to Members who terminated employment in Plan Years beginning
on and after January 1, 1991, but before January 1, 1994, a hypothetical amount
providing an annuity in the form of a single life annuity payable at Normal
Retirement Age or, if the Member does not retire upon attaining Normal
Retirement Age, at the Member's subsequent Retirement Date, in an amount equal
to the sum of (a), (b), (c) and (d) below:
(a) For each year of Credited Service earned prior to January 1, 1989
but on or after January 1, 1986, the sum of (1) .95% of that portion of a
Member's Annual Compensation (as determined under the Old Plan) which is
not in excess of fifty percent (50%) of the maximum Social Security taxable
wage base for the preceding Plan Year and (2) 1.90% of that portion, if
any, of the Member's Annual Compensation (as determined under the Old Plan)
which is in excess of fifty percent (50%) of the maximum Social Security
taxable wage base for the preceding Plan Year;
(b) For each year of Credited Service earned prior to January 1, 1991
but on and after January 1, 1989, the sum of (1) 1.17% of the Member's
Annual Compensation (as determined under the Old Plan) which is not in
excess of the Integration Level (as defined under the Old Plan) and (2)
1.65% of that portion, if any, of the Member's Annual Compensation (as
determined under the Old Plan) which is in excess of the Integration Level
(as defined under the Old Plan); provided, however, that in the case of an
Employee whose Social Security Normal Retirement Age is 66, the 1.17% base
percent shall be increased to 1.202% and in the case of an Employee whose
Social Security Normal Retirement Age is 67, the 1.17% base percent shall
be increased to 1.234%;
(c) For each year of Credited Service earned on and after January 1,
1991, the sum of (1) 1.65% of that portion of the Member's Annual
Compensation which is not in excess of the Integration Level and (2) 2.13%
of that portion, if any, of the Member's Annual Compensation which is in
excess of the Integration Level; provided, however, that in the case of an
Employee whose Social Security Normal Retirement Age is 66, the 1.65% base
percent shall be increased to 1.682% and in the case of an Employee whose
Social Security Normal Retirement Age is 67, the 1.65% base percent shall
be increased to 1.714%; and
C-2
<PAGE> 40
(d) If a Member's years of Credited Service are less than twenty
(20), an additional amount equal to the product of (1) multiplied by (2)
below:
(1) the benefit calculated in (b) or (c) above, as applicable,
for the most recent year of Credited Service;
(2) the lesser of (A) the number of years by which the Member's
years of Credited Service are less than twenty (20) or (B) the lesser
of (i) the Member's projected remaining years of Credited Service
until the Plan Year in which the Member's Normal Retirement Age will
occur or, if later, (ii) one (1).
If a Member's years of Credited Service exceed twenty (20), then years of
Credited Service shall be reduced to twenty (20) by eliminating, in order, the
earliest of such years. In the case of an Employee who becomes a Member on a
date other than the first day of the Plan Year in which the Employee becomes a
Member, that person's benefit shall be fifty percent (50%) of the sum determined
above.
SECTION 3
For purposes of this Appendix C, the following terms shall have the
meanings set forth below:
"Integration Level" shall mean one hundred percent 100% of the Covered
Compensation for a Member reaching Social Security Normal Retirement Age during
the Plan Year.
"Covered Compensation" shall mean the average (without indexing) of the
taxable wage bases (under Section 230 of the Social Security Act) for the
thirty-five (35) calendar years ending with the year in which the Member attains
Social Security Normal Retirement Age. The Plan Administrator may rely upon
Table II of Attachment I of IRS Notice 89-70 and subsequent IRS publications in
determining Covered Compensation for a Member.
"Social Security Normal Retirement Age" means age 65 for Members born
before 1938, age 66 for Members born after 1937 and prior to 1955, and age 67
for Members born after 1954.(C)
C-3
<PAGE> 41
APPENDIX D
ACTUARIAL TABLES
<TABLE>
<CAPTION>
TABLE 1 TABLE 2 TABLE 3
------- ------- -------
Years From
Amortization Discount Normal Life Annuity Years From
Attained Age Factor at Retirement Factor at Attained Age Factor at
to NRA 7.5% Age 7.5% to NRA 7.5%
------------ --------- ---------- --------- ------------ ---------
<S> <C> <C> <C> <C> <C>
0 1.000000 65 9.577341 0 1.000000
1 0.930233 66 9.363485 1 0.518072
2 0.865333 67 9.143797 2 0.357709
3 0.804961 68 8.918756 3 0.277737
4 0.748801 69 8.688831 4 0.229921
5 0.696559 70 8.454411 5 0.198181
6 0.647962 71 8.215848 6 0.175628
7 0.602755 72 7.973463 7 0.158816
8 0.560702 73 7.727789 8 0.145830
9 0.521583 74 7.479591 9 0.135522
10 0.485194 75 7.229849 10 0.127160
11 0.451343 76 6.979736 11 0.120258
12 0.419854 77 6.730541 12 0.114478
13 0.390562 78 6.483404 13 0.109579
14 0.363313 79 6.239227 14 0.105383
15 0.337966 80 5.998722 15 0.101759
16 0.314387 81 5.762373 16 0.098605
17 0.292453 17 0.095841
18 0.272049 18 0.093405
19 0.253069 19 0.091249
20 0.235413 20 0.089330
21 0.218989 21 0.087616
22 0.203711 22 0.086079
23 0.189498 23 0.084698
24 O.176277 24 0.083452
25 0.163979 25 0.082325
26 0.152539 26 0.081304
27 0.141896 27 0.080377
28 0.131997 28 0.079533
29 0.122788 29 0.078764
30 0.114221 30 0.078062
31 0.106252 31 0.077420
32 0.098839 32 0.076832
33 0.091943 33 0.076293
34 0.085529 34 0.075798
35 0.079562 35 0.075344
36 0.074011 36 0.074926
37 0.068847 37 0.074541
38 0.064044 38 0.074187
39 0.059576 39 0.073861
40 0.055419 40 0.073560
41 0.051553 41 0.073282
42 0.047956 42 0.073025
43 0.044610 43 0.072788
44 0.041498 44 0.072569
45 0.038603 45 0.072366
</TABLE>
<PAGE> 42
APPENDIX D
ACTUARIAL TABLES
<TABLE>
<CAPTION>
TABLE 1 TABLE 2 TABLE 3 TABLE 4
------- ------- ------- -------
Years From Years From Years From Normal
Attained Age Attained Age Age 65 Retirement
to NRA 7.5% To Age 65 7.5% to NRA 7.5% Age 7.5%
- ------------ ---- ------------- ---- ----------- --- ---------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
46 0.072179
</TABLE>
D-2
<PAGE> 1
EXHIBIT 10.4
FIRST BANKING COMPANY OF
SOUTHEAST GEORGIA TARGET BENEFIT RETIREMENT PLAN
TRUST AGREEMENT
THIS AGREEMENT (hereinafter referred to as the "Trust") made on the
30th day of December, 1988, by and between FIRST BANKING COMPANY OF SOUTHEAST
GEORGIA, a corporation organized and existing under the laws of the State of
Georgia (hereinafter referred to as the "Primary Sponsor"); FIRST BULLOCH BANK
& TRUST COMPANY ("First Bulloch"), METTER BANKING COMPANY ("Metter"), and each
corporation or Affiliate hereafter adopting the First Banking Company of
Southeast Georgia Target Benefit Retirement Plan (the "Plan") as provided
therein (First Bulloch, Metter, and each such corporation or Affiliate being
hereinafter sometimes individually referred to as a "Plan Sponsor"); and FIRST
BULLOCH BANK & TRUST COMPANY (hereinafter referred to as the "Trustee"):
W I T N E S S E T H:
WHEREAS, the Primary Sponsor established a trust agreement under the
First Banking Company of Southeast Georgia Uniform Target Benefit Retirement
Plan under an indenture dated July 14, 1986 (the "Old Trust" and the "Old
Plan," respectively); and
WHEREAS, First Bulloch adopted the Old Plan and Old Trust; and
WHEREAS, the Primary Sponsor and First Bulloch will amend and restate
the Old Plan into the Plan effective January 1, 1989; and
WHEREAS, the Primary Sponsor, First Bulloch, and Metter will each be
Plan Sponsors under the Plan as of January 1, 1989; and
WHEREAS, the Primary Sponsor and First Bulloch desire to amend and
restate the Old Trust into the Trust; and
WHEREAS, Metter desires to adopt the Trust;
NOW, THEREFORE, the Primary Sponsor and First Bulloch hereby amend and
restate the Old Trust into the Trust and Metter hereby adopts the Trust
effective January 1, 1989, as follows:
<PAGE> 2
SECTION I.
DEFINITIONS
All terms and definitions contained in the Plan are hereby
incorporated in the Trust by reference except to the extent that the terms of
the Trust clearly indicate to the contrary.
SECTION II.
THE FUND
The Primary Sponsor hereby establishes the Fund with the Trustee. The
Fund shall be held, managed and administered by the Trustee in trust in
accordance with the provisions of the Plan and of the Trust without distinction
between principal and income. At no time shall any part of the Fund be used for
or diverted to purposes other than the exclusive benefit of the Members or
their Beneficiaries, subject, however, to the payment of taxes and
administrative expenses and to the return of contributions to a Plan Sponsor
under the specific conditions set forth in the Plan.
SECTION III.
MAINTENANCE OF AND DISTRIBUTIONS FROM ACCOUNTS
(a) The Plan Administrator shall maintain Accounts in accordance with
the Plan.
(b) A written notice, direction, statement or certificate to the
Trustee, to the extent authorized in and given in accordance with the terms and
conditions of the Plan, is the notice, direction, statement or certificate of
the person so giving it, and the Trustee may rely upon the notice, direction,
statement or certificate, and the authenticity and genuineness thereof and of
the signatures thereon, and the authority of the person or persons executing
and delivering it, without making inquiry in regard thereto. The Trustee is not
charged with any notice of any direction, statement or certificate whatsoever
unless given in accordance with the Plan, including, without limitation,
notification of any changes in the identity or authority of any Fiduciary
(other than the Trustee) or any other person acting in regard to the Plan.
(c) The Trustee shall from time to time, on the written direction of
the Plan Administrator, make payments out of the Fund to the persons, in the
manner and in the amounts, as may be specified in the written directions of the
Plan Administrator, and upon any payments being made, the amount thereof shall
no longer constitute a part of the Fund. The Plan Administrator assumes all
responsibility with respect to the directions and the application of the
payments. The Trustee is under no duty to enforce payments of any contributions
to the Fund and is not responsible for the adequacy of the Fund to meet and
discharge any or all liabilities arising in connection with the Plan or the
Trust.
-2-
<PAGE> 3
(d) In the event that any dispute arises as to the persons to whom the
payment of any funds or delivery of any assets shall be made by the Trustee,
the Trustee may withhold such payment or delivery until the dispute has been
determined by a court of competent jurisdiction or has been settled by the
parties concerned and may, in its sole discretion, submit any such dispute to a
court of competent jurisdiction.
SECTION IV.
INVESTMENTS
(a) Subject to the provisions of Sections IV, V and VI hereof, the
Trustee agrees to invest the assets of the Fund with the care, skill and
diligence under the circumstances then prevailing that a prudent man acting in
like capacity and familiar with such matters pursuant to the Trust would use in
the conduct of an enterprise of a like character and with like aims.
(b) The Primary Sponsor shall give written notice to the Trustee of the
investment goals and objectives of the Plan upon which notice the Trustee shall
be entitled to rely in investing and reinvesting the Fund until the Trustee
receives a subsequent notice in regard to the investment goals and objectives.
In order to attain the other investment goals and objectives of the Plan, or, if
the Primary Sponsor has not given the Trustee any notice, to attain the "Normal
Investment Goals and Objectives of the Trustee" as set out in Paragraph (d) of
this Section IV, subject, however, to the terms of the Plan and the Trust and
the provisions of ERISA, the Trustee has the authority to invest and reinvest
the principal and income of the Fund and keep the Fund invested, without
distinction between principal and income, in securities or in property, real or
personal and wherever situated, as the Trustee deems advisable, in its sole
discretion. The Trustee may make investments and reinvestments in, and may
purchase, acquire, obtain, retain, sell, transfer, pledge, hypothecate or
encumber common or preferred stocks, shares of mutual funds, trust and
participation certificates, bonds and mortgages, other evidences of indebtedness
or ownership, certificates of deposit and savings accounts or plans, including,
without limitation, certificates of deposit and savings accounts or plans
established or to be established by the Trustee, and group trusts or collective
investment funds including, without limitation, group trusts or collective
investment funds operated or to be operated by the Trustee, covered call
options, put options, and financial futures contracts, irrespective of whether
such securities or property shall be of a character authorized from time to time
by applicable state law for trust investments.
(c) Notwithstanding any language in the Trust to the contrary, the
Trustee shall not invest in any securities issued by the Primary Sponsor or any
affiliate (as defined in ERISA Section 407(d)(7)) of the Primary Sponsor unless
the securities are "Qualifying Employer Securities" which means, for purposes of
the Plan and the Trust, securities of the Primary Sponsor or any Affiliate which
are stock; provided, however, that, in no event shall the Trustee be required to
invest in Qualifying Employer Securities if the Trustee makes a good faith
determination that the investment would be contrary to ERISA Section 406 or
Section 4975 of the Code, taking into consideration, however, only the relative
merits of the Qualifying Employer Securities without considering other
investment alternatives. Notwithstanding anything herein to the contrary, the
-3-
<PAGE> 4
Trustee may not be required to invest in any real property leased to or used by
a Plan Sponsor or any Affiliate of a Plan Sponsor.
(d) The Normal Investment Goals and Objectives of the Trustee are
capital growth, conservation of principal and production of income through the
receipt of interest or dividends from investments.
(e) In addition to any other investments proper under the Trust, the
Trustee may, after receiving the prior approval of the Primary Sponsor, from
time to time invest all or any part of the Fund in one or more group trusts or
collective investment funds now existing or hereafter established (including,
without limitation, trusts or funds established by the Trustee), which
contemplate the commingling for investment purposes of the funds therein with
trust assets of other pension plans as defined in ERISA which are qualified
under Section 401 of the Code and established by other businesses, institutions
and organizations. The terms and provisions of the declaration of trust
creating any group trust or collective investment fund in which all or any part
of the Fund is invested, as in force and effect at the time of the investment
and as thereafter amended, are hereby adopted and made a part hereof, and any
part of the Fund so invested shall be subject to all of the terms and
provisions, as in force and effect at the time of the investment and as
thereafter amended, of any declaration of trust creating the group trust or
collective investment fund. The Trustee shall, after receiving written approval
from the Primary Sponsor, from time to time withdraw from the group trust or
collective investment fund all or a part of the Fund as the Trustee may deem
advisable.
SECTION V.
INVESTMENT MANAGER
(a) In the event an Investment Manager is designated in accordance
with the provisions of the Plan, the Trustee shall either (i) turn over to the
Investment Manager for investment, all or the portion of the Fund as is
specified in a written direction to the Trustee from the Primary Sponsor, in
which case the assets shall continue to be a part of the Fund, even though not
in the possession of the Trustee, or (ii) invest and reinvest all or the
portion of the Fund as shall be specified in a written direction to the Trustee
from the Primary Sponsor in the manner as the Investment Manager directs the
Trustee in writing. In either event, whether the Trustee actually gives the
Investment Manager possession of all or any portion of the Fund or is required
to invest all or any portion of the Fund as directed by the Investment Manager,
the Trustee has no discretion with respect to the investment or reinvestment of
such portion and is not liable for that portion of the Fund invested by or
under the direction of the Investment Manager or for any acts or omissions of
the Investment Manager or for following or for taking or refraining from taking
any action at any direction of the Investment Manager given prior to receipt by
the Trustee of written notice from the Primary Sponsor of revocation of the
designation of the Investment Manager or for the failure of the Investment
Manager to give a direction or for any act or omission in connection with such
failure. The Trustee has no responsibility for any assets of the Fund while in
the possession of the Investment Manager or while the assets have not been
-4-
<PAGE> 5
returned to the possession of the Trustee, and the Trustee is entitled to rely
upon notice of the designation of an Investment Manager from the Primary
Sponsor until notified in writing by the designating party that the designation
is no longer in effect.
(b) During any period of time in which an Investment Manager directs
the investment of a portion of the Fund, the Trustee shall continue to receive
all securities purchased against payment therefor and to deliver all securities
sold against receipt of the proceeds therefrom. Any duly designated Investment
Manager authorized to direct investments may from time to time issue orders on
behalf of the Trustee for the purchase or sale of securities directly to a
broker or dealer and for that purpose the Trustee shall, upon request, execute
and deliver to such Investment Manager one or more trading authorizations.
Written notification of the issuance of each order shall be given promptly to
the Trustee by the Investment Manager and the execution of each order shall be
confirmed by the broker to the Investment Manager and to the Trustee. The
notification is the authority of the Trustee to receive securities purchased
against payment therefor and to deliver securities sold against receipt of the
proceeds therefrom, as the case may be. All directions concerning investments
of the Investment Manager shall be signed by the person acting on behalf of the
Investment Manager, as may be duly authorized in writing; provided, however,
that the transmission by the Investment Manager to the Trustee of directions by
photostatic teletransmission with duplicate or facsimile signature or
signatures is considered a delivery in writing of the directions until the
Trustee is notified in writing by the Primary Sponsor that the use of such
devices with duplicate or facsimile signatures is no longer authorized. The
Trustee shall be entitled to rely upon directions which it receives by such
means prior to receipt of notice from the Primary Sponsor that they are no
longer authorized, and the Trustee shall not be responsible for the
consequences of any unauthorized use of a device which use was not known by the
Trustee at the time to be unauthorized.
(c) Notwithstanding any other provision of the Trust or the Plan, the
Trustee is under no duty to make any review of investments acquired for the
Plan at the direction or order of an Investment Manager or to make any
recommendation with respect to disposing of or continuing to retain any such
investment.
(d) Notwithstanding any other provision of the Trust or the Plan, the
Trustee has no obligation to determine the existence of any conversion,
redemption, exchange, subscription or other right relating to any securities
purchased, of which notice was given prior to the purchase of the securities,
and shall have no obligation to exercise the right unless the Trustee is
informed of the existence thereof by the Investment Manager and is requested in
writing by the Investment Manager to exercise the right within a reasonable
time before the time for the exercise thereof expires.
(e) Notwithstanding any other provision of the Trust or the Plan, in
the event that the Trustee is directed to purchase securities issued by any
foreign government or agency thereof, or by any corporation domiciled outside
of the continental limits of the United States or its territories, it is the
responsibility of the Investment Manager to advise the Trustee in writing with
respect to any laws or regulations of any foreign countries which applies, in
any manner
-5-
<PAGE> 6
whatsoever, to the securities, including, but not limited to, receipt of
dividends or interest by the Trustee from the securities.
SECTION VI.
INVESTMENT COMMITTEE
(a) In the event an Investment Committee is designated in accordance
with the Plan, the Trustee shall, unless otherwise directed in writing, invest
and reinvest all of the Fund in the manner directed by the Investment
Committee; provided, however, that the Trustee shall only be subject to proper
directions of the Investment Committee which are made in accordance with the
terms of the Plan and which are not contrary to ERISA and the Code.
(b) The Board of Directors may in writing direct that only a portion
of the Fund shall be invested and reinvested as the Investment Committee
designated by it shall direct, in which case the Trustee shall invest and
reinvest the balance of the Fund pursuant to Section IV hereof, subject to
Sections V and VI hereof.
SECTION VII.
TRUSTEE POWERS
In the administration of the Trust, in addition to, and not in
limitation of, any powers or authority of the Trustee under the Trust or which
the Trustee has under applicable law in addition thereto (all such additional
powers and authority being specifically hereby granted to the Trustee), the
Trustee is authorized and empowered to do the following, without advertisement
and without order of court and without having to post bond or make any returns
or report of its doings to any court:
(a) To purchase or subscribe for any securities or property,
including, without limitation, shares of mutual funds, and to retain the same
in trust;
(b) To sell, exchange, convey, transfer, or otherwise dispose of, any
securities or property held by it, by private contract or at public auction,
with or without advertising, and no person dealing with the Trustee shall be
bound to see to the application of the purchase money or to inquire into the
validity, expediency or propriety of any sale or other disposition;
(c) To vote any stocks, bonds or other securities except for these
securities held at the direction of the Investment Manager as described in
Section V hereof; to give general or special proxies or powers of attorney with
or without power of substitution; to exercise any conversion privileges,
subscription rights or other options, and to make any payments incidental
thereto; to oppose or to consent to, or otherwise participate in, corporate
reorganizations or other changes affecting corporate securities, and to
delegate discretionary powers, and to pay any assessments
-6-
<PAGE> 7
or charges in connection therewith; and generally to exercise any of the powers
of an owner with respect to stocks, bond, securities or other property held as
part of the Fund;
(d) To register any investment held as a part of the Fund in its own
name or in the name of a nominee, and to hold any investment in bearer form or
through or by a central clearing corporation maintained by institutions active
in the national securities markets, but the books and records of the Trustee
shall at all times show that all investments are part of the Fund;
(e) To write covered call options and to purchase or sell put options
and financial futures contracts;
(f) To employ and act through suitable agents, accountants, appraisers
and attorneys (who may be counsel for the Trustee) and to pay their reasonable
expenses and compensation, and the Trustee may from time to time consult with
counsel (who, without limitation, may be counsel to the Trustee or to a Plan
Sponsor), and shall be protected to the extent the law permits in acting upon
the advice of counsel in regard to legal questions, and may also from time to
time employ agents and expert assistants and delegate to them the ministerial
duties which it sees fit, and in which event the Trustee shall periodically
review the performance of the persons to whom these duties have been delegated;
(g) To borrow or raise moneys for the purposes of the Trust in such
amounts, and upon such terms and conditions, as the Trustee in its absolute
discretion may deem advisable; and for any sums so borrowed to issue its
promissory note as Trustee, and to secure the repayment thereof by pledging all
or any part of the Fund; and no person lending money to the Trustee shall be
bound to see to the application of the money lent or to inquire into the
validity, expediency or propriety of the borrowing;
(h) To make, execute, acknowledge and deliver any and all documents of
transfer and conveyance and any and all other instruments or agreements that
may be necessary or appropriate to carry out the powers of the Trustee under
this Trust or incidental thereto;
(i) To settle, compromise or submit to arbitration any claims, debts
or damages due or owing to or from the Fund, to commence or defend any suits or
legal or administrative proceedings arising or necessary or appropriate in
connection with the Plan, the Trust, the Fund, the administration and operation
thereof or the powers or authority of the Trustee under the Trust, and to
represent the Plan, the Trust, and the Fund in all suits and legal and
administrative proceedings;
(j) To keep such portions of the Fund in cash or cash balances as the
Trustee may, from time to time, deem to be in the best interest of the Trust,
it being understood that the Trustee shall not be required to pay any interest
on any cash balances; and
(k) Generally, to do all such acts and to execute and deliver all such
instruments as in the judgment of the Trustee may be necessary or desirable to
carry out any powers or authority
-7-
<PAGE> 8
of the Trustee, without advertisement and without order of court and without
having to post bond or make any returns or report of its doings to any court.
Notwithstanding any other term or condition of the Trust or the Plan,
the Trustee shall neither engage in any transaction with the assets of the Fund
in violation of the provisions of Section 406 of ERISA nor violate the
provisions of Section 406 of ERISA, nor may the Trustee purchase or sell
Company Stock or determine the price at which Company Stock will be purchased
or sold, except at the proper direction of the Investment Committee, or, in the
event an Investment Committee has not been appointed, the Board of Directors or
an appropriate committee thereof, which direction is given in accordance with
the terms of the Plan and is not contrary to ERISA.
SECTION VIII.
TRUSTEE COMPENSATION
(a) The Trustee's compensation shall be such as may be agreed upon
from time to time in a separate written agreement between the Primary Sponsor
and the Trustee and shall be paid by the Primary Sponsor, but until paid shall
constitute a charge on the assets held by the Trustee under the Trust. In the
event the Primary Sponsor shall fail to pay to the Trustee its compensation and
expenses within ninety (90) days of invoicing of the same to the Primary
Sponsor by the Trustee, the Trustee is authorized to use the assets held by the
Trustee under the Trust to pay its unpaid compensation and expenses.
Notwithstanding the foregoing, no person, if any, who serves as the Trustee and
who receives full-time pay from a Plan Sponsor shall be entitled to receive any
compensation from the Fund, except for the reimbursement of expenses properly
and actually incurred by him in his role as Trustee.
(b) All taxes of whatever kind or nature that may be levied or
assessed under existing or future laws upon, or in respect of, the Plan, the
Trust, the Fund or the income or gains thereof or therefrom shall be paid from
the Fund.
SECTION IX.
TRUSTEE RESPONSIBILITY
The Trustee is not responsible for the application, investment or
other disposition of any funds or property held or managed by, or otherwise
subject to direction by, any person other than the Trustee. The Trustee is not
responsible for the application of any funds or property held by it under the
Trust which have been paid to the Plan Administrator or which have been paid
pursuant to the Plan and the Trust or as directed by the Plan Administrator.
The Trustee has no responsibility with respect to any administration of the
Plan or the payment of any benefits under the Plan.
-8-
<PAGE> 9
SECTION X.
RECORDKEEPING
The Trustee shall keep accurate and detailed accounts of all
investments, receipts, disbursements and other transactions pursuant to the
Plan and the Trust, and all accounts, books and records relating thereto shall
be open to inspection and audit at all reasonable times by the Plan
Administrator. Within ninety (90) days following the later of the close of each
Plan Year or the receipt of a Plan Sponsor's contribution, and within ninety
(90) days after (a) the removal or resignation of the Trustee, (b) the death,
removal or resignation of an individual trustee, if any, or (c) the termination
of the Trust (hereinafter the date of an event described in Subsection (a), (b)
or (c) of this Section is referred to as a "Report Date"), the Trustee shall
file with the Plan Administrator a written account setting forth (i) all
investments, receipts, disbursements and other transactions effected by it
during such Plan Year or during the period from the last Valuation Date to the
Report Date and (ii) the determination of the Trustee of the net income or net
loss of the Fund pursuant to the Plan for such Plan Year or during the period
from the last Valuation Date to the Report Date and the determination of the
Trustee of the fair market value of the assets of the Fund pursuant to the Plan
as at the Valuation Date or as at the Report Date, as the case may be, except
that unless the Report Date is also a Valuation Date, no allocation of net
income, net loss, earnings, gains or losses shall be made to the Account of a
Member.
SECTION XI.
REMOVAL OR RESIGNATION OF TRUSTEE AND
AMENDMENT OR TERMINATION OF TRUST
(a) Any Trustee may be removed by the Primary Sponsor at any time upon
ninety (90) days' notice in writing to such Trustee and to the Plan
Administrator, given by the Primary Sponsor. Any Trustee may resign at any time
upon ninety (90) days' notice in writing to the Primary Sponsor and the Plan
Administrator.
(b) Upon the death, removal or resignation of an individual trustee,
the Primary Sponsor may appoint a successor to the individual trustee who shall
have the same powers and duties under this Trust as the individual trustee;
provided, however, upon the death of the last remaining individual trustee the
Primary Sponsor shall appoint a successor as soon as possible. Until a
successor, if any, is appointed the remaining person or persons constituting
the Trustee may continue to act as Trustee.
(c) Upon the removal or resignation of the Trustee the Primary Sponsor
shall appoint a successor who shall have the same powers and duties as those
conferred upon the Trustee under this Trust, and, upon receipt by the Trustee
of a written acceptance of such appointment by the successor trustee, the
Trustee shall assign, transfer and pay over to the successor trustee the funds
and properties then constituting the Fund; provided, however, the Trustee shall
not be required to
-9-
<PAGE> 10
pay over funds and properties to a successor trustee unless the Trustee shall
be discharged from all liability for any taxes which may be due and owing by
the Plan and Trust, or unless either (i) the successor trustee, who must be
acceptable to the Trustee, indemnifies the Trustee against any liability or
(ii) each Plan Sponsor so indemnifies the Trustee and the Trustee in its sole
discretion agrees to accept indemnification. In the event that by the end of
the ninety (90) day notice period, the Primary Sponsor fails to appoint a
successor trustee or the Trustee has not received a written acceptance from a
successor trustee, then at any time after the end of the ninety (90) day notice
period the Trustee may file an appropriate action in a court of competent
jurisdiction and assign, transfer and pay over to the custody of the court the
funds and properties then held by the Trustee constituting the Fund. Upon
assignment, transfer and payment to a successor trustee or to the court, as the
case may be, the Trustee shall be relieved of all further duties,
responsibilities, obligations and liabilities in connection with the Plan, the
Trust or the Fund. The Trustee is authorized, however, to reserve therefrom
such money or property as it may deem advisable for payment of its fees and
expenses in connection with the settlement of its account or otherwise, and any
balance of the reserve remaining after the payment of the Trustee's fees and
expenses shall be paid over to the successor trustee or to the court.
(d) The Primary Sponsor reserves the right at any time to amend, in
whole or in part, any or all of the provisions of this Trust by notice thereof
delivered in writing to the Trustee, provided that any amendment which affects
the rights, duties or responsibilities of the Trustee may not be made without
the consent of the Trustee.
(e) The Trust shall continue for such time as may be necessary to
accomplish the purposes for which it was created and shall terminate only upon
the complete distribution of the Fund. This Trust may be terminated as of any
date (and shall in fact terminate upon the complete distribution of the Fund on
such date or thereafter) by the Primary Sponsor by notice to the Trustee and
the Plan Administrator, which notice shall specify the date as of which this
Trust shall terminate, must be received by the Trustee prior to such date and
must be given in the manner prescribed for notices in the Plan. Upon
termination of the Trust, provided that the Trustee has not received
instructions to the contrary from the Primary Sponsor, the Trustee shall
liquidate the Fund and, after paying the reasonable expenses of the Trust,
including expenses involved in the termination, distribute the balance thereof
according to the written directions of the Plan Administrator; provided,
however, that the Trustee shall not be required to make any distribution until
it receives a copy of an Internal Revenue Service determination letter to the
effect that the termination does not affect the qualified status of the Plan
and the Trust nor the exempt status of the Plan and the Trust or, in the event
that such letter is not issued, until the Trustee is reasonably satisfied that
adequate provision has been made for the payment of all taxes which may be due
and owing by the Plan and the Trust; and provided, further, that in no event
shall any distribution be made by the Trustee unless and until the Trustee is
reasonably satisfied that the distribution will not be contrary to the
applicable provisions of the Plan dealing with the terminations of the Plan and
the Trust.
(f) The Trust and the contributions made by a Plan Sponsor to the
Trustee pursuant to the Plan and the Trust are conditioned upon the conditions
set forth in the Plan as to
-10-
<PAGE> 11
qualification and returns of contributions, and the returns of contributions by
the Trustee to a Plan Sponsor in certain events shall be governed by such
provisions of the Plan.
(g) In the event more than one person or entity is serving as the
Trustee, the persons or entities so serving shall act by the action of a
majority, with or without a meeting, and any action may be evidenced by a
writing executed by a majority of the persons or entities constituting the
Trustee.
(h) Any notice, direction, statement or certificate to be given to the
Trustee in connection with the Plan, this Trust or the Fund shall be promptly
given and shall be given in accordance with the Plan.
(i) Each Plan Sponsor agrees at its sole cost and expense to indemnify
and hold harmless the Plan, the Trust, the Fund and the Trustee from and
against any claim, liability, loss, cost, expense, action or cause of action
resulting from or in connection with any claim asserted by any person or
persons where the Trustee has acted in good faith pursuant to this Trust or in
reliance on a written notice, direction or certificate to the extent the
notice, direction, or certificate is authorized in the Plan or the Trust and
has been given in accordance with the terms and conditions of the Plan.
(j) The Trust shall be administered, construed and enforced according
to the laws of the State of Georgia and the laws of the United States to the
extent they preempt state law or are otherwise applicable to this Trust, and
the Trustee shall be liable to account only in the courts of that state and in
any court of appropriate jurisdiction of the United States. All transfers of
funds or other property to or from the Trustee shall be deemed to take place in
the State of Georgia.
IN WITNESS WHEREOF, the parties hereto have caused this Trust to be
duly executed as of the day and year first above written.
PRIMARY SPONSOR: FIRST BANKING COMPANY
OF SOUTHEAST GEORGIA
By: James Eli Hodges
--------------------------------
Title: President
-----------------------------
ATTEST:
Mary C. Olliff
- --------------------------------------
Secretary - Treasurer
[CORPORATE SEAL]
-11-
<PAGE> 12
PLAN SPONSORS: FIRST BULLOCH BANK
& TRUST COMPANY
By: James Eli Hodges
--------------------------------
Title: President
-------------------------------
ATTEST:
Mary C. Olliff
- ------------------------------------
Secretary
[CORPORATE SEAL]
METTER BANKING COMPANY
By: Julian C. Lane
--------------------------------
Title: President
-------------------------------
ATTEST:
Dan Parrish, Jr.
- ------------------------------------
Secretary
[CORPORATE SEAL]
TRUSTEE: FIRST BULLOCH BANK
& TRUST COMPANY
By: John B. Barton
--------------------------------
Title: Vice President & Trust Officer
-------------------------------
ATTEST:
Debra R. Standridge
- ------------------------------------
Title: Trust Administrative Officer
[SEAL]
-12-
<PAGE> 1
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of the 20th day of October, 1998, between
First Bulloch Bank & Trust Company (the "Bank"), a commercial bank and trust
company chartered by the State of Georgia, and First Banking Company of
Southeast Georgia (the "Company"), the parent bank holding company of the Bank
(collectively, the "Employer"), and Douglas E. Wren, a resident of the State of
Georgia (the "Employee").
RECITALS:
The Employer desires to employ the Employee as the Executive Vice
President of the Employer and the Employee desires to accept such employment.
In consideration of the above premises and the mutual agreements
hereinafter set forth, the parties hereby agree as follows:
1. DEFINITIONS. Whenever used in this Agreement, the following terms and
their variant forms shall have the meaning set forth below:
1.1 "Agreement" shall mean this Agreement and any Exhibits
incorporated herein together with any amendments hereto made in the manner
described in this Agreement.
1.2 "Affiliate" shall mean any business entity which controls the
Employer, is controlled by, or is under common control with the Employer.
1.3 "Area" shall mean the geographic area within the boundaries of
Bulloch, Chandler and Effingham Counties. 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 Employer under this Agreement as of, or
within a reasonable time prior to, the termination of the Employee's employment
hereunder.
1.4 "Business of the Employer" shall mean the business conducted by
the Employer, which is commercial banking.
1.5 "Cause" shall mean:
1.5.1 With respect to termination by the Employer:
(a) A material breach of the terms of this Agreement
by the Employee, including, without limitation, failure by the
Employee to perform his duties and responsibilities in the manner
and to the extent required under this Agreement, or a breach of any
representation or warranty of the Employee set forth herein;
(b) Conduct by the Employee that amounts to fraud,
dishonesty or willful misconduct in the performance of his duties
and responsibilities hereunder;
<PAGE> 2
(c) The conviction of the Employee of a felony;
(d) Conduct by the Employee that amounts to gross
and willful insubordination or inattention to his duties and
responsibilities hereunder; or
(e) Conduct by the Employee that results in removal
from his position as an officer or employee of the Employer
pursuant to a written order by any regulatory agency with authority
or jurisdiction over the Employer.
1.5.2 With respect to termination by the Employee, a material
diminution in the powers, responsibilities or duties of Employee
hereunder, or the failure of the Board of Directors of the Bank and the
Company to elect him as Executive Vice President, or a material breach of
the terms of this Agreement by the Employer which remains uncured after
the expiration of thirty (30) days following the delivery of written
notice of such breach to the Employer by the Employee.
1.6 "Change in Control" of the Employer shall mean any transaction
wherein fifty percent (50%) of the shares of the Bank or the Company, plus one
share, are directly or indirectly transferred by sale, gift, merger, exchange
or any other means to new owners other than an Affiliate of such person or
entity transferring such shares or if a majority of the members of the Board of
Directors of the Bank or the Company are replaced within a twelve (12) month
period.
1.7 "Initial Term" shall mean that period of time commencing on the
date of execution of this Agreement by the Employer and the Employee and
running until the earlier of three (3) years thereafter or any termination of
employment of the Employee under this Agreement as provided for in Section 3.
1.8 "Permanent Disability" shall mean the total inability of the
Employee to perform his duties under this Agreement for a period of ninety (90)
consecutive days as certified by a physician chosen by the Employer and
reasonably acceptable to the Employee. If Employee is covered by a disability
insurance policy, the term "permanent disability" shall have the meaning set
forth in such policy.
1.9 "Proprietary Information" shall mean:
(a) Information related to the Employer or any Affiliate,
(i) Which derives economic value, actual or
potential, from not being generally known to or readily
ascertainable by other persons who can obtain economic value
from its disclosure or use; and
(ii) Which is the subject of efforts that are
reasonable under the circumstances to maintain its secrecy;
and
2
<PAGE> 3
(b) All tangible reproductions or embodiments of such information.
Assuming the criteria in (a)(i) and (a)(ii) above are satisfied, Proprietary
Information includes, but is not limited to, technical and nontechnical data
related to the compilations, programs, methods, techniques, finances, actual or
potential customers and suppliers, existing and future products, and employees
of the Employer or its Affiliates. Proprietary Information also includes
information which has been disclosed to the Employer or its Affiliates by a
third party and which the Employer or any Affiliate is obligated to treat as
confidential.
1.10 "Term" shall mean the Initial Term and all subsequent renewal
periods.
2. DUTIES.
2.1 The Employee is employed initially as the Chief Operating Officer
of the Employer and, subject to the direction of the Board, or its designee,
shall perform and discharge well and faithfully the duties which may be
assigned to him from time to time by the Employer in connection with the
conduct of its business. The duties and responsibilities of the Employee are
set forth on Exhibit A attached hereto.
2.2 In addition to the duties and responsibilities specifically
assigned to the Employee pursuant to Section 2.1 hereof, the Employee shall:
(1) devote substantially all of his time, energy and skill during regular
business hours to the performance of the duties of his employment (reasonable
vacations and reasonable absences due to illness excepted), and faithfully and
industriously perform such duties; (2) diligently follow and implement all
management policies and decisions communicated to him by the Board; and (3)
timely prepare and forward to the Board all reports and accounting as may be
requested of the Employee.
2.3 The Employee shall devote his entire business time, attention and
energies to the Business of the Employer and shall 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 shall not be construed as
preventing the Employee from (1) investing his personal assets in businesses
which (subject to item (2) below) are not in competition with the Business of
the Employer and which will not require any services on the part of the
Employee in their operation or affairs and in which his participation is solely
that of an investor, (2) purchasing securities in any corporation whose
securities are regularly traded provided that such purchase shall not result in
his 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
Employer, and (3) participating in civic and professional affairs and
organizations and conferences, preparing or publishing papers or books or
teaching so long as the Board approves of such activities prior to the
Employee's engaging in them. Prior to commencing any activity described in
clause (3) above, the Employee shall inform the Board, in writing, of any such
activity.
3
<PAGE> 4
3. TERM AND TERMINATION.
3.1 Term. This Agreement shall remain in effect for the Initial Term.
At the end of the first twelve-month period hereunder and at the end of each
successive twelve-month period, this Agreement shall automatically be extended
for a successive 12-month period following the then two-year remaining term
unless either party gives written notice to the other of its intent not to
extend this Agreement with such written notice to be given not less than 90
days prior to the end of such twelve-month period. In the event such notice of
non-extension is properly given, this Agreement shall terminate at the end of
the remaining term then in effect. However, notwithstanding the provisions of
this Section 3.1, (i) no extension shall be granted that would extend the term
of this Agreement beyond the last day of the month during which the Employee
attains age 65, and (ii) this Agreement shall terminate upon the death or
permanent disability of Employee.
3.2 Termination. During the Term, the employment of the Employee under
this Agreement may be terminated only as follows:
3.2.1 By the Employer:
(a) For Cause, upon written notice to the Employee; or
(b) Without Cause at any time, provided that the Employer
shall give the Employee thirty (30) days prior written notice of its
intent to terminate.
3.2.2 By the Employee:
(a) For Cause, with no prior notice except as provided in
Section 1.5.
(b) Without Cause, provided that the Employee shall give
the Company sixty (60) days prior written notice of his intent to
terminate.
3.2.3 By the Employee within six months following a Change in
Control of the Employer, provided that the Employee shall give written
notice to the Employer of his intention to terminate this Agreement.
3.2.4 At any time upon mutual, written agreement of the parties.
3.3 Effect of Termination. The effect of termination of the employment
of the Employee pursuant to Section 3.2 shall be as follows:
3.3.1 In the event of termination by the Employer:
(a) For Cause, pursuant to Section 3.2.1(a), the Employer
shall 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;
4
<PAGE> 5
(b) Without Cause, pursuant to Section 3.2.1(b), the
Employer shall be required to continue to meet its obligations to the
Employee under Section 4.1 for a period of twenty-four (24) months
following termination.
3.3.2 In the event of termination by the Employee:
(a) For Cause, pursuant to Section 3.2.2(a), the Employer
shall be required to continue to meet its obligations to the Employee
under Section 4.1 for a period of twenty-four (24) months following
termination.
(b) Without Cause, pursuant to Section 3.2.2(b), the
Employer shall have no further obligation to the Employee except
future payment of any amounts due and owing under Section 4 on the
effective date of the termination.
3.3.3 In the event of termination by the Employee in connection
with a Change in Control pursuant to Section 3.2.3, the Employer shall
be required to pay to continue to meet its obligations to Employee
under Section 4.1 for a period of twenty-four (24) months after
termination.
3.3.4 In the event of termination upon mutual agreement of the
parties pursuant to Section 3.2.4, the Employer shall have no further
obligation to the Employee except for the payment of any amounts due
and owing under Section 4.1 on the effective date of termination
unless otherwise set forth in the written agreement.
4. COMPENSATION. The Employee shall receive the following salary and
benefits:
4.1 Base Salary. During the Initial Term, the Employee shall be
compensated at a base rate of $175,000 per annum (the "Base Salary"). The
Employee's salary shall be reviewed by the Board annually, and the Employee
shall be entitled to receive annually an increase in such amount, if any, as
may be determined by the Board. Such salary shall be payable in accordance with
the Employer's normal payroll practices.
4.2 Incentive Compensation. The Employee shall be entitled to
participate in such option, bonus, incentive and other executive compensation
programs as are made available to senior management of the Employer from time
to time
4.3 Benefits.
(a) In addition to the Base Salary and Incentive
Compensation, the Employee shall be entitled to such benefits as may
be available from time to time for executives of the Employer
similarly situated to the Employee. All such benefits shall be awarded
and administered in accordance with the Employer's standard policies
and practices. Such benefits may include, by way of example only,
profit sharing plans, retirement or investment funds, dental, health,
life and disability insurance benefits, and such other benefits as the
Employer deems appropriate.
5
<PAGE> 6
(b) The Employer specifically agrees to reimburse the
Employee for reasonable business expenses incurred by him in
performance of his duties hereunder, as approved from time to time by
the Board; provided that the Employee shall, 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 Employer and in sufficient detail to comply with
Internal Revenue Service Regulations.
(c) On a non-cumulative basis the Employee shall be entitled
to four (4) weeks of vacation in each year of this Agreement, during
which his compensation shall be paid in full. At least two consecutive
weeks each year must be taken by the Employee for vacation, with other
vacation to be taken at the time the Employer determines appropriate,
taking into account the requirements of the Employer.
4.4 Withholding. The Employer 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. PROPRIETARY INFORMATION.
5.1 Ownership of Proprietary Information. All Proprietary Information
received or developed by the Employee while employed by the Employer will
remain the sole and exclusive property of the Employer.
5.2 Obligations of Employee. Employee will hold the Proprietary
Information in trust and strictest confidence, and will not use, reproduce,
distribute, disclose or otherwise disseminate the Proprietary Information
except to the extent necessary to perform the duties assigned to him by the
Employer.
5.3 Delivery upon Termination. Upon termination of his employment with
the Employer, the Employee will promptly deliver to the Employer all property
belonging to the Employer, including without limitation all Proprietary
Information then in his possession or control.
6. NON-COMPETITION. The Employee agrees that during his employment by the
Employer hereunder and, in the event of his termination other than pursuant to
Sections 3.2.1(b) or 3.2.2(a), for a period of six (6) months thereafter, he
will not (except on behalf of or with the prior written consent of the
Employer), within the Area, either directly or indirectly, on his 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 Employer, engage in any business which is the same as
or essentially the same as the Business of the Employer.
7. NON-SOLICITATION OF CLIENTS. The Employee agrees that during his
employment by the Employer hereunder and, in the event of his termination other
than pursuant to Sections 3.2.1(b) or 3.2.2(a), for a period of six (6) months
thereafter, he will not (except on behalf of or with the prior written consent
of the Employer), within the Area, on his own behalf or in the service or on
6
<PAGE> 7
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
Employer's customers, including actively sought prospective customers, with
whom the Employee has or had material contact during the last two (2) years of
his employment, for purposes of providing products or services that are
competitive with those provided by the Employer.
8. NON-SOLICITATION OF EMPLOYEES. The Employee agrees that during his
employment by the Employer hereunder and, in the event of his termination other
than pursuant to Sections 3.2.1(b) or 3.2.2(a), for a period of six (6) months
thereafter, he will not, on his 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 Employer or its
Affiliates, whether or not such employee is a full-time employee or a temporary
employee of the Employer, 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; that each
of the covenants is reasonable and necessary to protect the business, interests
and properties of the Employer; and that irreparable loss and damage will be
suffered by the Employer should he 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 Employer shall 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 Employer and the Employee
agree that all remedies available to the Employer or the Employee, as
applicable, shall 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 shall 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 shall be redrawn to make the provision consistent with and valid and
enforceable under the law or public policy.
11. NO SET-OFF BY EMPLOYEE. The existence of any claim, demand, action or
cause of action by the Employee against the Employer, or any Affiliate of the
Employer, whether predicated upon this Agreement or otherwise, shall not
constitute a defense to the enforcement by the Employer of any of its rights
hereunder.
12. NOTICE. All notices and other communications required or permitted
under this Agreement shall be in writing and, if mailed by prepaid first-class
mail or certified mail, return receipt requested, shall 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 shall be deemed effective when delivered or transmitted. All notices
and other
7
<PAGE> 8
communications under this Agreement shall be given to the parties hereto at the
following addresses:
(i) If to the Employer, to it at:
First Banking Company of Southeast Georgia
40 North Main Street
P. O. Box 878
Statesboro, Georgia 30458
Attn: Chairman, Compensation Committee
(ii) If to the Employee, to him at:
Douglas E. Wren
P. O. Box 878
Statesboro, Georgia 30458
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 Employer of any breach of this Agreement by the
Employee shall not be effective unless in writing, and no waiver shall operate
or be construed as a waiver of the same or another breach on a subsequent
occasion.
15. ATTORNEYS' FEES. In the event of litigation between the parties
concerning this Agreement, the party prevailing in such litigation shall be
entitled to receive from the other party all reasonable costs and expenses,
including without limitation attorneys' fees, incurred by the prevailing party
in connection with such litigation, and the other party shall pay such costs
and expenses to the prevailing party promptly upon demand by the prevailing
party.
16. APPLICABLE LAW. This Agreement shall be construed and enforced under
and in accordance with the laws of the state of Georgia.
17. ENTIRE AGREEMENT. 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 shall be valid or binding upon the
Employer 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.
18. RIGHTS OF THIRD PARTIES. Nothing herein expressed is intended to or
shall 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.
19. SURVIVAL. The obligations of the Employee pursuant to Sections 5, 6, 7,
8 and 9 shall survive the termination of the employment of the Employee
hereunder.
8
<PAGE> 9
20. JOINT AND SEVERAL. The obligation of the Bank and the Company to
Employee hereunder shall be joint and several.
IN WITNESS WHEREOF, the Employer and the Employee have executed and
delivered this Agreement as of the date first shown above.
THE EMPLOYER:
FIRST BANKING COMPANY OF
SOUTHEAST GEORGIA
By: /s/ C. Arthur Howard
-------------------------------------
Name: C. Arthur Howard
Title: Director and Chairman of
Compensation Committee
FIRST BULLOCH BANK & TRUST
COMPANY
By: /s/ C. Arthur Howard
------------------------------------
Name: C. Arthur Howard
Title: Director
THE EMPLOYEE:
/s/ Douglas E. Wren
-------------------------------------------
DOUGLAS E. WREN
9
<PAGE> 10
EXHIBIT A
Initial Duties of the Employee
The initial duties of the Employee shall include, in addition to any other
duties assigned the Employee by the Board of Directors of the Employer or its
designee, the following:
- Foster a corporate culture that promotes ethical practices,
encourages individual integrity, fulfills social responsibility, and
is conducive to attracting, retaining and motivating a diverse group
of top-quality employees at all levels.
- Work with the Chief Executive Officer and the Board of Directors to
develop a long-term strategy for the company that creates shareholder
value.
- In conjunction with the Chief Executive Officer, develop and
recommend to the Board annual business plans and budgets that support
the company's long-term strategy.
- Manage the day-to-day operations of the company appropriately.
- Use best efforts to achieve the company's financial and operating
goals and objectives.
- Improve the quality and value of the products and services provided
by the company.
- Insure that the company maintains a satisfactory competitive
position within its industry.
- In conjunction with the Chief Executive Officer, develop an
effective management team and an active plan for its development and
succession, and make recommendations to the Board regarding hiring,
firing and compensation.
- In conjunction with the Chief Executive Officer, implement major
corporate policies.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF DELOITTE & TOUCHE LLP
<PAGE> 2
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of First Banking
Company of Southeast Georgia on Form S-4 of our report dated January 30, 1998,
included and incorporated by reference in the Annual Report on Form 10-K of
First Banking Company of Southeast Georgia for the year ended December 31, 1997,
and to the use of our report dated January 30 1998 (May 29, 1998 as to the
effects of the 1998 stock split in Note 9 and February 8, 1999 as to the last
paragraph of Note 1), appearing in the Prospectus, which is part of this
Registration Statement. We also consent to the reference to us under the heading
"Experts" in such Prospectus.
/s/ DELOITTE & TOUCHE LLP
Atlanta, Georgia
February 8, 1999
<PAGE> 1
EXHIBIT 23.3
CONSENT OF MCNAIR, MCLEMORE, MIDDLEBROOKS & CO. LLP
<PAGE> 2
CONSENT OF MCNAIR, MCLEMORE, MIDDLEBROOKS & CO., LLP
We hereby consent to the use of our report dated February 20, 1998,
except for footnote 1, comprehensive income, for which the date is January 8,
1999, relating to the consolidated financial statements of Wayne Bancorp, Inc.
and Subsidiary as of December 31, 1997 and 1996 and for each of the years in the
three-year period ended December 31, 1997 included in this Registration
Statement on Form S-4 and to the reference to our firm under the heading
"Experts" in the Prospectus.
/s/ McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLP
Macon, Georgia
February 8, 1999
<PAGE> 1
EXHIBIT 23.4
CONSENT OF STEVENS & CO.
<PAGE> 2
CONSENT OF STEVENS & COMPANY
We have acted in an advisory capacity for Wayne Bancorp, Inc. ("Wayne")
in connection with identifying and evaluating possible merger partners for
Wayne. We consent to the use of our name in the Registration Statement and Proxy
Statement as it appears in the "Background of Merger" section of the
Registration Statement and Proxy Statement.
Stevens & Company
/s/ Charles Stevens
-------------------------------
Charles Stevens
February 8, 1999
-------------------------------
Date
<PAGE> 1
EXHIBIT 99.1
Form of Proxy of Wayne
<PAGE> 2
PROXY
WAYNE BANCORP, INC.
SPECIAL MEETING OF SHAREHOLDERS
The undersigned hereby constitutes and appoints Douglas R. Harper and J.
Ashley Dukes, or either of them, as proxies, each with full power of
substitution, to vote the number of shares of common stock of Wayne Bancorp,
Inc. ("Wayne"), which the undersigned would be entitled to vote if personally
present at the Special Meeting of Wayne Shareholders to be held at the main
office of Wayne located at 818 S. First Street, Jesup, Georgia 31545 on
, 1999 at , local time, and at any adjournment or postponement thereof (the
"Special Meeting") upon the proposals described in the Proxy
Statement/Prospectus and the Notice of Special Meeting of Shareholders, dated
, 1999, the receipt of which is acknowledged in the manner specified
below.
1. Merger. To approve, ratify, confirm and adopt the Agreement and Plan of
Merger, dated as of November 30, 1998 (the "Merger Agreement"), by and among
First Banking Company of Southeast Georgia ("First Banking") and Wayne
pursuant to which (i) Wayne will merge with and into First Banking, and (ii)
each share of the $1.00 par value common stock of Wayne issued and
outstanding at the effective time of the merger will be exchanged for
1.57024 shares of $1.00 par value common stock of First Banking.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
2. In the discretion of the proxies on such other matters as may properly come
before the Special Meeting or any adjournments thereof.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL
BE VOTED FOR PROPOSAL 1 ABOVE.
Please sign this proxy exactly as your name appears below. When shares are
held jointly, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If a
corporation, please sign in full corporate name by President or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
DATED:
------------------, 1999
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Signature
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Signature if held jointly
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS OF WAYNE BANCORP, INC.,
AND MAY BE REVOKED PRIOR TO ITS EXERCISE.
I will will not attend the Special Meeting.
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<PAGE> 1
EXHIBIT 99.2
Consent of J. Ashley Dukes to be Named in Proxy Statement/Prospectus
<PAGE> 2
CONSENT TO BE NAMED IN
REGISTRATION STATEMENT OF
FIRST BANKING COMPANY OF SOUTHEAST GEORGIA
The undersigned hereby consents to be named as a director nominee in the
Prospectus contained in the Registration Statement on Form S-4 of First Banking
Company of Southeast Georgia.
/s/ J. ASHLEY DUKES
--------------------------------------
J. Ashley Dukes
February 3, 1999
--------------------------------------
Date
