<PAGE> 1
As filed with the Securities and Exchange Commission on June 14, 1995
Registration No. 33-__________
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
__________________________
FIRST LIBERTY FINANCIAL CORP.
(Exact name of registrant as specified in its charter)
GEORGIA 6712 58-1680650
(State of (Primary Standard Industrial (I.R.S. Employer
Incorporation) Classification Code Number) Identification Number)
201 SECOND STREET
MACON, GEORGIA 31297
(912) 743-0911
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
__________________________
DAVID L. HALL
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER
FIRST LIBERTY FINANCIAL CORP.
201 SECOND STREET
MACON, GEORGIA 31297
(912) 743-0911
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
William L. Floyd Glenn W. Sturm
Long, Aldridge & Norman Nelson Mullins Riley &
5300 One Peachtree Center Scarborough L.L.P.
303 Peachtree Street 400 Colony Square
Atlanta, Georgia 30308 Suite 2200
(404) 527-4010 1201 Peachtree Street, N.E.
Atlanta, Georgia 30361
(404) 817-6106
__________________________
Approximate date of commencement of proposed sale to the public: The
exchange of common stock of Tifton Banks, Inc. for Series B 6.0% Cumulative
Convertible Preferred Stock of the Registrant will take place upon consummation
of the merger of Tifton Banks, Inc. with and into the Registrant. The merger
is expected to become effective upon filing of Articles of Merger with the
Secretary of State of Georgia following approval of the transaction by the
shareholders of Tifton Banks, Inc. and the satisfaction of certain other
conditions.
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. [ ]
__________________________
<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================================================================================================
Title of Each Proposed Proposed
Class of Maximum Maximum Amount of
Securities to be Amount to Offering Aggregate Registration
Registered be Registered Price Per Share* Offering Price* Fee
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series B 6.0% 153,920 Shares $16.288 $1,694,000 $584.09
Cumulative
Convertible
Preferred Stock,
$25.00 stated
value per share
- -------------------------------------------------------------------------------------------------------------------------
Common Stock, 183,165 Shares(1) N/A N/A N/A
$1.00 par
value per share
to be issued upon
conversion of
Series B Preferred
Stock
=========================================================================================================================
</TABLE>
* Estimated solely for purposes of calculating the registration fee,
pursuant to Rule 457(f), based on the book value as of May 31, 1995 of
the securities of Tifton Banks, Inc. to be received by the Registrant
in the Merger.
(1) There is also being registered hereunder such indeterminate number of
additional shares of Common Stock as may be issuable upon conversion
of Series B Preferred Stock pursuant to anti-dilution provisions
contained in the Registrant's Articles of Incorporation.
____________________
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 3
FIRST LIBERTY FINANCIAL CORP.
____________________
CROSS REFERENCE SHEET
Pursuant to Item 501(b) of Regulation S-K
<TABLE>
<CAPTION>
LOCATION IN JOINT PROXY STATEMENT/
FORM S-4 ITEM NUMBER AND CAPTION PROSPECTUS
- -------------------------------- ----------------------------------------
<S> <C> <C>
1. Forepart of Registration Statement Front Cover Page of Proxy Statement/
and Outside Front Cover Page of Prospectus
Prospectus
2. Inside Front and Outside Back Available Information;
Cover Pages of Prospectus Incorporation of Certain
Information by Reference; Table of
Contents
3. Risk Factors, Ratio of Earnings Front Cover Page of Proxy Statement/
to Fixed Charges and Other Information Prospectus; Summary
4. Terms of the Transaction Front Cover Page; Summary; The
Merger; Certain Differences in the Rights of
FLFC and TBI Stockholders
5. Pro Forma Financial Information Summary; Pro Forma Combined
Financial Data
6. Material Contacts with the Company The Merger
Being Acquired
7. Additional Information Required *
for Reoffering by Persons and
Parties Deemed to be Underwriters
8. Interests of Named Experts and *
Counsel
9. Disclosure of Commission Position *
on Indemnification for Securities
Act Liabilities
10. Information with Respect to *
S-3 Registrants
11. Incorporation of Certain Information *
by Reference
12. Information with Respect to S-2 or Business Information Concerning
S-3 Registrants FLFC and FLB; Incorporation of
Certain Information by Reference
</TABLE>
_______________
* Not applicable
i
<PAGE> 4
<TABLE>
<CAPTION>
LOCATION IN JOINT PROXY STATEMENT/
FORM S-4 ITEM NUMBER AND CAPTION PROSPECTUS
- -------------------------------- ------------------------------------------
<S> <C> <C>
13. Incorporation of Certain Information Incorporation of Certain Information by
by Reference Reference
14. Information with Respect to *
Registrants Other Than S-2 or S-3
Registrants
15. Information with Respect to S-3 *
Companies
16. Information with Respect to S-2 or *
S-3 Companies
17. Information with Respect to Summary; Tifton Banks, Inc.
Companies Other Than S-2 or S-3 Management's Discussion and Analysis
Companies of Financial Condition and Results
of Operations; Tifton Banks, Inc.
Financial Statements
18. Information if Proxies, Consents Front Cover Page of Proxy Statement/
or Authorizations Are to Be Prospectus; Incorporation of Certain
Solicited Information by Reference; Summary; The
Special Meeting; The Merger; Ownership of
TBI Stock
19. Information if Proxies, Consents *
or Authorizations Are Not to Be
Solicited or in an Exchange Offer
</TABLE>
_______________
* Not applicable
ii
<PAGE> 5
TIFTON BANKS, INC.
300 COMMERCE WAY
TIFTON, GEORGIA 31794
August [__], 1995
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
(the "Special Meeting") of Tifton Banks, Inc. ("TBI") to be held at the
headquarters of TBI, 300 Commerce Way, Tifton, Georgia, at 2:00 p.m., local
time on Wednesday, September 13, 1995.
At this important meeting, you will be asked to consider and vote upon
the approval of an Agreement and Plan of Merger dated May 10, 1995 (the "Merger
Agreement"), by and among First Liberty Financial Corp. ("FLFC"), First Liberty
Bank, a wholly-owned subsidiary of FLFC ("FLB"), TBI and Tifton Bank & Trust
Company, a wholly-owned subsidiary of TBI. The Merger Agreement, among other
things, provides for the merger (the "Merger") of TBI with and into FLFC, which
shall be the surviving corporation in the Merger. If the proposed Merger is
consummated, holders of outstanding shares of TBI Common Stock (excluding
shares held by stockholders who perfect their dissenters' rights under Georgia
law) shall have the right to receive (i) $37.00 in cash per share, (ii) 1.48
shares of FLFC Series B 6.0% Cumulative Convertible Preferred Stock (the
"Series B Preferred") per share of TBI Common Stock or (iii) a combination of
cash and Series B Preferred. The affirmative vote of the holders of a majority
of the shares of TBI Common Stock entitled to vote at the Special Meeting is
required for approval of the Merger Agreement and the transactions contemplated
thereby.
Enclosed are the (i) Notice of Special Meeting, (ii) Proxy
Statement/Prospectus and (iii) proxy for the Special Meeting. Please review
carefully the Proxy Statement/Prospectus which describes in more detail the
Merger Agreement and the proposed Merger, including a description of the
conditions to consummation of the Merger and the effects of the Merger on the
rights of TBI stockholders.
You are asked to specify on the enclosed proxy the number of your shares
of TBI Common Stock that you would like to exchange for cash and the number of
shares that you would like to exchange for shares of Series B Preferred in the
event the proposed Merger is approved and consummated. As soon as practicable
after the Special Meeting, TBI will send to you a letter of transmittal
confirming your election and providing instructions for exchanging your TBI
stock certificates for cash or Series B Preferred, as appropriate. If you do
not specify your election on the proxy, or if you later decide to change your
election, you will have the opportunity to make your election on the letter of
transmittal. If you have not made your election to exchange your TBI Common
Stock for cash and/or Series B Preferred within 15 days of the date of the
letter of transmittal you will be deemed to have elected to receive Series B
Preferred for all of your shares of TBI Common Stock. Accordingly, it is
important that you make your election on the enclosed proxy or promptly after
receipt of the letter of transmittal.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS IN THE BEST
INTERESTS OF TBI'S STOCKHOLDERS AND THAT THE MERGER IS FAIR TO THE TBI
STOCKHOLDERS FROM A FINANCIAL POINT OF VIEW. ACCORDINGLY, YOUR BOARD OF
DIRECTORS HAS APPROVED AND ADOPTED THE MERGER AGREEMENT AND CONSUMMATION OF THE
TRANSACTIONS CONTEMPLATED THEREBY, AND RECOMMENDS THAT YOU VOTE "FOR" APPROVAL
OF THE MERGER AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED
THEREBY.
IN VIEW OF THE IMPORTANCE OF THE ACTION TO BE TAKEN, WE URGE YOU TO
COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND TO RETURN IT PROMPTLY IN
THE ENCLOSED ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
IF YOU ATTEND THE SPECIAL MEETING, YOU MAY VOTE IN PERSON, EVEN IF YOU
PREVIOUSLY RETURNED YOUR PROXY.
We look forward to seeing you at the Special Meeting.
Sincerely,
/s/ Gary P. Hall
Gary P. Hall
President and
Chief Executive Officer
TBI STOCKHOLDERS SHOULD NOT SURRENDER OR OTHERWISE ATTEMPT TO EXCHANGE
THEIR TBI COMMON STOCK CERTIFICATES FOR SERIES B PREFERRED STOCK CERTIFICATES
OR CASH UNLESS AND UNTIL THEY HAVE RECEIVED APPROPRIATE NOTICE AND INSTRUCTIONS
FOR EXCHANGE.
<PAGE> 6
TIFTON BANKS, INC.
300 COMMERCE WAY
TIFTON, GEORGIA 31794
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be held at 2:00 p.m. on Wednesday, September 13, 1995
To the Stockholders of Tifton Banks, Inc.:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Special Meeting") of Tifton Banks, Inc. ("TBI") will be held at the
headquarters of TBI, 300 Commerce Way, Tifton, Georgia, at 2:00 p.m., local
time, on Wednesday, September 13, 1995, for the following purposes:
1. The Merger. To consider and vote upon a proposal to approve and
adopt the Agreement and Plan of Merger dated as of May 10, 1995 (the "Merger
Agreement"), by and among First Liberty Financial Corp. ("FLFC"), First Liberty
Bank, a wholly-owned subsidiary of FLFC, TBI and Tifton Bank & Trust Company, a
wholly-owned subsidiary of TBI, and the consummation of the transactions
contemplated thereby. The Merger Agreement provides, among other things, that
TBI will merge with and into FLFC (the "Merger") and the shares of TBI Common
Stock outstanding immediately prior to the Merger will cease to be outstanding
and will be converted into and exchanged for the right to receive (a) $37 in
cash per share of TBI Common Stock, (b) 1.48 shares of FLFC Series B 6.0%
Cumulative Convertible Preferred Stock per share of TBI Common Stock or (c) a
combination of cash and Series B Preferred Stock, all as more fully described
in the accompanying Proxy Statement/Prospectus. FLFC will be the surviving
corporation in the Merger.
2. Other Business. To transact such other business as may properly come
before the Special Meeting or any adjournments or postponements thereof.
Information relating to the above matters is set forth in the
accompanying Proxy Statement/Prospectus. A copy of the Merger Agreement is set
forth as Appendix A to the Proxy Statement/Prospectus and is incorporated
herein by reference.
Only stockholders of record at the close of business on August 1, 1995,
are entitled to receive notice of and to vote at the Special Meeting or any
adjournments or postponements thereof. Approval of the Merger Agreement and
the consummation of the transactions contemplated thereby requires the
affirmative vote of the holders of a majority of the shares of TBI Common Stock
entitled to vote at the Special Meeting.
THE BOARD OF DIRECTORS OF TBI RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY.
Each stockholder of TBI has the right to dissent from the Merger
Agreement and demand payment of the fair value of his or her shares of TBI
Common Stock if the Merger is consummated. The right of any stockholder to
receive such payment is contingent upon strict compliance with the requirements
of Article 13 of the Georgia Business Corporation Code (the "GBCC"). The full
text of Article 13 of the GBCC is set forth in Appendix B to the Proxy
Statement/Prospectus and is incorporated herein by reference. For a summary of
the requirements of Article 13 of the GBCC, see "The Merger - Dissenters'
Rights" in the accompanying Proxy Statement/Prospectus.
Even if you plan to attend the Special Meeting, please fill in, date and
sign the enclosed proxy card and promptly return it in the enclosed return
envelope, which requires no postage if mailed in the United States, to ensure
that your shares will be represented at the Special Meeting. If you attend in
person, the proxy can be disregarded, if you wish, and you may vote your shares
in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Gary P. Hall
Gary P. Hall
President and
Chief Executive Officer
Tifton, Georgia
August [__], 1995
<PAGE> 7
PROXY STATEMENT
OF
TIFTON BANKS, INC.
____________________
PROSPECTUS
OF
FIRST LIBERTY FINANCIAL CORP.
____________________
This Proxy Statement/Prospectus is being furnished to holders of
Common Stock, $10.00 par value per share ("TBI Stock"), of Tifton Banks, Inc.,
a Georgia corporation ("TBI"), in connection with the solicitation of proxies
by the Board of Directors of TBI for use at a Special Meeting of Stockholders
to be held at 2:00 p.m., local time, on Wednesday, September 13, 1995, at the
headquarters of TBI, 300 Commerce Way, Tifton, Georgia and at any adjournments
or postponements thereof (the "Special Meeting").
The purpose of the Special Meeting is to consider and vote upon a
proposal to approve and adopt an Agreement and Plan of Merger dated as of May
10, 1995 (the "Merger Agreement"), by and among First Liberty Financial Corp.,
a Georgia corporation ("FLFC"), First Liberty Bank, a federally chartered
savings bank and wholly-owned subsidiary of FLFC ("FLB"), TBI and Tifton Bank &
Trust Company, a state chartered commercial bank and a wholly-owned subsidiary
of TBI ("Tifton Bank"), and approve the consummation of the transactions
contemplated thereby. A copy of the Merger Agreement is attached as Appendix A
to this Proxy Statement/Prospectus and is incorporated herein by reference.
The Merger Agreement provides for, among other things, the merger of
TBI with and into FLFC (the "Merger"), with FLFC as the surviving corporation
in the Merger. Upon consummation of the Merger, each outstanding share of TBI
Stock (excluding shares held by stockholders who perfect their dissenters'
rights pursuant to Georgia law ("Dissenting Stockholders")) shall cease to be
outstanding and shall, at the option of the holder thereof, be converted into
and exchanged for the right to receive either (i) $37 in cash (the "Cash
Price") or (ii) 1.48 shares (the "Stock Price") of Series B 6.0% Cumulative
Convertible Preferred Stock, $25.00 stated value per share, of FLFC (the
"Series B Preferred"). A TBI stockholder may elect to receive the Cash Price
for all or part of his shares of TBI Stock or the Stock Price for all or part
of his shares of TBI Stock; however, only whole shares may be exchanged for the
Cash Price or the Stock Price. No fractional shares of Series B Preferred will
be issued in the Merger. Instead, each holder of shares of TBI Stock who would
otherwise be entitled to receive a fraction of a share of Series B Preferred
shall receive, in lieu of such fractional share, cash (without interest) in an
amount equal to such fractional part of a share of Series B Preferred
multiplied by $25.
Notwithstanding the foregoing, the Merger Agreement requires that the
holders of 96,000 shares of TBI Stock, including shares held by Dissenting
Stockholders, receive cash in exchange for their shares of TBI Stock. In the
event that the holders of fewer than 96,000 shares of TBI Stock elect to
receive cash (including shares held by Dissenting Stockholders), the Cash Price
will be substituted on a pro rata basis for Series B Preferred to increase to
96,000 the number of shares of TBI Stock exchanged for cash. In the event the
holders of more than 96,000 of shares of TBI Stock (including shares held by
Dissenting Stockholders) elect to receive cash, Series B Preferred will be
substituted on a pro rata basis for the Cash Price to decrease to 96,000 the
number of shares of TBI Stock exchanged for cash. As a result of these
provisions, an aggregate of 104,000 shares of TBI Stock will be converted and
exchanged for the Stock Price.
Holders of TBI Stock are asked to specify on the enclosed proxy card
the number of their shares of TBI Stock that they would like to exchange for
cash and the number of shares that they would like to exchange for shares of
Series B Preferred in the event the proposed Merger is approved and
consummated. As soon as practicable after the Special Meeting, TBI will send
to holders of TBI Stock a letter of transmittal confirming their election and
providing instructions for exchanging their TBI Stock certificates for cash or
Series B Preferred, as appropriate. Each TBI stockholder who does not specify
his election on the proxy card, or who later decides to change his election,
will have the opportunity to make or change his election on the letter of
transmittal. If he has
<PAGE> 8
not made his election to exchange his TBI Stock for cash or Series B Preferred
within 15 days of the date of the letter of transmittal he will be deemed to
have elected to receive Series B Preferred for all of his shares of TBI Stock.
Dividends on the Series B Preferred will accrue at an annual rate of
$1.50 per share and will be cumulative from the effective time of the Merger
(the "Effective Time"). Dividends will be payable quarterly in arrears on
January 1, April 1, July 1 and October 1 of each year (each a "Dividend Payment
Date") commencing on the Dividend Payment Date next following the Effective
Time, provided that if the Effective Time is 15 or fewer days prior to the
initial Dividend Payment Date, FLFC may defer the initial dividend payment to
the second Dividend Payment Date following the Effective Time. Each share of
Series B Preferred will be convertible, at the option of the holder thereof,
into shares of Common Stock, $1.00 par value per share, of FLFC ("FLFC Stock")
at a conversion price of $21.00 per share (equivalent to a conversion rate of
approximately 1.19 shares of FLFC Stock for each share of Series B Preferred),
subject to adjustment in certain circumstances. FLFC, at its option, may
redeem the Series B Preferred at any time on or after January 1, 1997 at the
redemption prices set forth in this Proxy Statement/Prospectus, plus accrued
and unpaid dividends to the redemption date. The holders of Series B Preferred
will have no voting rights except as may be required by applicable law.
This Proxy Statement/Prospectus also constitutes a prospectus of FLFC
relating to 153,920 shares of Series B Preferred issuable to TBI stockholders
in the Merger.
All shares of TBI Stock outstanding immediately before the Effective
Time shall, as a result of the Merger, no longer be outstanding and shall
automatically be canceled and retired and shall cease to exist, and each holder
of a certificate representing any shares of TBI Stock (a "TBI Certificate")
shall cease to have any rights with respect thereto, except the right to
receive the Cash Price or Stock Price paid in consideration therefor upon the
surrender of such certificate, without interest, or, in the case of shares held
by Dissenting Stockholders, the rights accorded to such shares under the
Georgia Business Corporation Code (the "GBCC"). No fractional shares of Series
B Preferred will be issued in connection with the Merger. See "The Merger - No
Fractional Shares."
This Proxy Statement/Prospectus and the accompanying proxy card are
first being mailed to stockholders of TBI on or about August [__], 1995.
THE SERIES B PREFERRED ISSUABLE IN THE MERGER HAS NOT BEEN APPROVED OR DIS-
APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURI-
TIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADE-
QUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF SERIES B PREFERRED ISSUABLE IN THE MERGER ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS
ASSOCIATION AND ARE NOT INSURED BY THE FEDERAL DEPOSIT
INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.
The date of this Proxy Statement/Prospectus is August [__], 1995.
-2-
<PAGE> 9
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . 6
SUMMARY
Parties to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Market Prices and Dividends on FLFC and TBI Common Stock . . . . . . . . . . . . . . . . . . 12
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
THE SPECIAL MEETING
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Record Date; Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Solicitation and Revocability of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Recommendation of TBI's Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . 19
THE MERGER
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Election; Exchange of TBI Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . 21
No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Management and Operations After the Merger . . . . . . . . . . . . . . . . . . . . . . . . . 22
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . 22
Certain Considerations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Summary of Certain Provisions of the Merger Agreement . . . . . . . . . . . . . . . . . . . . 28
Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Restrictions on Resales of Series B Preferred . . . . . . . . . . . . . . . . . . . . . . . . 30
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
PRO FORMA COMBINED CONDENSED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
TIFTON BANKS, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Results of Operations for the Three Months Ended March 31, 1995 and 1994 . . . . . . . . . . 39
Results of Operations for the Years Ended December 31, 1994 and 1993 . . . . . . . . . . . . 41
Results of Operations for the Year Ended December 31, 1993 and 1992 . . . . . . . . . . . . . 42
Average Balances and Net Income Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Rate and Volume Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Asset/Liability Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44
Investment Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
Loan Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Nonperforming Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Summary of Loan Loss Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Return on Assets and Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Commitments and Lines of Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Impact of Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
Current Accounting Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
-3-
<PAGE> 10
<TABLE>
<S> <C>
OWNERSHIP OF TBI STOCK
Security Ownership of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
BUSINESS INFORMATION CONCERNING FLFC AND FLB . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
DESCRIPTION OF FLFC CAPITAL STOCK
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
FLFC Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
Limitation of Personal Liability of Directors and Officers . . . . . . . . . . . . . . . . . 62
COMPARISON OF STOCKHOLDER RIGHTS
Authorized Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Stockholder Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Anti-Takeover Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Stockholder Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
CERTAIN REGULATORY CONSIDERATIONS
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Federal Savings and Loan Holding Company Regulation . . . . . . . . . . . . . . . . . . . . . 68
Recent Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Regulation of FLB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
TIFTON BANKS, INC. FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
</TABLE>
APPENDICES:
Appendix A - Agreement and Plan of Merger dated as of May 10, 1995, by
and between FLFC, FLB, TBI and Tifton Bank.
Appendix B - Article 13 of the Georgia Business Corporation Code
Relating to Rights of Dissenting Stockholders
Appendix C - Opinion letter of Coopers & Lybrand L.L.P. with respect to
certain federal income tax consequences of the Merger.
-4-
<PAGE> 11
AVAILABLE INFORMATION
FLFC has filed with the Securities and Exchange Commission, Washington,
D.C. (the "Commission"), a Registration Statement on Form S-4 under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
Series B Preferred to be issued pursuant to the Merger Agreement. This Proxy
Statement/Prospectus does not contain all of the information set forth in the
Registration Statement, certain parts of which have been omitted pursuant to
the rules of the Commission. Statements contained or incorporated by reference
in this Proxy Statement/Prospectus as to the contents of any contract or other
document are not necessarily complete, and in each instance, reference is made
to the copy of such contract or other document filed as an exhibit to or
incorporated by reference in the Registration Statement, each statement being
qualified in all respects by such reference. Such information is available for
inspection without charge at, and copies can be obtained at prescribed rates
from, the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Room 1024, Washington, D.C. 20549.
FLFC is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and, in accordance
therewith, files reports, proxy and information statements and other
information with the Commission. Such reports, proxy and information
statements and other information may be inspected and copied at the Public
Reference Section of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's Regional Offices at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and Seven World Trade Center, 13th Floor, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of
the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates.
All information contained herein with respect to FLFC and its
subsidiaries has been supplied by FLFC, and all information with respect to TBI
and its subsidiaries has been supplied by TBI.
No person has been authorized to give any information or to make any
representation other than those contained or incorporated by reference in this
Proxy Statement/Prospectus and, if given or made, such information or
representation should not be relied upon as having been authorized by FLFC or
TBI. Neither the delivery of this Proxy Statement/Prospectus nor any
distribution of the securities to which this Proxy Statement/Prospectus relates
shall, under any circumstances, create any implication that there has been no
change in the affairs of FLFC, TBI, or any of their respective subsidiaries
since the date hereof or that the information contained or incorporated by
reference herein is correct as of any time subsequent to the date hereof or
thereof. This Proxy Statement/Prospectus does not constitute an offer to
sell, or a solicitation of an offer to buy, any securities, or the solicitation
of a proxy, in any jurisdiction to or from any person to whom it is not lawful
to make any such offer or solicitation in such jurisdiction.
-5-
<PAGE> 12
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN
DOCUMENTS THAT ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS
ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM: FIRST LIBERTY FINANCIAL CORP.,
201 SECOND STREET, MACON, GEORGIA 31297, ATTENTION: DAVID L. HALL, (912)
743-0911. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUESTS
SHOULD BE MADE BY SEPTEMBER 6, 1995.
The following documents filed by FLFC with the Commission (Commission
File No. 0-14417) under Section 13(a) or 15(d) of the Exchange Act are hereby
incorporated by reference in this Proxy Statement/Prospectus:
(i) FLFC's Annual Report on Form 10-K for the year ended September 30,
1994, a copy of which is being delivered to the TBI stockholders with this
Proxy Statement/Prospectus;
(ii) FLFC's Quarterly Report on Form 10-Q for the three months ended
December 31, 1994;
(iii) FLFC's Quarterly Report on Form 10-Q for the six months ended March
31, 1995, a copy of which is being delivered to the TBI stockholders with this
Proxy Statement/Prospectus; and
(iv) FLFC's Current Reports on Form 8-K dated December 19, 1994, January
10, 1995, March 20, 1995, April 6, 1995, and June 6, 1995, on Form 8-K/A No. 1
dated June 5, 1995 and Form 8-K/A No. 2 dated June 6, 1995.
Any statement contained herein, in any supplement hereto or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed
to be modified or superseded for purposes of the Registration Statement and
this Proxy Statement/Prospectus to the extent that a statement contained
herein, in any supplement hereto or in any other subsequently filed document
which also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of the
Registration Statement, this Proxy Statement/Prospectus, or any supplement
hereto.
-6-
<PAGE> 13
SUMMARY
The following Summary does not contain a complete description of all
material features of the Merger Agreement or the transactions contemplated
thereby and is subject to and qualified in its entirety by reference to the
more detailed information contained or incorporated by reference in this Proxy
Statement/Prospectus, including the Appendices hereto. Stockholders are urged
to read carefully the entire Proxy Statement/Prospectus, including the
Appendices. As used in this Proxy Statement/Prospectus, the terms "FLFC" and
"TBI" refer to such corporations, respectively, and where the context requires,
such corporations and their respective subsidiaries.
PARTIES TO THE MERGER
<TABLE>
<S> <C>
FIRST LIBERTY FINANCIAL CORP. . . . . . . FLFC is a Georgia corporation and a unitary savings and loan holding
FIRST LIBERTY BANK company headquartered in Macon, Georgia which owns and operates FLB and
201 SECOND STREET FLB's wholly-owned subsidiary, Liberty Mortgage Corporation ("Liberty
MACON, GEORGIA 31297 Mortgage"). FLFC reported net income of $6.0 million and $3.8 million for
(912) 743-0911 the year ended September 30, 1994 and the six months ended March 31, 1995,
respectively. At March 31, 1995, FLFC had total assets of approximately
$794.1 million, total deposits of approximately $690.8 million and
stockholders' equity of approximately $62.6 million.
FLB is a federally chartered stock savings bank based in Macon, Georgia
which serves Macon, Savannah, Valdosta and other Georgia cities through
its home office and 26 full-service branch offices. Through Liberty
Mortgage, FLB operates a mortgage banking business in all of its market
areas and through correspondent relationships in several southeastern
states. Based on total assets as of March 31, 1995, FLB is the second
largest savings association headquartered in Georgia, and FLB's capital as
of such date was in excess of all applicable regulatory requirements. See
"Business Information Concerning FLFC and FLB."
TIFTON BANKS, INC. . . . . . . . . . . . TBI is a Georgia corporation and a bank holding company headquartered in Tifton,
TIFTON BANK & TRUST COMPANY Georgia. Through its bank subsidiary, Tifton Bank, TBI operates two offices in Tift
300 COMMERCE WAY County, from which it provides a wide range of commercial and retail banking
TIFTON, GEORGIA 31794 services.
(912) 382-5959
For the year ended December 31, 1994, TBI reported net income of approximately
$268,000. For the three months ended March 31, 1995, TBI reported net income of
approximately $124,000. As of March 31, 1995, TBI had total assets of approximately
$54.4 million, total deposits of approximately $48.5 million and stockholders' equity
of approximately $5.1 million. See "The Merger - Background of the Merger" and
"Tifton Banks, Inc. - Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Based on March 31, 1995 financial information, TBI would have comprised approximately
7% of the surviving entity's total assets, 8% of its stockholder's equity, 6% of its
total revenue and 6% of its net income.
</TABLE>
-7-
<PAGE> 14
THE SPECIAL MEETING
<TABLE>
<S> <C>
TIME, DATE AND PLACE . . . . . . . . . The Special Meeting will be held at 2:00 p.m., local time, on Wednesday,
September 13, 1995 at the headquarters of TBI and Tifton Bank, 300 Commerce
Way, Tifton, Georgia, and at any adjournments or postponements thereof.
RECORD DATE AND SHARES ENTITLED TO Holders of record of the TBI Stock at the close of business on August 1,
VOTE . . . . . . . . . . . . . . . . . 1995 (the "Record Date") are entitled to notice of and to vote at the
Special Meeting. At such date and time there were 200,000 shares of TBI
Stock outstanding.
PURPOSE OF THE SPECIAL MEETING . . . . The purpose of the Special Meeting is to consider and vote upon a proposal
to approve and adopt the Merger Agreement and the transactions contemplated
thereby. See "The Special Meeting" and "The Merger."
VOTE REQUIRED . . . . . . . . . . . . . The approval and adoption by the TBI stockholders of the Merger Agreement
and the transactions contemplated thereby will require the affirmative vote
of the holders of at least a majority of the outstanding shares of TBI
Stock. As of May 31, 1995, all directors and executive officers of TBI as
a group beneficially owned 101,666 shares (50.8%) of the outstanding TBI
Stock. It is anticipated that each of the directors and executive officers
will vote their shares in favor of the Merger Agreement and the
transactions contemplated thereby. Because such individuals own a majority
of the outstanding shares of TBI Stock, the Merger Agreement will be
adopted and the Merger approved if they vote in favor of the proposal. The
Merger Agreement and the transactions contemplated thereby do not require
the approval of the stockholders of FLFC. See "The Special Meeting - Vote
Required" and "Ownership of TBI Stock - Principal Stockholders."
</TABLE>
THE MERGER
General. The Merger Agreement provides that TBI shall merge with and
into FLFC, with FLFC as the surviving corporation in the Merger. At the
Effective Time of the Merger, each holder of outstanding shares of TBI Stock
(excluding shares held by Dissenting Stockholders) shall have the right to
receive shares of Series B Preferred and/or cash in exchange for his TBI Stock.
If the Merger Agreement is approved at the Special Meeting, all required
governmental and other consents and approvals are obtained, and all of the
other conditions to the obligations of the parties to consummate the Merger are
either satisfied or waived, the Merger will be consummated. See "The Merger."
Merger Consideration. The Merger Agreement provides that, at the
Effective Time, each outstanding share of TBI Stock (excluding shares held by
Dissenting Stockholders) shall cease to be outstanding and shall, at the option
of the holder thereof and subject to certain limitations described herein, be
converted into and exchanged for the right to receive either (i) the Cash Price
or (ii) the Stock Price. A TBI stockholder may elect to receive the Cash Price
for some of his shares of TBI Stock and the Stock Price for his remaining
shares of TBI Stock; however, whole shares of TBI Stock must be exchanged for
the Cash Price or the Stock Price. Pursuant to the Merger Agreement, the Cash
Price is $37 per share of TBI Stock and the Stock Price is 1.48 shares of
Series B Preferred for each share of TBI Stock.
Notwithstanding the foregoing, the Merger Agreement requires that the
holders of a minimum of 96,000 shares of TBI Stock, including shares held by
Dissenting Stockholders, receive cash in exchange for their shares of TBI
Stock. In the event that the holders of fewer than 96,000 shares of TBI Stock
(including shares held by Dissenting Stockholders) elect to receive cash, the
Cash Price will be substituted on a pro rata basis for Series B Preferred to
increase to 96,000 the number of shares of TBI Stock exchanged for cash. In
the event the holders of more than 96,000 of shares of TBI Stock (including
shares held by Dissenting Stockholders) elect to receive cash, Series B
Preferred will be substituted on a pro rata basis for the Cash Price to
decrease to 96,000 the number of shares of TBI Stock exchanged for cash.
-8-
<PAGE> 15
Description of Series B Preferred. Dividends on the Series B Preferred
will accrue at an annual rate of $1.50 per share and will be cumulative from
the Effective Time. Dividends will be payable quarterly in arrears on January
1, April 1, July 1 and October 1 of each year commencing on the Dividend
Payment Date next following the Effective Time, provided that if the Effective
Time is 15 or fewer days prior to the initial Dividend Payment Date, FLFC may
defer the initial dividend payment to the second Dividend Payment Date
following the Effective Time. A TBI stockholder will not be entitled to
receive dividends on the shares of Series B Preferred until he has surrendered
to FLFC his TBI Certificates. See "The Merger - Election; Exchange of TBI
Stock Certificates." Each share of Series B Preferred will be convertible, at
the option of the holder thereof, into shares of FLFC Stock at a conversion
price of $21.00 per share (equivalent to a conversion rate of approximately
1.19 shares of FLFC Stock for each share of Series B Preferred), subject to
adjustment in certain circumstances. FLFC, at its option, may redeem the
Series B Preferred at any time on or after January 1, 1997 at the redemption
prices set forth herein, plus accrued and unpaid dividends to the redemption
date. The holders of Series B Preferred will have no voting rights except as
may be required by applicable law. See "Description of FLFC Capital Stock -
Preferred Stock."
Reasons for the Merger and Recommendation of the TBI Board of Directors.
The Board of Directors of TBI, after consideration of relevant business,
financial, legal and market factors, approved the Merger Agreement and the
transactions contemplated thereby. TBI's Board of Directors did not assign any
relative or specific weight to the factors considered, which included:
(i) The financial terms of the Merger. In this regard, the
Board of Directors believes that the Merger consideration
is fair to the TBI stockholders based on its current
financial condition and future prospects. The Board of
Directors also considered the fact that the Series B
Preferred will pay a higher cash dividend than currently
paid on the TBI Stock and that the Series B Preferred may
have a liquid trading market while no active trading market
for TBI Stock exists or is expected to develop in the
foreseeable future.
(ii) Comparing TBI's continuing as an independent entity to
combining with FLFC, particularly as to stockholder value.
The Board considered the benefits that could reasonably be
expected to accrue to TBI stockholders from the Merger,
including the likelihood of a higher stock price for FLFC's
Common Stock or Series B Preferred than would be achieved
by TBI operating on an independent basis. Based on a small
number of sales of TBI Stock prior to announcement of the
FLFC letter of intent, TBI stockholders would receive in
the Merger a premium over the prices received in those
sales.
(iii) The non-financial terms and structure of the Merger, in
particular, the fact that the Merger qualifies as a
tax-free reorganization to the TBI stockholders except in
respect of cash received for their TBI Stock.
(iv) The likelihood of the Merger being approved by the
appropriate regulatory authorities.
(v) The competitive nature of the Tifton financial market,
which management believes necessitates the ability to offer
a wide range of banking services. Due to capital
requirements and added regulatory requirements, TBI is
presently unable to provide services it deems necessary to
compete effectively in the financial market now provided in
Tifton by other financial institutions. The Merger will
provide the necessary capital, support personnel and
financial services required.
(vi) Recent legislative proposals concerning state-wide banking.
Those proposals indicate the possibility of changes in the
banking system for the State of Georgia which could have a
negative impact on stockholder value of an independent bank
operating in a non-metropolitan market.
THE BOARD OF DIRECTORS OF TBI RECOMMENDS THAT YOU VOTE "FOR" APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY. See "The Merger - Reasons for the Merger."
Effective Time of the Merger. If the Merger is approved by the requisite
vote of the TBI stockholders, all required governmental and other consents and
approvals are obtained, and the other conditions to the obligations of the
parties to consummate the Merger are either satisfied or waived (as permitted),
the Merger will be consummated and will become effective on the date and at the
time
-9-
<PAGE> 16
that Articles of Merger, reflecting the Merger, are filed with the Secretary of
State of the State of Georgia. Assuming satisfaction of all conditions to
consummation, the Merger is expected to become effective in September 1995.
Both TBI and FLFC have the right to terminate the Merger Agreement should the
Merger not be consummated by October 31, 1995. See "The Merger - Effective
Time," "The Merger - Summary of Certain Provisions of the Merger Agreement -
Amendment, Waiver and Termination" and "The Merger - Conditions to the Merger."
Election and Exchange of TBI Stock. Holders of TBI Stock are asked to
specify on the enclosed proxy card the number of their shares of TBI Stock that
the holders would like to exchange for cash and the number of shares that the
holders would like to exchange for shares of Series B Preferred in the event
the proposed Merger is approved and consummated. As soon as practicable after
the Special Meeting, TBI will send to the holders of TBI Stock a letter of
transmittal confirming their election and providing instructions for exchanging
their TBI Certificates for cash or Series B Preferred, as appropriate. Each
TBI stockholder who does not specify his election on the proxy card, or who
later decides to change his election, will have the opportunity to make or
change his election on the letter of transmittal. If he has not made his
election to exchange his TBI Stock for cash and/or Series B Preferred within 15
days of the date of the letter of transmittal he will be deemed to have elected
to receive Series B Preferred for all of his shares of TBI Stock. FLFC will
not be obligated to deliver the consideration to which any former holder of TBI
Stock is entitled until such holder surrenders his TBI Certificate or
Certificates for exchange. The TBI Certificate or Certificates so surrendered
must be duly endorsed as FLFC may require. TBI STOCKHOLDERS SHOULD NOT SEND
THEIR TBI CERTIFICATES WITH THEIR PROXY CARDS. See "The Merger - Election;
Exchange of TBI Stock Certificates."
Comparison of Stockholder Rights. If the proposed Merger is consummated,
the stockholders of TBI who receive shares of Series B Preferred will become
stockholders of FLFC, and their rights as stockholders will be determined by
FLFC's Articles of Incorporation and Bylaws. As such, the holders of Series B
Preferred, among other things, will not have any voting rights except as
required by applicable law. See "Description of Capital Stock of FLFC - Series
B Preferred" and "Comparison of Stockholder Rights."
Certain Federal Income Tax Consequences. FLFC has received an opinion
from Coopers & Lybrand L.L.P., independent accountants, that the Merger
qualifies as a tax-free reorganization under Internal Revenue Code (the "Code")
Section 368 (a)(1)(A) for federal income tax purposes. As a tax-free
reorganization (i) no gain or loss will be recognized by FLFC, FLB, TBI or
Tifton Bank and (ii) no gain or loss will be recognized by the TBI stockholders
except in respect of cash received for their TBI Stock. A copy of the opinion
from Coopers & Lybrand L.L.P. is attached as Appendix C to this Proxy
Statement/Prospectus and is incorporated herein by reference. See "The Merger
- - Certain Federal Income Tax Consequences."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY DEPENDING UPON
THE PARTICULAR CIRCUMSTANCES OF EACH TBI STOCKHOLDER AND OTHER FACTORS, EACH
HOLDER OF TBI STOCK IS URGED TO CONSULT SUCH HOLDER'S OWN TAX ADVISER TO
DETERMINE THE PARTICULAR TAX CONSEQUENCES TO SUCH HOLDER OF THE MERGER
(INCLUDING THE APPLICATION AND EFFECT OF STATE AND LOCAL INCOME AND OTHER TAX
LAWS).
Accounting Treatment. The Merger will be accounted for using "purchase
accounting" for financial reporting purposes. See "The Merger - Accounting
Treatment."
Management and Operations After the Merger. Pursuant to the Merger
Agreement, at or shortly following the Effective Time, Tifton Bank will merge
with and into FLB (the "Bank Merger"), with FLB as the surviving entity in the
Bank Merger. Although both TBI and Tifton Bank will cease to exist as separate
entities following the Merger and the Bank Merger, the current directors of TBI
and Tifton Bank will become members of FLB's Tifton Community Board of
Directors (the "Community Board"), an advisory board to be established at the
Effective Time. Additionally, Gary P. Hall, the President and Chief Executive
Officer of TBI and Tifton Bank, will become a City President of FLB in Tifton.
The Board of Directors and management of FLFC and FLB will not change as a
result of the Merger or the Bank Merger. See "The Merger - Management and
Operations After the Merger" and "The Merger -Interests of Certain Persons in
the Merger."
Interests of Certain Persons in the Merger. Certain members of TBI's
management and Board of Directors have interests in the Merger in addition to
their interests as stockholders of TBI generally. These include provisions in
the Merger Agreement relating to service of TBI's current directors on the
Community Board, the execution by Mr. Hall of an employment agreement with FLB,
-10-
<PAGE> 17
eligibility for certain FLFC employee benefits and provisions for employment of
certain other TBI employees. See "The Merger - Management and Operations After
the Merger" and "The Merger - Interests of Certain Persons in the Merger."
Conditions to Consummation. Consummation of the Merger Agreement and the
transactions contemplated thereby are subject to a number of conditions,
including (i) approval of the Merger Agreement by the TBI stockholders; (ii)
receipt of all governmental and other consents and approvals necessary to
permit consummation of the Merger, including those of the Office of Thrift
Supervision (the "OTS"), the Federal Reserve Board (the "Federal Reserve") and
the Georgia Department of Banking and Finance (the "DBF"); (iii) the expiration
of all periods for the notification of the exercise of dissenters' rights and
no exercise of dissenters' rights by the holders of 5% or more of the
outstanding shares of TBI Stock; (iv) the execution by each director of TBI of
an agreement (A) to elect to exchange at least 52% of his TBI Stock for Series
B Preferred in the Merger, (B) not to sell any Series B Preferred that he
receives in the Merger for a period of one year after the Effective Time, (C)
to serve as a member of the Community Board for two years and (D) that he will
not become a director of any other financial institution doing business in Tift
County, Georgia or become the beneficial owner of more than 1% of the stock of
a newly formed financial institution located in such county for a period of
five years after the Effective Time; and (v) Tifton Bank's loan loss reserve
shall not be less than $325,000. See "The Merger - Conditions to Consummation
of the Merger" and "The Merger - Amendment, Waiver and Termination."
Regulatory Approvals. The Merger is subject to the prior approval (or
waiver of the approval requirements) by the OTS, Federal Reserve and DBF. FLFC
anticipates that it will receive the requisite approvals or waivers from each
of these agencies prior to the Special Meeting. See "The Merger - Regulatory
Approvals."
Conduct of Business Pending the Merger. TBI and Tifton Bank have agreed
in the Merger Agreement to, among other things, operate its business only in
the ordinary course in accordance with prior practices and to take no action
that would adversely affect its ability to perform its covenants and agreements
under the Merger Agreement. In addition, TBI and Tifton Bank have agreed not
to take certain actions relating to the operation of TBI or Tifton Bank pending
consummation of the Merger without the prior written consent of FLFC, except as
otherwise permitted by the Merger Agreement, including, among other things:
(i) increase any salaries, wages or employee benefits or hire, commit to hire
or terminate any employee, (ii) issue, sell, redeem, purchase or otherwise
acquire or make any changes in its issued and outstanding capital stock or
issue any rights to purchase its capital stock or any security convertible into
its capital stock or declare any dividend or make any other distribution with
respect to its capital stock, or (iii) solicit, entertain any offer for, or
sell or agree to sell, or participate in any business combination with respect
to, any of the shares of its capital stock or all or substantially all of its
assets. See "The Merger - Conduct of Business Pending the Merger."
Termination. The Merger Agreement may be terminated at any time prior to
the Effective Time by mutual consent of TBI and FLFC. In addition, the Merger
Agreement may be terminated prior to the Effective Time by either FLFC or TBI
if (i) the other party fails to perform in any material respect its agreements
contained in the Merger Agreement prior to the Effective Time, (ii) the other
party materially breaches any of its representations, warranties or covenants
contained in the Merger Agreement and fails to timely cure such breach or (iii)
if any court, governmental or regulatory authority takes any action which
prohibits or restrains either party from consummating the Merger, or by FLFC or
FLB if the Merger is not consummated by October 31, 1995. See "The Merger -
Summary of Certain Provisions of the Merger Agreement."
Dissenters' Rights. Under Georgia law, record holders of TBI Stock who
prior to the TBI stockholder vote on the Merger, properly demand their right to
dissent and vote against or abstain from voting on the Merger have the right to
obtain a cash payment for the "fair value" of their shares of TBI Stock
(excluding any element of value arising from the accomplishment or expectation
of the Merger). In order to exercise such rights, Dissenting Stockholders must
comply with the requirements of Article 13 of the GBCC, a description of which
is provided in "The Merger - Dissenters' Rights" and the full text of which is
attached to this Proxy Statement/Prospectus as Appendix B.
Resales of Series B Preferred. The FLFC Series B Preferred issued in
connection with the Merger will be freely transferable by the holders of such
shares, except for those holders who may be deemed to be "affiliates"
(generally including directors, certain executive officers, and 10% or more
stockholders) of TBI or FLFC under applicable federal securities laws. Each
director of TBI has agreed not to sell the shares of Series B Preferred that he
receives in connection with the Merger for a period of one year from the
Effective Time. There currently is no established trading market for shares of
Series B Preferred, and although the shares to be issued in the Merger have
been registered or are exempt from registration under applicable securities
laws, no assurance can be given that a liquid market will develop in the future
or that quotations for the Series B Preferred will be available. FLFC intends
to file
-11-
<PAGE> 18
an application to list the Series B Preferred on the Nasdaq SmallCap Market.
However, FLFC has not met all of the criteria for listing the Series B
Preferred on the Nasdaq SmallCap Market. No assurances can be given that FLFC
will meet the listing criteria or that the Series B Preferred will be listed on
the Nasdaq SmallCap Market. See "The Merger - Restrictions on Resales of
Series B Preferred."
MARKET PRICES AND DIVIDENDS ON FLFC AND TBI COMMON STOCK
The FLFC Stock is listed and traded on The Nasdaq National Market under the
symbol "FLFC". The following table sets forth the high and low last sale
prices per share of FLFC Stock on The Nasdaq National Market, and the dividends
declared per share of FLFC Stock, FLFC Series A Preferred Stock and Series B
Preferred, for the periods indicated. FLFC has paid all declared dividends
except that the dividends declared during the third quarter of 1995 are payable
on July 1, 1995.
<TABLE>
<CAPTION>
SALE PRICES PER DIVIDENDS DECLARED DIVIDENDS DECLARED DIVIDENDS DECLARED
SHARE OF PER SHARE OF PER SHARE OF FLFC PER SHARE OF FLFC
FISCAL YEAR ENDED FLFC FLFC SERIES A SERIES B
SEPTEMBER 30, COMMON STOCK COMMON STOCK PREFERRED STOCK(1) PREFERRED STOCK(2)
----------------- ------------------------ ------------ --------------- ---------------
HIGH LOW
---- ---
<S> <C> <C> <C> <C> <C>
1993
First Quarter . . . . . . . $ 9.75 $ 8.50 -
Second Quarter . . . . . 10.50 8.75 - $0.24
Third Quarter . . . . . . 13.00 9.75 - 0.48
Fourth Quarter . . . . . 16.50 12.50 - 0.48
1994
First Quarter . . . . . . . $16.50 $14.50 $0.08 $0.48
Second Quarter . . . . . 15.75 13.75 0.08 0.48
Third Quarter . . . . . . . 15.25 13.00 0.08 0.48
Fourth Quarter . . . . . . 15.50 13.25 0.08 0.48
1995
First Quarter . . . . . . $14.25 $12.75 $ .10 $ .48 $.12
Second Quarter . . . . . . 13.75 13.00 .10 .48 .38
Third Quarter (through
June 9) . . . . . . . . . 18.50 13.25 .10 .48 .38
</TABLE>
__________________
(1) FLFC issued the outstanding shares of Series A 7.75% Cumulative Convertible
Preferred Stock on February 16, 1993 and has declared and paid all accrued
dividends as and when due and payable.
(2) FLFC issued the outstanding shares of Series B Preferred on December 2,
1994 and has declared and paid all accrued dividends as and when due and
payable.
On March 15, 1995, the last trading day prior to public announcement
that FLFC and TBI entered into a non-binding letter of intent with respect to
the Merger, the last reported sale price per share of FLFC Stock on The Nasdaq
National Market was $13.25. On June 9, 1995, the last reported sale price per
share of FLFC Stock on The Nasdaq National Market was $18.00.
There is no established public trading market for the TBI Stock.
Trading of the TBI Stock has been sporadic and generally is confined to the
Tifton, Georgia area. Management of TBI does not maintain a record of the
sales prices of trades of TBI Stock. TBI had 381 stockholders of record as of
August 4, 1994. TBI paid dividends of $.25, $.30 and $.60 per share during the
years ended December 31, 1992, 1993 and 1994, respectively.
-12-
<PAGE> 19
SELECTED FINANCIAL DATA
Selected Financial Data of FLFC. The following table sets forth
selected historical financial data of FLFC and has been derived from and should
be read in conjunction with FLFC's Annual Report on Form 10-K and the audited
consolidated financial statements of FLFC for the three years ended September
30, 1994, and FLFC's Quarterly Report on Form 10-Q and the unaudited interim
consolidated financial statements of FLFC for the six months ended March 31,
1995, including the respective notes thereto, which are incorporated by
reference herein. See "Incorporation of Certain Information by Reference."
The interim financial data is unaudited but reflects all adjustments which, in
the opinion of management, are necessary for a fair presentation. All
adjustments reflected in the interim financial data are of a normal recurring
nature. Interim results for the six months ended March 31, 1995, are not
necessarily indicative of the results to be expected for the full year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
-------------------------------------------------------- --------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------- --------
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income . . . . . . . . $ 21,855 $ 18,487 $ 20,014 $ 22,229 $ 23,445 $ 11,308 $ 13,513
Provision for loan losses . . . . . 8,037 3,358 3,950 1,979 1,500 750 600
Noninterest income, excluding
gains and losses on asset sales . 7,041 4,280 3,160 4,766 6,055 3,094 3,085
Gains (losses) on sale of loans and
mortgage-backed and investment
securities . . . . . . . . . . . 493 10 (1,319) 1,190 461 666 17
Gain on sale of servicing rights . - 1,725 5,424 3,321 3,367 1,374 817
Gain on sale of other assets . . . 1,094 - - - - - -
Noninterest expense . . . . . . . . 27,071 19,439 20,996 22,175 23,029 11,552 11,052
Income (loss) before income
taxes, accounting changes and
extraordinary items . . . . . . . (4,625) 1,705 2,333 7,352 8,799 4,140 5,780
-------- -------- -------- -------- -------- -------- --------
Net income (loss) . . . . . . . . . $ (5,570) $ 5,353 $ 2,831 $ 4,212 $ 6,049 $ 2,757 $ 3,792
PER COMMON SHARE DATA:
Net income (loss), fully diluted . $ (2.81) $ 1.96 $ 0.94 $ 1.16 $ 1.50 $ .69 $ .91
Cash dividends . . . . . . . . . . - - - - .32 .16 .20
Book value . . . . . . . . . . . . 12.70 11.94 12.91 14.09 14.92 14.45 15.75
Tangible book value . . . . . . . . 10.79 10.77 11.84 12.80 13.76 13.21 12.58
Weighted average common shares
outstanding, fully diluted . . . 1,981 3,376 3,039 3,687 4,049 4,052 4,156
BALANCE SHEET DATA (PERIOD END):
Total assets . . . . . . . . . . . $736,709 $713,209 $679,376 $728,248 $693,205 $707,441 $794,100
Loans (1) . . . . . . . . . . . . . 526,010 495,748 469,207 465,491 487,315 479,615 548,640
Non-performing assets (excluding
troubled debt restructurings) . . 40,450 39,427 22,647 20,460 14,951 17,412 9,150
Loans, investments and securities
available-for-sale (2) . . . . . 99,895 131,268 125,147 195,668 161,405 172,549 191,264
Investments and securities
held-for-investment . . . . . . . 37,377 8,308 11,637 - - - -
Deposits . . . . . . . . . . . . . 533,561 527,835 495,229 546,859 562,113 555,126 690,808
Stockholders' equity . . . . . . . 25,154 35,550 38,453 53,884 56,391 54,962 62,595
</TABLE>
-13-
<PAGE> 20
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED SEPTEMBER 30, MARCH 31,
--------------------------------------------------------- -------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------- --------
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS:
Return on average assets . . . . . (0.61) % 0.73 % 0.40 % 0.60 % 0.86 % 0.77 %* 1.01 %*
Return on average equity . . . . . (17.32) 18.50 7.60 8.96 10.98 10.10 * 12.84 *
Interest rate spread . . . . . . . 3.10 3.13 3.21 3.58 3.70 3.52 * 3.89 *
Net interest margin (3) . . . . . . 2.68 2.83 3.15 3.57 3.72 3.54 * 3.93 *
Efficiency (4) . . . . . . . . . . 88.56 77.20 72.26 67.66 66.60 69.30 62.34
Earnings to fixed charges: (5)
Excluding interest on deposits . - 1.13 x 1.23 x 1.99 x 2.65 x 2.38 x 2.87 x
Including interest on deposits . - 1.03 x 1.06 x 1.25 x 1.35 x 1.32 x 1.38 x
ASSET QUALITY RATIOS:
Allowance for loan losses to
period end loans (1)(6) . . . . . 1.38 % 0.97 % 1.19 % 1.30 % 1.15 % 1.17 % 1.25 %
Allowance for loan losses to
period end non-performing
loans(1)(6) . . . . . . . . . . 41.39 76.02 158.06 97.55 124.51 105.41 387.26
Non-performing assets to period
end loans and foreclosed
properties (1)(6) . . . . . . . . 7.27 7.37 4.58 4.21 2.97 3.51 1.62
Non-performing assets to period
end total assets . . . . . . . . 5.49 5.53 3.33 2.81 2.16 2.46 1.15
Net charge-offs (recoveries) to
average loans . . . . . . . . . . 0.50 1.06 0.57 0.60 .38 .47 * (.08) *
CAPITAL AND LIQUIDITY:
Tangible capital to adjusted
total assets (7) . . . . . . . . 3.15 % 4.34 % 5.07 % 5.34 % 6.26 % 5.78 % 5.77 %
Core capital to adjusted total
assets (7) . . . . . . . . . . . 3.49 4.66 5.36 5.59 6.57 6.11 6.03
Core capital to risk-based
assets (7) . . . . . . . . . . . 4.65 6.10 6.95 7.66 9.14 8.44 8.59
Risk-based capital to risk-based
assets (7) . . . . . . . . . . . 9.38 9.17 10.32 10.92 12.61 11.80 11.92
Average equity to average assets . 3.54 3.97 5.26 6.70 7.82 7.63 7.83
Loans to deposits (1) . . . . . . . 98.58 93.92 94.75 85.12 86.69 86.40 79.42
</TABLE>
____________________
* Annualized.
(1) Excludes loans available-for-sale.
(2) Includes loans, investments and mortgage-backed securities
available-for-sale and cash and cash equivalents.
(3) Net interest income divided by average earning assets
(4) Computed by dividing non-interest expense less provision for real
estate losses and nonrecurring items by the sum of net interest income
before provision for loan losses and non-interest income excluding
nonrecurring items.
(5) The ratio of earnings to fixed charges has been determined by dividing
(a) income before taxes and fixed charges by (b) total fixed charges.
Fixed charges consist of interest expense (both excluding and
including interest on deposits) and amortization of debt expense. No
portion of rental expense could be demonstrated to be representative
of the interest factor, and therefore none is included in fixed
charges. The dollar amount of coverage deficiency for the fiscal year
ended September 30, 1990 was $4.6 million.
(6) Loans before allowance for losses, deferred loan fees and unearned
income.
(7) The information presented is on a FLB-only basis and is not
consolidated.
-14-
<PAGE> 21
Selected Financial Data of TBI. The following table sets forth
selected historical financial data of TBI and has been derived from and should
be read in conjunction with, and is qualified in its entirety by, the
Consolidated Financial Statements of TBI for the three years ended December 31,
1994, and the notes thereto included elsewhere herein. The interim financial
data is unaudited but reflects all adjustments which, in the opinion of
management of TBI, are necessary for a fair presentation. All adjustments
reflected in the interim financial data are of a normal recurring nature.
Interim results for the three months ended March 31, 1995, are not necessarily
indicative of the results to be expected for the full year.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------- --------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------- --------
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income . . . . . . . . $ 1,517 $ 1,729 $ 1,906 $ 1,931 $ 2,102 $ 485 $ 551
Provision for loan losses . . . . . 188 129 499 217 61 16 35
Noninterest income, excluding
gains on asset sales . . . . . . 226 301 421 439 375 87 103
Gains (losses) on sale of loans and
mortgage-backed and invest-
ment securities . . . . . . . . . 10 (143) (10) 55 - - -
Noninterest expense . . . . . . . . 1,147 1,366 1,632 1,667 1,929 427 434
Income Taxes . . . . . . . . . . . 135 146 75 136 219 46 61
------- ------- ------- ------- ------- ------- -------
Net income . . . . . . . . . . . . $ 283 $ 246 $ 111 $ 405 $ 268 $ 83 $ 124
PER COMMON SHARE DATA:
Net income, fully diluted . . . . . $ 1.42 $ 1.23 $ .56 $ 2.03 $ 1.34 $ .42 $ .62
Cash dividends . . . . . . . . . . - .25 .25 .30 .60 - -
Book value . . . . . . . . . . . . 21.89 22.87 23.17 24.90 24.97 25.31 25.67
Weighted average common shares
outstanding, fully diluted . . . 200 200 200 200 200 200 200
BALANCE SHEET DATA (PERIOD END):
Total assets . . . . . . . . . . . $54,409 $56,976 $52,812 $50,454 $53,695 $49,788 $54,399
Loans . . . . . . . . . . . . . . 37,242 40,541 34,282 32,179 35,885 34,256 36,940
Non-performing assets (excluding
troubled debt restructurings) . . 93 316 399 186 401 71 346
Mortgage-backed securities
held-for-investment . . . . . . . 3,454 3,674 1,360 530 - - -
Deposits . . . . . . . . . . . . . 8,713 51,098 47,256 42,496 48,293 44,311 48,541
Stockholders' equity . . . . . . . 4,377 4,573 4,635 4,979 4,994 5,059 5,133
PERFORMANCE RATIOS:
Return on average assets . . . . . .42 % .30 % .14 % .53 % .36 % .89 % .57 %*
Return on average equity . . . . . 6.69 5.64 2.59 8.58 5.70 8.43 * 5.23 *
Interest rate spread . . . . . . . 3.49 3.74 4.85 3.57 3.79 3.48 3.91
Net interest margin (1) . . . . . . 3.53 3.33 3.95 4.24 4.49 4.19 4.60
Efficiency (2) . . . . . . . . . . 73.13 80.13 73.67 74.35 79.25 82.69 75.69
</TABLE>
-15-
<PAGE> 22
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
-------------------------------------------------------- --------------------
1990 1991 1992 1993 1994 1994 1995
-------- -------- -------- -------- -------- -------- --------
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
ASSET QUALITY RATIOS:
Allowance for loan losses to
period end loans (3) . . . . . . .88 % .80 % 1.08 % 1.24 % 1.13 % 1.24 % 1.19 %
Allowance for loans losses to
period end non-performing loans(3) 3.51 1.03 .93 2.15 1.00 6.01 1.28
Non-performing assets to period
end loans and foreclosed
properties (3) . . . . . . . . . .25 .78 1.16 .37 .34 .21 .00
Non-performing assets to period
end total assets . . . . . . . . .17 .55 .76 .24 .23 .14 .62
Net charge-offs to average loans . .25 .33 1.21 .56 .17 .13 * .02 *
CAPITAL AND LIQUIDITY:
Average equity to average assets . 8.87 % 8.04 % 8.39 % 9.33 % 9.58 % 10.01 % 9.37 %
Loans to deposits . . . . . . . . . 76.45 79.34 72.55 75.72 74.31 77.31 76.10
</TABLE>
____________________
* Annualized.
(1) Net interest income divided by average earning assets.
(2) Computed by dividing non-interest expense less non-recurring
extraordinary items by the sum of net interest income and non-
interest income, net of gains and losses on sales of assets.
(3) Loans before allowance for losses, deferred loan fees and unearned
income.
-16-
<PAGE> 23
Selected Pro Forma Combined Condensed Financial Data. The following
table sets forth unaudited selected pro forma combined condensed financial data
of FLFC after giving effect to the Merger and completed acquisitions (described
under "Pro Forma Condensed Financial Data") accounted for under the purchase
method as of October 1, 1993 for income statement data and as of March 31, 1995
for balance sheet data. Pro forma combined condensed information is provided
assuming 96,000 shares of TBI Stock are exchanged for the Cash Price and
104,000 shares are exchanged for the Stock Price. The pro forma combined
condensed financial data is presented for illustrative purposes only and is not
necessarily indicative of the operating results or financial position that
would have occurred if the Merger and completed acquisitions had been
consummated on the dates indicated, nor is it necessarily indicative of future
operating results or financial position. The pro forma combined condensed
financial data has been derived from and should be read in conjunction with the
pro forma combined condensed financial data, including the notes thereto,
appearing elsewhere herein. See "Pro Forma Combined Condensed Financial Data."
<TABLE>
<CAPTION>
YEAR ENDED SIX MONTHS ENDED
SEPTEMBER 30, 1994 MARCH 31, 1995
------------------ --------------
(In thousands, except per share data)
<S> <C> <C>
INCOME STATEMENT DATA:
Net interest income . . . . . . . . . . $29,808 $ 15,832
Provision for loan losses . . . . . . . 1,753 645
Noninterest income . . . . . . . . . . 10,642 4,262
Noninterest expense . . . . . . . . . . 27,906 13,028
Income before income taxes and
extraordinary item . . . . . . . . . 10,791 6,421
Income before extraordinary
item . . . . . . . . . . . . . . . . 7,302 4,193
PER COMMON SHARE DATA:
Income before extraordinary item,
fully diluted . . . . . . . . . . . . $1.66 $ 0.97
Book value . . . . . . . . . . . . . . 15.75
Tangible book value . . . . . . . . . . 11.65
Weighted average common shares
outstanding, fully diluted . . . . . 4,410 4,401
BALANCE SHEET DATA (PERIOD END):
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $847,409
Loans, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 589,886
Investments and mortgage-backed
securities, available for sale . . . . . . . . . . . . . . . . . . . . . 165,271
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 739,349
Total stockholders' equity . . . . . . . . . . . . . . . . . . . . . . . . 66,443
</TABLE>
-17-
<PAGE> 24
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished by TBI to its
stockholders in connection with the solicitation of proxies by the Board of
Directors of TBI from holders of the outstanding shares of TBI Stock for use at
the Special Meeting to be held at the headquarters of TBI and Tifton Bank, 300
Commerce Way, Tifton, Georgia at 2:00 p.m., local time, on Wednesday, September
13, 1995, and at any adjournments or postponements thereof. The purpose of the
Special Meeting is to consider and vote upon a proposal to approve and
authorize the Merger Agreement and consummation of the transactions
contemplated thereby, and to transact such other business as may properly come
before the Special Meeting. This Proxy Statement/Prospectus and the
accompanying form of proxy are first being mailed to stockholders of TBI on or
about August [__], 1995.
This document is also being furnished by FLFC to the stockholders of
TBI as a Prospectus in connection with the issuance by FLFC of shares of Series
B Preferred in connection with the Merger.
RECORD DATE; QUORUM
The Board of Directors of TBI has fixed the close of business on
August 1, 1995 as the Record Date for determining the TBI stockholders entitled
to receive notice of and to vote at the Special Meeting. Only holders of
record of TBI Stock as of the Record Date are entitled to notice of and to vote
at the Special Meeting. As of the Record Date, there were 200,000 shares of TBI
Stock issued and outstanding and held by record holders. Holders of TBI Stock
are entitled to one vote on each matter considered and voted on at the Special
Meeting for each share of TBI Stock held of record at the close of business on
the Record Date. The presence, in person or by properly executed proxy, of the
holders of a majority of the outstanding shares of TBI Stock entitled to vote
at the Special Meeting is necessary to constitute a quorum at the Special
Meeting. Abstentions will be counted as shares present for purposes of
determining the presence of a quorum. "Broker non-votes" will not be counted
as shares present for purposes of determining the presence of a quorum.
However, because the approval of a majority of the outstanding shares of TBI
Stock is required to approve and adopt the Merger Agreement and the
consummation of the transactions contemplated thereby, both abstentions and
"broker non-votes" will have the effect of a vote "AGAINST" the proposal.
VOTE REQUIRED
Approval of the Merger Agreement and consummation of the transactions
contemplated thereby requires the affirmative vote of the holders of a majority
of the outstanding shares of TBI Stock entitled to vote thereon at the Special
Meeting. The Merger Agreement and the consummation of the transactions
contemplated thereby do not require the approval of the stockholders of FLFC.
As of the Record Date, TBI's directors and executive officers, and
their affiliates, held approximately 50.8% of the outstanding shares of TBI
Stock entitled to vote at the Special Meeting. It is anticipated that the
directors and executive officers of TBI will vote their shares in favor of the
Merger Agreement and the transactions contemplated thereby. Because such
individuals own a majority of the outstanding shares of TBI Stock, the Merger
Agreement will be adopted and the Merger approved if they vote in favor of the
Merger Agreement and consummation of the transactions contemplated thereby. As
of the Record Date, FLFC's directors and executive officers, and their
affiliates, held no shares of TBI Stock.
SOLICITATION AND REVOCABILITY OF PROXIES
Shares of TBI Stock represented by properly executed proxies, if such
proxies are received in time and are not revoked, will be voted and will be
voted in accordance with the instructions indicated on the proxies. IF NO
-18-
<PAGE> 25
INSTRUCTIONS ARE INDICATED, SUCH PROXIES WILL BE VOTED "FOR" APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY, AND AS DETERMINED BY A MAJORITY OF THE MEMBERS OF THE TBI
BOARD OF DIRECTORS AS TO ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
SPECIAL MEETING. ANY HOLDER OF TBI STOCK WHO RETURNS A SIGNED PROXY BUT FAILS
TO PROVIDE INSTRUCTIONS AS TO THE MANNER IN WHICH SUCH HOLDER'S SHARES ARE TO
BE VOTED WILL BE DEEMED TO HAVE VOTED "FOR" APPROVAL AND ADOPTION OF THE MERGER
AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED THEREBY, AND WILL
NOT BE ENTITLED TO ASSERT DISSENTERS' RIGHTS.
A TBI stockholder who has given a proxy may revoke it at any time
before it is voted by (i) giving written notice of revocation to the Secretary
of TBI, (ii) properly submitting to TBI a duly executed proxy bearing a later
date or (iii) voting in person at the Special Meeting. Attendance at the
Special Meeting will not in and of itself constitute revocation of a proxy.
All written notices of revocation and other communications with respect to
revocation of proxies should be addressed to TBI as follows: Tifton Banks,
Inc., 300 Commerce Way, Tifton, Georgia, 31794, Attention: Kay M. Barfield,
Corporate Secretary. A proxy appointment will not be revoked by death or
supervening incapacity of the stockholder executing the proxy unless, before
the shares are voted, notice of such death or incapacity is filed with TBI's
Corporate Secretary or other person responsible for tabulating votes on behalf
of TBI.
Holders of TBI Stock have the right to dissent to the Merger and
demand appraisal of, and obtain payment for, the "fair value" of their shares
of TBI Stock by following the procedures prescribed in Article 13 of the GBCC,
a copy of which is attached as Appendix B hereto, and is summarized under "The
Merger - Dissenters' Rights" herein. Failure to take any of the steps required
under Article 13 on a timely basis would result in the loss of dissenters'
rights. Because a proxy which does not contain voting instructions will,
unless revoked, be voted "FOR" approval and adoption of the Merger Agreement
and the transactions contemplated thereby, a holder of shares of TBI Stock who
votes by proxy and who wishes to exercise his dissenters' rights must, after
notifying TBI in writing of his intention to dissent, either (i) vote "AGAINST"
the approval and adoption of the Merger Agreement and the transactions
contemplated thereby or (ii) abstain from voting on the approval and adoption
of the Merger Agreement and the transactions contemplated thereby.
In addition to solicitation of proxies by use of the mails, proxies
may be solicited by directors, officers and employees of TBI in person or by
telephone, telegram or other means of communication. Such directors, officers
and employees will not be additionally compensated but may be reimbursed for
reasonable out-of-pocket expenses in connection with such solicitation.
Arrangements also will be made with custodians, nominees and fiduciaries for
forwarding of proxy solicitation materials to beneficial owners of shares held
of record by such custodians, nominees and fiduciaries.
The expense of soliciting proxies for the Special Meeting will be paid
for by TBI, although FLFC and TBI have agreed to share the cost of preparing
and mailing this Proxy Statement/Prospectus.
RECOMMENDATION OF TBI'S BOARD OF DIRECTORS
The Board of Directors of TBI has adopted and approved the Merger
Agreement, approved the transactions contemplated thereby, and believes the
Merger is in the best interest of TBI and its stockholders. Accordingly, the
Board of Directors recommends that stockholders of TBI vote "FOR" approval of
the Merger Agreement and the consummation of the transactions contemplated
thereby. See "The Merger - Reasons for the Merger" and "The Merger - Opinion
of TBI's Management."
-19-
<PAGE> 26
THE MERGER
GENERAL
The following sets forth a summary of the material terms of the Merger
Agreement and the transactions contemplated thereby. This description does not
purport to be complete and is qualified in its entirety by reference to the
Exhibits hereto, including the Merger Agreement, a copy of which is set forth
in Appendix A to this Proxy Statement/Prospectus and is incorporated herein by
reference. All stockholders are urged to read the Exhibits in their entirety.
The Merger Agreement provides that at the Effective Time TBI shall
merge with and into FLFC, with FLFC as the surviving corporation in the Merger.
The Merger Agreement and the transactions contemplated thereby are subject to
the satisfaction or waiver of certain conditions.
MERGER CONSIDERATION
At the Effective Time, each outstanding share of TBI Stock shall cease
to be outstanding and will, at the option of the holder thereof (excluding
shares held by Dissenting Stockholders), be converted into and exchanged for
the right to receive either the Cash Price or the Stock Price. A TBI
stockholder may elect to receive the Cash Price for some of his shares of TBI
Stock and the Stock Price for the balance of his shares of TBI Stock; however,
whole shares of TBI Stock must be exchanged for the Cash Price or the Stock
Price.
Pursuant to the Merger Agreement, the Cash Price is $37 per share of
TBI Stock exchanged for the Cash Price and the Stock Price is 1.48 shares of
Series B Preferred for each share of TBI Stock exchanged for the Stock Price.
For purposes of determining the Stock Price, the value of the 1.48 shares of
Series B Preferred was deemed to be $37 (1.48 multiplied by the $25 stated
value per share of the Series B Preferred). However, because there currently
is no trading market for the Series B Preferred, no assurances can be given
that the actual market value of the Series B Preferred will equal the stated
value of such shares or that a liquid trading market will develop in the
future. See "- Restrictions on Resales of Series B Preferred" and "Description
of FLFC Capital Stock - Preferred Stock." The Cash Price and the stated value
of the Stock Price equals 1.44 times the book value per share of the TBI Stock
as of March 31, 1995.
The Merger Agreement requires that the holders of 96,000 shares of TBI
Stock, including shares held by Dissenting Stockholders, receive cash in
exchange for their shares of TBI Stock. This number represents 48% of the
total outstanding shares of TBI Stock. In the event that the holders of fewer
than 96,000 shares of TBI Stock (including shares held by Dissenting
Stockholders) elect to receive cash, the Cash Price will be substituted on a
pro rata basis for Series B Preferred to increase to 96,000 the number of
shares of TBI Stock exchanged for cash. In the event the holders of more than
96,000 shares of TBI Stock (including shares held by Dissenting Stockholders)
elect to receive cash, Series B Preferred will be substituted on a pro rata
basis for the Cash Price to decrease to 96,000 the number of shares of TBI
Stock exchanged for cash.
Pursuant to the GBCC, in the event the Merger is approved and
consummated each of the stockholders of TBI who do not exercise and perfect
their dissenters rights will receive either the Cash Price, the Stock Price or
a combination thereof as described above. As a result, a TBI stockholder may
receive shares of Series B Preferred for a portion of his shares of TBI Stock
under the allocation method described above even if he elects to receive the
Cash Price for all of his shares of TBI Stock. Under the GBCC, the exercise of
dissenters' rights is the only remedy that a stockholder has in opposition to a
merger or to the merger consideration in a merger that has been approved by the
requisite vote of the corporation's stockholders. A stockholder could attempt
to insure that he receives cash for all of his shares of TBI Stock by
exercising and perfecting his dissenters rights pursuant to the GBCC. However,
the Merger Agreement provides that in the event the holders of 5% or more of
the outstanding shares of TBI Stock exercise their dissenters rights, FLFC and
FLB may terminate the Merger Agreement.
-20-
<PAGE> 27
Accordingly, a TBI stockholder who elects to exercise his dissenters rights
takes the risk that such exercise will result in the termination of the Merger
Agreement. A TBI stockholder that exercises and perfects his dissenters rights
under the GBCC is entitled to the "fair value" of his shares of TBI Stock plus
interest in the event the Merger is consummated. There can be no assurance
that the "fair value" of the TBI Stock will equal or exceed the Cash Price.
For a description of dissenters' rights and a discussion of the procedure for
perfecting such rights and determining the "fair value" of shares of TBI Stock,
see "- Dissenters' Rights" below.
Pursuant to the Merger Agreement, in the event the Merger is
consummated, FLFC will pay an aggregate Cash Price of $3,552,000 in exchange
for 96,000 shares of TBI Stock and issue an aggregate of 153,920 shares of
Series B Preferred in exchange for 104,000 shares of TBI Stock.
EFFECTIVE TIME
If the Merger Agreement is approved by the requisite vote of TBI
stockholders, and all other required governmental and other consents and
approvals are received, and if other conditions to the obligations of the
parties to consummate the Merger are satisfied or waived, the Merger will be
consummated and effected on the date and at the time Articles of Merger,
reflecting the Merger, are filed with the Secretary of State of the State of
Georgia. FLFC and TBI have agreed to use their reasonable efforts to cause
the Effective Time to occur on September 30, 1995 or as soon as possible
thereafter. FLFC or FLB may terminate the Merger Agreement if the Merger has
not been consummated by October 31, 1995. See "- Conditions to the Merger" and
"- Summary of Certain Provisions of the Merger Agreement - Amendment, Waiver
and Termination."
ELECTION; EXCHANGE OF TBI STOCK CERTIFICATES
Holders of TBI Stock are asked to specify on the enclosed proxy card
the number of their shares of TBI Stock that they would like to exchange for
cash and the number of shares that the holders would like to exchange for
shares of Series B Preferred in the event the proposed Merger is approved and
consummated. As soon as practicable after the Special Meeting, TBI will send
to the holders of TBI Stock a letter of transmittal confirming their election
and providing instructions for exchanging their TBI Stock certificates for cash
or Series B Preferred, as appropriate. Each TBI stockholder who does not
specify his election on the proxy, or who later decides to change his election,
will have the opportunity to make or change his election on the letter of
transmittal. If a TBI stockholder has not made his election to exchange his
TBI Stock for cash and/or Series B Preferred within 15 days of the date of the
letter of transmittal he will be deemed to have elected to receive Series B
Preferred for all of his shares of TBI Stock. FLFC may, in its discretion,
extend the time period during which TBI stockholders must make their election
by so providing in the letter of transmittal. TBI STOCKHOLDERS SHOULD NOT
SURRENDER THEIR TBI CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE SUCH LETTER OF
TRANSMITTAL AND INSTRUCTIONS. After the Effective Time, each holder of shares
of TBI Stock issued and outstanding at the Effective Time (other than shares
held by Dissenting Stockholders) shall surrender their TBI Certificate or
Certificates to FLFC or its agent, and the TBI Certificates thus surrendered
will be canceled. Unless otherwise designated by a TBI stockholder on the
transmittal letter, certificates representing shares of Series B Preferred
issued in connection with the Merger will be issued and delivered to the
tendering record holder. FLFC shall not be obligated to deliver the
consideration to which any holder of TBI Stock is entitled until such holder
surrenders his TBI Certificate or Certificates for exchange. The TBI
Certificate or Certificates so surrendered must be duly endorsed as FLFC may
require.
From and after the Effective Time, holders of TBI Certificates will
have no rights with respect to the shares of TBI Stock formerly represented
thereby other than the right to surrender such TBI Certificates and receive in
exchange therefor the shares of Series B Preferred and/or cash to which such
holders are entitled, as described above, or the right to perfect their
dissenters' right. In addition, no dividend or other distribution payable to
holders of record of Series B Preferred will be paid to the holder of any TBI
Certificates until such holder surrenders such TBI Certificates for exchange as
instructed. Subject to applicable law, upon surrender of the TBI Certificates,
such holders will receive the certificates representing the shares of Series B
Preferred and/or cash (without interest)
-21-
<PAGE> 28
issuable upon the exchange or conversion of such shares of TBI Stock, all
withheld dividends or other distributions (without interest), and any withheld
cash payments (without interest) for a fractional share of Series B Preferred
to which such stockholder is entitled.
If any certificate for Series B Preferred is to be issued in a name
other than that in which the TBI Stock certificate surrendered for exchange is
issued, the TBI Stock certificate so surrendered shall be properly endorsed and
otherwise in proper form for transfer, and the person requesting such exchange
shall affix any requisite stock transfer tax stamps to the certificates
surrendered, shall provide funds for their purchase, or shall establish to
FLFC's satisfaction that such taxes are not payable. Such person also shall be
required to provide evidence satisfactory to FLFC that such transfer is made in
compliance with applicable federal and state securities laws.
NO FRACTIONAL SHARES
Pursuant to the terms of the Merger Agreement, each holder of shares
of TBI Stock exchanged pursuant to the Merger who would otherwise be entitled
to receive a fraction of a share of Series B Preferred shall receive, in lieu
of such fractional share, cash (without interest) in an amount equal to such
fractional part of a share of Series B Preferred multiplied by $25. No such
holder will be entitled to dividends, conversion rights or any other rights as
a stockholder in respect of any fractional shares. For example, if a holder of
20 shares of TBI Stock elects to exchange his shares for the Stock Price, he
would be entitled to 29.6 shares of Series B Preferred (20 multiplied by 1.48).
However, because no fractional shares of Series B Preferred will be issued,
that stockholder would receive 29 shares of Series B Preferred and $15.00 in
cash (.6 x $25) in lieu of the fractional share.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
FLFC will be the surviving corporation in the Merger and will continue
to operate under its Articles of Incorporation and Bylaws in effect at the time
of the Merger. Further, the Board of Directors and management of FLFC will not
change as a result of the Merger.
At or shortly following the Effective Time, Tifton Bank will merge
with and into FLB, with FLB as the surviving entity. The Board of Directors
and management of FLB will not change as a result of the Bank Merger. However,
each director of TBI has agreed to serve on the Community Board for a period of
at least two years following the Effective Time. Additionally, Gary P. Hall,
the President and Chief Executive Officer of TBI and Tifton Bank, will serve as
a City President of FLB following the Merger. See "- Interests of Certain
Persons in the Merger."
Following the Effective Time, the general corporate offices of the
combined institution will be located at the current headquarters of FLFC in
Macon, Georgia. The existing offices of Tifton Bank will continue as a
banking offices of FLB. The consolidation of operations will allow the
surviving institution to recognize certain efficiencies by eliminating some
redundant expenses such as data processing, general business insurance,
internal and external audit expense, regulatory supervision fees, central
purchasing and advertising expenses. See "Business Information Concerning FLFC
and FLB."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Other than as described herein, no director or executive officer of
FLFC or TBI, and no affiliate of any such person, has any substantial interest,
direct or indirect, in the Merger, other than an interest arising from the
ownership of TBI Stock, in which case the director or officer receives no extra
or special benefit not shared on a pro rata basis by all other holders of TBI
Stock.
-22-
<PAGE> 29
Each director of TBI has agreed to serve on the Community Board for a
period of at least two years following the Effective Time. Pursuant to the
Merger Agreement, each member of the Community Board will receive a fee of $500
per monthly meeting of the Community Board attended for the first 12 months
following the Merger and $350 for each monthly meeting of the Community Board
attended through the remainder of his initial two-year term on such board.
Thereafter, members of the Community Board will be entitled to fees equal to
the fees paid to members of FLB's other community boards of directors.
At or before the Effective time, FLB and Gary P. Hall, the President
and Chief Executive Officer of TBI and Tifton Banks, will enter into an
agreement with respect to his duties as FLB's City President in Tifton and the
compensation and other benefits to be received by him. In general terms, that
agreement will provide for (i) a salary of $80,000 per year, subject to annual
merit review, (ii) an initial bonus of $30,000 payable in three annual
installments of $10,000 each, the first of such installments payable at the
Effective Time, and (iii) such other benefits as are payable generally to FLB's
officers and/or City Presidents, such as participation in the Officer Profit
Sharing Plan, FLB's medical and dental insurance plan, an automobile allowance,
and country club dues.
The agreement will be for a term of three years and will contain
non-compete provisions which will restrict Mr. Hall's ability to be employed by
a competitor of FLB within Tift County for a period of two years if he is no
longer employed by FLB.
After the Effective Time, FLFC will provide generally to officers and
employees of TBI and its subsidiaries employee benefits on terms and conditions
that, when taken as a whole, are substantially similar to those currently
provided by FLFC and its subsidiaries to their similarly situated employees.
For purposes of participation and vesting (but not benefit accrual) under such
employee benefit plans, service with TBI or its subsidiaries prior to the
Effective Time will be treated as service with FLFC or its subsidiaries.
CERTAIN CONSIDERATIONS
In deciding whether to approve the Merger, TBI stockholders should
consider the following factors, in addition to the other matters set forth
herein.
Deposit Insurance. Prior to 1989, the deposits of thrift institutions
such as FLB were insured by the Federal Savings and Loan Insurance Corporation
("FSLIC") and the deposits of national banks and state banks such as Tifton
Bank were insured by the FDIC. The Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") eliminated FSLIC and consolidated the
insurance of deposits under the FDIC using two deposit insurance funds - the
Bank Insurance Fund ("BIF"), which insures the deposits of Tifton Bank, and the
Savings Association Insurance Fund ("SAIF"), which principally insures the
deposits of FLB. Approximately 20% of the deposits of FLB are insured by the
BIF as a result of FLB's previous acquisition of BIF-insured deposits.
Currently, banks and thrifts pay to their respective insurance fund deposit
insurance premiums within a range of $.23 to $.31 per $100 of deposits.
However, under the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") insurance premiums charged by an insurance fund may be reduced
when the fund is capitalized with reserves of $1.25 per $100 of estimated
insured deposits. At the end of 1994, the BIF capital reserve was
approximately $1.15 for each $100 of insured deposits and the SAIF capital
reserve was only $.26 per $100 of insured deposits. The FDIC expects the BIF
to reach the 1.25 percent reserve ratio prior to July 31, 1995. On the other
hand, the FDIC anticipates that the SAIF will not reach the 1.25 percent
reserve ratio until 2002. In February 1995, the FDIC issued a proposal to
lower the deposit insurance premiums paid by BIF-insured institutions to a
range of $.04 per $100 of deposits for the highest rated institutions
(approximately 90% of the nearly 11,000 BIF-insured institutions) to $.31 per
$100 of deposits for the weakest institutions. Separately, the FDIC proposed
to retain the existing SAIF premium rates. Neither FLFC nor TBI can predict
whether or not the FDIC's proposals will be approved. However, any disparity
in deposit insurance premiums payable by BIF-insured institutions and by
SAIF-insured institutions could have a significant adverse impact on FLB. See
"Certain Regulatory Considerations - Regulation of FLB."
-23-
<PAGE> 30
Legislative and Regulatory Environment. The banking business is
highly regulated. The laws and regulations affecting such business have been
changed dramatically and may be further changed in the near future. For
example, recent legislative changes will permit bank holding companies,
beginning in September 1995, to acquire existing banks across state lines
regardless of state law and, beginning in June 1997, will allow a bank to
consolidate interstate subsidiaries into branches and merge with a bank across
state lines to the extent applicable states have not "opted out" of interstate
branching. Neither FLFC nor TBI can predict what additional changes will occur
in the future or the effect the changes, including changes resulting from
recent legislation, will have on the ability of FLFC to compete effectively or
to take advantage of new opportunities in the future. See "Certain Regulatory
Considerations - Recent Legislation."
Competitive Environment. The markets in which FLFC and TBI operate
are highly competitive. Competition in such markets is likely to increase in
light of the changing legislative and regulatory environment in which FLFC and
TBI operate. In addition, consolidation and mergers in the banking industry
are expected to continue, resulting in stronger and more effective competitors.
Neither FLFC nor TBI can predict the degree to which competition in the
industry will increase in the future or the effect any such increased
competition will have on FLFC following the Merger.
BACKGROUND OF THE MERGER
In recent years, the Board of Directors of TBI has considered the
long-term future prospects for TBI in its market in light of increased
competition from regional banks and other financial services providers, the
increased range of services expected by customers, changes in the regulatory
environment affecting community banks, and ongoing industry consolidation. The
Board of Directors of TBI determined that it would benefit from the advice of a
financial advisor and in May 1994, it engaged Stevens & Company, an investment
banking firm located in LaGrange, Georgia, which regularly provides merger and
acquisition advice to community banks in Georgia. With the assistance of
Stevens & Company, TBI reviewed acquisition proposals from four multi-market
bank holding companies including FLFC. Two of these potential acquiring
companies tendered letters of intent indicating an interest in acquiring TBI
for cash, while FLFC and one other financial institution proposed acquiring TBI
or Tifton Bank for a combination of stock and cash. With the assistance of
Stevens & Company, the Board of Directors reviewed and compared certain
characteristics of the four potential acquiring companies and the acquisition
proposals set forth in their respective letters of intent. Among other things,
the Board of Directors considered certain financial data of the potential
acquiring parties, their ability to consummate a transaction on a timely basis,
the tax impact of the various acquisition structures included in the proposals,
the valuation of the potential acquiring company's stock in the case of FLFC
and the other institution whose proposal entailed payment of cash and stock,
the concentration of stock holdings by investors in FLFC and such other
institution, management succession issues in the organizations of the potential
acquiring companies, and other related factors. The Board of Directors also
considered the oral opinion of Stevens & Company that the proposal outlined in
FLFC's letter of intent was fair to the stockholders of TBI from a financial
point of view.
Based upon this analysis and review, the Board of Directors formed a
belief that it was in the best interests of TBI and its stockholders to pursue
a merger with FLFC. Accordingly, on March 15, 1995, TBI entered into a letter
of intent with FLFC. In general, the letter of intent was a non-binding letter
expressing the intention of TBI and FLFC to conduct further due diligence
investigations of each other's condition and prospects, and to negotiate the
terms of a definitive merger agreement between TBI, Tifton Bank, FLFC and FLB.
While the letter of intent generally was of a non-binding nature, it included
binding provisions which limited the circumstances under which TBI or Tifton
Bank could solicit or pursue acquisition proposals other than that of FLFC.
Among other things, the letter of intent would have required TBI to bear
certain liquidated damages and expense reimbursement amounts in the event TBI
entered into a letter of intent or agreement with a third party regarding a
proposed business combination. Subsequently, following completion of their
respective due diligence investigations in early May 1995, TBI, Tifton Bank,
FLFC and FLB entered into the definitive Merger Agreement, a copy of which is
set forth as Appendix A to this Proxy Statement/Prospectus.
-24-
<PAGE> 31
REASONS FOR THE MERGER
The Board of Directors of TBI, after consideration of relevant
business, financial, legal and market factors, approved the Merger Agreement
and the transactions contemplated thereby. TBI's Board of Directors did not
assign any relative or specific weight to the factors considered, which
included:
(i) The financial terms of the Merger. In this regard, the Board
of Directors believes that the Merger consideration is fair to
the TBI stockholders based on its current financial condition
and future prospects. The Board of Directors also considered
the fact that the Series B Preferred will pay a higher cash
dividend than currently paid on the TBI Stock and that the
Series B Preferred may have a liquid trading market while no
active trading market for TBI Stock exists or is expected to
develop in the foreseeable future.
(ii) Comparing TBI's continuing as an independent entity to
combining with FLFC, particularly as to stockholder value.
The Board considered the benefits that could reasonably be
expected to accrue to TBI stockholders from the Merger,
including the likelihood of a higher stock price for FLFC's
Common Stock or Preferred Stock than would be achieved by TBI
operating on an independent basis. Based on a small number of
sales of TBI Stock prior to announcement of the FLFC letter of
intent, TBI stockholders would receive in the Merger a premium
over the prices received in those sales.
(iii) The non-financial terms and structure of the Merger, in
particular, the fact that the Merger qualifies as a tax-free
reorganization to the TBI stockholders except in respect of
cash received for their TBI Stock.
(iv) The likelihood of the Merger being approved by the appropriate
regulatory authorities.
(v) The competitive nature of the Tifton financial market, which
management believes necessitates the ability to offer a wide
range of banking services. Due to capital requirements and
added regulatory requirements, TBI is presently unable to
provide services it deems necessary to compete in the
financial market now provided in Tifton by other financial
institutions. The Merger will provide the necessary capital,
support personnel and financial services required.
(vi) Recent legislative proposals concerning state-wide banking.
Those proposals indicate the possibility of changes in the
banking system for the State of Georgia which could have a
negative impact on stockholder value of an independent bank
operating in a small market.
THE BOARD OF DIRECTORS OF TBI RECOMMENDS THAT YOU VOTE "FOR" APPROVAL AND
ADOPTION OF THE MERGER AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY.
FLFC currently is pursuing a business strategy of increasing market
share in its middle, south and coastal Georgia markets through internal growth
and selected acquisitions. FLFC believes that the Merger is consistent with
this strategy.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The federal income tax summary set forth below is included for general
information only. The summary describes the material federal income tax
consequences of the Merger; the federal income tax consequences to TBI's
stockholders as a result of the Merger; and the federal income tax consequences
of ownership of Series B Preferred. The summary, except where noted, deals
only with Series B Preferred held as capital assets by United States holders
and does not deal with holders subject to special treatment under federal
income tax law (i.e., it may not be
-25-
<PAGE> 32
applicable to certain classes of taxpayers, including insurance companies,
securities dealers, financial institutions, foreign persons and persons who
acquire shares of TBI Stock pursuant to the exercise of employee stock options
or rights or otherwise as compensation). Furthermore, the discussion below is
based upon the provisions of the Code, and regulations, rulings and judicial
decisions thereunder as of the date of this Proxy Statement/Prospectus, and
such authorities may be repealed, revoked, or modified so as to result in
federal income tax consequences different from those discussed below.
Additionally, it cannot be predicted whether or when new tax legislation will
be enacted and, if enacted, how such legislation would impact the federal
income tax consequences to TBI's stockholders. A more detailed summary of these
federal income tax consequences is included in the opinion letter issued by
Coopers & Lybrand L.L.P. to FLFC which is incorporated in this document and
attached as Appendix C.
This summary is for general information only and is not a
comprehensive analysis of applicable federal income tax laws. In addition, no
information is provided with respect to the tax consequences under foreign,
state or local laws.
TBI STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISERS
CONCERNING THE FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF THEIR PARTICULAR
SITUATIONS, AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS OF ANY OTHER
TAXING JURISDICTION AND PROSPECTS FOR ENACTMENT OF FUTURE FEDERAL INCOME TAX
LEGISLATION.
Federal Income Tax Consequences of the Proposed Merger.
Coopers & Lybrand L.L.P. has delivered its opinion that the Merger
qualifies as a tax-free reorganization as defined in Section 368(a)(1)(A) of
the Code.
Federal Income Tax Consequences to TBI Stockholders.
Consequences to TBI Stockholders Who Receive Series B Preferred Only.
A stockholder who receives only Series B Preferred in exchange for his shares
of TBI Stock will recognize no gain or loss upon the exchange of such stock.
Consequences to TBI Stockholders Who Receive Cash Only. A TBI
stockholder (including a Dissenting Stockholder) who receives only cash for his
shares of TBI Stock will recognize gain or loss for federal income tax purposes
measured by the difference, if any, between the total cash received for the TBI
Stock and such holder's basis in his TBI Stock. The gain or loss will be
characterized for federal income tax purposes as capital gain or loss if the
holder's shares of TBI Stock were held as capital assets.
Consequences to TBI Stockholders Who Receive Cash and Series B
Preferre. A TBI stockholder who receives both cash and Series B Preferred in
exchange for his TBI Stock must recognize a portion of any gain realized. The
realized gain is measured by the excess of (a) the sum of the cash received and
the fair market value of the Series B Preferred received over (b) the
stockholder's basis in his TBI Stock. Stockholders must recognize this
realized gain but not in excess of the amount of cash received. No loss may be
recognized.
The characterization of the gain as either a dividend or as capital
gain will be determined on a stockholder-by-stockholder basis. Pursuant to
Section 356(a)(2) of the Code, if the distribution of the cash is considered as
having the "effect of the distribution of a dividend," then any gain recognized
will generally be taxed as a dividend. If the cash is considered as not having
the "effect of the distribution of a dividend," then any gain recognized will
generally be taxed as a capital gain if the TBI Stock was held by the
stockholder as a capital asset. TBI stockholders are urged to seek advice from
their tax advisors concerning the character of any gain recognized in this
transaction.
-26-
<PAGE> 33
Basis of Series B Preferred. The basis of the total amount of Series
B Preferred received by a TBI stockholder who receives only Series B Preferred
will be identical to the basis of the total amount of TBI Stock exchanged
therefor. Where a TBI stockholder receives both Series B Preferred and cash,
the basis of the total amount of the Series B Preferred received will equal (a)
the basis of the total amount of the TBI Stock exchanged, (b) decreased by the
amount of cash received and (c) increased by the amount of gain, if any,
recognized on the exchange.
Holding Period. The holding period for federal income tax purposes of
the Series B Preferred received by a TBI stockholder will include the holding
period for the TBI Stock exchanged therefor.
Federal Income Tax Consequences of Ownership of Series B Preferred Issued in
the Merger.
Dividends on the Series B Preferred. Distributions on the shares of
Series B Preferred will constitute dividends for federal income tax purposes to
the extent of FLFC's current or accumulated earnings and profits (as determined
under federal income tax principles).
FLFC expects that its current and accumulated earnings and profits
will be such that all distributions made with respect to the shares of Series B
Preferred will qualify as dividends for federal income tax purposes.
Nevertheless, any distributions on the shares of Series B Preferred in excess
of FLFC's current and accumulated earnings and profits will, to that extent,
not be treated as a dividend. Such excess will generally be treated for
federal income tax purposes as a tax-free return of capital to the extent of a
holder's basis in its shares of Series B Preferred and any excess as a long or
short term capital gain. Distributions that are treated as a return of capital
reduce a holder's basis in the shares of Series B Preferred and may subject the
holder to the payment of tax, at long or short term capital gain rates, when
distributions are made in excess of the holder's remaining basis in its shares
of Series B Preferred or if there is a subsequent sale or redemption of the
holder's Series B Preferred.
Redemption of Series B Preferred. A redemption of Series B Preferred
for cash will be treated under Code Section 302 as a distribution that is
taxable as a dividend to the extent of the FLFC's current or accumulated
earnings and profits unless the redemption: (i) is "not essentially equivalent
to a dividend" with respect to the holder under Code Section 302(b)(1); (ii) is
"substantially disproportionate" with respect to the holder under Code Section
302(b)(2); (iii) results in a "complete termination" of the holder's stock
interest in the corporation under Code Section 302(b)(3); or (iv) in the case
of a noncorporate stockholder, is in "partial liquidation" of the corporation
under Code Section 302(b)(4). In determining whether any of these tests has
been met, shares considered to be owned by the holder by reason of certain
constructive ownership rules applicable under Code Section 318(a), as well as
shares actually owned, must generally be taken into account.
If any one of these tests is met, the redemption of Series B Preferred
for cash will be entitled to "exchange treatment." In such a case, the
redemption will result in taxable gain or loss equal to the difference between
the amount of cash received and the holder's tax basis in the Series B
Preferred redeemed. Such gain or loss will be a capital gain or loss if the
Series B Preferred was held as a capital asset and will be a long-term capital
gain or loss if the holding period for the Series B Preferred is more than one
year.
These rules are applied on a stockholder-by-stockholder basis. Thus,
in the event of a redemption of Series B Preferred, owners of Series B
Preferred are urged to seek advice from their tax advisors as to the amount and
character of taxable income recognized with respect to a redemption.
Redemption Premium. Under Code Section 305(c), if the redemption
price of the Series B Preferred exceeds its issue price by more than a
reasonable amount, such excess will be taxable as a dividend on an economic
accrual basis over the period during which the Series B Preferred cannot be
redeemed.
-27-
<PAGE> 34
New Treasury regulations interpreting amendments made in 1990 to
Section 305(c) of the Code have not as yet been promulgated. Under existing
regulations, a premium is considered to be reasonable if it is in the nature of
a penalty for a premature redemption and if such premium does not exceed the
amount which the issuer would be required to pay for such redemption right
under market conditions existing at the time of issuance of the preferred
stock. FLFC intends that the redemption premium on the Series B Preferred will
be considered to be a reasonable redemption premium, although no assurance can
be given that it will be so considered.
Sale or Exchange of Series B Preferred. The sale or exchange of
Series B Preferred for cash will be a taxable event resulting in taxable gain
or loss equal to the difference between the amount of proceeds received and the
holder's tax basis in the Series B Preferred sold. Such gain will be capital
gain or loss if Series B Preferred was held as a capital asset and will be
long-term capital gain or loss if the holding period for the Series B Preferred
is more than one year.
Conversion of Series B Preferred into FLFC Common Stock. Gain or loss
generally will not be recognized by a holder upon the conversion of shares of
Series B Preferred into shares of FLFC Stock if no cash is received. Dividend
income may be recognized, however, to the extent cash or FLFC Stock is received
in payment of dividends in arrears. Further, cash received in lieu of
fractional shares of FLFC Stock will be treated as received in redemption of
the fractional shares of FLFC Stock with the tax consequences described above.
Generally, a holder's basis in the FLFC Stock received upon the conversion of
shares of Series B Preferred (other than shares, if any, taxed as a dividend
upon receipt) will equal the basis of the converted Series B Preferred shares,
and the holding period of such FLFC Stock will include the holding period of
the converted Series B Preferred shares.
Changes in Conversion Price. Treasury regulations issued under Code
Section 305 treat as taxable distributions certain adjustments in the
conversion price of convertible securities such as the Series B Preferred. For
example, an adjustment in the conversion price of the Series B Preferred to
reflect taxable distributions on the FLFC Stock of cash, property or securities
(other than any regular quarterly dividend payable in cash and nontaxable stock
dividends and stock splits) will be treated as a taxable constructive
distribution on the Series B Preferred and will be taxable in the manner set
forth above under "-Dividends on the Series B Preferred." Conversely,
adjustments in conversion prices or ratios of convertible preferred stock under
a bona fide reasonable adjustment formula to prevent dilution will not result
in a deemed distribution of stock.
Information Reporting and Backup Withholding Requirement. FLFC will
be required to file information returns with the Internal Revenue Service with
respect to payments of dividends on the Series B Preferred. Holders of Series
B Preferred who fail to provide FLFC with their proper taxpayer identification
numbers may become subject to 31% "backup withholding" on the payment of
dividends. Backup withholding does not constitute an additional tax and may be
credited against the holder's regular income tax liability.
REGULATORY APPROVALS
The Merger is subject to the prior approval (or waiver of the approval
requirements) by the OTS, Federal Reserve and DBF. FLFC has filed all
applications required to be filed with the OTS, Federal Reserve and DBF in
connection with the Merger. The Merger may not be consummated until 15 days
(30 days under certain circumstances) after approval of the Merger by such
agencies during which time the United States Department of Justice, the
Federal Trade Commission and other interested parties have the opportunity to
file suit seeking to enjoin consummation of the Merger on antitrust grounds.
SUMMARY OF CERTAIN PROVISIONS OF THE MERGER AGREEMENT
Conditions to the Merger. The obligation of TBI and FLFC to
consummate the Merger are subject to the satisfaction or waiver of certain
conditions including: (i) the Merger Agreement shall have been approved by the
stockholders of TBI; (ii) the required regulatory approvals described under
"-Regulatory Approvals" above shall
-28-
<PAGE> 35
have been received; (iii) each party shall have received any required consents
of third parties; (iv) the Registration Statement of which this Proxy
Statement/Prospectus is a part shall have been declared effective by the
Commission and shall not be subject to a stop order or threatened stop order;
(v) TBI and Tifton Bank shall have suffered no material adverse change since
May 10, 1995; (vi) each party's representations and warranties shall remain
true in all material respects, and each party shall have performed in all
material respects all of the agreements and covenants to be performed by it
pursuant to the Merger Agreement, (vii) no suit, investigation, action or other
proceeding shall be pending or overtly threatened against TBI, Tifton Bank,
FLFC or FLB which has resulted in the restraint or prohibition of any such
party, or could result in the obtaining of material damages or other relief
from such parties, in connection with the Merger Agreement or the consummation
of the transactions contemplated thereby; (viii) TBI will carry out its
operations through the Effective Time in the ordinary course of business; (ix)
there shall be no outstanding stock options, warrants or other rights to
purchase TBI Stock; (x) all officers and directors of TBI and its subsidiaries
shall have delivered to FLFC and FLB their resignations; (xi) neither TBI nor
its subsidiaries shall be party to any employment or similar agreements; (xii)
each director shall have executed an agreement (A) to elect to exchange at
least 52% of his TBI Stock for Series B Preferred in the Merger, (B) not to
sell any shares of Series B Preferred that he receives in the Merger for a
period of one year after the Effective Time, (C) to serve as a member of the
Community Board and (D) that he will not become a director of any financial
institution or its holding company or become the beneficial owner of more than
1% of the stock of a newly formed financial institution or its holding company
for a period of five years after the Effective Time; and (xiii) Tifton Bank's
loan loss reserve shall not be less than $325,000.
No assurances can be provided as to when or if all of the conditions
precedent to the Merger can or will be satisfied or waived by the appropriate
party. As of the date of this Proxy Statement/Prospectus, the parties know of
no reason to believe that any of the conditions set forth above will not be
satisfied.
The conditions to consummation of the Merger may be waived, in whole
or in part, to the extent permissible under applicable law, by the party for
whose benefit the condition has been imposed, without the approval of the TBI
stockholders. See "- Amendment, Waiver and Termination" below.
Conduct of Business Pending the Merger. TBI has agreed in the Merger
Agreement, unless prior consent of FLFC is obtained, and except as otherwise
contemplated by the Merger Agreement, to operate its business only in the
ordinary course in accordance with past practices, to preserve its present
business organization and to maintain its rights and franchises and to take no
action that would adversely affect either the ability of either party to
perform its covenants and agreements under the Merger Agreement.
TBI has agreed in the Merger Agreement not to take certain actions
relating to the operation of its business pending consummation of the Merger
without the prior approval of FLFC. Accordingly, TBI, among other things, may
not (i) purchase or commit to purchase any capital asset, (ii) increase any
salaries, wages or employee benefits or hire, commit to hire or terminate any
employee, (iii) amend its charter document or bylaws, (iv) issue, sell, redeem,
purchase or otherwise acquire or make any changes in its issued and outstanding
capital stock or issue any rights to purchase shares of its capital stock or
any security convertible into its capital stock or declare any dividend or make
any other distribution with respect to its capital stock (v) incur, assume,
guarantee, exchange, refund or renew any indebtedness of TBI or any subsidiary,
(vi) amend or terminate any material agreement, (vii) solicit, entertain any
offer for, or sell or agree to sell, or participate in any business combination
with respect to, any of the shares of its capital stock or all or substantially
all of its assets, (viii) change its financial or tax accounting methods,
principles, or practices, (ix) elect any new executive officers or directors,
(x) make any material adjustments in its loan loss reserves without prior
notice to FLFC, or (xi) dismiss, settle or compromise either of two pending
litigation matters without the written consent of FLFC and FLB.
In addition, TBI has agreed not to solicit, directly or indirectly,
any acquisition proposal from any other person or entity. TBI also has agreed
not to negotiate with respect to any such proposal, to provide information to
any party making such a proposal or to enter into any agreement with respect to
any such proposal except in a
-29-
<PAGE> 36
situation where its Board of Directors has a fiduciary obligation to consider
and respond to a bona fide proposal. TBI has also agreed to use reasonable
efforts to cause its advisors and other representatives not to engage in any of
the foregoing activities.
Amendment, Waiver and Termination. To the extent permitted by law,
TBI and FLFC with the approval of their respective Boards of Directors, may
amend the Merger Agreement by written agreement at any time without the
approval of the stockholders of TBI, provided that after the approval of the
Merger by TBI's stockholders, no amendment may decrease the consideration to be
received by TBI stockholders without the requisite approval of TBI
stockholders.
Prior to or at the Effective Time, either TBI or FLFC, acting through
its respective Board of Directors, chief executive officer or other authorized
officer, 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 fulfillment
by the other party of any 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.
The Merger Agreement may be terminated, and the Merger abandoned, at
any time prior to the Effective Time by mutual consent of TBI, Tifton Bank,
FLFC and FLB. In addition, the Merger Agreement may be terminated, and the
Merger abandoned, prior to the Effective Time (i) by either FLFC or TBI if the
other party materially breaches and does not timely cure any representation,
warranty, covenant or other agreement contained in the Merger Agreement, (ii)
by either FLFC or TBI if any action by a court, governmental or regulatory
agency prohibits or restrains the consummation of the Merger or (iii) by FLFC
or FLB if the Merger has not been consummated by October 31, 1995.
EXPENSES AND FEES
The Merger Agreement provides that each party shall be responsible for
its own expenses and fees incurred in connection with the transactions
contemplated by the Merger Agreement. If the Merger Agreement is terminated
as a result of any knowing, willful or negligent act or omission to act by the
other party, such party shall reimburse the damaged party all fees and expenses
incurred in connection with the Merger. In addition, if TBI enters into any
letter of intent, agreement in principle or definitive agreement with a third
party with respect to a business combination, such letter of intent or
agreement must require that the third party reimburse FLFC and FLB up to
$50,000 of its costs and expenses plus pay $50,000 as liquidated damages.
ACCOUNTING TREATMENT
The Merger will be accounted for using the "purchase" method of
accounting for financial reporting purposes. Under purchase accounting, the
assets and liabilities of an acquired company as of the Effective Time of the
acquisition are recorded at their respective fair values and added to those of
the acquiring company. Financial statements issued after consummation of an
acquisition accounted for as a purchase would reflect such values and would not
be restated retroactively to reflect the historical financial position or
results of operations of the acquired company. See "Pro Forma Combined
Financial Data."
RESTRICTIONS ON RESALES OF SERIES B PREFERRED
The shares of Series B Preferred to be issued in connection with the
Merger have been registered under the Securities Act. Consequently, such
shares will be freely transferable under the Securities Act, except for shares
issued to any stockholder who may be deemed to be an "affiliate" (generally
including, without limitation, directors, certain executive officers, and
beneficial owners of 10% or more of any class of capital stock) of TBI or FLFC
for purposes of Rule 145 under the Securities Act as of the date of the Special
Meeting. Such affiliates may not
-30-
<PAGE> 37
sell their shares of Series B Preferred acquired in connection with the Merger
except pursuant to an effective registration statement under the Securities Act
or other applicable exemption from the registration requirements of the
Securities Act. FLFC may place restrictive legends on certificates
representing Series B Preferred issued to all persons who are deemed to be
"affiliates" of TBI or FLFC under Rule 145. In addition, each director of TBI
has agreed not to sell the shares of Series B Preferred that he receives in
connection with the Merger for a period of one year from the Effective Time.
It is not anticipated that any of the current directors or executive officers
of TBI will become executive officers of FLFC.
There currently is no established trading market for shares of Series
B Preferred, and although the shares to be issued in the Merger have been
registered or are exempt from registration under applicable securities laws, no
assurances can be given that a liquid market will develop in the future or that
quotations for the Series B Preferred will be available. FLFC intends to file
an application to list the Series B Preferred on the Nasdaq SmallCap Market.
Following the Merger, FLFC and the Series B Preferred will satisfy all of the
criteria for listing on the Nasdaq SmallCap Market except that FLFC does not
yet have two market makers for the Series B Preferred. FLFC intends to seek at
least two market makers to make a market for the Series B Preferred. Until
FLFC receives commitments from two firms to act as market makers, no assurances
can be given that the Series B Preferred will be listed on the Nasdaq SmallCap
Market.
DISSENTERS' RIGHTS
Pursuant to Sections 14-2-1301 through 14-2-1332, inclusive, of the
GBCC, any TBI stockholder who desires to receive the fair value of his or her
TBI Stock in cash (a "Dissenting Stockholder") rather than to receive the Stock
Price or the Cash Price as part of the Merger may do so if he complies with the
provisions of the GBCC pertaining to the exercise of dissenters' rights. The
following is a summary of such provisions of the GBCC and is qualified in its
entirety by reference to such provisions, a copy of which is attached as
Appendix B hereto.
The GBCC provides that any Dissenting Stockholder desiring to object
to the Merger and receive payment in cash for his TBI Stock must deliver, prior
to the vote of the TBI Stockholders, written notice of his intent to demand
payment of the fair value of his shares of TBI Stock if the Merger is
effectuated. The notice must be delivered to Tifton Banks, Inc., Attention:
Secretary, 300 Commerce Way, Tifton, Georgia 31794. Further, the Dissenting
Stockholder must not vote his shares in favor of the Merger Agreement.
If the Merger Agreement and the transactions contemplated thereby are
approved by the TBI Stockholders, TBI is required to send by registered or
certified mail written notice (the "Dissenters' Notice") to each of the
Dissenting Stockholders who filed a written notice of his intent to dissent.
The Dissenters' Notice shall (i) state where the Dissenting Stockholders' First
Payment Demand (as defined below) must be sent and where and when the
Dissenting Stockholders must deposit their TBI Stock certificates, (ii) state
the date by which TBI must receive the First Payment Demand, which date shall
be fixed by TBI and shall not be fewer than 30 nor more than 60 days after the
date the Dissenters' Notice is delivered and (iii) contain a copy of Article 13
of the GBCC relating to dissenters' rights. Any Dissenting Stockholder who
voted for or consented in writing to the Merger Agreement shall not be entitled
to Dissenters' Notice from TBI or to receive payment of the fair value of his
shares of TBI Stock. TBI shall send the Dissenters' Notice to each of the
Dissenting Stockholders no later than ten days after the date on which the TBI
Stockholders vote to authorize the Merger Agreement and the transactions
contemplated thereby. The Dissenters' Notice is to be sent to each Dissenting
Stockholder at his address as it appears in the stock transfer books of TBI or
at such address as the Dissenting Stockholder supplies by notice to TBI.
Each Dissenting Stockholder to whom TBI sends a Dissenter's Notice
must demand payment for his shares by written notice to TBI (the "First Payment
Demand") in accordance with the terms of the Dissenters' Notice. The First
Payment Demand must contain the name and address of the Dissenting Stockholder,
the number of shares as to which the Dissenting Stockholder is demanding
payment (which must be all of the shares of TBI Stock which he owns) and a
demand for payment to the Dissenting Stockholder of the fair value of his
shares. In addition, the
-31-
<PAGE> 38
Dissenting Stockholder must deposit his TBI Stock certificate(s) with TBI in
accordance with the terms of the Dissenters' Notice. Any Dissenting
Stockholder who does not submit a First Payment Demand or deposit his TBI Stock
certificate(s) at TBI, each as set forth in the Dissenters' Notice, shall lose
his rights to dissent and shall not be entitled to payment for his or her
shares.
Within ten days of the later of the date of the Merger or TBI's
receipt of the First Payment Demand, TBI shall offer to pay the Dissenting
Stockholders who have complied with the provisions of the GBCC the amount TBI
estimates to be the fair value of the shares plus accrued interest. TBI's
offer of payment shall be accompanied by (i) TBI's balance sheet as of the
fiscal year ended not more than 16 months before the date of payment, an income
statement for that year, a statement of changes in Stockholders' equity for
that year and the latest available interim financial statements, if any; (ii) a
statement of TBI's estimate of the fair value of the shares; (iii) an
explanation of how the interest was calculated; (iv) a statement of the
Dissenting Stockholder's right to demand payment of a different amount if the
Dissenting Stockholder is dissatisfied with the offer; and (v) a copy of
Article 13 of the GBCC.
If a Dissenting Stockholder accepts TBI's offer by providing written
notice to TBI within 30 days after the date the offer is made, TBI shall make
payment for the Dissenting Stockholder's TBI Stock within 60 days after the
date TBI made the offer or the date on which the Merger occurs, whichever date
is later. If a Dissenting Stockholder is dissatisfied with TBI's offer, such
Dissenting Stockholder may notify TBI in writing of, and demand payment of, his
own estimate of the fair value of his shares and the amount of interest due
(the "Second Payment Demand") of his estimate of the fair value of such shares
and interest. A Dissenting Stockholder waives his right to demand payment of a
different amount than that offered by TBI unless such Dissenting Stockholder
makes a Second Payment Demand within 30 days after the date TBI makes its
offer.
In the event a Dissenting Stockholder's Second Payment Demand remains
unsettled within 60 days after TBI receives the Dissenting Stockholder's Second
Payment Demand, TBI shall commence a nonjury equitable valuation proceeding in
the Tift County Superior Court to determine the fair value of the shares and
accrued interest. TBI shall make all Dissenting Stockholders whose Second
Payment Demand remains unsettled parties to the court proceeding. In the
proceeding, the court will fix a value of the shares and may appoint one or
more appraisers to receive evidence and recommend a decision on the question of
fair value. If TBI does not commence the proceeding within 60 days after
receiving the Dissenting Stockholder's Second Payment Demand, TBI shall pay
each Dissenting Stockholder whose Second Payment Demand remains unsettled the
amount demanded by each such Dissenting Stockholder in his or her Second
Payment Demand.
The determination of a "fair value" necessarily involves matters of
judgment upon which reasonable persons may disagree. No allowance is permitted
for any increase or decrease in the value which may be attributed to the
proposed Merger.
-32-
<PAGE> 39
PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following Pro Forma Combined Condensed Balance Sheet as of March
31, 1995, assumes the Merger had been completed as of March 31, 1995, and
reflects the assumed consummation of the Merger accounted for as a purchase
transaction as of such date. FLFC has not made estimates relating to the fair
value of certain assets, liabilities and other items of TBI except as noted in
Notes (3) and (4) to the Pro Forma Combined Condensed Balance Sheet. Actual
adjustments, which may include adjustments to additional assets, liabilities
and other items or changes to adjustments herein, will be made on the basis of
appraisals and evaluations as of the date of consummation of the Merger and
therefore may differ from the amounts reflected in the Pro Forma Combined
Condensed Balance Sheet. The following Pro Forma Combined Condensed Income
Statements for the six months ended March 31, 1995, and for the
year ended September 30, 1994, assume the Merger had been completed as of
October 1, 1993. The Pro Forma Combined Condensed Income Statements for the six
months ended March 31, 1995 and for the year ended September 30, 1994 include
the historical consolidated income statements of FLFC for such periods and of
TBI for the six months ended March 31, 1995 and the year ended December 31,
1994. The following pro forma information assumes that no TBI stockholders
exercise their Dissenter's Rights. Additionally, the pro forma combined
condensed income statements for the six months ended March 31, 1995 and for the
year ended September 30, 1994 reflect the completed acquisitions of the Central
Banking Company ("CBC") by FLFC which occurred on December 2, 1994 and the
acquisition of certain assets and the assumption of certain liabilities of
three branch offices by FLFC from First Union National Bank of Georgia ("FUNB")
which occurred on March 24, 1995, and assume that these acquisitions had been
completed as of October 1, 1993 as well. These pro forma combined condensed
financial statements do not reflect any potential savings which may result from
the consolidation of these operations, except as noted in the notes to the pro
forma information, nor do they reflect any potential loans which may result
from operations in the markets acquired from FUNB.
The pro forma combined condensed financial data has been prepared
based upon the historical consolidated financial statements of FLFC and TBI.
The pro forma combined condensed financial statements may not be indicative of
the financial condition or results of operations that actually would have
occurred if the transactions had been in effect on the dates indicated or which
may be obtained in the future.
The pro forma combined condensed financial statements are unaudited
and should be read in conjunction with the historical consolidated financial
statements, including the notes thereto, of FLFC and TBI, appearing elsewhere
or incorporated by reference herein. See "Incorporation of Certain Information
by Reference" and "Tifton Banks, Inc. Financial Statements."
-33-
<PAGE> 40
PRO FORMA COMBINED CONDENSED BALANCE SHEET AT MARCH 31, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
ACTUAL
-------------------
PRO FORMA PRO FORMA
FLFC TBI ADJUSTMENTS COMBINED
---- --- ----------- ----------
(In thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks . . . . . . . . . $ 21,405 $ 3,184 - $ 24,589
Federal funds sold . . . . . . . . . . . 9,904 1,790 $(3,552) (1)
(100) (2) 8,042
Interest bearing deposits in banks
not maturing currently . . . . . . . . - 695 - 695
Investment and mortgage-backed
securities, available for sale . . . . 155,208 10,363 (300) (3) 165,271
Loans, net . . . . . . . . . . . . . . . 553,387 36,499 - 589,886
Accrued interest receivable . . . . . . . 4,729 516 - 5,245
Premises and equipment, net . . . . . . . 21,472 1,181 100 (2)
(130) (4) 22,623
Real estate, net . . . . . . . . . . . . 6,715 - - 6,715
Cost in excess of net assets acquired . . 9,530 - 2,790 (5) 12,320
Other assets . . . . . . . . . . . . . . 11,750 171 102 (6) 12,023
-------- ------- ------- --------
TOTAL ASSETS . . . . . . . . . . . . . . $794,100 $54,399 $(1,090) $847,409
======== ======= ======= ========
LIABILITIES
Deposits . . . . . . . . . . . . . . . . $690,808 $48,541 - $739,349
Notes payable and other
borrowed money . . . . . . . . . . . . 15,624 - - 15,624
Subordinated debentures . . . . . . . . . 12,398 - - 12,398
Other liabilities . . . . . . . . . . . . 12,675 725 $ 195 (7) 13,595
-------- ------- ------- --------
TOTAL LIABILITIES . . . . . . . . . . . . 731,505 49,266 195 780,966
-------- ------- ------- --------
STOCKHOLDERS' EQUITY
Series A, 7.75% cumulative convertible
preferred stock, $25 stated value . . 11,500 - - 11,500
Series B, 6.00% cumulative convertible
preferred stock, $25 stated value . . 3,720 - 3,848 (8) 7,568
Common Stock . . . . . . . . . . . . . . 3,031 2,000 (2,000) (9) 3,031
Additional paid-in capital . . . . . . . 14,664 1,600 (1,600) (9) 14,664
Retained earnings . . . . . . . . . . . 30,466 1,651 (1,651) (9) 30,466
Net unrealized loss on securities . . . . (517) (118) 118 (10) (517)
Treasury stock at cost . . . . . . . . . (269) - - (269)
-------- ------- ------- ---------
TOTAL STOCKHOLDERS' EQUITY . . . . . . . 62,595 5,133 (1,285) 66,443
-------- ------- ------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY . . . . . . . . $794,100 $54,399 $(1,090) $847,409
======== ======= ======= ========
</TABLE>
See Notes to Pro Forma Combined Condensed Balance Sheet.
-34-
<PAGE> 41
NOTES TO PRO FORMA COMBINED CONDENSED BALANCE SHEET
(1) To reflect the payment for shares of TBI Stock tendered for cash.
(2) Capital expenditures anticipated to convert facilities, equipment and
signage to FLB.
(3) Mark-to-market purchase accounting adjustment reflecting the estimated
fair value of TBI's securities portfolio.
(4) Mark-to-market purchase accounting adjustment reflecting the estimated
fair value of TBI's premises and equipment.
(5) The excess of the purchase price over net assets (after market value
adjustments) acquired from TBI will be recorded as intangible assets.
Also included in intangible assets are the capitalized acquisition costs.
The estimated intangible assets are as follows (in thousands).
<TABLE>
<S> <C>
Aggregate value of Series B Preferred . . . . . . . . $ 3,848
Aggregate amount of cash . . . . . . . . . . . . . . . 3,552
Net assets of TBI . . . . . . . . . . . . . . . . . . (5,133)
Net market value adjustments . . . . . . . . . . . . . 328
Estimated capitalized acquisition costs . . . . . . . 195
-------
Total intangibles . . . . . . . . . . . . $ 2,790
=======
</TABLE>
(6) Estimated deferred tax assets arising from purchase accounting
adjustments.
(7) Reflects the liability for estimated capitalized acquisition costs.
(8) To reflect the issuance of 153,920 shares of Series B Preferred in
exchange for shares of TBI Stock tendered for Series B Preferred.
(9) To eliminate TBI's stockholder's equity.
(10) To eliminate TBI's unrealized securities loss.
-35-
<PAGE> 42
COMBINED CONDENSED PRO FORMA INCOME STATEMENT
FOR THE SIX MONTHS ENDED MARCH 31, 1995
(IN THOUSANDS EXCEPT PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
COMPLETED
ACQUISITION
COMPLETED PRO FORMA
FLFC(2) FUNB ACQUISITION(3) ADJUSTMENTS SUBTOTAL TBI(1)
---- ---------------- ----------- -------- ---
<S> <C> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . . $28,657 $ 53 $3,093 (4) $31,803 $2,023
Interest expense . . . . . . . . . . . . . 15,144 1,839 58 (8) 17,041 898
------- ------- ------ ------- ------
Net interest income (expense) . . . . . . . 13,513 (1,786) 3,035 14,762 1,125
Provision for loan losses . . . . . . . . 600 - - 600 45
------- ------- ------ ------- ------
Net interest income (expense)
after provision for loan losses . . . . . 12,913 (1,786) 3,035 14,162 1,080
Non-interest income . . . . . . . . . . . . 3,919 153 - 4,072 190
Non-interest expense . . . . . . . . . . . 11,052 791 209 (9) 12,052 896
------- ------- ------ ------- ------
Income (loss) before income tax expense
and extraordinary item . . . . . . . . 5,780 (2,424) 2,826 6,182 374
Income tax expense (benefit) . . . . . . . 1,988 (824) 961 (11) 2,125 149
------- ------- ------ ------- ------
Income (loss) before preferred
dividends and extraordinary item . . . 3,792 (1,600) 1,865 4,057 225
Preferred dividends . . . . . . . . . . . . 519 - - 519 -
------- ------- ------ ------- ------
Income (loss) before extraordinary item
applicable to common stockholders . . . $ 3,273 $(1,600) $1,865 $ 3,538 $ 225
======= ======= ====== ======= ======
Earnings Per Common Share before
extraordinary item:
Primary . . . . . . . . . . . . . . . . . $ 1.06 $ 1.15 $ 1.13
======= ======= ======
Fully diluted . . . . . . . . . . . . . . $ 0.91 $ 0.97 $ 1.13
======= ======= ======
Average common shares outstanding:
Primary . . . . . . . . . . . . . . . . . 3,080 3,080 200
======= ======= ======
Fully diluted . . . . . . . . . . . . . . 4,156 4,156 200
======= ======= ======
<CAPTION>
TBI
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
----------- ---------
<S> <C> <C>
Interest income . . . . . . . . . . . . . . $ 36 (6) $33,771
(91) (5)
Interest expense . . . . . . . . . . . . . - 17,939
----- -------
Net interest income (expense) . . . . . . . (55) 15,832
Provision for loan losses . . . . . . . . - 645
----- -------
Net interest income (expense)
after provision for loan losses . . . . . (55) 15,187
Non-interest income . . . . . . . . . . . . - 4,262
Non-interest expense . . . . . . . . . . . 93 (9) 13,028
(13) (7)
----- -------
Income (loss) before income tax expense
and extraordinary item . . . . . . . . (135) 6,421
Income tax expense (benefit) . . . . . . . (46) (11) 2,228
----- -------
Income (loss) before preferred
dividends and extraordinary item . . . (89) 4,193
Preferred dividends . . . . . . . . . . . . 115 (12) 634
----- -------
Income (loss) before extraordinary item
applicable to common stockholders . . . $(204) $ 3,559
===== =======
Earnings Per Common Share before
extraordinary item:
Primary . . . . . . . . . . . . . . . . . $ 1.16
=======
Fully diluted . . . . . . . . . . . . . . $ 0.97
=======
Average common shares outstanding:
Primary . . . . . . . . . . . . . . . . . 3,080
=======
Fully diluted . . . . . . . . . . . . . . 4,401
=======
</TABLE>
See Notes to Pro Forma Combined Condensed Income Statements.
-36-
<PAGE> 43
COMBINED CONDENSED PRO FORMA INCOME STATEMENT
YEAR ENDED SEPTEMBER 30. 1994 (FLFC)
YEAR ENDED DECEMBER 31, 1994 (TBI)
(IN THOUSANDS EXCEPT PER SHARE DATA)
(Unaudited)
<TABLE>
<CAPTION>
COMPLETED
COMPLETED ACQUISITIONS
CBC AND FUNB PRO FORMA
FLFC ACQUISITIONS(3) ADJUSTMENTS SUBTOTAL TBI(1)
---- ------------ ----------- -------- ---
<S> <C> <C> <C> <C> <C>
Interest income . . . . . . . . . . . . . . . $48,562 $ 3,981 $ 141 (6) $58,710 $3,709
(159) (5)
6,185 (4)
Interest expense . . . . . . . . . . . . . . 25,117 5,662 115 (8) 30,894 1,606
------- ------- ------ ------- ------
Net interest income (expense) . . . . . . . . 23,445 (1,681) 6,052 27,816 2,103
Provision for loan losses . . . . . . . . . 1,500 192 - 1,692 61
------- ------- ------ ------- ------
Net interest income (expense)
after provision for loan losses . . . . . 21,945 (1,873) 6,052 26,124 2,042
Non-interest income . . . . . . . . . . . . . 9,883 384 - 10,267 375
Non-interest expense . . . . . . . . . . . . 23,029 3,003 544 (9) 26,002 1,744
(4) (7)
(570) (10)
------- ------- ------ ------- ------
Income (loss) before income tax expense
and extraordinary item . . . . . . . . . 8,799 (4,492) 6,082 10,389 673
Income tax expense (benefit) . . . . . . . . 2,750 (1,457) 2,068 (11) 3,361 220
------- ------- ------ ------- ------
Income (loss) before preferred
dividends and extraordinary item . . . . 6,049 (3,035) 4,014 7,028 453
Preferred dividends . . . . . . . . . . . . . 891 - 224 (12) 1,115 -
------- ------- ------ ------- ------
Income (loss) before extraordinary item
applicable to common stockholders . . . . $ 5,158 $(3,035) $3,790 $ 5,913 $ 453
======= ======= ====== ======= ======
Earnings Per Common Share before
extraordinary item:
Primary . . . . . . . . . . . . . . . . . . $ 1.67 $ 1.91 $ 2.27
======= ======= ======
Fully diluted . . . . . . . . . . . . . . . $ 1.50 $ 1.67 $ 2.27
======= ======= ======
Average common shares outstanding:
Primary . . . . . . . . . . . . . . . . . . 3,089 3,089 200
======= ======= ======
Fully diluted . . . . . . . . . . . . . . . 4,227 4,227 200
======= ======= ======
<CAPTION>
TBI
PRO FORMA PRO FORMA
ADJUSTMENTS COMBINED
----------- ---------
<S> <C> <C>
Interest income . . . . . . . . . . . . . . . $ 72 (6) $62,308
(183) (5)
Interest expense . . . . . . . . . . . . . . - 32,500
----- -------
Net interest income (expense) . . . . . . . . (111) 29,808
Provision for loan losses . . . . . . . . . - 1,753
----- -------
Net interest income (expense)
after provision for loan losses . . . . . (111) 28,055
Non-interest income . . . . . . . . . . . . . - 10,642
Non-interest expense . . . . . . . . . . . . 186 (9) 27,906
(26) (7)
----- -------
Income (loss) before income tax expense
and extraordinary item . . . . . . . . . (271) 10,791
Income tax expense (benefit) . . . . . . . . (92) (11) 3,489
----- -------
Income (loss) before preferred
dividends and extraordinary item . . . . (179) 7,302
Preferred dividends . . . . . . . . . . . . . 231 (12) 1,346
----- -------
Income (loss) before extraordinary item
applicable to common stockholders . . . . $(410) $ 5,956
===== =======
Earnings Per Common Share before
extraordinary item:
Primary . . . . . . . . . . . . . . . . . . $ 1.93
=======
Fully diluted . . . . . . . . . . . . . . . $ 1.66
=======
Average common shares outstanding:
Primary . . . . . . . . . . . . . . . . . . 3,089
=======
Fully diluted . . . . . . . . . . . . . . . 4,410
=======
</TABLE>
See Notes to Pro Forma Combined Condensed Income Statements.
-37-
<PAGE> 44
NOTES TO PRO FORMA COMBINED CONDENSED INCOME STATEMENTS
(1) TBI's operating results for the quarter ended December 31, 1994 are
included in both the Pro Forma Combined Condensed Statement of Operations
for the year ended December 31, 1994 and the Pro Forma Combined Condensed
Statement of Operations for the six months ended March 31, 1995. The net
income for the quarter ended December 31, 1994 was $101,000 (income of
$1,101,000 and expenses of $1,000,000).
(2) The historical results for FLFC for the six months ended March 31, 1995
include the results of operations of CBC from December 2, 1994 to March
31, 1995. The recurring results of operations of CBC, excluding a
nonrecurring loss on securities sold in anticipation of the merger of CBC
with FLFC, from October 1, 1994 to December 1, 1994 are not material.
(3) Actual FUNB earnings are not available for any period prior to the
acquisition on March 24, 1995. Accordingly, pro forma earnings estimates
are based on actual results subsequent to the date of the acquisition.
(4) Reflects interest income from loan originations and investment purchases
resulting from the cash proceeds received in connection with the FUNB
acquisition at comparable rates to FLFC's existing earning assets.
(5) Reflects the reduction in interest income resulting from a decline in
federal funds sold for cash paid to CBC or TBI stockholders and cash paid
for facilities improvements. The assumed average interest rate on federal
funds was the average yield on federal funds in each of the respective
periods.
(6) Reflects the amortization of the purchase accounting adjustment for the
investment and mortgage-backed securities portfolio of CBC or TBI, as
appropriate.
(7) Reflects the amortization of purchase accounting adjustments relating to
premises and equipment of CBC or TBI, as appropriate. These adjustments
will be amortized over the lives of the related assets (5 to 40 years).
(8) Reflects the amortization of the purchase accounting adjustment for FUNB
deposits. The adjustment will be amortized over two years on a straight
line basis.
(9) Reflects the amortization of intangibles. The intangible assets for FUNB
will be amortized over 10 years on a straight line basis and the
intangibles for CBC and TBI, as appropriate, will be amortized over 15
years on the straight line basis.
(10) Reflects the estimated annual reduction in non-interest expenses of CBC
based upon actual non-interest expenses experienced by FLFC during the
three months ended March 31, 1995.
(11) Reflects the income tax expense (benefit) of the pro forma adjustments at
an effective tax rate of 34%.
(12) Reflects dividends on Series B Preferred at 6% per annum.
-38-
<PAGE> 45
TIFTON BANKS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
TBI's principal asset is its ownership of Tifton Bank. Accordingly,
TBI's results of operations are dependent upon the results of operations of
Tifton Bank. Tifton Bank conducts a commercial banking business which consists
of attracting deposits from the general public and applying those funds to the
origination of commercial, consumer and real estate loans (including
commercial loans collateralized by real estate).
The primary component of Tifton Bank's earnings is net interest
income, or the difference between interest income and interest expense. Tifton
Bank's results of operations are, therefore, determined primarily by its
ability to effectively manage interest income on interest-earning assets and
interest expense on interest-bearing liabilities. Interest-earning assets
consist of loans, investment securities and federal funds sold. The income
from some investment securities, such as state and municipal bonds, is
tax-exempt. Because of immateriality, the information presented in the tables
and accompanying narrative on the following pages does not reflect an
adjustment to state the tax-exempt income and resultant yields on a basis
comparable to taxable investments. Interest-bearing liabilities consist of
interest-bearing deposits and borrowed funds. Approximately 14% of total
deposits are noninterest-bearing demand deposits.
Net interest income is affected by the relative amounts of
interest-earning assets and interest-bearing liabilities, and the interest rate
paid and earned on those balances. Interest rates are determined by market
forces and economic conditions over which Tifton Bank has no control. Thus,
Tifton Bank's ability to generate net interest income is dependent upon its
ability to maintain an adequate interest rate spread, which is the difference
between the average yield earned on its interest-earning assets and the average
rate paid on its interest-bearing liabilities. The key performance measure for
net interest income is net interest margin, which is net interest income
expressed as a percentage of average interest-earning assets.
Additionally, and to a lesser extent, Tifton Bank's profitability is
affected by such factors as the level of noninterest income and expenses, the
provision for loan losses and the effective tax rate.
Noninterest income consists primarily of loan and other fees and
income from the sale of investment securities. Noninterest expenses consist of
compensation and benefits, occupancy-related expenses, deposit insurance
premiums paid to the Federal Deposit Insurance Corporation (the "FDIC") and
other operating expenses.
The allowance for loan losses represents a reserve for potential
losses in the loan portfolio. The adequacy of the allowance for loan losses is
evaluated periodically based on a review of all significant loans, with
particular emphasis on nonaccruing, past due and other loans that management
believes require attention. The provision for loan losses is a charge to
earnings in the current period to replenish the allowance and maintain it at a
level management has determined to be adequate.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1994
Net income of TBI increased $40,000 or 48.2% to $124,000 for the three
months ended March 31, 1995 from $83,000 for the three months ended March 31,
1994, primarily because interest income increased at a greater rate than
interest expense resulting in an increase in net interest income of $66,000 or
13.6%. Return on average assets and return on average equity on an annualized
basis were .91% and 9.77%, respectively, for the three months ended March 31,
1995, compared to .66% and 6.63%, respectively, for the three months ended
March 31, 1994.
Interest income increased $145,000 or 16.8% to $1,009,000 for the
three months ended March 31, 1995 from $864,000 for the three months ended
March 31, 1994. This increase resulted from an increase in average yield on
interest-earning assets and an increase in the average balance of
interest-earning assets. The average yield
-39-
<PAGE> 46
on interest-earning assets increased 1.04% to 8.51% for the three months ended
March 31, 1995 from 7.47% for the three months ended March 31, 1994.
Additionally, the average balance of interest-earning assets increased
$1,680,000 to $47,958,000 in the first three months of 1995 from $46,278,000 in
the first three months of 1994. For the three months ended March 31, 1995,
average interest-bearing deposits decreased $1,235,000 to $949,000 from
$2,184,000 for the three months ended March 31, 1994. Average federal funds
sold decreased $2,860,000 to $1,010,000 in the first three months of 1995 from
$3,870,000 in the first three months of 1994. Average outstanding loans
increased $1,228,000 to $35,485,000 in the first quarter of 1995 from
$34,257,000 in the first quarter of 1994. Also during the same period, average
investment securities increased $4,547,000 to $10,514,000 in 1995 from
$5,697,000 in 1994.
Interest expense increased $79,000 or 20.9% to $458,000 for the three
months ended March 31, 1995 from $378,000 for the three months ended March 31,
1994. This increase resulted from of an increase in the average cost of
interest-bearing liabilities and an increase in the average balance of
interest-bearing liabilities. The average cost of interest-bearing liabilities
increased to 4.6% for the three months ended March 31, 1995 from 3.99% for the
three months ended March 31, 1994. Additionally, the average balance of
interest-bearing liabilities increased $1,675,000 to $39,572,000 in the first
three months of 1995 from $37,897,000 in the first three months of 1994. For
the three months ended March 31, 1995, average savings and interest-bearing
demand deposits increased $2,281,000 to $13,570,000 from $11,289,000 for the
three months ended March 31, 1994. During the same period, time deposits
decreased $1,298,000 to $25,310,000 in 1995 from $26,608,000 in 1994. Also
during the period, Federal funds purchased increased to $692,000 in 1995 from
$0 in 1994.
Net interest income increased $66,000 or 13.6% to $551,000 for the
three months ended March 31, 1995 from $485,000 for the three months ended
March 31, 1994. As a result TBI's net interest margin increased to 4.60% in
1995 from 4.19% for the same period in 1994. Because rates on interest-earning
assets increased more significantly than rates on interest-bearing liabilities,
the interest rate spread increased to 3.91% in 1995 from 3.48% for the same
period in 1994.
Nonperforming loans increased $275,000 or 387.3% to $346,000 at March
31, 1995 from $71,000 at March 31, 1994. As a result of the significant
increase in nonperforming loans at March 31, 1995 as compared to March 31,
1994, the ratio of allowance for loan losses to period end nonperforming loans
decreased from 600.6% at March 31, 1994 to 127.5% at March 31, 1995.
Other nonperforming assets as a percentage of loans and foreclosed
property decreased to 0% at March 31, 1995 from .26% at March 31, 1994. Other
nonperforming assets, consisting of other real estate acquired through
foreclosure, was $6,000 at December 31, 1994. These assets were reduced to $0
at March 31, 1995 with no gain or loss incurred on the disposition of the real
estate.
Noninterest income increased $16,000 to $103,000 for the three months
ended March 31, 1995 from $87,000 for the three months ended March 31, 1994.
Losses on security transactions decreased to $0 at March 31, 1995 from $3,000
for the three months ended March 31, 1994. Other service charges, commissions
and fees increased $3,000 to $84,000 for the three months ended March 31, 1995
from $81,000 for the three months ended March 31, 1994. Other income increased
$11,000 to $19,000 for the three months ended March 31, 1995 from $8,000 for
the same period a year earlier.
Noninterest expenses remained relatively unchanged at $434,000 and
$427,000 for the three months ended March 31, 1995 and 1994, respectively.
-40-
<PAGE> 47
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
Net income of TBI decreased $137,000 or 33.8% to $268,000 for the year
ended December 31, 1994 from $405,000 for the year ended December 31, 1993.
This decrease resulted from an increase in net interest income of $172,000, a
decrease in the provision for loan losses of $156,000, a decrease in
noninterest income of $119,000 due to nonrecurring securities gains of $55,000
in 1993, an increase in other operating expenses of $78,000, an increase in the
provision for income taxes of $83,000, and a nonrecurring extraordinary item of
$185,000, net of tax, relating to the settlement of litigation on a forgery
claim. Had TBI not incurred this litigation expense, net income would have
been $453,000 for the year ended December 31, 1994.
Net interest income increased $171,000 or 8.9% to $2,102,000 in 1994
from $1,931,000 in 1993 due to an increase in interest rates and an increase in
the average balance of earning assets. The yield on interest-earning assets
increased nine basis points to 7.93% in 1994 from 7.84% in 1993 while the
interest rate on interest-bearing liabilities declined 13 basis points to 4.14%
in 1994 from 4.27% in 1993. Average interest-earning assets increased
$1,265,000 to $46,791,000 in 1994 from $45,526,000 in 1993 while
interest-bearing liabilities increased $445,000 to $38,814,000 in 1994 from
$38,369,000 in 1993.
Interest income increased $140,000 or 3.9% to $3,709,000 in 1994 from
$3,569,000 in 1993. This increase resulted from a decrease of $17,000 in
interest on loans and an increase of $157,000 in interest on investment
securities and temporary investments. The increase in average yield on
interest-earnings assets to 7.93% in 1994 from 7.84% in 1993 was complemented
by an increase in average earning assets of $1,265,000 in 1994 as compared to
1993. The components of average interest-earning assets did not change
significantly in 1994 as compared to 1993. In 1994, average interest-earning
assets consisted of 72.8% in loans and 27.2% in investment securities and
temporary investments as compared to 74.7% in loans and 25.3% in investment
securities and temporary investments in 1993.
Interest expense decreased $32,000 or 1.9% to $1,606,000 in 1994 from
$1,638,000 in 1993. This decrease was attributable to a decrease in the
average yield on interest-bearing liabilities of 13 basis points to 4.14% in
1994 from 4.27% in 1993. Additionally, the composition of interest-bearing
liabilities changed. Savings and demand deposits accounted for 20.1% of total
interest-bearing liabilities in 1994 as compared to 16.9% in 1993. This change
was beneficial to TBI as a higher percentage of the interest-bearing
liabilities are paying interest at a lower rate than time deposits. The
average yield on savings and demand deposits was 3.0% in 1994 and 1993. The
average rate on time deposits was 4.41% in 1994 as compared to 4.52% in 1993.
The provision for loan losses decreased $156,000 to $61,000 for the
year ended December 31, 1994 from $217,000 for the year ended December 31,
1993. During 1994, TBI's management and its external loan review company
conducted an analysis and review of the loan portfolio as of December 31, 1994.
Based on this analysis and review of the quality of the loan portfolio, the
allowance for loan losses was considered to be adequate and the provision for
1994 represented the replacement in the reserve for current year charged-off
loans. The allowance for loan losses as a percentage of total loans
outstanding was 1.13% at December 31, 1994.
Nonperforming loans increased $215,000 to $401,000 at December 31,
1994 from $186,000 at December 31, 1993. As a result of the significant
increase in nonperforming loans at December 31, 1994 as compared to December
31, 1993, the ratio of allowance for loan losses to period end nonperforming
loans decreased from 215.1% at December 31, 1993 to 100.0% at December 31,
1994.
Noninterest income decreased $119,000 to $375,000 for the year ended
December 31, 1994 from $494,000 for the year ended December 31, 1993. This
decrease was attributable to a decrease in other service charges, commissions
and fees of $44,000 to $350,000 for 1994 from $394,000 for 1993. There was no
income for securities transactions during 1994, while such income was $55,000
for the year ended December 31, 1993. Other income decreased $19,000 to
$26,000 for 1994 from $45,000 for 1993.
Noninterest expense increased $78,000 to $1,745,000 for the year ended
December 31, 1994 from $1,667,000 for the year ended December 31, 1993. This
increase resulted primarily from an increase in net
-41-
<PAGE> 48
occupancy expenses of $33,000 to $224,000 for 1994 from $191,000 for 1993.
Other expenses increased $30,000 to $754,000 for 1994 from $724,000 in 1993.
This increase in other expenses represents increased legal fees associated with
the defense of Tifton Bank in a lawsuit for a forgery claim as discussed below.
Tifton Bank was a defendant in a lawsuit filed by one of its customers
alleging negligence for wrongly allowing the plaintiff's attorney to endorse
insurance drafts made jointly payable to the plaintiff and the attorney for
deposit into the attorney's trust account. Subsequent to depositing the funds,
the attorney misappropriated the funds from his trust account. The plaintiff
brought suit against Tifton Bank claiming that Tifton Bank should not have
allowed the drafts to be credited to the attorney's account. The suit resulted
in an award against Tifton Bank for $425,000 which was appealed. On appeal,
the award was reduced to $303,137 which Tifton Bank paid in December 1994 and
charged in full against 1994 earnings as an extraordinary item. Additionally,
the plaintiff was awarded approximately $70,000 in prejudgment interest. This
award has been appealed by Tifton Bank and the case is pending. Although
Tifton Bank has filed an action for recovery against its bonding company, no
provision for any contingent future recovery has been recorded.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 1993 AND 1992
Net income increased $294,000 or 264.8% to $405,000 for the year ended
December 31, 1993 from $111,000 for the year ended December 31, 1992. This
decrease resulted primarily from a decrease in the provision for loan losses of
$282,000 to $217,000 from $499,000 for the year ended December 31, 1992.
Net interest income increased $25,000 or 1.3% to $1,931,000 for the
year ended December 31, 1993 from $1,906,000 for the year ended December 31,
1992. As a result, the net interest margin increased to 4.24% in 1993 from
3.95% for the year ended December 31, 1992.
Interest income decreased $815,000 or 18.6% to $3,569,000 for the year
ended December 31, 1993 from $4,384,000 for the year ended December 31, 1992.
This decline resulted from a decrease in interest income on loans of $733,000
due to decreased rates. Lower interest rates also resulted in a decrease in
interest income on investment securities and temporary investments of $81,000
to $439,000 in 1993 from $520,000 in 1992.
Interest expense decreased $839,000 or 33.9% to $1,639,000 for the
year ended December 31, 1993 from $2,478,000 for the year ended December 31,
1992. This decrease is attributable to a decrease in average interest-bearing
liabilities of $4,881,000. Additionally, the decrease in volume was
complemented by a decrease in the average rate paid on interest bearing
liabilities to 4.27% in 1993 from 5.67% in 1994.
The provision for loan losses decreased $282,000 or 56.5% to $217,000
for the year ended December 31, 1993 from $499,000 for the year ended December
31, 1992. During 1993, TBI's management and external loan review company
conducted an analysis and review of the loan portfolio as of December 31, 1993.
Based on this analysis and review of the quality of the loan portfolio, the
allowance for loan losses was considered to be adequate. The allowance for
loan losses as a percentage of total loans outstanding was 1.24% and 1.08% at
December 31, 1993 and 1992, respectively.
Noninterest income increased $82,000 or 19.9% to $494,000 for the year
ended December 31, 1993 from $412,000 for the year ended December 31, 1992.
This increase is attributable to an increase in other service charges,
commissions and fees of $45,000 to $394,000 for 1993 from $349,000 for 1992.
Income from securities increased $65,000 to $55,000 for 1993 from a loss on
securities transactions of $10,000 for the year ended December 31, 1992. Other
income decreased $28,000 to $45,000 for 1993 from $72,000 for 1992.
Noninterest expense increased $35,000 to $1,667,000 for 1993 from
$1,632,000 for 1992. This increase is primarily attributable to an increase in
personnel expenses.
The provision for income taxes increased $61,000 or 81.3% to $136,000
for the year ended December 31, 1993 from $75,000 for the year ended December
31, 1992. This increase was consistent with an increase in income before taxes
of $355,000 to $541,000 for the year ended December 31, 1993 from $186,000 for
the year ended December 31, 1992.
-42-
<PAGE> 49
AVERAGE BALANCES AND NET INCOME ANALYSIS
The following tables set forth the amount of the TBI's interest income or
interest expense for each category of interest-earning assets and
interest-bearing liabilities and the average interest rate for total
interest-earning assets and total interest-bearing liabilities, net interest
spread and net yield on average interest-earning assets. Federally tax-exempt
income is not presented on a taxable-equivalent basis because the amount of
tax-exempt income is not material.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993
---------------------------------- ----------------------------------
INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ YIELD/RATE AVERAGE INCOME/ YIELD/RATE
BALANCE EXPENSE PAID BALANCE EXPENSE PAID
------- ------- ----------- ------- ------- -----------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets:
Loans . . . . . . . . . . . . . . . $34,047 $3,113 9.14 % $34,010 $3,130 9.20 %
Investment securities:
Taxable . . . . . . . . . . . . . 6,689 342 5.11 4,246 188 4.43
Nontaxable . . . . . . . . . . . 1,315 61 4.64 760 43 5.66
Interest bearing deposits
in other banks . . . . . . . . . . 1,744 75 4.30 1,735 66 3.80
Federal funds sold . . . . . . . . . 2,996 118 3.93 4,775 142 2.97
Total interest-earning
assets . . . . . . . . . . $46,791 $3,709 7.93 % $45,526 $3,569 7.84 %
------- ------ ---- ------- ------ ----
Noninterest-earning assets:
Cash . . . . . . . . . . . . . . . $ 2,302 $ 2,495
Allowance for loan losses . . . . . (412) (386)
Other assets . . . . . . . . . . . 2,204 2,057
------- -------
Total noninterest-earning
assets . . . . . . . . . . $ 4,094 $ 4,166
------- -------
Total assets . . . . . . . . . $50,885 $49,692
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Savings and interest-bearing
demand deposits . . . . . . . . $ 7,820 $ 237 3.03 % $ 6,469 $ 194 3.00 %
Time deposits . . . . . . . . . . . 30,941 1,365 4.41 31,814 1,437 4.52
Debt . . . . . . . . . . . . . . . 53 4 7.55 86 8 9.30
------- ------ ---- ------- ------ ----
Total interest-bearing
liabilities . . . . . . . . $38,814 $1,606 4.14 % $38,369 $1,639 4.27 %
------- ------ ---- ------- ------ ----
Noninterest-bearing liabilities:
Demand deposits . . . . . . . . . . $ 6,178 $ 5,536
Other liabilities . . . . . . . . . 765 980
Stockholders' equity . . . . . . . 5,128 4,807
------- -------
Total noninterest-bearing
liabilities . . . . . . . . $12,071 $11,323
------- -------
Total liabilities and
stockholders' equity . . . $50,885 $49,692
======= =======
Net interest income . . . . . . . . . $2,103 $1,930
====== ======
Interest rate spread . . . . . . . . . 3.79 % 3.57 %
==== ====
Net interest margin . . . . . . . . . . 4.49 % 4.24 %
==== ====
</TABLE>
-43-
<PAGE> 50
RATE AND VOLUME ANALYSIS
The following table reflects the changes in net interest income resulting
from changes in interest rates and from asset and liability volume. Federally
tax-exempt interest is not presented on a taxable-equivalent basis. The change
in interest attributable to rate has been determined by applying the change in
rate between years to average balances outstanding in later years. The change
in interest due to volume has been determined by applying the rate from the
earlier year to the change in average balances outstanding between years.
Thus, changes that are not solely due to volume have been consistently
attributed to rate.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
1994 VS. 1993 1993 VS. 1992
CHANGES DUE TO CHANGES DUE TO
----------------------------------------- -------------------------------------------
INCREASE RATE/ INCREASE RATE/
(DECREASE) RATE VOLUME VOLUME (DECREASE) RATE VOLUME VOLUME
---------- ---- ------ ------ ---------- ---- ------ ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Income from earning assets:
Interest and fees on loans . . $ (17) $ (20) $ 3 $ - $ (734) $ (161) $ (578) $ 5
Interest on securities:
Taxable . . . . . . . . . . 154 29 108 17 (107) (41) (21) (45)
Tax exempt . . . . . . . . 18 (8) 31 (5) 20 5 10 5
Other interest income . . . . 9 9 - - 48 1 47 -
Interest on Federal funds . . (24) 46 (53) (17) (42) (28) (17) 3
----- ----- ----- ----- ------ ------ ------ -----
Total interest income . . $ 140 $ 56 $ 89 $ (5) $ (815) $ (224) $ (559) $ (32)
----- ----- ----- ----- ------ ------ ------ -----
Expense from interest-bearing
liabilities:
Interest on savings and
interest-bearing demand
deposits . . . . . . . . . $ 43 $ 2 $ 41 $ - $ (165) $ (55) $ (134) $ 24
Interest on time deposits . . (72) (35) (38) 1 (669) (722) 66 (13)
Interest on debt . . . . . . (4) (2) (3) 1 (5) - (5) -
----- ----- ----- ----- ------ ------ ------ -----
Total interest expense . $ (33) $ (35) $ - $ 2 $ (839) $ (777) $ (73) $ 11
----- ----- ----- ----- ------ ------ ------ -----
Net interest income . . . $ 173 $ 91 $ 89 $ (7) $ 24 $ 553 $ (486) $ (43)
===== ===== ===== ===== ====== ====== ====== =====
</TABLE>
ASSET/LIABILITY MANAGEMENT
A principal objective of TBI's asset/liability management strategy has
been to minimize the exposure of net interest income to changes in interest
rates. The asset/liability function has been administered by the Chief
Executive Officer ("CEO") under the direction of TBI's Board of Directors.
TBI examines the extent to which its assets and liabilities are
"interest rate-sensitive" and monitors its interest rate-sensitivity "gap".
An asset or liability is considered to be interest rate-sensitive if it will
reprice or mature within the time period analyzed usually one year or less.
The interest rate-sensitivity gap is the difference between the
interest-earning assets and interest-bearing liabilities scheduled to mature or
reprice within such time period. A gap is considered positive when the amount
of interest rate-sensitive assets exceeds the amount of interest rate-sensitive
liabilities. A gap is considered negative when the amount of interest
rate-sensitive liabilities exceeds the amount of interest rate-sensitive
assets.
The primary asset/liability management strategy of TBI has been to
originate loans with maturities of five years or less which would correspond to
the liability structure of TBI. While some mismatch of maturities is
inevitable, such strategy helps to reduce interest rate risk.
The following table sets forth the distribution of the repricing of
TBI's earning assets and interest-bearing liabilities as of December 31, 1994,
the interest rate sensitivity gap (i.e., interest rate sensitive assets less
interest rate sensitive liabilities), the cumulative interest rate sensitivity
gap, the interest rate sensitivity gap ratio (i.e., interest rate sensitive
assets divided by interest rate sensitive liabilities) and the cumulative
sensitivity gap ratio. The table also sets forth the time periods in which
earning assets and interest-bearing liabilities will mature or may
-44-
<PAGE> 51
reprice in accordance with their contractual terms. However, the table does
not necessarily indicate the impact of general interest rate movements on the
net interest margin since the repricing of various categories of assets and
liabilities is subject to competitive pressures and the needs of Tifton Bank's
customers. In addition, various assets and liabilities indicated as repricing
within the same period may in fact reprice at different times within such
period and at different rates.
<TABLE>
<CAPTION>
AFTER THREE AFTER ONE
WITHIN MONTHS YEAR AFTER
THREE WITHIN WITHIN FIVE
MONTHS ONE YEAR FIVE YEARS YEARS TOTAL
------ -------- ---------- ----- -----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C>
Earning assets:
Interest-bearing deposits . . . . . $ 499 $ 496 $ 100 $ 99 $ 1,194
Federal funds sold . . . . . . . . 660 - - - 660
Investment securities:
Held to maturity . . . . . . . . 150 265 225 847 1,487
Available for sale . . . . . . . - 5,081 2,832 1,016 8,929
Repurchase . . . . . . . . . . . 1,500 - - - 1,500
Loans . . . . . . . . . . . . . . . 15,657 9,100 11,085 43 35,885
------- ------- ------- ------- -------
$18,466 $14,942 $14,242 $ 2,005 $49,655
------- ------- ------- ------- -------
Interest-bearing liabilities:
Interest-bearing demand deposits . $15,996 $ - $ - $ - $15,996
Savings . . . . . . . . . . . . . . 1,859 - - - 1,859
Certificates, less than $100,000 . 4,488 2,863 4,732 3,241 15,324
Certificates, $100,000 and over . . 1,563 1,875 2,123 3,502 9,063
------- ------- ------- ------- -------
$23,906 $ 4,738 $ 6,855 $ 6,743 $42,242
------- ------- ------- ------- -------
Interest rate sensitivity gap . . . . $(5,440) $10,204 $ 7,387 $(4,738) $ 7,413
Cumulative interest rate
sensitivity gap . . . . . . . . . . $(5,440) $ 4,764 $12,151 $ 7,413
Interest rate sensitivity gap ratio . 0.77 % 3.15 % 2.08 % 0.30 %
Cumulative interest rate
sensitivity gap ratio . . . . . . . 0.77 % 1.17 % 1.34 % 1.18 %
</TABLE>
As of December 31, 1994, the cumulative one-year interest rate
sensitivity gap ratio for TBI was 1.17%. This indicates that the
interest-earning assets of TBI will reprice during this period at a rate
slightly faster than the interest-bearing liabilities. Certain assumptions
regarding the interest sensitivity of these assets and liabilities have been
incorporated into this analysis.
Except for its effect on the general level of interest rates,
inflation does not have a material impact on TBI due to the rate variability
and short-term maturities of its earnings assets. In particular, approximately
75% of the loan portfolio is comprised of variable rate or short term
obligations. The majority of the remaining loan portfolio also matures within
one to five years. Additionally, approximately 55% of the investment portfolio
reprices within one year.
-45-
<PAGE> 52
INVESTMENT PORTFOLIO
Types of Investments. The amortized cost and estimated market value
of investment securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Nonmortgage-backed debt
securities of state and
political subdivisions . $1,462 $ 10 $ 45 $1,427
Equity securities . . . . . 25 - - 25
------ ------ ------ ------
$1,487 $ 10 $ 45 $1,452
====== ====== ====== ======
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-----------------------------------------------------------------
GROSS GROSS ESTIMATED
AMORTIZED UNREALIZED UNREALIZED MARKET
COST GAINS LOSSES VALUE
--------- ---------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Nonmortgage-backed debt
securities of:
U.S. Treasury . . . . $1,341 $ - $ 1 $1,340
Other U.S. government
agencies . . . . . . 2,168 $ 25 - 2,193
State and political
subdivisions . . . . 1,075 47 7 1,115
Mortgage-backed debt
securities . . . . . 526 4 - 530
------ ------ ------ ------
$5,110 $ 76 $ 8 $5,178
====== ====== ====== ======
</TABLE>
The book value and market values of securities available for sale were:
<TABLE>
<CAPTION>
DECEMBER 31, 1994
-----------------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES MARKET VALUE
--------- ---------- ---------- ------------
(In thousands)
<S> <C> <C> <C> <C>
Nonmortgage-backed debt
securities of:
U.S. Treasury . . . . . $6,021 $ - $ 77 $5,944
Other U.S. government
agencies . . . . . . 2,644 - 117 2,527
Mortgage-backed debt
securities . . . . . . 465 $ - 7 458
------ ------ ------ ------
Total . . . . . . $9,130 $ - $ 201 $8,929
====== ====== ====== ======
</TABLE>
As of March 31, 1995, the carrying value of investment securities
amounted to $10,541,724 with unrealized gains of $17,063 unrealized losses of
$210,971 and estimated market value of $10,347,816. See "- Asset/Liability
Management."
-46-
<PAGE> 53
Maturities. The amounts of investment securities in each category as
of December 31, 1994 are shown in the following table according to maturity
classifications (1) one year or less, (2) one year through five years, (3)
after five years through ten years and (4) after ten years.
<TABLE>
<CAPTION>
DECEMBER 31, 1994
---------------------------------------------------------------------------
HELD FOR INVESTMENT AVAILABLE FOR SALE
------------------------------------ -----------------------------------
ESTIMATED ESTIMATED
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE YIELD(1) COST VALUE YIELD(1)
--------- --------- -------- --------- --------- --------
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Maturity:
Nonmortgage-backed securities:
Due in one year or less . . . . $ 390 $ 388 3.33 % $5,130 $5,081 5.25 %
Due after one year through
five years . . . . . . . . . 225 213 3.95 2,684 2,587 5.50
Due after five years through
ten years . . . . . . . . . . 740 719 5.47 851 802 6.33
Due after ten years . . . . . . 107 107 4.70 - - -
------ ------ ------ ------
Total nonmortgage-backed
securities . . . . . . . . . 1,462 1,427 8,665 8,470
Equity securities . . . . . . . . 25 25 - - - -
Mortgage-backed securities . . . - - - 465 459 6.63
------ ------ ------ ------
Total . . . . . . . . . . . $1,487 $1,452 $9,130 $8,929
====== ====== ====== ======
</TABLE>
_____________________
(1) Yields were computed using coupon interest, adding discount accretion or
subtracting premium amortization, as appropriate, on a ratable basis over
the life of each security. The weighted average yield for each maturity
range was computed using the acquisition price of each security in that
range.
LOAN PORTFOLIO
Types of Loans. The amount of loans outstanding at the indicated
dates is shown in the following table according to type of loans.
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1993
---- ----
(In thousands)
<S> <C> <C>
Loans secured by 1 to 4 family residential properties . . . . . . . . . $ 6,960 $ 5,065
Loans secured by multi-family and non-farm, non-residential properties . 7,672 3,779
Other loans secured by real estate . . . . . . . . . . . . . . . . . . . 1,188 2,134
Commercial and industrial loans . . . . . . . . . . . . . . . . . . . . . 15,015 16,872
Consumer, installment and other loans . . . . . . . . . . . . . . . . . . 5,050 6,439
------- -------
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35,885 34,289
Less: Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . (7)
------- -------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,885 $34,282
======= =======
</TABLE>
Maturities and Sensitivity to Changes in Interest Rates. Total loans
as of December 31, 1994 are shown in the following table according to maturity
classifications (1) one year or less, (2) after one year through five years and
(3) after five years.
<TABLE>
<S> <C>
Maturity (in thousands):
One year or less . . . . . . . . . . . . $24,757
After one year through five years . . . . 11,085
After five years . . . . . . . . . . . . 3
-------
Total . . . . . . . . . . . . . . . . . . $35,885
=======
</TABLE>
Records were not available to present the above information in each
category of loans and could not be reconstructed without undue burden.
-47-
<PAGE> 54
The following table summarizes loans at December 31, 1994 with the due
dates after one year which (1) have predetermined interest rates and (2) have
floating or adjustable interest rates (in thousands).
<TABLE>
<S> <C>
Predetermined interest rates . . . . . . . . . . . . $ 8,810
Floating or adjustable interest rates . . . . . . . . 2,318
-------
Total . . . . . . . . . . . . . . . . . . . . . . . $11,128
=======
</TABLE>
NONPERFORMING ASSETS
A loan is placed on nonaccrual status when, in management's judgment, the
collection of the interest income appears doubtful. Interest receivable that
has been accrued in prior years and is subsequently determined to have doubtful
collectibility is charged to the allowance for possible loan losses. Interest
on loans that are classified as nonaccrual is recognized when received. Past
due loans are loans whose principal or interest is past due 90 days or more.
In some cases, where borrowers are experiencing financial difficulties loans
may be restructured to provide terms significantly different from the original
contractual terms.
Following is a summary of nonperforming and past due loans and foreclosed
assets as of December 31, 1994 and 1993:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1994 1993
------ ------
(In thousands)
<S> <C> <C>
Loans accounted for on a nonaccrual
basis . . . . . . . . . . . . . . . . . . . . . . $341 $ 33
Installment loans and term loans
contractually past due ninety days
or more as to interest or principal
payments and still accruing . . . . . . . . . . . . 54 64
Loans, the terms of which have been
renegotiated to provide a reduction
or deferral of interest or principal
balance because of deterioration in
the financial position of the borrower . . . . . . - -
Loans now current about which there are
serious doubts as to the ability of
the borrower to comply with present
loan repayment terms . . . . . . . . . . . . . . . - -
Foreclosed assets . . . . . . . . . . . . . . . . . . 6 89
---- ----
Total . . . . . . . . . . . . . . . . . . . . . . $401 $186
==== ====
</TABLE>
If interest on these loans had been accrued and paid, such interest income
would have approximated $13,757 and $4,839 for 1994 and 1993, respectively.
SUMMARY OF LOAN LOSS EXPERIENCE
The provision for possible loan losses is created by direct charges to
operations. Losses on loans are charged against the allowance in the period in
which such loans, in management's opinion, become uncollectible. Recoveries
during the period are credited to this allowance. The factors that influence
management's judgment in determining the amount charged to operating expense
are past loan experience, composition of the loan portfolio, evaluation of
possible future losses, current economic conditions and other relevant factors.
Tifton Bank's allowance for loan losses was approximately $404,000 at December
31, 1994, representing 1.3% of year-end total loans outstanding, compared with
approximately $400,000 at December 31, 1993, which represented 1.24% of
year-end total loans
-48-
<PAGE> 55
outstanding. Tifton Bank's allowance for loan losses was approximately
$441,000 at March 31, 1995, representing 1.19% of period-end total loans
outstanding.
The allowance for loan losses is reviewed periodically based on
management's evaluation of current risk characteristics of the loan portfolio,
as well as the impact of prevailing and expected economic business conditions.
Management considers the allowance for loan losses adequate to cover possible
loan losses on each outstanding loan with particular emphasis on any problem
loans. Management of Tifton Bank has not allocated the allowance for loan
losses to specific categories of loans. Based on management's best estimate,
approximately 40% of the allowance should be allocated to real estate loans,
30% to commercial and industrial loans, and 30% to consumer/installment loans
as of December 31, 1994 and March 31, 1995.
The following table presents an analysis of Tifton Bank's loan loss
experience for the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993
---- ----
(Dollars in thousands)
<S> <C> <C>
Average amount of loans outstanding . . . . . . . . . . $34,047 $34,010
======= =======
Balance of reserve for possible loan
losses at beginning of period . . . . . . . . . . . . $ 400 $ 371
------- -------
Charge-offs:
Commercial, financial and agricultural . . . . . . . $ (17) $ (159)
Real estate - mortgage . . . . . . . . . . . . . . . (12) -
Consumer . . . . . . . . . . . . . . . . . . . . . . (47) (88)
------- -------
$ (76) $ (247)
------- -------
Recoveries:
Commercial, financial and agricultural . . . . . . . $ 7 21
Real estate-mortgage . . . . . . . . . . . . . . . . 1 -
Consumer . . . . . . . . . . . . . . . . . . . . . . 11 8
------- -------
$ 19 $ 59
------- -------
Net charge-offs . . . . . . . . . . . . . . . $ (57) $ (188)
------- -------
Additions to reserve charged to operating
expenses . . . . . . . . . . . . . . . . . . . . . . $ 61 $ 217
------- -------
Balance of reserve for possible
loan losses at period end . . . . . . . . . . . . . . $ 404 $ 400
======= =======
Ratio of net loan charge-offs to
average loans outstanding during period . . . . . . . 0.17 % 0.55 %
======= ========
</TABLE>
-49-
<PAGE> 56
DEPOSITS
Average amount of deposits and average rate paid thereon, classified as to
noninterest-bearing demand deposits, interest-bearing demand and savings
deposits, and time deposits, for the periods indicated are presented below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993
----------------- ------------------
AMOUNT RATE AMOUNT RATE
------ ---- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Noninterest-bearing
demand deposits . . . . . $ 6,178 - % $ 5,536 - %
Interest-bearing demand . . 5,707 3.11 3,977 3.18
Savings deposits. . . . . . 2,113 2.79 2,492 2.70
Time deposits . . . . . . . 30,941 4.41 31,814 4.52
------- ---- ------- ----
Total deposits. . . $44,939 $43,819
======= =======
</TABLE>
The amounts of time certificates of deposit issued in amounts of
$100,000 or more at December 31, 1994, are shown below by category, which is
based on time remaining until maturity for the periods indicated from December
31, 1994.
<TABLE>
<CAPTION>
TIME DEPOSITS
OF $100,000 OR MORE
-------------------
(In thousands)
<S> <C>
Three months or less . . . . . . . . . . . . . . $1,563
Over three through six months . . . . . . . . . . 1,875
Over six through twelve months . . . . . . . . . 2,123
Over twelve months . . . . . . . . . . . . . . . 3,502
------
Total . . . . . . . . . . . . . . . . . $9,063
======
</TABLE>
RETURN ON ASSETS AND STOCKHOLDERS' EQUITY
The following rate of return information for the periods indicated is
presented below.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1994 1993
---- ----
<S> <C> <C>
Return on assets (1) . . . . . . . . . . 0.57% 0.89%
Return on equity (2) . . . . . . . . . . 5.23% 8.43%
Dividend payout ratio (3) . . . . . . . . 44.78% 14.35%
Equity to assets ratio (4) . . . . . . . 10.96% 10.56%
</TABLE>
_______________
(1) Net income divided by average total assets.
(2) Net income divided by average equity.
(3) Dividends declared per share divided by net income per share.
(4) Average equity divided by average total assets.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity management involves the matching of the cash flow
requirements of customers, who may be either depositors desiring to withdraw
funds or borrowers needing assurance that sufficient funds will be available to
meet their credit needs, and the ability of TBI to meet those needs. TBI seeks
to meet liquidity requirements primarily through management of short-term
investments (principally Federal funds sold) and monthly amortizing loans.
Another source of liquidity is the repayment of maturing single payment loans.
In addition, TBI maintains relationships with correspondent banks which could
provide funds on short notice, if needed.
-50-
<PAGE> 57
The liquidity and capital resources of TBI are monitored on a periodic
basis by state and federal regulatory authorities. At March 31, 1995, TBI's
short-term investments were adequate to cover any reasonably anticipated
immediate need for funds. TBI is not aware of any events or trends likely to
result in a material change in its liquidity.
The Federal Reserve requires the maintenance of certain minimum
risk-based capital requirements. The capital requirements are based upon the
perceived risk inherent in the assets of Tifton Bank. The guidelines define
capital as either core (Tier 1) capital or supplementary (Tier 2) capital.
Tier 1 capital consists primarily of shareholders' equity minus intangible
assets, while Tier 2 capital consists of the allowance for loan losses up to
certain limits, certain preferred stock and other debt instruments. Current
standards require banks to maintain a minimum risk-based capital ratio of
qualifying total capital to total capital to risk-weighted assets of 8%, with
at least 4% consisting of Tier 1 capital and a minimum leverage ratio of 3%.
Under these guidelines, Tifton Bank's capital ratios as of December 31, 1994,
1993 and March 31, 1995 were:
<TABLE>
<CAPTION>
ACTUAL CAPITAL RATIO
-------------------------------
DECEMBER 31, MINIMUM
---------------- MARCH 31, REGULATORY
1994 1993 1995 REQUIREMENT
---- ---- ---- -----------
<S> <C> <C> <C> <C>
Leverage capital ratio . . . . . . 9.28% 10.27% 9.45% 3.00%
Risk based capital ratios:
Tier 1 capital . . . . . . . . . 9.50% 9.88% 9.62% 4.00%
Tier 2 capital . . . . . . . . . 10.27% 10.67% 10.44% 8.00%
</TABLE>
COMMITMENTS AND LINES OF CREDITS
In the ordinary course of business, Tifton Bank has granted
commitments to extend credit to approved customers. Generally, these
commitments to extend credit have been granted on a temporary basis for
seasonal or inventory requirements and have been approved by Tifton Bank's
Board of Directors. Tifton Bank has also granted commitments to approved
customers for standby letters of credit. These commitments are recorded in the
financial statements when funds are disbursed or the financial instruments
become payable. Tifton Bank uses the same credit policies for these
off-balance sheet commitments as it does for financial instruments that are
recorded in the consolidated financial statements. Commitments generally have
fixed expiration dates or other termination clauses and may require payment of
a fee. Because many of the commitment amounts expire without being drawn upon,
the total commitment amounts do not necessarily represent future cash
requirements.
Following is a summary of the commitments outstanding at December 31,
1994 and 1993 and March 31, 1995.
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1994 1993 1995
---- ---- ------
(In thousands)
<S> <C> <C> <C>
Commitments to extend credit . . . . . $6,767 $4,776 $7,200
Standby letters of credit . . . . . . . 26 512 6
------ ------ ------
$6,993 $5,288 $7,426
====== ====== ======
</TABLE>
IMPACT OF INFLATION
The consolidated financial statements and related consolidated
financial data presented herein have been prepared in accordance with generally
accepted accounting principles and practices within the banking industry which
require the measurement of financial position and operating results in terms of
historical dollars without considering the changes in the relative purchasing
power of money over time due to inflation. Unlike most industrial companies,
virtually all the assets and liabilities of a financial institution are
monetary in nature. As a result, interest rates have a more significant impact
on a financial institution's performance than the effects of general levels of
inflation.
-51-
<PAGE> 58
CURRENT ACCOUNTING ISSUES
In May 1993, the Financial Accounting Standards Board (the "FASB")
issued "Statement of Financial Accounting Standards No. 114 - Accounting by
Creditors for Impairment of a Loan" ("SFAS 114"). SFAS 114 specifies that
allowances for loan losses on impaired loans should be determined using the
present value of the estimated future cash flows of the loan, discounted at the
loan's effective interest rate. A loan is impaired when it is probable that
all principal and interest amounts will not be collected according to the
loan contract. SFAS 114 is effective for fiscal years beginning after December
1994. Management of TBI has not yet determined the impact of adoption of SFAS
114 on the financial position or results of operations of TBI.
-52-
<PAGE> 59
OWNERSHIP OF TBI STOCK
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of May 31, 1995, information
concerning the beneficial ownership of TBI Stock for each current director of
TBI and for all current directors and executive officers as a group. Except as
otherwise indicated, the named persons have sole voting and investment power
with regard to the shares shown as owned by such persons.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENT
NAME OWNED(1) OF CLASS
---- ------------------- --------
<S> <C> <C>
Martin A. Cohen . . . . . . . . . . . . . . . . . . 7,750 3.88%
Sammie D. Dixon, M.D. . . . . . . . . . . . . . . . 7,970 (2) 3.99
Gary P. Hall . . . . . . . . . . . . . . . . . . . 3,050 (2) 1.53
Harold G. Harper . . . . . . . . . . . . . . . . . 8,400 (2) 4.15
Roy R. Jackson . . . . . . . . . . . . . . . . . . 5,000 (2) 2.50
Derris Jones . . . . . . . . . . . . . . . . . . . 13,825 (2) 6.91
J. Thomas Lindsey . . . . . . . . . . . . . . . . . 6,927 (2) 3.46
John Frank McGill . . . . . . . . . . . . . . . . . 5,250 (2) 2.63
Donald W. Pearson, Sr. . . . . . . . . . . . . . . 7,805 3.90
James W. Scott, M.D. . . . . . . . . . . . . . . . 8,889 4.42
Jack Stone . . . . . . . . . . . . . . . . . . . . 6,050 (2) 3.02
Vince A. Thigpen . . . . . . . . . . . . . . . . . 16,750 (2) 8.38
Monty Veazey . . . . . . . . . . . . . . . . . . . 4,000 (2) 2.00
All current directors and
executive officers as a group (14 persons) . . . 101,666 50.8%
- ---------------
</TABLE>
(1) The stock ownership information shown has been furnished to TBI by the
named persons and group. Beneficial ownership as reported in the table has
been determined in accordance with Commission regulations. Except as
otherwise stated in the footnotes below, the named persons have sole voting
and investment power with regard to the shares shown as owned by such
persons.
(2) The shares shown as owned by Mr. Cohen include 6,500 shares with respect to
which he shares voting or investment power; the shares shown as owned by
Dr. Dixon include 5,000 shares with respect to which he shares voting or
investment power; the shares shown as owned by Mr. Hall include 1,250
shares with respect to which he shares voting or investment power; the
shares shown as owned by Mr. Harper include 1,250 shares with respect to
which he shares voting or investment power; the shares shown as owned by
Mr. Jackson include 5,000 shares with respect to which he shares voting or
investment power; the shares shown as owned by Mr. Jones include 5,000
shares that he owns jointly with his spouse and 8,025 shares with respect
to which he shares voting or investment power; the shares shown as owned by
Mr. Lindsey include 4,050 shares with respect to which he shares voting or
investment power; the shares shown as owned by Mr. McGill are owned by his
spouse; the shares shown as owned by Mr. Stone include 1,050 shares with
respect to which he shares voting or investment power; the shares shown as
owned by Mr. Thigpen include 13,000 shares with respect to which he shares
voting or investment power; and the shares shown as owned by Mr. Veazey
include 1,000 shares with respect to which he shares voting or investment
power.
-53-
<PAGE> 60
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of May 31, 1995
regarding the ownership of the TBI Stock by each person known to TBI to be the
beneficial owner of more than 5% of the TBI Stock. Except as otherwise
indicated above, the named persons have sole voting and investment power with
regard to the shares shown as owned by such persons. Each of the named persons
in the following table has indicated orally to TBI's Board of Directors that
such persons intend to vote all of the shares beneficially owned by them in
favor of the Merger. The aggregate amount of such shares is 30,575 or 15.3% of
the outstanding shares of TBI Stock as of May 31, 1995. In addition to shares
owned by the persons named in the following table, all of the shares of TBI
Stock beneficially owned by the directors and executive officers of TBI as
indicated under "Security Ownership of Management" are expected to be voted in
favor of the Merger based on the oral indications of intent of the individuals
named in that table. Accordingly, the total number of shares owned by
directors and executive officers, including the principal stockholders named
below, of TBI which are expected to be voted in favor of the Merger is 101,666
shares or approximately 50.8% of the outstanding shares of TBI Stock as of May
31, 1995. Because the principal stockholders and management own a majority of
the outstanding shares of TBI Stock, the Merger Agreement will be adopted and
the Merger will be approved if the principal stockholders and management vote
in favor of the proposal.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENT
NAME AND ADDRESS OWNED OF CLASS
- ---------------- ------------------- --------
<S> <C> <C>
Vince A. Thigpen . . . . . . . . . . . . . . . 16,750 (1) 8.38 %
P.O. Box 888
Tifton, Georgia 31793
Derris Jones . . . . . . . . . . . . . . . . . 13,825 (1) 6.91 %
Route 1, Box 290
Chula, Georgia 31733
</TABLE>
- ---------------
(1) For information concerning beneficial ownership, see footnotes (1) and (2)
under "- Security Ownership of Management" above.
-54-
<PAGE> 61
BUSINESS INFORMATION CONCERNING FLFC AND FLB
FLFC is a unitary savings and loan holding company headquartered in
Macon, Georgia which owns and operates FLB and FLB's wholly owned subsidiary,
Liberty Mortgage. At March 31, 1995, the Company had total assets of
approximately $794 million, total deposits of approximately $691 million and
stockholders' equity of approximately $63 million.
FLB is a federally chartered stock savings bank based in Macon,
Georgia which serves Macon, Savannah, Valdosta and other Georgia cities through
its home office and 26 full-service branch offices. Through Liberty Mortgage,
FLB operates a mortgage banking business in all of its market areas and through
correspondent relationships in several southeastern states. Based on total
assets as of March 31, 1995, FLB is the second largest savings association
headquartered in Georgia, and FLB's capital as of such date was in excess of
all applicable capital requirements.
In 1990, FLFC undertook a long-term plan to reduce FLB's
non-performing assets, to increase its capital and to improve its core
earnings. Through the implementation of this plan, the ratio of non-performing
assets to total loans and foreclosed properties has been reduced from 7.27% at
September 30, 1990 to 1.61% at March 31, 1995, the ratio of core capital to
adjusted total assets has increased from 3.49% at September 30, 1990 to 6.03%
at March 31, 1995 and net income improved from a loss of $5.6 million for the
year ended September 30, 1990 to net income of $6.0 million for the year ended
September 30, 1994 and $3.8 million for the six months ended March 31, 1995.
In 1990, FLFC sold FLB's branches in the highly competitive Atlanta
market in order to focus on those markets in which it enjoys greater market
share and a more efficient cost structure. Consistent with this strategy, FLFC
plans to expand FLB's market share in its middle, south and coastal Georgia
market areas both through internal growth and through selected acquisitions.
In December 1992, FLFC acquired First Federal Savings and Loan Association of
Milledgeville, Georgia ("First Federal"), which had a primary market area
adjacent to FLB's primary market area in Macon, Georgia. On the acquisition
date, First Federal had total assets of approximately $41 million and total
deposits of approximately $38 million. In March 1993, FLB acquired six branch
offices in Savannah, Georgia from Bankers First Savings Bank, FSB, and loans of
$5 million and deposits of $38 million. In December 1994, FLFC acquired
Central Banking Company and its bank subsidiary, The Central Bank, which had a
primary market area in Swainsboro, Georgia. On the acquisition date, Central
Banking Company had total assets of approximately $58 million and total
deposits of approximately $52 million. On March 24, 1995, FLB acquired from
First Union National Bank of Georgia ("First Union") approximately $95 million
in deposits and three banking offices in Sylvania, Waycross and Vidalia,
Georgia.
FLFC is continually evaluating acquisition opportunities and
frequently conducts due diligence activities in connection with possible
acquisitions. As a result, acquisition discussions and, in some cases,
negotiations frequently take place and future acquisitions involving cash, debt
or equity securities can be expected. Acquisitions typically involve the
payment of a premium over book and market values, and therefore some dilution
of FLFC's book value and/or net income per common share may occur in connection
with any such future acquisitions. See "Pro Forma Financial Information."
In May 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 122 "Accounting for
Mortgage Servicing Rights." This Statement is effective for financial
statements issued by FLFC for the fiscal year ending September 31, 1997. SFAS
122 amends SFAS No. 65 "Accounting for Certain Mortgage Banking Activities", to
require that a mortgage banking enterprise recognize as separate assets rights
to service mortgage loans for others regardless of whether those servicing
rights are acquired through either the purchase or origination of mortgage
loans. This Statement also requires that the mortgage banking enterprise
assess its capitalized mortgage servicing rights for impairment based upon the
fair value of those rights, including those rights purchased before adoption of
this Statement. Impairment should be recognized through a valuation allowance.
Retroactive capitalization of mortgage servicing rights before the adoption of
this Statement is prohibited. FLFC is currently reviewing the impact this
Statement will have on their mortgage operations.
For further information concerning FLFC and FLB, see FLFC's Annual
Report on Form 10-K for the fiscal year ended September 30, 1994 and its
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995, copies of
which are being delivered to the TBI stockholders with this Proxy
Statement/Prospectus and are incorporated herein by reference. See
"Incorporation of Certain Information by Reference."
-55-
<PAGE> 62
DESCRIPTION OF FLFC CAPITAL STOCK
GENERAL
The authorized capital stock of FLFC consists of 25,000,000 shares of
FLFC Stock, par value $1.00 per share, and 5,000,000 shares of preferred stock,
without par value ("FLFC Preferred Stock"). Currently, 3,008,350 shares of
FLFC Stock are outstanding and are fully paid and nonassessable and 460,000
shares of FLFC Preferred Stock designated as Series A 7.75% Cumulative
Convertible Preferred Stock, stated value $25 per share (the "Series A
Preferred"), and 350,000 shares of FLFC Preferred Stock designated as Series B
Preferred, stated value $25 per share, are outstanding and are fully paid and
nonassessable.
FLFC STOCK
All voting rights are vested in the holders of the FLFC Stock. Each
holder of FLFC Stock is entitled to one vote per share on any issue requiring a
vote at any meeting. The shares do not have cumulative voting rights in the
election of directors. Consequently, the holders of more than 50% of the
outstanding shares of FLFC Stock may elect all of the directors. All shares of
FLFC Stock are entitled to share equally in such dividends as the Board of
Directors of FLFC may declare on the FLFC Stock from sources legally available
therefor. The determination and declaration of dividends is within the
discretion of the Board of Directors of FLFC. In the event of dissolution, the
holders of FLFC Stock will be entitled to receive on a pro rata basis, after
payment or provision for payment of all debts and liabilities of FLFC and
subject to the preferences of FLFC Preferred Stock, all assets of FLFC
available for distribution, in cash or in kind. Holders of shares of FLFC
Stock do not have preemptive rights to subscribe for additional shares on a pro
rata basis if and when additional shares are offered for sale by FLFC. See
"Comparison of Stockholder Rights."
PREFERRED STOCK
General. Pursuant to FLFC's Articles of Incorporation, the Board of
Directors of FLFC may authorize the issuance of up to 5,000,000 shares of FLFC
Preferred Stock either at once or in series, may establish from time to time
the number of shares to be included in any such series and may fix the
designations, powers, preferences and rights (including voting rights) of the
shares of each such series and any qualifications, limitations or restrictions
thereon. No stockholder authorization is required or will be sought for the
issuance of shares of FLFC Preferred Stock unless authorization is required by
then applicable law or unless such authorization is deemed advisable by the
Board of Directors of FLFC. Shares of FLFC Preferred Stock may be issued for
any general corporate purposes, including acquisitions. The Series A Preferred
and Series B Preferred are series of FLFC Preferred Stock. The Board of
Directors of FLFC could issue additional series of FLFC Preferred Stock with
rights more favorable with regard to dividends and liquidations than the rights
of the holders of FLFC Stock and which could be used for the purpose of
preventing a hostile takeover of FLFC. The issuance of additional series of
FLFC Preferred Stock also could adversely affect the voting power of the
holders of FLFC Stock.
Series A Preferred. In February 1993, FLFC issued 460,000 shares of
Series A Preferred. Holders of Series A Preferred are entitled to receive,
when and as declared by the Board of Directors, out of assets of FLFC legally
available therefor, cash dividends at the annual rate of $1.9375 per share.
FLFC has paid all dividends on the Series A Preferred when and as they became
due and no dividends on such stock is or has been in arrears. Each share of
Series A Preferred is convertible at the option of the holder thereof into
shares of FLFC Stock at a conversion price of $12.50 per share of FLFC Stock
(equivalent to a conversion rate of two shares of FLFC Stock for each share of
Series A Preferred). The Series A Preferred is redeemable by FLFC in whole or
in part at the following redemption prices per share, together in each case
with accrued but unpaid dividends:
-56-
<PAGE> 63
<TABLE>
<CAPTION>
REDEMPTION PRICE PER SHARE
YEAR OF SERIES A PREFERRED
---- ---------------------
<S> <C>
1994 . . . . . . . . . . . . . . . . . . . . $26.60
1995 . . . . . . . . . . . . . . . . . . . . $26.20
1996 . . . . . . . . . . . . . . . . . . . . $25.80
1997 . . . . . . . . . . . . . . . . . . . . $25.40
1998 and thereafter . . . . . . . . . . . . . $25.00
</TABLE>
Notwithstanding the foregoing, the Series A Preferred may not be redeemed
prior to April 1, 1996 unless, for a period of 20 consecutive trading days
ending within five trading days prior to the date of the notice of redemption,
the average market price of the FLFC Stock has been at least 135% of the
conversion price of the Series A Preferred. For purposes of this paragraph,
"average market price" means the average of the last reported sales prices of
the FLFC Stock for the preceding 20 consecutive trading days as reported on the
principal exchange on which the FLFC Stock is listed or, as the case may be The
Nasdaq National Market.
The holders of the Series A Preferred have no voting rights except as
indicated below or as otherwise expressly required by applicable law. If the
equivalent of six quarterly dividends payable on the Series A Preferred
(whether or not consecutive) are in arrears, the number of directors of FLFC
will be increased by two and the holders of Series A Preferred, voting
separately as a class with the holders of shares of any one or more other
series of preferred stock ranking on a parity with the Series A Preferred
either as to payment of dividends or upon liquidation, dissolution or winding
up and upon which like voting rights have been conferred and are exercisable,
will be entitled to elect two directors to fill such vacancies at the next
annual meeting of stockholders of FLFC. Such right to elect two additional
directors shall continue annually until all dividends in arrears have been paid
in full. Each director elected by the holders of shares of the Series A
Preferred and all other classes of stock whose holders are so entitled to vote
shall continue to serve as such director for the full term for which he shall
have been elected, notwithstanding that prior to the end of such term such
arrearage shall cease to exist.
Unless the vote or consent of the holders of a greater number of shares
shall then be required by law, the affirmative vote or consent of the holders
of at least 66 2/3% of the outstanding shares of Series A Preferred and any one
or more other series of preferred stock of FLFC ranking on a parity with the
Series A Preferred either as to dividends or upon liquidation, dissolution or
winding up and upon which like voting rights have been conferred and are then
exercisable (including the Series A Preferred), voting as a class without
regard to series, will be required to authorize, create or issue, or reclassify
any authorized stock of FLFC into, or authorize, create or issue any obligation
or security convertible into or evidencing a right to purchase, any shares of,
or increase the authorized or issued amount of, any class or series of, stock
of FLFC ranking prior to the Series A Preferred with respect to payment of
dividends or the distribution of assets on liquidation, dissolution or winding
up.
Unless the vote or consent of the holders of a greater number of shares
shall then be required by law, the affirmative vote or consent of the holders
of at least 66 2/3% of the outstanding shares of Series A Preferred and any one
or more other series of preferred stock of FLFC similarly affected and upon
which like voting rights have been conferred and are then exercisable, voting
separately as a single class, will be required to amend, alter or repeal the
provisions of FLFC's Articles of Incorporation, or of the Amendment to the
Articles of Incorporation describing the terms of the Series A Preferred or
other amendment to the Articles of Incorporation describing such other series
of preferred stock (or, in each case, any certificate amending or supplementing
the same), whether by merger, consolidation or otherwise, so as to adversely
affect the powers, preferences, privileges or rights of shares of the Series A
Preferred and any such other series of preferred stock. Any increase in the
amount of authorized preferred stock or the creation and issuance of other
series of preferred stock ranking on a parity with or junior to the Series A
Preferred with respect to dividends and upon liquidation, dissolution or
winding up shall not be deemed to adversely affect the rights of the Series A
Preferred.
The foregoing voting provisions with respect to the Series A Preferred will
not apply if, at or before a time when the act with respect to which such vote
would otherwise be required shall be effected, all outstanding shares
-57-
<PAGE> 64
of Series A Preferred shall have been redeemed or sufficient funds shall have
been deposited in trust to effect such redemption.
Except as set forth above, the rights and preferences of the Series A
Preferred are substantially the same and rank on a parity with Series B
Preferred.
Series B Preferred.
General. Pursuant to Articles of Amendment adopted by the Board of
Directors of FLFC, FLFC is authorized to issue up to 350,000 shares of Series B
Preferred. In December 1994, FLFC issued 148,799 shares of Series B Preferred
in connection with FLFC's acquisition of Central Banking Company. As a result,
an aggregate of 201,201 shares of Series B Preferred remain authorized but
unissued.
Ranking. The Series B Preferred ranks prior to the FLFC Stock and is of
the same class and ranks on a parity with the Series A Preferred with respect
to the payment of dividends and rights upon liquidation. FLFC may issue
additional shares of Preferred Stock (in one or more series) that rank on a
parity with the Series B Preferred as to dividends and liquidation rights
without the approval of the holders of Series B Preferred. However, FLFC may
not create a new class of securities that have rights or preferences with
respect to distributions or to dissolution that are prior, superior, or
substantially equal to the Series B Preferred. See "- Voting Rights" below.
Dividends. Holders of shares of Series B Preferred are entitled to
receive, when and as declared by the Board of Directors of FLFC out of assets
of FLFC legally available therefore, cash dividends at the annual rate of $1.50
per share. Dividends on the Series B Preferred at such annual rate are payable
quarterly in arrears on April 1, July 1, October 1 and January 1 of each year,
commencing on the Dividend Payment Date next following the date of issuance of
the shares; provided, however, if the initial Dividend Payment Date is 15 or
fewer days after the issuance of shares of Series B Preferred, FLFC may defer
the initial dividend payment with respect to such shares until the second
Dividend Payment Date following such issuance. Each dividend is payable to
holders of record as they appear on the stock books of FLFC on such record
dates, not exceeding 45 days preceding the payment dates thereof, as shall be
fixed by the Board of Directors of FLFC. Dividends are cumulative from the
date of original issue, and dividends payable on the initial dividend following
issuance will be pro rated based on the number of days that shall have elapsed
since the date the shares are issued. Dividends payable on the Series B
Preferred for any period greater or less than a full dividend period are
computed on the basis of a 360-day year consisting of twelve 30-day months.
Dividends payable on the Series B Preferred for each full dividend period are
computed by dividing the annual dividend rate by four. Holders of the Series B
Preferred are not entitled to any dividend, whether payable in cash, property
or securities, in excess of full cumulative dividends on the Series B
Preferred. No interest, or sum of money in lieu of interest, will be payable
in respect of any dividend payment or payments which may be in arrears.
Dividends paid on shares of Series B Preferred in an amount less than the total
amount of such dividends at the time accumulated and payable on such shares
will be allocated pro rata among all such shares at the time outstanding.
If FLFC has outstanding any shares of any other series of preferred stock
ranking junior to the Series B Preferred as to dividends, no dividends shall be
declared or paid or set apart for payment on any such other series for any
period unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for payment thereof is set
apart for such payment on the Series B Preferred for all dividend payment
periods ending on or before the date of payment of such full cumulative
dividends. When dividends are not paid in full or are in arrears on the Series
B Preferred and on any other series of preferred stock ranking on a parity as
to dividends with the Series B Preferred, all dividends declared upon all
outstanding shares of the Series B Preferred and shares of such other series of
preferred stock will be declared pro rata so that the amount of dividends
declared per share on the Series B Preferred and such other preferred stock
will in all cases bear to each other the same ratio that accrued and unpaid
dividends per share on the shares of Series B Preferred and such other
preferred stock to the date of such dividend payment bear to each other.
-58-
<PAGE> 65
Unless full cumulative dividends on all outstanding shares of Series B
Preferred have been paid or declared and set apart for payment for all past
dividend payment periods, (i) no dividends may be paid or declared and set
apart for payment, or other distribution made (other than dividends or
distributions in FLFC Stock or any other stock ranking junior to the Series B
Preferred) upon the FLFC Stock or on any other stock of FLFC ranking junior to,
or on a parity with, the Series B Preferred, (ii) no FLFC Stock, or any other
stock of FLFC ranking junior to, or on a parity with, the Series B Preferred,
may be redeemed, purchased or otherwise acquired for any consideration (nor may
any payment be made or made available for a sinking fund for the redemption of
any shares of such stock) by FLFC (except for conversion of such junior or
parity stock into, or exchange of such junior or parity stock for stock ranking
junior to the Series B Preferred as to dividends and upon liquidation).
Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of FLFC, the holders of shares of Series
B Preferred are entitled to receive, out of the assets of FLFC available for
distribution to stockholders, liquidation distributions in the amount of $25
per share plus accrued and unpaid dividends before any distribution of assets
is made to holders of FLFC Stock or of any other shares of stock of FLFC
ranking as to such a distribution junior to the shares of Series B Preferred.
After payment of such liquidating distributions, the holders of shares of
Series B Preferred will not be entitled to any further participation in any
distribution of assets of FLFC. If, upon any voluntary or involuntary
dissolution, liquidation or winding up of FLFC, the amounts payable with
respect to the liquidation preference of the Series B Preferred and any other
shares of stock of FLFC ranking as to any such distribution on a parity with
the Series B Preferred are not paid in full, the holders of the Series B
Preferred and of such other shares will share ratably in any such distribution
of assets of FLFC in proportion to the full respective distributable amounts to
which they are entitled. Neither the sale of all or substantially all the
property or business of FLFC, nor the merger or consolidation of FLFC into or
with any other corporation, shall be deemed to be a dissolution, liquidation
or winding up, voluntary or involuntary of FLFC.
Optional Redemption. The Series B Preferred will be redeemable at the
option of FLFC for cash at any time or from time to time on or after January 1,
1997, in whole or in part, on at least 30 but not more that 60 days' notice.
With respect to any such redemption, the Series B Preferred will be redeemable
at the following redemption prices per share, together in each case with
accrued but unpaid dividends to but excluding the date fixed for redemption, if
redeemed during the 12-month period beginning on January 1 or on the next
succeeding business day:
<TABLE>
<CAPTION>
REDEMPTION PRICE PER SHARE
YEAR OF SERIES B PREFERRED
---- ---------------------
<S> <C>
1997 . . . . . . . . . . . . . . . . . . . . . . . . $27.00
1998 . . . . . . . . . . . . . . . . . . . . . . . . 26.60
1999 . . . . . . . . . . . . . . . . . . . . . . . . 26.20
2000 . . . . . . . . . . . . . . . . . . . . . . . . 25.80
2001 . . . . . . . . . . . . . . . . . . . . . . . . 25.40
2002 and thereafter . . . . . . . . . . . . . . . . . 25.00
</TABLE>
If cumulative dividends on the Series B Preferred have not been fully paid,
the Series B Preferred may not be redeemed in part and FLFC may not purchase or
acquire any shares of the Series B Preferred other than pursuant to a purchase
or exchange offer made on the same terms to all holders of the Series B
Preferred. If fewer than all the outstanding shares of the Series B Preferred
are to be redeemed, FLFC will select those to be redeemed pro rata, by lot or
by a substantially equivalent method. On and after the redemption date,
dividends shall cease to accrue on shares of Series B Preferred called for
redemption and such shares shall be deemed to cease to be outstanding, provided
that the redemption price (including any accrued and unpaid dividends to the
date fixed for redemption) has been duly paid or provided for. Any shares of
the Series B Preferred for which a notice of redemption has been given may be
converted into shares of FLFC Stock at any time before the close of business on
the date fixed for the redemption.
-59-
<PAGE> 66
Conversion Rights. Each share of Series B Preferred will be
convertible at the holder's option at any time before redemption or maturity
initially at $21.00 per share (equivalent to 1.19 shares of FLFC Stock for each
share of Series B Preferred converted) (the "Conversion Price"), subject to
adjustment as described below. On June 9, 1995, the last sale price of the
FLFC Stock on The Nasdaq National Market was $18.00 per share. Accordingly, on
that date the market value of the 1.76 shares of FLFC Stock underlying the 1.48
shares of Series B Preferred comprising the Stock Price was $31.76. The
conversion right with respect to shares of Series B Preferred will terminate at
the close of business on the date fixed for redemption of such shares (provided
that no default by FLFC in the payment of the applicable redemption price
including any accrued and unpaid dividends shall have occurred and be
continuing on the date fixed for such redemption) and will be lost if not
exercised before that time.
A holder of record of a share of Series B Preferred on a record date
with respect to the payment of a dividend on the Series B Preferred will be
entitled to receive such dividend on such share of Series B Preferred on the
corresponding dividend payment date notwithstanding the conversion thereof
after such record date or default by FLFC in the payment of the dividend
payable on such dividend payment date. However, a share of Series B Preferred
surrendered for conversion during the period from the close of business on any
record date for the payment of a dividend on the Series B Preferred to the
opening of business on the corresponding dividend payment date must be
accompanied by a payment of an amount equal to the portion of the dividend
payable on such dividend payment date that accrues during the period from the
date of such surrender until such dividend payment date. Holders of record of
shares of Series B Preferred on a record date with respect to the payment of a
dividend on the Series B Preferred who convert such shares on or after the
corresponding dividend payment date will receive the dividend payable by FLFC
on such date and need not include payment in the amount of such dividend upon
surrender of such shares for conversion. Otherwise, no payment or adjustment
is to be made on conversion for dividends accrued on the shares of Series B
Preferred or for dividends on the FLFC Stock issued in conversion.
The Conversion Price is subject to adjustment in certain events,
including (i) the issuance of FLFC Stock as a dividend or distribution on any
class of capital stock of FLFC; (ii) the combination, subdivision or
reclassification of the FLFC Stock; (iii) the issuance to all holders of FLFC
Stock of rights or warrants entitling them to subscribe for or purchase FLFC
Stock at less than the then current market price (as defined) of the FLFC
Stock; (iv) the distribution to all holders of FLFC Stock of (aa) evidences of
FLFC's indebtedness and/or (bb) cash or other assets (including securities, but
excluding the rights, warrants, dividends and distributions referred to above
and any regular quarterly dividend payable solely in cash out of the retained
earnings of FLFC that may from time to time be fixed by the Board of
Directors); or (v) events described in the following paragraph. No such
adjustment of less than one percent of the Conversion Price will be required;
however, any such adjustment not made due to this limitation will be carried
forward and taken into account in any subsequent adjustment.
In case of (i) any capital reorganization of FLFC, (ii) any
reclassification or change of outstanding shares of FLFC Stock (other than a
change relating to par value, or as a result of a subdivision or combination of
the FLFC Stock), (iii) any consolidation, merger or combination of FLFC with or
into another corporation, or (iv) any sale or conveyance of the properties and
assets of FLFC as, or substantially as, an entirety to any other entity, in
each case as a result of which FLFC Stock holders are entitled to receive
consideration for their FLFC Stock, there will be no adjustment of the
Conversion Price, but the holder of each share of Series B Preferred then
outstanding shall have the right thereafter to convert such share into the kind
and amount of securities, cash or other property that the holder would have
owned or been entitled to receive immediately after such reorganization,
reclassification, change, consolidation, merger, combination, sale or
conveyance, if such share had been converted immediately before the effective
time of such reorganization, reclassification, change, consolidation, merger,
combination, sale or conveyance. In the event that FLFC engages in a
transaction set forth in (i)-(iv) above and the holders of Series B Preferred
do not convert their shares of Series B Preferred as provided above, then the
continuing or surviving entity shall be obligated to redeem all remaining
outstanding shares of Series B Preferred, and the holders of Series B Preferred
shall surrender their shares of Series B Preferred for redemption, all in
accordance with the redemption provisions otherwise applicable to the Series B
Preferred.
Upon conversion, holders of Series B Preferred may also be entitled to
receive rights under FLFC's stockholder rights plan. See "Comparison of
Stockholder Rights - Stockholder Rights Plan."
-60-
<PAGE> 67
Fractional shares of FLFC Stock will not be delivered upon conversion,
but a cash adjustment will be paid in respect of such fractional interest,
based on the then current market price of the FLFC Stock.
Conversion of the Series B Preferred may be effected by delivering
such shares to the office or agency to be maintained by FLFC for that purpose.
Voting Rights. The holders of Series B Preferred will have no voting
rights except as otherwise expressly required by applicable law. The holders
of Series B Preferred will not be entitled to elect directors, even if FLFC is
in default on the payment of dividends on the Series B Preferred.
Pursuant to the GBCC, the affirmative vote of the holders of a
majority of the outstanding shares of Series B Preferred are required to
approve an amendment to FLFC's Articles of Incorporation if the amendment
would: (i) increase or decrease the aggregate number of authorized shares of
FLFC's preferred stock; (ii) effect an exchange or reclassification of all or
part of the shares of FLFC preferred stock into shares of another class; (iii)
change the designation, rights, preferences, or limitations of all or part of
the shares of the Series B Preferred; (iv) change the shares of all or part of
the Series B Preferred into a different number of shares of Series B Preferred;
(v) create a new class of shares having rights or preferences with respect to
distributions or to dissolution that are prior, superior, or substantially
equal to the shares of the class; (vi) increase the rights, preferences, or
number of authorized shares of any class that, after giving effect to the
amendment, have rights or preferences with respect to distributions or to
dissolution that are prior, superior, or substantially equal to the shares of
the Series B Preferred; (vii) cancel or otherwise affect rights to
distributions or dividends that have accumulated but not yet been declared on
all or part of the shares of Series B Preferred; or (ix) cancel, redeem, or
repurchase all or part of the shares of the class except as provided in the
Articles of Incorporation.
Certain Ownership Limitation. Purchasers of the Series B Preferred
are subject to certain restrictions and disclosure obligations under various
federal laws, including the Change in Bank Control Act (the "Control Act") and
the Savings and Loan Holding Company Act (the "Holding Company Act").
Regulations pursuant to the Control Act and the Holding Company Act
generally require prior OTS approval for an acquisition of control of an
insured institution (as defined) or holding company thereof by any person (or
persons acting in concert). Control is deemed to exist if, among other things,
a person (or persons acting in concert) acquires more than 25% of any class of
voting stock (generally, stock entitled to vote in the election of directors)
of an insured institution or holding company thereof. Additionally, control is
presumed subject to rebuttal if a person (or persons acting in concert)
acquires either more than ten percent of any class of voting stock or more than
25% of any class of stock, and is also subject to any of the "control factors"
set forth in such regulations. The control factors relate, among other
matters, to the percentage of such company's debt or equity owned by the person
(or persons acting in concert), agreements giving the person (or persons acting
in concert) influence over a material aspect of the company's operations, and
the number of seats on the board of directors of the company controlled by the
person (or persons acting in concert). One of the "control factors" is a
holder's status as one of the two largest holders of any class of voting stock.
The concept of acting in concert is very broad and also is subject to certain
rebuttable presumptions including, among others, that relatives, business
partners, management officials, affiliates and others are presumed to be acting
in concert with each other and their businesses.
Because the Series B Preferred is immediately convertible into FLFC
Stock, a holder of Series B Preferred is deemed to own the FLFC Stock into
which his Series B Preferred may be converted for purposes of the Control Act,
the Holding Company Act and the implementing regulations thereunder.
Therefore, purchasers of Series B Preferred should consider the possibility
that they could be deemed in control of FLFC for the purpose of these acts and
regulations. In making the calculation for a particular stockholder's
ownership percentage, the number of shares of FLFC Stock into which such
stockholder's Series B Preferred is convertible is to be added to both the
numerator (the number of shares of FLFC Stock held by such stockholder) and the
denominator (the total number of shares of FLFC Stock outstanding). The
denominator is not increased by the total number of shares of FLFC Stock into
which all outstanding Series B Preferred is convertible, but only by the number
of shares of FLFC Stock into which Series B Preferred owned by the particular
stockholder is convertible.
-61-
<PAGE> 68
Other Aspects. Holders of the Series B Preferred have no preemptive
rights. The shares of Series B Preferred to be issued in the Merger, when
issued, will be validly issued, fully paid and non assessable. The Series B
Preferred is not subject to any mandatory redemption or sinking fund or other
obligation for FLFC to redeem or retire the Series B Preferred.
The Series B Preferred ranks prior to the FLFC Stock as to dividends
and upon liquidation of FLFC. However, the Series B Preferred ranks on a
parity with the Series A Preferred as to all matters. Because FLFC is a
holding company, its rights and the rights of holders of its securities,
including the holders of the Series B Preferred, to participate in the assets
of any subsidiary of FLFC upon the latter's liquidation or recapitalization
will be subject to the prior claim of that subsidiary's creditors and preferred
stockholders, if any, except to the extent FLFC may itself be a creditor with
recognized claims against the subsidiary or the holder of preferred shares, if
any of the subsidiary.
The transfer agent, registrar, dividend disbursing agent and
redemption agent for the Series B Preferred is Trust Company Bank, Atlanta,
Georgia.
LIMITATION OF PERSONAL LIABILITY OF DIRECTORS AND OFFICERS
As permitted by the GBCC (under which FLFC is incorporated), FLFC's
Articles of Incorporation contain provisions which eliminate the personal
liability of directors for monetary damages to FLFC or its stockholders for
breach of their fiduciary duties as directors, except to the extent such
elimination of liability is prohibited by the GBCC. In accordance with the
GBCC, these provisions do not limit the liability of any director for any
appropriation of a business opportunity of FLFC in violation of the director's
duty; for acts or omissions which involve intentional misconduct or a knowing
violation of law; for any dividend payment, stock repurchase, stock redemption
or distribution in liquidation that was prohibited under Georgia law; or for
any transaction from which the director derived an improper personal benefit.
These provisions do not limit or eliminate the rights of FLFC or any
stockholder to seek an injunction or any other non-monetary relief in the event
of a breach of a director's fiduciary duty. In addition, these provisions
apply only to claims against a director arising out of his role as a director
and do not relieve a director from liability for violations of statutory law
such as certain liabilities imposed on a director under the federal securities
laws.
In addition, FLFC's Articles of Incorporation provide for the
indemnification of both directors and officers for expenses incurred by them in
connection with the defense or settlement of claims asserted against them in
their capacities as directors and officers. In certain cases, this right of
indemnification extends to judgments or penalties assessed against them.
COMPARISON OF STOCKHOLDER RIGHTS
At Effective Time, TBI stockholders who receive shares of the Series B
Preferred will become stockholders of FLFC, and their rights as stockholders
will be determined by FLFC's Articles of Incorporation and Bylaws. The
following is a summary of the material differences in the rights of
stockholders of FLFC and TBI and should be read in conjunction with the
information set forth in "Description of FLFC Capital Stock - Series B
Preferred." Both FLFC and TBI are Georgia corporations governed by the GBCC.
Accordingly, except as set forth below and the difference between common and
preferred stock, there are no material differences between the rights of an
FLFC stockholder under FLFC's Articles of Incorporation and Bylaws and the
GBCC, on the one hand, and the rights of a TBI stockholder under TBI's Articles
of Incorporation and Bylaws and the GBCC, on the other hand. This summary does
not purport to be a complete discussion of, and is qualified in its entirety by
reference to, the GBCC and the Articles of Incorporation and Bylaws of each
corporation.
-62-
<PAGE> 69
AUTHORIZED CAPITAL STOCK
TBI. TBI is authorized to issue 2,000,000 shares of TBI Stock, $10.00
par value per share, of which 200,000 shares of TBI Stock were issued and
outstanding as of June 9, 1995. Accordingly, the Board of Directors of TBI has
the authority to issue up to 1,800,000 additional shares of TBI Stock without
stockholder approval.
FLFC. FLFC is authorized to issue 25,000,000 shares of FLFC Stock,
$1.00 par value per share, and 5,000,000 shares of FLFC Preferred Stock,
without par value. As of June 9, 1995, 3,008,350 shares of FLFC Stock, 460,000
shares of FLFC Preferred Stock designated as Series A Preferred and 148,799
shares of FLFC Preferred Stock designated as Series B Preferred were issued and
outstanding and 275,000 shares of FLFC Stock were reserved for issuance under
FLFC's 1983 Incentive Stock Option Plan and 1992 Stock Incentive Plan.
Accordingly, following the Merger the Board of Directors of FLFC will have the
authority to issue 21,716,650 shares of FLFC Stock and 4,237,281 shares of FLFC
Preferred Stock without stockholder approval. The Board of Directors has the
authority to issue FLFC Preferred Stock in one or more series and to fix the
dividend rights, dividend rate, liquidation preference, conversion rights,
voting rights, rights and terms of redemption (including sinking fund
provisions), redemption price or prices, and the number of shares constituting
any such series, without further action by the stockholders of FLFC unless such
action is required by applicable rules or regulations or by the terms of other
outstanding series of preferred stock. Any shares of preferred stock which may
be issued may rank prior to shares of FLFC Stock as to payment of dividends and
upon liquidation. See "Description of Capital Stock of FLFC."
The large number of authorized shares of FLFC Stock and FLFC Preferred
Stock which may be issued by FLFC without stockholder approval will provide
sufficient shares to enable FLFC to declare stock splits and dividends and will
enhance FLFC's flexibility to engage in a variety of business transactions,
including additional acquisitions and the raising of new capital.
In addition to providing operational flexibility, in the event of a
proposed merger, tender offer or other attempt to gain control of FLFC of which
the Board of Directors of FLFC does not approve, it would be possible for the
Board of Directors to authorize the issuance of additional shares of FLFC Stock
to a person or entity that thereby might obtain sufficient voting power to
impede completion of the proposed merger, tender offer or other transaction.
Therefore, an effect of the increased number of authorized shares that are not
issued or reserved may be to deter a future takeover attempt that some or a
majority of the holders of FLFC or FLFC Preferred Stock may deem to be in their
best interests or in which holders of FLFC Stock or FLFC Preferred Stock may
receive a premium for their shares over the then market price. Additionally,
FLFC's Board of Directors could issue a series of preferred stock with rights
more favorable with regard to dividends and liquidation than the rights of the
holders of FLFC Stock and which could also be used for the purpose of
preventing an attempt to gain control of FLFC of which the Board of Directors
does not approve. FLFC's Board of Directors, however, has no current plans to
issue shares of FLFC Stock or FLFC Preferred Stock after the Merger. For a
description of the terms of FLFC's capital stock, see "Description of FLFC
Capital Stock."
DIRECTORS
TBI. The Bylaws of TBI provide for a Board of Directors having not
less than five nor more than 25 members. The precise number of directors is
fixed by the affirmative vote of the holders of two-thirds of the issued and
outstanding shares of TBI Stock or by the affirmative vote of two-thirds of the
directors of TBI then in office. Vacancies, except those caused by reason of
removal of a director, may be filled for the unexpired term, and until the
stockholders shall have elected a successor, by the affirmative vote of a
majority of the remaining directors although less than a quorum of the Board of
Directors.
Pursuant to TBI's Articles of Incorporation, the Board of Directors of
TBI is divided into three classes of directors which are required to be as
nearly equal in number as possible. Each class of directors is elected for a
term of three years with the term of one class of directors expiring at each
annual meeting of stockholders. TBI's Articles of Incorporation also provide
that directors may be removed from office without cause only by the
-63-
<PAGE> 70
affirmative vote of the holders of at least two-thirds of the issued and
outstanding shares of TBI Stock entitled to vote in an election of directors.
FLFC. The Bylaws of FLFC provide for a Board of Directors having a
single class with six members. The number of directors may be increased at any
time by the Board of Directors by amendment to the Bylaws. Vacancies, except
those caused by reason of removal of a director, but including those resulting
from any increase in the number of directors, may be filled for the unexpired
term and until the stockholders have elected a successor, by the affirmative
vote of a majority of the remaining directors although less than a quorum of
the Board of Directors. Pursuant to FLFC's Articles of Incorporation, the
holders of Series B Preferred are not entitled to vote in the election of
directors. See "Description of FLFC Capital Stock - Series B Preferred."
Pursuant to the GBCC, directors of FLFC may be removed with or without
cause at a meeting called for such purpose if the votes cast by holders of FLFC
Stock in favor of such removal exceed the votes cast opposing such removal.
STOCKHOLDER MEETINGS
TBI. Under TBI's Bylaws, special meetings of the stockholders may be
called at any time by the Board of Directors, by the President or upon written
request of the holders of 25% or more of all the shares of outstanding capital
stock of TBI.
FLFC. Under FLFC's Bylaws, special meetings of the stockholders may
be called at any time by the President or the Secretary when so directed by a
majority vote of the entire Board of Directors or upon a stockholder demand
made in accordance with the GBCC. The GBCC presently provides that a
corporation must hold a special meeting of stockholders if the holders of at
least 25% of all the votes entitled to be cast on any issue proposed to be
considered at the proposed special meeting, sign, date and deliver to the
corporation's Secretary one or more written demands for the meeting describing
the purpose or purposes for which it is to be held. In general, after the
receipt of such stockholder demand, FLFC shall engage independent inspectors to
determine whether such demand comports with the requirements of the GBCC. The
independent inspectors must deliver a written report within 15 business days.
If the report states that the filing is adequate, or if the report is not
delivered within 15 calendar days of the filing date, the President and the
Secretary must call a special stockholders meeting by mailing notice within 15
days after receipt of the report by the independent inspectors or after the
expiration of the reporting period. Pursuant to FLFC's Articles of
Incorporation, the holders of Series B Preferred are not entitled to vote on
any matters submitted to a vote of FLFC stockholders except as required by
applicable law. See "Description of FLFC Capital Stock - Series B Preferred."
ANTI-TAKEOVER PROVISIONS
TBI. In addition to the classified Board of Directors discussed under
"- Directors" above, TBI's Articles of Incorporation contain certain protective
provisions which are intended to facilitate stability of leadership and enhance
the TBI Board of Director's role in connection with attempts to acquire control
of TBI so that the Board may further and protect the interests of TBI, its
stockholders and its other constituencies as appropriate under the
circumstances. TBI's Articles of Incorporation provide that, with certain
exceptions, the affirmative vote of the holders of at least two-thirds of the
issued and outstanding shares of capital stock of TBI entitled to vote shall be
required to approve: (i) any merger or share exchange of TBI with or into any
other corporation; or (ii) any sale, lease, exchange or other disposition of
all or substantially all of the assets of TBI to any other corporation, person
or other entity, if, as of the record date for determining the shareholders
entitled to notice of the meeting and to vote on approval of the matter, the
other corporation, person or entity which is a party to the transaction is a
beneficial owner, directly or indirectly, of 5% or more of the issued and
outstanding shares of capital stock of TBI entitled to vote in the election of
directors. These "supermajority" provisions do not apply if two-thirds of the
directors of TBI then in office approved the acquisition by such corporation,
person or other entity of 5% or more of the outstanding capital stock of TBI,
or if two-thirds or more of the directors then in office approve the
transaction prior to its consummation.
-64-
<PAGE> 71
FLFC. The provisions of FLFC's Articles of Incorporation, Bylaws, and
Stockholder Rights Plan (described under "- Stockholder Rights Plan" below)
also contain certain protective provisions, which are intended to facilitate
stability of leadership and enhance the FLFC Board of Directors' role in
connection with attempts to acquire control of FLFC so that the Board may
further and protect the interests of FLFC, its stockholders and its other
constituencies as appropriate under the circumstances. In particular, if the
Board of Directors determines that a sale of control is in the best interests
of the stockholders, these protective provisions are designed to enhance the
Board's ability to maximize the value to be received by the stockholders upon
such a sale. Although FLFC management believes that the protective provisions
are beneficial to FLFC's stockholders, such provisions may also discourage
certain acquisition proposals, which may deprive FLFC's stockholders of certain
opportunities to sell their shares at a premium over prevailing market prices.
In connection with certain mergers, consolidations, sales of assets,
issuances or transfers of securities, liquidations or reclassifications
("Business Combinations") with or between FLFC and any person who owns
beneficially more than ten percent of the outstanding FLFC Stock (an
"Interested Stockholder"), FLFC's Articles of Incorporation require (subject to
the provisions of any series of FLFC Preferred Stock which may be outstanding)
the affirmative vote of the holders of not less than 80% of the then
outstanding shares of FLFC Stock, including the affirmative vote of the
holders of at least 80% of the outstanding shares of FLFC Stock other than
those beneficially owned the Interest Stockholder, to effect such Business
Combination. However, the above requirement is not applicable where either (a)
such Business Combination is approved by two-thirds of all the members of the
Board of Directors who are unaffiliated with the Interested Stockholder and by
two-thirds of all members of the Board of Directors or (b) certain minimum
price and form of consideration requirements are met and such Business
Combination is approved by the affirmative vote of the holders of not less than
75% of the then outstanding shares of FLFC Stock and by the affirmative vote of
the holders of not less than two-thirds of the then outstanding shares of FLFC
Stock other than those beneficially owned by the Interested Stockholder. If
either of the exceptions referred to in (a) or (b) above is present, the
Business Combination with the Interested Stockholder may be effected upon
receiving the affirmative vote of the holders of a majority of the then
outstanding shares of FLFC Stock. Such provisions may not be repealed or
amended unless such action is approved by the affirmative vote of the holders
of not less than 80% of the outstanding shares of FLFC Stock, excluding any
shares owned by an Interested Stockholder.
FLFC's Bylaws also contain provisions requiring higher approval
requirements of the Board of Directors and stockholders for Business
Combinations involving FLFC and any Interested Stockholder. The business
combination bylaw, adopting the predecessor sections of Sections 14-2-1131 to
- -1133, inclusive, of the GBCC, is designed to encourage any person, before
becoming an Interested Stockholder, to seek approval of the Board of Directors
of the terms of any contemplated Business Combination. The bylaw, by adopting
the sections of the GBCC, prohibits FLFC from engaging in a Business
Combination with an Interested Stockholder for a period of five years from the
date such Interested Stockholder acquired 10% of FLFC's outstanding voting
stock unless the Interested Stockholder: (i) obtained the consent of the Board
of Directors prior to acquiring 10% of the outstanding shares; (ii) becomes the
owner of at least 90% of the outstanding shares, excluding certain management
shares, in the same transaction in which the 10% interest was acquired; or
(iii) acquires additional shares resulting in 90% ownership subsequent to the
10% acquisition and obtains the approval of the holders of a majority of the
remaining shares, excluding management shares. By prohibiting Business
Combinations with an Interested Stockholder for a period of five years, subject
to the three exceptions described above, the bylaw attempts to preserve the
independence of the Board of Directors and its ability to negotiate freely on
behalf of FLFC.
As noted above, FLFC's Series B Preferred may be issued from time to
time in one or more series without stockholder approval. Thus, the Board of
Directors, without stockholder approval, could authorize the issuance of Series
B Preferred with conversion and other rights that could make it difficult for
another company to effect certain business combinations with FLFC or that
could otherwise adversely affect the rights of the holders of Stock.
-65-
<PAGE> 72
STOCKHOLDER RIGHTS PLAN
TBI. TBI has not adopted any rights plan or similar plan.
FLFC. In August 1989, the Board of Directors of FLFC adopted a
Stockholder Rights Plan and, in connection therewith, declared a dividend
distribution of one "Right" for each outstanding share of FLFC Stock and
authorized the issuance of one Right for each share of FLFC Stock issued after
August 2, 1989 and before the earliest of (x) a Distribution Date (as defined
below), (y) August 2, 1999 or (z) the date the Rights are redeemed. The terms
and conditions of the Rights are set forth in the Stockholder Rights Plan. The
Rights will expire on August 2, 1999 and will not be exercisable until the
earlier of (i) ten days following a public announcement that a person or group
of affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 15% or more of the
outstanding shares of FLFC Stock (the "Stock Acquisition Date"), (ii) ten days
following the commencement of a tender offer or exchange offer, the
consummation of which would result in a person or group beneficially owning 15%
or more of the outstanding shares of FLFC Stock or (iii) ten days following the
declaration that a person is an Adverse Person (as described below) by a
majority of the directors of FLFC who were directors on August 2, 1992 (or
their successors) and who are not affiliated or associated with the Adverse
Person (the "Continuing Directors") (the earlier of (i), (ii) or (iii) being
the "Distribution Date"). To declare a person to be an "Adverse Person"
requires (i) a determination by a majority of the Continuing Directors that
such person has become the beneficial owner of an amount of FLFC Stock that the
majority of the Continuing Directors has determined to be substantial (which
amount shall in no event be less than ten percent of the outstanding FLFC
Stock) and (ii) a determination by a majority of the Continuing Directors who
are not officers of FLFC that (a) such beneficial ownership is intended to
cause FLFC to repurchase any of the FLFC Stock beneficially owned by such
person or to cause pressure on FLFC to take action intended to provide such
person with short-term financial gain under circumstances where such directors
determine that such action would not be in the best long-term interests of FLFC
or its stockholders (b) such beneficial ownership is causing or is reasonably
likely to cause a material adverse impact on the business or prospects of FLFC.
Each Right will entitle the holder thereof to buy one share of FLFC
Stock at an exercise price of $32, subject to certain antidilution
adjustments. FLFC generally will be entitled to redeem the Rights at $0.01
per Right, and the Rights will not be exercisable, at any time prior to ten
days after the Stock Acquisition Date (the "Redemption Period"). The
Redemption Period may be extended under certain conditions.
In the event that the Continuing Directors determine that a person is
an Adverse Person, or if at any time following the Distribution Date a person
becomes the beneficial owner of 15% or more of the then outstanding shares of
FLFC Stock without the consent of a majority of the Continuing Directors
(except pursuant to an offer for all outstanding shares of FLFC Stock which the
Continuing Directors determine to be fair to and otherwise in the best interest
of FLFC and its stockholders), each Right, other than Rights beneficially owned
by Acquiring Person (which will be void), will thereafter represent the right
(i) to receive, upon exercise of the Right and payment of the exercise price,
shares of FLFC Stock (or, in certain circumstances, cash, property or other
securities of FLFC) having a value equal to two times the exercise price of the
Right or (ii) to receive, if approved by the Board of Directors, shares of FLFC
Stock having a value equal to the exercise price upon surrender of the Right to
FLFC and without payment of the exercise price (either of such events being
referred to herein as a "Flip-in Event"). However, Rights will not be
exercised following the occurrence of a Flip-in Event until the end of the
Redemption Period (or otherwise as and if the Redemption Period is extended).
In the event that, at any time following the Stock Acquisition Date,
(i) FLFC is acquired in a merger or other business combination transaction in
which FLFC is not the surviving corporation (other than a merger which follows
an offer described in the preceding paragraph) or (ii) 50% or more of FLFC's
assets or earning power is sold or transferred, each Right (except Rights
which previously have become void as set forth above) shall thereafter
represent the right to receive, upon exercise, common stock of the acquiring
company having a value equal to two times the exercise price of the Right.
-66-
<PAGE> 73
Holders of the Series B Preferred who convert their shares of Series B
Preferred into FLFC Stock within 30 days following mailing by FLFC of notice of
a Distribution Date will be entitled to receive one Right for each share of
FLFC Stock issued to them upon the conversion of Series B Preferred and to
participate in the Stockholders Rights Plan on the same terms as all other
holders of Rights. Holders of Series B Preferred who do not convert their
Series B Preferred to Stock within such period will not receive any Rights and
therefore will not be entitled to participate in the Stockholder Rights Plan.
FLFC will provide written notice of any Distribution Date to all holders of
Series B Preferred as soon as practicable after the Distribution Date.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire FLFC in a
manner which causes the Rights to be exercised. As a result, the Rights may
discourage certain acquisition proposals, which may deprive FLFC's stockholders
of certain opportunities to sell their shares at a premium over prevailing
market prices.
CERTAIN REGULATORY CONSIDERATIONS
GENERAL
The following sets forth certain of the material elements of the
regulatory framework applicable to bank and savings and loan holding companies
and subsidiaries and provides certain specific information relevant to FLFC and
TBI and their subsidiaries. This summary is qualified in its entirety by
reference to the particular statutory and regulatory provision referred to and
is not intended to be an exhaustive description of the statutes or regulations
applicable to the business of FLFC or TBI.
The business activities of TBI and Tifton Bank are closely supervised
by a number of state and federal regulatory agencies, including the DBF, the
Federal Reserve and the FDIC.
TBI is regulated by the Federal Reserve under the Bank Holding Company
Act of 1956, as amended, which requires every bank holding company to obtain
the prior approval of the Federal Reserve before acquiring more than 5% of the
voting shares of any bank or all or substantially all of the assets of a bank,
and before merging or consolidating with another bank holding company. In
addition, a bank holding company generally is prohibited from engaging in or
acquiring control of voting shares of any company engaged in nonbanking
activities unless found to be proper by the Federal Reserve.
TBI also is regulated by the DBF under the Georgia Bank Holding
Company Act, which requires every Georgia bank holding company to obtain prior
approval of the Commissioner of Banking before acquiring more than 5% of the
voting shares of any bank or all or substantially all of the assets of a bank
and before merging or consolidating with another bank holding company. A
Georgia bank holding company generally is prohibited from acquiring ownership
or control of 5% or more of the voting shares of any bank unless the bank being
acquired is either a bank for purposes of the Federal Bank Holding Company Act,
or a federal or state savings and loan association or a federal savings bank
whose deposits are federally insured, and such bank has been in existence and
continuously operating as a bank for a period of five years or more prior to
the date of application to the Commissioner for approval of such acquisition.
As a state chartered bank, Tifton Bank is subject to the supervision
of the DBF, the FDIC and the Federal Reserve. In addition, Tifton Bank, as a
subsidiary of TBI, is subject to restrictions under federal law in dealing with
TBI and other affiliates, if any. These restrictions apply to extensions of
credit to an affiliate, investments in the securities of an affiliate and the
purchase of assets from an affiliate.
Both TBI and Tifton Bank are subject to regulatory capital
requirements imposed by the Federal Reserve and the FDIC. The Federal Reserve
and the FDIC have issued risk-based capital rules for bank holding companies
and banks which make regulatory capital requirements sensitive to differences
in risk profiles of various banking organizations. The capital adequacy rules
issued by the Federal Reserve are applied to bank holding companies on a
consolidated basis with the banks owned by the holding company. The FDIC's
risk capital rules apply directly to state-chartered banks, such as Tifton
Bank, which are not members of the Federal Reserve System and whose
-67-
<PAGE> 74
deposits are insured by the FDIC regardless of whether they are a subsidiary of
a bank holding company. Both agencies' requirements (which are substantially
similar) provide that banking organizations must have total capital (as defined
in the rules) equivalent to 8% of weighted risk assets. The risk weights
assigned to assets are based primarily on credit risks. Depending upon the
riskiness of a particular asset, it is assigned to a risk category.
FLFC is a savings and loan holding company subject to regulation,
examination, supervision and reporting requirements of the OTS. As a federally
chartered savings institution, FLB is subject to extensive regulation by the
OTS. The lending activities and other investments of FLB must comply with
various federal regulatory requirements. The OTS periodically examines FLB for
compliance with various regulatory requirements and FLB must file reports with
the OTS describing its activities and financial condition. FLB is also subject
to examination by the FDIC and must meet certain reserve requirements
promulgated by the Federal Reserve. This supervision and regulation is
intended primarily for the protection of depositors.
The description of statutory provisions and regulations applicable to
savings associations set forth herein does not purport to be a complete
description of such statues and regulations and their effects on FLFC and FLB.
FEDERAL SAVINGS AND LOAN HOLDING COMPANY REGULATION
As the owner of all of the stock of FLB, FLFC is a savings and loan
holding company subject to regulation by the OTS under the Home Owners' Loan
Act (the "HOLA"). As a unitary savings and loan holding company owning only
one savings institution, FLFC generally is allowed to engage and invest in a
broad range of business activities not permitted to commercial bank holding
companies or multiple savings and loans holding companies; provided that FLB
continues to qualify as a "qualified thrift lender." See "- Regulation of FLB
- - Qualified Thrift Lender Test" herein. In the event of any acquisition by
FLFC of another savings association subsidiary, except for a supervisory
acquisition, FLFC would become a multiple savings and loan holding company and
would be subject to limitations on the types of business activities in which it
could engage.
FLFC is prohibited from directly or indirectly acquiring control of
any savings institution or savings and loan holding company without prior
approval from the OTS or from acquiring more than 5% of the voting stock of any
savings institution or savings and loan holding company which is not a
subsidiary. Control of a savings institution or a savings and loan holding
company is conclusively presumed to exist if, among other things, a person
acquires more than 25% of any class of voting stock of the institution or
holding company or controls in any manner the election of a majority of the
directors of the insured institution or the holding company. Control is
rebuttably presumed to exist if, among other things, a person acquires 10% or
more of any class of voting stock (or 25% of any class of stock) and is subject
to any of certain specified "control Factors."
RECENT LEGISLATION
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") made a number of reforms affecting the federal depository insurance
funds and the operations of federally insured banks and savings institutions
and their affiliates. The principal provisions of the FDICIA affecting FLB
include the Qualified Thrift Lender Test (see "Regulation of FLB - Qualified
Thrift Lender Test" herein), restrictions on loans to insiders (see "Regulation
of FLB - Transactions with Affiliates" herein), auditing and accounting
requirements of savings institutions, real estate lending requirements and the
powers and authority of the federal regulators, including the OTS (see
"Regulation of FLB - Regulatory Capital Requirements" - herein).
In FDICIA, Congress delegated broad rule making powers and duties to
federal financial institution regulators, including the OTS. The additional
supervisory powers and regulations mandated by FDICIA include a "prompt
corrective action" program based upon five regulatory categories in which all
banks and thrifts are placed, based in large measure on the capital position of
the institution. Regulators are empowered to take increasingly harsh action as
the financial condition of an institution declines. Various other sections of
FDICIA
-68-
<PAGE> 75
impose substantial auditing and reporting requirements and increase the role of
independent accountants and outside directors.
The Georgia Interstate Banking Act was amended in the 1994 session of
the General Assembly to eliminate, effective July 1, 1995, the restrictions
that limited eligible out-of-state acquirors of Georgia banks and bank holding
companies to those financial institutions which held 80% of their total
deposits within the "Southern Region" comprised of 11 southern states plus the
District of Columbia. The amended Georgia Interstate Banking Act permits the
acquisition of a Georgia financial institution or holding company by any
out-of-state bank holding company which has its "principal place of business"
in any state that would permit a Georgia based bank holding company to acquire
a bank in that state. The 1994 amendments also include an "opt out" provision
permitting the board of directors of a Georgia bank or Georgia bank holding
company to adopt a resolution to except the institution from being acquired by
an out-of-state bank holding company pursuant to the provisions of the Georgia
Interstate Banking Act.
In September 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 was implemented, generally applying to commercial banks
and traditional savings banks, not to OTS regulated savings associations. The
Act allows bank holding companies, beginning one year following the effective
date of the legislation, to acquire existing banks across state lines,
regardless of state statutes. Beginning in June 1997, a bank may consolidate
interstate subsidiaries into branches and merge with a bank across state lines
to the extent that the applicable states have not "opted out of interstate
branching" prior to the effectiveness of the branching provisions. States may
elect to permit interstate mergers prior to June 1997. The Act also would
permit de novo branching to the extent that a particular state opts into the de
novo branching provisions. The Act provides a concentration limitation with a
nationwide limitation of 10% of total deposits of insured depository
institutions in the United States and 30% of total deposits of insured
depository institutions in a specific state.
The Riegle Community Development and Regulatory Improvement Act of
1994 provides for the creation of a community development financial
institution's fund to promote economic revitalization in community development.
Banks and savings institutions are allowed to participate in such community
development banks. The Act also contains provisions designed to enhance small
business capital formation and to enhance disclosure with regard to high cost
mortgages for the protection of consumers. The Act also contains more than 50
regulatory relief provisions that apply to banks and savings institutions
including the coordination of examinations by various federal agencies,
coordination of frequency and types of reports financial institutions are
required to file and reduction of examinations for well capitalized
institutions.
REGULATION OF FLB
Community Reinvestment Act. The Community Reinvestment Act of 1977
("CRA") requires the federal bank regulatory agencies to encourage financial
institutions to meet the credit needs of low- and moderate-income borrowers in
their local communities. Historically, each institution was required to
prepare and make available a CRA Statement for each of its local communities
that included a delineation of the communities served and a list of the
specified types of credit offered to the communities. Additionally, each
institution was required to maintain for public inspection a public comment
file that included written comments from the public on its CRA Statement or its
performance in meeting community credit needs.
On May 4, 1995, the federal bank regulatory agencies published final
amended regulations promulgated pursuant to the CRA. The final regulations
eliminate the 12 assessment factors under the former regulation and replace
them with performance tests. Institutions are no longer required to prepare
CRA Statements or extensively document director participation, marketing
efforts or the ascertainment of community credit needs. Under the final rule,
an institution's size and business strategy determines the type of examination
that it will receive. Large, retail-oriented institutions will be examined
using a performance-based lending, investment and service test. Small
-69-
<PAGE> 76
institutions will be examined using a streamlined approach. Wholesale and
limited purpose institutions will be examined under a community development
test. All institutions have the option of being evaluated under a strategic
plan formulated with community input and pre-approved by the applicable bank
regulatory agency.
Public disclosure of written CRA evaluations of financial institutions
made by regulatory agencies is required under the CRA, to promote enforcement
of CRA requirements by providing the public with the status of a particular
institution's community reinvestment record. FLB received a "satisfactory"
rating on the most recent performance evaluation of its CRA efforts by the OTS.
Congress and various federal agencies responsible for implementing
fair lending laws have been increasingly active with regard to discriminatory
lending practices. In March 1994, those federal agencies announced a Joint
Policy Statement detailing specific discriminatory practices prohibited under
the Equal Opportunity Act and the Fair Housing Act. In the Policy Statement,
three methods of proving lending discrimination were identified: (i) overt
evidence of discrimination, where a lender blatantly discriminates on a
prohibited basis; (ii) evidence of disparate treatment, when a lender treats
applicants differently based upon a prohibited factor, even where there is no
showing that the treatment was motivated by intention to discriminate; and
(iii) evidence of disparate impact, when a lender applies a practice uniformly
to all applicants, but the practice has a discriminatory effect, even where
such practices are neutral in appearance and applied equally. Lenders are
particularly uncertain about the application of the "disparate impact" criteria
by virtue of the vague nature of the Policy Statement. The Policy Statement
notes that "the precise contours of the law on disparate impact as it applies
to lending discrimination are under development."
Federal Home Loan Bank System.
General. FLB is a member of the Federal Home Loan Bank ("FHLB")
System, which consists of 12 regional FHLBs subject to supervision and
regulation by the Federal Housing Finance Board ("FHFB"). The FHLBs maintain
central credit facilities primarily for member institutions.
FLB, as a member of the FHLB of Atlanta, is required to acquire and
hold shares of capital stock in the FHLB of Atlanta in an amount at least equal
to 1% of the greater of: (i) of the aggregate outstanding principal amount of
its unpaid residential mortgage loans, home purchase contracts and similar
obligations as of the beginning of each year, (ii) 5% of its advances
(borrowings) from the FHLB of Atlanta, or (iii) $500. FLB is in compliance
with this requirement with an investment in FHLB of Atlanta stock at September
30, 1994 of $9.5 million.
Advances from Federal Home Loan Bank. Each FHLB serves as a reserve or
central bank for its member institutions within its assigned regions. It is
funded primarily from proceeds derived from the sale of obligations of the FHLB
System. A FHLB makes advances (i.e., loans) to members in accordance with
policies and procedures established by its Board of Directors. FLB is
authorized to borrow funds from the FHLB of Atlanta to meet demands for
withdrawals of savings deposits, to meet seasonal requirements and for the
expansion of its loan portfolio. Advances may be made on a secured or
unsecured basis depending upon a number of factors, including the purpose for
which the funds are being borrowed and existing advances. Interest rates
charged for advances vary depending upon maturity, the cost of funds to the
regional FHLB and the purpose of the borrowing.
As required by the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), the FHFB adopted a final regulation on
October 15, 1991, establishing standards of community investment or service for
FHLB members to maintain continued access to long-term advances. This
Community Support Regulation ("CSR") requires a FHLB review of a member's
community support activities, including the member's public evaluation under
CRA and information on efforts to assist first-time home buyers. Members with
"outstanding" or "satisfactory" CRA evaluations generally will be considered to
have satisfied the community support requirements of the CSR. Members with
less satisfactory CRA ratings are required to fulfill a community
-70-
<PAGE> 77
support action plan, with measurable goals for the following year, in order to
maintain eligibility for long-term FHLB advances. FLB meets the standard for
community support under the CSR.
Liquidity Requirements. Federal regulations require a member savings
institution to maintain an average daily balance of liquid assets (which
includes cash, certain time deposits, certain bankers' acceptances, certain
corporate debt securities and highly-rated commercial paper, securities of
certain mutual funds, balances maintained in a Federal Reserve Bank and
specified United States Government, state or federal agency obligations) equal
to a monthly average of not less than a specified percentage, currently 5%, of
its net withdrawable savings deposits plus short-term borrowings. These
regulations also require each member institution to maintain an average daily
balance of short-term liquid assets at a specified minimum percentage,
currently 1%, of the total of its net withdrawable accounts and borrowings
payable in one year or less. FLB complied with its requirements at September
30, 1994.
Insurance of Accounts.
General. Deposits at FLB are insured to a maximum of $100,000 for each
insured depositor by the FDIC through the Savings Association Insurance Fund
("SAIF"). As an insurer, the FDIC issues regulations, conducts examinations
and generally supervises the operations of its insured institutions
(institutions insured by the FDIC hereinafter are referred to as "insured
institutions"). Any insured institution which does not operate in accordance
with or conform to FDIC regulations, policies and directives may be sanctioned
for non-compliance. For example, proceedings may be instituted against an
insured institution if the institution or any director, officer or employee
thereof engages in unsafe or unsound practices, including the violation of
applicable laws and regulations.
The FDIC has the authority to suspend or terminate insurance of
deposits upon the finding that the institution has engaged in unsafe or unsound
practices, is operating in an unsafe or unsound condition, or has violated any
applicable law, regulation, rule, order or condition imposed by the FDIC. If
insurance of accounts is terminated by the FDIC, the deposits in the
institution will continue to be insured by the FDIC for a period of two years
following the date of termination. The FDIC requires an annual audit by
independent accountants and also periodically makes its own examinations of
insured institutions. The FDIC may revalue assets of an institution based upon
appraisals, and require establishment of specific reserves in amounts equal to
the difference between such revaluation and the book value of the assets.
Pursuant to FIRREA, an insured institution may not convert from one
insurance fund to the other without the advance approval of the FDIC. However,
FIRREA provides that the FDIC may not permit conversions until the later of
August 9, 1984 or the date on which the SAIF first meets or exceeds the
designated reserve ratio (reserves to estimated SAIF insured deposits) for such
fund, subject to certain exceptions. To date, the SAIF has not met the
designated reserve ratio for the fund. When a conversion is permitted, each
insured institution participating in the conversion must pay an "exit fee" to
the insurance fund it is leaving and an "entrance fee" to the insurance fund it
is entering.
FIRREA also provides, generally, that the moratorium on insurance fund
conversions shall not be construed to prohibit a SAIF member from converting to
a bank charter during the moratorium, as long as the resulting bank remains a
SAIF member during that period. Similarly, FIRREA also provides that, under
certain circumstances, bank holding companies may merge or consolidate the
assets and liabilities of savings institutions with, or transfer such assets
and liabilities to, any subsidiary bank which is a member of the BIF with the
approval of the appropriate federal banking agency and the Federal Reserve.
Insurance Premiums and Regulatory Assessments. As an insurer, the FDIC
issues regulations, conducts examinations and generally supervises the
operations of its insured members. FDICIA directed the FDIC to establish a
risk-based premium system under which each premium assessed against FLB would
generally depend
-71-
<PAGE> 78
upon the amount of FLB's deposits and the risk that it poses to SAIF. The FDIC
was further directed to set semiannual assessments for insured depository
institutions to maintain the reserve ratio of the SAIF at 1.25% of estimated
insured deposits. The FDIC may designate a higher reserve ratio if it
determines there is a significant risk of substantial future loss to the
particular fund. Under the FDIC's risk-related insurance regulations, an
institution is classified according to capital and supervisory factors.
Institutions are assigned to one of three capital groups: "well capitalized,"
"adequately capitalized" or "undercapitalized." Within each capital group,
institutions are assigned to one of three supervisory subgroups. There are
nine combinations of groups and subgroups (or assessment risk classifications)
to which varying assessment rates are applicable. These rates range from $.23
per $100 of domestic deposits to $.31 per $100 of domestic deposits. FLB has
been assigned to the "well capitalized" risk classification group.
In addition to deposit insurance premiums, savings institutions also
must bear a portion of the administrative costs of the OTS through an
assessment based on the level of total assets of each insured institution and
which differentiates between troubled and nontroubled savings institutions.
During fiscal 1994, FLB paid $156,000 to the OTS for such assessments.
Additionally, the OTS assesses fees for the processing of various applications.
Qualified Thrift Lender Test. Historically, the amount of advances
which might be obtained by a member institution from the FHLB has been subject
to the institution's compliance with a qualified thrift lender ("QTL") test.
Pursuant to FIRREA, as of July 1, 1991, a savings institution was required to
have "Qualified Thrift Investments" equal to 70% of its "Portfolio Assets" on a
regular basis for each two-year period beginning July 1, 1991. In order to
remain in compliance, FLB must maintain 65% of its total Portfolio Assets in
Qualified Thrift Investments. This level must be maintained on a monthly
average basis in nine out of every twelve months. For purposes of the QTL
test, "Portfolio Assets" equal total assets minus (i) goodwill and other
intangible assets, (ii) the value of property used by an institution in the
conduct of its business and (iii) assets of the type used to meet liquidity
requirements in an amount not exceeding 20% of the savings institution's total
assets. "Qualified Thrift Investments" generally include (i) loans made to
purchase, refinance, construct, improve or repair domestic residential or
manufactured housing, (ii) home equity loans, (iii) securities backed by or
representing an interest in mortgages on domestic residential or manufactured
housing, (iv) obligations issued by the federal deposit insurance agencies and
(v) shares of FHLB stock owned by the savings institution. Subject to a
20%-of-Portfolio Assets limitation, Qualified Thrift Investments also include
50% of the dollar amount of domestic residential mortgage loans originated and
sold within 90 days of origination, consumer loans (up to a maximum of 10% of
Portfolio Assets), investments in certain subsidiaries, loans for the purchase
or construction of schools, churches, nursing homes and hospitals, shares of
stock issued by the Federal Home Loan Mortgage Corporation or the FNMA and 200%
of investments in loans for low-to-moderate income housing and certain other
community oriented investments.
A savings institution that does not meet the Qualified Thrift Lender
test must either convert to a bank charter or comply with the restrictions
imposed for noncompliance. If the institution converts to a bank charter, it
will continue to pay SAIF insurance assessments and any applicable exit and
entrance fees before converting to BIF insurance. If the institution does not
convert to a bank charter, it must comply with the following additional
restrictions on the operations of the institution: (i) the institution may not
engage in any new activity or make any new investment, directly or indirectly,
unless such activity or investment is permissible for both a national bank and
a savings institution; (ii) the branching powers of the institution shall be
restricted to those of a national bank; (iii) the institution generally will
not be eligible to obtain any advances from its FHLB; and (iv) payment of
dividends by the institution will be subject to the rules regarding payment of
dividends by a national bank. A savings institution that has not converted to
a bank charter within three years after failing to qualify as a Qualified
Thrift Lender may not retain any investment or engage in any activity not
permitted for both a national bank and a savings institution and must also
repay all FHLB System advances. FLB's Qualified Thrift Investments as of March
31, 1995 were $522 million, or 71% of its portfolio assets at that date. FLB
expects to remain in compliance with the QTL test.
-72-
<PAGE> 79
Capital Requirements. OTS capital regulations pursuant to FIRREA
became effective on December 7, 1989, and established capital standards
applicable to all savings institutions. They include a core capital
requirement, a tangible capital requirement and a risk-based capital
requirement. Subject to certain exceptions and a phase-in period, each of
these capital standards must be no less stringent than the capital standards
applicable to national banks, although the risk-based capital requirement for
savings institutions may deviate from the risk-based capital standards
applicable to national banks to reflect interest rate risk or other risks if
the deviations in the aggregate do not result in materially lower levels of
capital being required of savings institutions than would be required of
national banks.
The following table reflects FLB's compliance with its regulatory
capital requirements at March 31, 1995 (dollars in thousands):
<TABLE>
<CAPTION>
Actual Required Excess
---------------- ----------------- -------
Amount % Amount % Amount
------- ----- ------- ----- -------
<S> <C> <C> <C> <C> <C>
Core capital . . . . . . $47,505 6.03% $23,629 3.00% $23,876
Tangible capital . . . . 45,348 5.77 11,782 1.50 33,566
Risk-based capital . . . 65,910 11.92 44,225 8.00 21,685
</TABLE>
FDICIA establishes five classifications for institutions based upon the capital
requirements. Each appropriate federal banking agency, such as the OTS for
FLB, must establish by regulation the parameters of each such classification.
Based on final regulations promulgated by the OTS, FLB is considered well
capitalized. Failure to maintain that status could result in greater
regulatory oversight or restrictions on FLB's activities.
Core Capital and Tangible Capita. The OTS requires a savings
institution to maintain "core capital" in an amount not less than 3% of the
savings institution's total assets. Unless the OTS adopts a more stringent
definition, "core capital" means core capital as defined by the Office of the
Comptroller of the Currency for national banks (generally, common stockholders'
equity, noncumulative perpetual preferred stock and related surplus,
nonwithdrawable accounts and pledged deposits, and minority interests in
consolidated subsidiaries, less certain intangible assets), less any
unidentifiable intangible assets (except (i) purchased mortgage servicing
rights valued at the lower of 90% of fair market value, 90% of original cost,
or the amortized book value as determined under generally accepted accounting
principles and (ii) qualifying supervisory good will) and investments in
certain "non-permissible subsidiaries" as determined by regulation. The
amortized book value of Liberty Mortgage's purchased mortgage servicing rights
at March 31, 1995 was $2.3 million. Of this amount, none was excluded from
core capital. The amount of qualifying supervisory goodwill that may be
included in core capital will be phased out between January 1992 and January
1995. At March 31, 1995, FLB had no supervisory goodwill.
The tangible capital requirement requires a savings institution to
maintain tangible capital in an amount not less than 1.5% of its adjusted total
assets. "Tangible capital" means core capital less (i) any intangible assets
(including supervisory goodwill, but not including readily marketable purchased
mortgage servicing rights included in core capital) and (ii) investments in
certain "non-permissible" subsidiaries.
Prior to July 1994, a declining percentage of the aggregate amount of
investments in and extensions of credit to a savings institution's subsidiaries
engaged in activities not permissible for a national bank, with certain
exceptions, may be included in capital. Commencing July 1, 1994, however, such
investments and extensions of credit generally must be deducted from the
savings institution's capital in determining compliance with the capital
requirements. FLB had no investments in non-permissible activities at March
31, 1995.
Most national banks will be required to maintain a level of core
capital of at least 100 to 200 basis points above the 3% minimum level.
Because OTS capital standards may not be less stringent than those for national
-73-
<PAGE> 80
banks, savings institutions will be required to maintain core capital levels at
least as high as national banks. At March 31, 1995, FLB's core capital was
6.03%.
Risk-Based Capital. The OTS capital regulations require savings
institutions to maintain a ratio of total capital to total risk-weighted assets
of 8.0%. In determining total risk-weighted assets for purposes of the
risk-based capital requirements, (i) each off-balance sheet item must be
converted to an on-balance sheet credit equivalent amount by multiplying the
face amount of each such item by a credit conversion factor ranging from 0% to
100% (depending upon the nature of the item); (ii) the credit equivalent amount
of each off-balance sheet item and each on-balance sheet asset must be
multiplied by a risk factor ranging from 0% to 100% (again depending on the
nature of the item); (iii) the resulting amounts are added together and
constitute total risk-weighted assets. Total capital, for purposes of the
risk-based capital requirement, equals the sum of core capital plus
supplementary capital, which includes, among other things, cumulative preferred
stock, mandatory convertible securities, subordinated debt and allowance for
loan and lease losses of up to 1.25% of total risk-weighted assets. The amount
of supplementary capital counted towards satisfaction of the total capital
requirement may not exceed 100% of core capital, and OTS regulations require
the maintenance of a minimum ratio of core capital to total risk-weighted
assets of 4.0%. As of March 31, 1995, FLB's ratio of core capital to total
risk-weighted assets was 8.59%.
FDICIA directs the OTS and other federal banking agencies to revise
their risk-based capital standards to ensure that the standards (i) take
adequate account of interest rate risk, concentration of credit risk and the
risks of nontraditional activities, and (ii) reflect the actual performance and
expected risk of loss of multifamily mortgages.
In response to this directive, in September 1992 the OTS revised its
proposed rulemaking relating to the interest rate risk component of the
risk-based capital standard (originally proposed on December 31, 1990) and on
August 31, 1993, the OTS issued its final regulation effective as of January 1,
1994.
In the final rule, institutions with an "above-normal" degree of
interest rate risk will be required to maintain an additional amount of
capital. The test of "above-normal" is determined by postulating a 200 basis
point shift (increase or decrease) in interest rates and determining the effect
on the market value of an institution's portfolio equity. If the decline is
less than 2%, no addition to risk-based capital is required (i.e., an
institution has only a normal degree of interest rate risk). If the decline is
greater than 2%, the institution must add additional capital equal to one-half
the difference between its measured interest rate risk and 2% multiplied by the
market value of its assets. Management believes that FLB's interest rate risk
is within the normal range. Although the OTS has solicited comments in
anticipation of its rule-making to address concentration of credit risk and the
risks of non- traditional activities, it has not yet proposed any regulations
governing these matters. Until such regulations are promulgated, it is
difficult to predict their effect on FLB.
Capital Distributions. In addition to the above restrictions, the OTS
has issued a regulation limiting "capital distributions" by OTS-regulated
savings institutions (the "Capital Distribution Regulation"). Capital
distributions are defined to include, in part, dividends, stock repurchases and
cash-out mergers. The Capital Distribution Regulation permits a "Tier 1"
association to make capital distributions during a calendar year up to the
higher of (i) 100% of its net income to date plus the amount that would reduce
by one-half its surplus capital ratio at the beginning of the calendar year, or
(ii) 75% of its net income over the most recent four-quarter period. Any
distributions in excess of that amount require prior OTS notice, with the
opportunity for the OTS to object to the distribution. A Tier 1 association is
defined as an association that has, on a pro forma basis after the proposed
distribution, capital equal to or greater than the OTS fully phased-in capital
requirements. An association meeting the Tier 1 capital criteria but that has
been notified that it is in need of more than normal supervision will be
treated as a Tier 2 or Tier 3 association unless the OTS determines that such
treatment is not necessary to ensure the association's safe and sound
operation.
-74-
<PAGE> 81
A "Tier 2" association is authorized, without OTS approval, to make
capital distributions during a calendar year up to 75% of its net income over
the most recent four-quarter period if its current capital satisfies the 8%
risk-based capital requirement; and 50% of its net income over the most recent
four-quarter period if its current capital satisfies the 7.2% risk-based
capital requirement that became effective on January 1, 1991. Any prior
distributions by a Tier 2 association in the preceding four quarters must be
deducted from the total amount of distributions allowable, and any distribution
in excess of these amounts must be approved in advance by the OTS. A Tier 2
association is an association that has, on a pro forma basis after the proposed
distribution, capital equal to or in excess of its minimum capital requirement
but does not meet the fully phased-in capital requirement. The current minimum
risk-based capital requirement applicable to savings institutions is the 8%
fully phased-in capital requirement.
A "Tier 3" association is not authorized to make any capital
distribution without prior written approval from the OTS, unless the capital
distribution is consistent with the association's capital plan filed with and
approved by the OTS. A Tier 3 association is defined as an association that
has current capital less than its minimum capital requirement.
The Capital Distribution Regulation requires that associations provide
the OTS with a 30-day advance written notice of all proposed capital
distributions, whether or not advance approval is required by the regulation.
FLB currently is in compliance with the regulatory capital
requirements and therefore is a Tier 1 institution. However, FLFC and the FHLB
entered into an agreement in connection with the holding company approval
process which restricted FLB from declaring or paying cash dividends to FLFC
without prior written approval if the dividends to be paid in any year would
exceed 50% of net income for the fiscal year in which the dividend is declared
(except that permitted dividends may be deferred and paid in a subsequent
year), or if the payment of such dividends would cause regulatory capital to be
reduced below the amount required for the "liquidation account" set up for
"eligible account holders" at the time FLB converted from a mutual to a stock
institution. The Capital Distribution Regulation states that no institution
may make a capital distribution which would be prohibited by any agreement
between the institution and the OTS without the prior written approval of the
OTS. The OTS has indicated in commentary to the regulation that more
restrictive limitations of a dividend limitation agreement would continue to
govern capital distributions. Institutions subject to such dividend limitation
agreements may submit a written notice to the OTS for a determination of
whether capital distributions will be governed by the capital distribution
regulation or a pre-existing dividend limitation agreement.
Earnings appropriated to bad debt reserves established for federal
income tax purposes may not be used for the payment of dividends without
potential adverse tax consequences. See "Taxation" herein.
Federal Reserve System Requirements. The Federal Reserve requires
depository institutions to maintain noninterest-bearing reserves against their
deposit transaction accounts, non-personal time deposits (transferrable or held
by a person other than a natural person) with an original maturity of less than
one and one-half years and certain money market deposit accounts. Federal
Reserve regulations currently require financial institutions to maintain
average daily reserves equal to 3% on the first $51.9 million of net
transaction account, plus 10% on the remainder. The balances maintained to
meet the reserve requirements imposed by the Federal Reserve may be used to
satisfy liquidity requirements imposed by the OTS. Members of the FHLB System
also are authorized to borrow from the Federal Reserve "discount window"
subject to restrictions imposed by Federal Reserve regulations. However,
Federal Reserve policy generally requires that a savings institution exhaust
its FHLB resources before borrowing from the Federal Reserve.
Transactions with Affiliates. FLB is also subject to certain
transactions with affiliates rules applicable to banks and savings institutions
which are set forth in Sections 23A, 23B and 22(h) of the Federal Reserve Act
as well
-75-
<PAGE> 82
as additional limitations imposed by OTS regulations. Such regulations
generally impose quantitative and qualitative limitations on loans and other
transactions between an institution and its affiliates, including loans to
insiders.
Consumer Protection and Other Laws and Regulations. FLB and Liberty
Mortgage are also subject to various laws and regulations dealing generally
with consumer protection matters including without limitation the Equal Credit
Opportunity Act and Regulation B, the Electronic Funds Transfer Act and
Regulation E, the Truth in Lending Act and Regulation Z, the Truth in Savings
Act and Regulation DD, the Expedited Funds Availability Act and Regulation CC,
the Bank Secrecy Act and fair housing laws. FLB and Liberty Mortgage may be
subject to potential liability under these laws and regulations for material
violations.
State Regulation. As a federally chartered savings institution, FLB
generally is not subject to those provisions of Georgia law governing state
chartered financial institutions or to the jurisdiction of the DBF. However,
the DBF interprets the Georgia Bank Holding Company Act to require the prior
approval of the DBF for any acquisition of control of any savings institution
(whether chartered by state or federal authority) located in Georgia.
The DBF also interprets the Georgia Bank Holding Company Act to
include savings and loan holding companies as "bank holding companies", thus
giving the DBF the authority to make examinations of FLFC and any subsidiaries
and to require periodic and other reports. Existing DBF regulations do not
restrict the business activities or investments of FLFC or FLB.
State usury laws are applicable to federally insured institutions with
regard to loans made within Georgia. Generally speaking, Georgia law does not
establish ceilings on interest rates although certain specialized types of
lending in which FLB engages, such as making loans of $3,000 or less, are
subject to interest rate limitations.
TAXATION
Federal Taxation. FLFC files a consolidated federal income tax
return, which has the effect of eliminating intercompany distributions,
including dividends, in the computation of consolidated taxable income.
Thrift institutions that meet certain definitional tests and other
conditions prescribed by the Code are allowed to establish a bad debt reserve
and to make annual additions to the reserve that may be taken as a deduction in
computing taxable income for federal income tax purposes. The amount of the
bad debt reserve deduction is based upon either (i) actual loss experience, or
(ii) a percentage of taxable income before such deduction. Under the taxable
income method, thrift institutions are permitted to deduct 8% of taxable income
if used for annual additions to their bad debt reserves established for federal
income tax purposes.
For the years ended September 30, 1992, 1993 and 1994, FLB determined
its bad debt reserve deduction based on the actual loss experience method.
The bad debt reserve deduction is available only to the extent that
total amounts accumulated in the bad debt reserve for qualifying real property
loans do not exceed 6% of such loans at year-end. In addition, the deduction
is further limited to the amount by which 12% of savings accounts exceeds the
sum of retained earnings and reserves at the beginning of the year. The bad
debt reserve deductions have not been limited by these restrictions during the
three fiscal years ended September 30, 1992, 1993 and 1994.
Earnings appropriated to bad debt reserves established for income tax
purposes cannot be used for any purpose other than to absorb bad debt losses
without recognition of taxable income. Dividends may be paid out of
unappropriated retained earnings without the imposition of any tax to the
extent that the amounts paid as dividends do not exceed earnings and profits as
calculated for federal income tax purposes. FLFC has a taxable temporary
-76-
<PAGE> 83
difference relating to its bad debt reserves for which FLB has not provided a
deferred tax liability. The temporary difference is the amount of the base
year tax bad debt reserve (i.e., tax bad debt reserves that arose in tax years
beginning before December 31, 1987). As of the year ended September 30, 1994,
the cumulative amount of this temporary difference for which FLFC is not
required to recognize a deferred tax liability is approximately $8,926,000.
The amount of the unrecognized deferred tax liability related to this temporary
difference is $3,035,000.
FLFC's income tax returns are periodically examined by various taxing
authorities. The Internal Revenue Service ("IRS") is conducting an examination
of FLFC's federal income tax returns for the years 1986 through 1989. The IRS
raised several issues during the examination process and settlement discussions
are ongoing. Management expects that any settlement with the IRS will not
result in a material adverse impact on the consolidated financial statements.
State Taxation. FLFC's federal taxable income with certain
adjustments is subject to the Georgia corporation income tax at a rate of 6%.
The primary difference between taxable income for State and federal income tax
purposes is interest income on United States Government obligations, which is
not taxable for state income tax purposes.
EXPERTS
The consolidated statements of financial position of FLFC as of
September 30, 1994 and 1993 and the consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 1994, included in FLFC's Annual Report on Form 10-K for the
year ended September 30, 1994 and incorporated by reference in this
Registration Statement, have been incorporated herein in reliance on the
report, which includes an explanatory paragraph regarding a change in
accounting for income taxes in 1992 and a change in accounting for investments
in 1993, of Coopers & Lybrand L.L.P., independent accountants, given on the
authority of that firm as experts in accounting and auditing. With respect to
the unaudited interim financial information for the periods ended December 31,
1994 and 1993 and March 31, 1995 and 1994, incorporated by reference in this
Proxy Statement/Prospectus, Coopers & Lybrand L.L.P. has reported that they
have applied limited procedures in accordance with professional standards for a
review of such information. However, their separate reports included in the
Company's quarterly reports on Forms 10-Q for the quarters ended December 31,
1994 and March 31, 1995, respectively, and incorporated by reference herein,
states that they did not audit and they do not express an opinion on that
interim financial information. Accordingly, the degree of reliance on their
report on such information should be restricted in light of the limited nature
of the review procedures applied. Coopers & Lybrand L.L.P. are not subject to
the liability provisions of Section 11 of the Securities Act for their report
on the unaudited interim financial information because that report is not a
"report" or a "part" of the registration statement prepared or certified by
Coopers & Lybrand L.L.P. within the meaning of Sections 7 and 11 of the
Securities Act.
The consolidated financial statements of TBI at December 31, 1994 and
1993 and for the three year period ended December 31, 1994 appearing herein
have been audited by Thigpen, Jones, Seaton & Co., P.C., independent auditors,
as set forth in their report thereon included herein. Such consolidated
financial statements are included herein in reliance upon such report given on
the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the shares of Series B Preferred being offered hereby
is being passed upon for FLFC by Long, Aldridge & Norman, Atlanta, Georgia.
Coopers & Lybrand L.L.P. has opined as to certain federal income tax
consequences of the Merger. See "The Merger - Certain Federal Income Tax
Consequences."
-77-
<PAGE> 84
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, TBI's Board of
Directors knows of no matters that will be presented for consideration at the
Special Meeting other than as described in this Proxy Statement/Prospectus.
However, if any other matter shall come before the Special Meeting or any
adjournments or postponements thereof and shall be voted upon, the proxy will
be deemed to confer authority to the individuals named as authorized therein to
vote the shares represented by such proxy as to any such matters that fall
within the purposes set forth in the Notice of Special Meeting as determined by
a majority of the Board of Directors.
-78-
<PAGE> 85
TIFTON BANKS, INC. AND SUBSIDIARY
CONSOLIDATED FINANCIAL STATEMENTS
================================================================================
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INDEPENDENT AUDITORS' REPORT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
CONSOLIDATED FINANCIAL STATEMENTS:
Consolidated Balance Sheets as of December 31, 1994 and 1993 and
March 31, 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Consolidated Statements of Changes in Shareholders' Equity for the
years ended December 31, 1994, 1993, and 1992 and the three months
ended March 31, 1995 (unaudited) . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-4
Consolidated Statements of Income for the years ended December 31, 1994,
1993, and 1992 and the three months ended March 31, 1995 (unaudited) . . . . . . . . . . F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1994,
1993, and 1992 and the three months ended March 31, 1995 (unaudited) . . . . . . . . . . F-6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . F-7
</TABLE>
F-1
<PAGE> 86
INDEPENDENT AUDITORS' REPORT
Board of Directors
Tifton Banks, Inc. and Subsidiary
We have audited the accompanying consolidated balance sheets of Tifton
Banks, Inc. and subsidiary, as of December 31, 1994 and 1993, and the related
consolidated statements of income, changes in shareholders' equity, and cash
flows for each of the three years in the period ended December 31, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes, assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Tifton
Banks, Inc. and subsidiary at December 31, 1994 and 1993 , and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
Thigpen, Jones, Seaton & Co., P.C.
February 3, 1995, except for Note Q which is dated February 9, 1995
F-2
<PAGE> 87
TIFTON BANKS, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
===============================================================================
<TABLE>
<CAPTION>
(Unaudited)
As of December 31, As of March 31,
-------------------------- ---------------
1994 1993 1995
- ------------------------------------------------------------------------------------------------- ---------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 2,552,892 $ 2,215,692 $ 3,183,754
Federal funds sold 660,000 7,574,000 1,790,000
- ------------------------------------------------------------------------------------------------- ---------------
Total cash and cash equivalents 3,212,892 9,789,692 4,973,754
- ------------------------------------------------------------------------------------------------- ---------------
Interest-bearing deposits in banks not maturing currently 1,194,000 1,886,000 695,000
Investment securities available for sale, at market 8,928,635 - 9,002,420
Investment securities held to maturity, at cost 1,486,890 5,110,196 1,360,958
Other securities purchased under resale agreements, at cost 1,500,000 - -
Loans, net of unearned income 35,885,318 32,178,740 36,939,747
Allowance for loan losses (404,322) (400,000) (441,085)
- ------------------------------------------------------------------------------------------------- ---------------
Loans, net 35,480,996 31,778,740 36,498,662
- ------------------------------------------------------------------------------------------------- ---------------
Bank premises and equipment 1,188,738 1,281,758 1,180,753
Other real estate 6,277 96,610 -
Accrued interest receivable 545,510 413,417 516,101
Other assets and accrued income 151,197 97,134 171,287
- ------------------------------------------------------------------------------------------------- ---------------
TOTAL ASSETS $53,695,135 $50,453,547 $54,398,935
================================================================================================= ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Non-interest bearing demand $ 6,050,760 $ 5,228,490 $ 7,611,303
Interest-bearing demand 15,996,127 8,421,354 12,401,161
Savings 1,858,820 2,323,698 1,866,733
Time deposits 24,387,340 26,523,084 26,661,556
- ------------------------------------------------------------------------------------------------- ---------------
Total deposits 48,293,047 42,496,626 48,540,753
Short-term borrowings 16,500 2,533,000 -
Accrued interest payable 322,510 335,084 368,160
Capitalized leases payable 15,177 40,566 12,396
Other liabilities and accrued expenses 53,555 68,882 344,263
- ------------------------------------------------------------------------------------------------- ---------------
Total liabilities 48,700,789 45,474,158 49,265,572
- ------------------------------------------------------------------------------------------------- ---------------
Commitments and contingencies
Shareholders' Equity:
Common stock, $10 par value, authorized 2,000,000 shares,
outstanding 200,000 shares 2,000,000 2,000,000 2,000,000
Additional paid-in capital surplus 1,600,000 1,600,000 1,600,000
Retained earnings 1,527,449 1,379,389 1,651,071
Unrealized holding gains (losses) on securities available
for sale (133,103) - (117,708)
- ------------------------------------------------------------------------------------------------- ---------------
Total Shareholders' Equity 4,994,346 4,979,389 5,133,363
- ------------------------------------------------------------------------------------------------- ---------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $53,695,135 $50,453,547 $54,398,935
================================================================================================= ===============
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-3
<PAGE> 88
TIFTON BANKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
Unrealized
Additional Holding
Paid-in Gains
Common Capital Retained (Losses) on
Stock Surplus Earnings Securities Total
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1991 $2,000,000 $1,600,000 $ 973,250 $ - $4,573,250
Net Income - - 111,248 - 111,248
Dividends - - (49,913) - (49,913)
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1992 2,000,000 1,600,000 1,034,585 - 4,634,585
Net Income - - 404,804 - 404,804
Dividends - - (60,000) - (60,000)
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993 2,000,000 1,600,000 1,379,389 - 4,979,389
Net Income - - 268,060 - 268,060
Dividends - - (120,000) - (120,000)
Valuation allowance adjustment on securities
available for sale - - - (133,103) (133,103)
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994 $2,000,000 $1,600,000 $1,527,449 $(133,103) $4,994,346
(Unaudited)
Net Income - - 123,622 - 123,622
Valuation allowance adjustment on securities
available for sale - - - 15,395 15,395
- -----------------------------------------------------------------------------------------------------------------------
BALANCE, MARCH 31, 1995 (UNAUDITED) $2,000,000 $1,600,000 $1,651,071 $(117,708) $5,133,363
=======================================================================================================================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-4
<PAGE> 89
TIFTON BANKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
================================================================================
<TABLE>
<CAPTION>
(Unaudited)
Years Ended December 31, 3 Months Ended March 31,
----------------------------------- ------------------------
1994 1993 1992 1995 1994
- ---------------------------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME:
Interest and fees on loans $3,113,408 $3,130,051 $3,863,484 $ 843,042 $738,246
Income on federal funds sold 118,307 142,316 184,349 11,818 38,110
Interest on securities:
Taxable income 341,656 188,086 295,367 119,779 52,520
Non-taxable income 61,221 43,202 23,616 15,894 13,947
Other interest 73,997 65,598 17,215 18,144 20,873
- ------------------------------------------------------------------------------------ ------------------------
Total interest income 3,708,589 3,569,253 4,384,031 1,008,677 863,696
- ------------------------------------------------------------------------------------ ------------------------
INTEREST EXPENSE:
Demand deposits 351,434 253,158 383,796 100,141 66,376
Savings deposits 59,050 67,376 102,199 13,113 16,940
Certificates of deposits of $100,000 or more 455,362 429,509 651,180 129,106 111,802
Other time deposits 731,535 866,736 1,313,633 205,910 181,118
Interest on other borrowed funds and
capitalized leases 8,772 21,820 27,263 9,489 2,141
- ------------------------------------------------------------------------------------ ------------------------
Total interest expense 1,606,153 1,638,599 2,478,071 457,759 378,377
- ------------------------------------------------------------------------------------ ------------------------
Net interest income before loan losses 2,102,436 1,930,654 1,905,960 550,918 485,319
Less - provision for loan losses 60,803 216,758 499,000 35,000 15,803
- ------------------------------------------------------------------------------------ ------------------------
Net interest income after provision for
loan losses 2,041,633 1,713,896 1,406,960 515,918 469,516
- ------------------------------------------------------------------------------------ ------------------------
OTHER OPERATING INCOME:
Service charges on deposit accounts 349,503 394,310 349,556 84,078 81,256
Securities gains (losses) (461) 54,633 (10,365) (44) (2,582)
Other income 26,382 45,039 72,293 18,890 8,174
- ------------------------------------------------------------------------------------ ------------------------
Total other operating income 375,424 493,982 411,484 102,924 86,848
- ------------------------------------------------------------------------------------ ------------------------
OTHER OPERATING EXPENSES:
Salaries 614,656 608,383 577,719 144,483 152,480
Employee benefits 151,576 142,911 146,655 37,101 32,947
Net occupancy expenses 224,189 191,127 168,553 58,283 56,541
Loss on litigation settlement - - - 8,000 -
Other expenses 754,075 724,258 739,183 185,865 184,544
- ------------------------------------------------------------------------------------ ------------------------
Total other operating expenses 1,744,496 1,666,679 1,632,110 433,732 426,512
- ------------------------------------------------------------------------------------ ------------------------
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY ITEMS 672,561 541,199 186,334 185,110 129,852
Less - provision for income taxes 219,527 136,395 75,086 61,488 46,699
- ------------------------------------------------------------------------------------ ------------------------
INCOME BEFORE EXTRAORDINARY ITEMS 453,034 404,804 111,248 123,622 83,153
Extraordinary item - Loss on
litigation settlement for forgery
claim, net of $95,389 income taxes 184,974 - - - -
- ------------------------------------------------------------------------------------ ------------------------
NET INCOME $ 268,060 $ 404,804 $ 111,248 $ 123,622 $ 83,153
==================================================================================== ========================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-5
<PAGE> 90
TIFTON BANKS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
================================================================================
<TABLE>
<CAPTION>
(Unaudited)
Years Ended December 31, 3 Months Ended March 31,
----------------------------------- -------------------------
1994 1993 1992 1995 1994
- -------------------------------------------------------------------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 268,060 $ 404,804 $ 111,248 $ 123,622 $ 83,153
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 60,803 216,758 499,000 35,000 15,803
Depreciation and amortization 133,002 118,070 102,880 34,149 33,899
Accretion on investment securities - - (50,765) - -
(Gains) losses on securities 461 (54,633) 10,365 - -
(Gain) Loss on sale of equipment - - 206 44 (2,582)
Gain on sale of other real estate - (15,167) - - -
Changes in accrued income and other assets (196,156) 226,750 184,293 9,319 (42,186)
Changes in accrued expenses and other
liabilities (53,290) (54,307) (372,202) 331,077 (40,725)
- -------------------------------------------------------------------------------------- -------------------------
Net cash provided by operating activities 212,880 842,275 485,025 533,211 47,362
- -------------------------------------------------------------------------------------- -------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in non-currently
maturing deposits in banks 692,000 (296,000) (1,590,000) 499,000 (298,000)
Loans repayments (proceeds) net (3,672,726) 1,915,441 5,805,307 (1,052,666) (2,067,313)
Proceeds from maturities of securities held
to maturity 776,508 3,757,406 8,269,169 125,932 595,170
Purchase of investment securities held to
maturity (1,163,582) (4,211,377) (8,168,394) - (1,150,260)
Proceeds from maturities of securities
available for sale 1,848,563 - - 7,681 -
Purchase of investment securities available
for sale (6,900,382) - - (66,116) (299,500)
(Purchase) Proceeds of securities under
resale agreement (1,500,000) - - 1,500,000 -
Property and equipment expenditures (29,982) (359,638) (59,000) (23,664) (10,370)
Net change in other real estate owned, net
of non-cash transactions - (100,575) (44,209) 6,277 5,333
Proceeds from sale of property - 209,371 5,922 - -
- -------------------------------------------------------------------------------------- -------------------------
Net cash provided by (used in)
investing activities (9,949,601) 914,628 4,218,795 996,444 (3,224,940)
- -------------------------------------------------------------------------------------- -------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in demand and savings accounts 7,932,165 (986,537) 3,731,633 (2,026,510) 1,717,586
Net change in other time deposits (2,135,744) (3,773,070) (7,573,614) 2,274,217 85,464
Net (payments) borrowings from other banks (2,516,500) 2,367,632 - (16,500) (2,500,000)
Dividends paid (120,000) (60,000) (49,913) - -
- -------------------------------------------------------------------------------------- -------------------------
Net cash provided by (used in)
financing activities 3,159,921 (2,451,975) (3,891,894) 231,207 (696,950)
- -------------------------------------------------------------------------------------- -------------------------
NET INCREASE (dECREASE) IN CASH AND CASH
EQUIVALENTS (6,576,800) (695,072) 811,926 1,760,862 (3,874,528)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 9,789,692 10,484,764 9,672,838 3,212,892 9,789,692
- -------------------------------------------------------------------------------------- -------------------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,212,892 $ 9,789,692 $10,484,764 $ 4,973,754 $ 5,915,164
====================================================================================== =========================
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
F-6
<PAGE> 91
TIFTON BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1994
================================================================================
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of the Company conform with generally
accepted accounting principles and practices within the banking industry.
The policies that materially affect financial position and the results of
operations are summarized as follows:
1. REPORTING ENTITY - The Company was formed on October 29, 1990, as
Tifton Banks, Inc., and operates as a bank holding company with one
bank subsidiary. At December 31, 1994, Tifton Banks, Inc. , owned
100% of Tifton Bank and Trust Company, Tifton, Georgia.
2. PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Company and its bank subsidiary. All
material intercompany accounts and transactions have been eliminated
as a result of consolidation.
The unaudited consolidated balance sheet as of March 31, 1995 and
the unaudited consolidated statements of income, changes in
shareholders' equity and cash flows for the three months ended March
31, 1994 and 1995, were prepared in accordance with generally
accepted accounting principles for interim financial information and
with general practices within the banking industry. In the opinion
of management, all adjustments considered necessary for a fair
presentation have been included, which consist solely of normal
recurring accruals and adjustments. Operating results for the three
months ended March 31, 1994 and 1995 are not necessarily indicative
of the results that may be expected for the complete year.
3. SECURITIES - The classification of securities is determined at the
date of purchase. Gains or losses on the sale of securities are
recognized on a specific identification basis.
Securities available for sale, primarily debt securities, are
recorded at fair value with unrealized gains or losses (net of tax
effect) excluded from earnings and reported as a component of
shareholders' equity. Securities available for sale will be used as
a part of the Corporation's interest rate risk management strategy
and may be sold in response to changes in interest rates, changes in
prepayment risk, and other factors. Investment securities,
primarily debt securities, are stated at cost, net of the
amortization of premium and the accretion of discount. The Company
intends and has the ability to hold such securities on a long-term
basis or until maturity.
The market value of securities is generally based on quoted market
prices. If a quoted market price is not available, market value is
estimated using quoted market prices for similar securities.
4. LOANS AND INTEREST INCOME - Loans are stated at the amount of unpaid
principal, reduced by net deferred loan fees, unearned discount, and
a valuation reserve for possible loan losses. Unearned income on
add-on installment loans is recognized as income over the terms of
the loans by the "Rule of 78's" method. Interest on simple interest
installment loans and other loans is calculated by using the simple
interest method on daily balances of the principal amount
outstanding. Accrual of interest is discontinued on loans past due
90 days or more with collateral inadequate to cover principal and
interest or immediately if management believes, after considering
economic and business conditions and collection efforts, that the
borrowers' financial condition is such that collection is doubtful.
5. ALLOWANCE FOR LOAN LOSSES - The allowance for loan losses is
established through provision for loan loss charges to expenses.
Loans are charged against the allowance for loan losses when
management believes that the collectibility of the principle is
unlikely. The allowance is an amount that management believes will
be adequate to absorb possible losses on existing loans that may
become uncollectible based on evaluation of the collectibility of
loans and prior loan loss experience. The evaluation takes into
consideration such factors as a change in the nature and volume of
the loan portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may affect the
borrower's ability to pay.
F-7
<PAGE> 92
TIFTON BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1994
================================================================================
Management believes that the allowance for possible loan losses is
adequate. While management uses available information to recognize
losses on loans and other real estate, 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 subsidiary banks'
allowances for possible loan losses. Such agencies may require the
subsidiary banks to recognize additions to the allowance based on
their judgments of information available to them at the time of
their examination.
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 date of the balance sheet 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 an operating cycle of one year relate to the determination
of the allowance for possible loan losses and the valuation of real
estate acquired in connection with foreclosures or in satisfaction
of loans. In connection with the determination of the allowance for
possible loan losses and real estate owned, management obtains
independent appraisals for significant properties.
6. PREMISES AND EQUIPMENT - Premises and equipment are stated at cost,
less accumulated depreciation. Depreciation is charged to operating
expenses over the estimated useful lives of the assets and is
computed on the straight-line method. Costs of major additions and
improvements are capitalized. Expenditures for maintenance and
repairs are charged to operations as incurred. Gains or losses from
disposition of property are reflected in operations and the asset
account is reduced.
7. OTHER REAL ESTATE OWNED - Other real estate owned, acquired
principally through foreclosure, is stated at the lower of cost or
net realizable value. Loan losses incurred in the acquisition of
these properties are charged against the allowance for possible loan
losses at the time of foreclosure. Subsequent write-downs of other
real estate owned are charged against the current period's expense.
8. INCOME TAXES - In 1994, the Company adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes," which
requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included
in the financial statements or tax returns. Under this method,
deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in
which the differences are expected to reverse. The amount due from
the subsidiary for income taxes at December 31, 1994 was $5,338.
Prior to 1994, the provision for income taxes was based on income
and expenses included in the accompanying consolidated statements of
operations. Differences between taxes so computed and taxes payable
under applicable statutes and regulations were classified as
deferred taxes arising from timing differences.
The Company and its subsidiary file a consolidated income tax
return. The subsidiary computes its income tax expense as if it
filed an individual return except that it does not get any portion
of the surtax allocation. Any benefits or disadvantages of the
consolidation are absorbed by the parent company. The subsidiary
pays its allocation of federal income taxes to the parent company or
receives payment from the parent company to the extent that tax
benefits are realized.
9. CASH AND CASH EQUIVALENTS - For purposes of reporting cash flows,
cash and cash equivalents include cash on hand, amounts due from
banks, highly liquid debt instruments purchased with an original
maturity of three months or less, and federal funds sold.
Generally, federal funds are purchased and sold for one-day periods.
Interest bearing deposits in other banks with original maturities of
less than three months are included.
10. EMPLOYEE RETIREMENT PLAN - The Company has a profit-sharing plan
covering substantially all of its employees meeting age and length
of service requirements. Contributions to the plan are made at the
discretion of the Board of Directors.
F-8
<PAGE> 93
TIFTON BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1994
================================================================================
11. RECLASSIFICATION - Certain financial statement classifications for
the years 1992 and 1993 have been changed to conform with those
adopted in 1994.
B. INVESTMENT SECURITIES
On January 1, 1994, the Company adopted SFAS 115 related to accounting for
investments in debt and equity securities. Upon adoption, the Company
transferred approximately $4,686,000 from securities held for investment to
securities available for sale. The securities available for sale portfolio
was marked to market value resulting in a net unrealized loss of $34,000
which was included in shareholders' equity at $22,440 on an after-tax
basis.
Debt and equity securities have been classified in the balance sheet
according to management's intent. The following table reflects the
amortized cost and estimated market values of investments in debt
securities held at December 31, 1994 and 1993 and at March 31, 1995. In
addition, gross unrealized gains and gross unrealized losses are disclosed
as of December 31, 1994, in accordance with Statement of Position 90-11 of
the American Institute of Certified Public Accountants, which is effective
for financial statements covering fiscal years ending after December 15,
1990.
The book and market values of securities HELD FOR INVESTMENT were:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994:
Non-mortgage backed debt securities of:
State and Political subdivisions . . . . $1,461,890 $ 9,812 $44,477 $1,427,225
Equity securities . . . . . . . . . . . . 25,000 - - 25,000
- ------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . $1,486,890 $ 9,812 $44,477 $1,452,225
======================================================================================================
DECEMBER 31, 1993:
Non-mortgage backed debt securities of:
U.S. Treasury . . . . . . . . . . . . . $1,341,356 $ 220 $ 1,517 $1,340,059
Other U.S. Government Agencies . . . . . 2,167,587 25,406 401 2,192,592
State and Political subdivisions . . . . 1,074,814 46,453 5,991 1,115,276
- ------------------------------------------------------------------------------------------------------
Total debt securities . . . . . . . . 4,583,757 72,079 7,909 4,647,927
Mortgage-backed debt securities . . . . . 526,439 4,099 - 530,538
- ------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . $5,110,196 $76,178 $ 7,909 $5,178,465
======================================================================================================
MARCH 31, 1995 (UNAUDITED):
Non-mortgage backed debt securities of:
State and Political subdivisions . . . . $1,335,958 $17,063 $32,625 $1,320,396
Equity securities . . . . . . . . . . . . 25,000 - - 25,000
- ------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . $1,360,958 $17,063 $32,625 $1,345,396
======================================================================================================
</TABLE>
F-9
<PAGE> 94
TIFTON BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1994
================================================================================
The book value and market values of securities AVAILABLE FOR SALE were:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Amortized Unrealized Unrealized Estimated
Cost Gains Losses Market Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
DECEMBER 31, 1994:
Non-mortgage backed debt securities of:
U.S. Treasury . . . . . . . . . . . $6,020,862 $ - $ 77,286 $5,943,576
Other U.S. Government Agencies . . . 2,643,966 - 117,310 2,526,656
- --------------------------------------------------------------------------------------------------------
Total debt securities . . . . . . 8,664,828 - 194,596 8,470,232
Mortgage-backed debt securities . . . 465,478 - 7,075 458,403
- --------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . $9,130,306 $ - $201,671 $8,928,635
========================================================================================================
MARCH 31, 1995 (UNAUDITED):
Non-mortgage backed debt securities of:
U.S. Treasury . . . . . . . . . . . $6,080,105 $ - $ 71,064 $6,009,041
Other U.S. Government Agencies . . . 2,643,896 - 99,803 2,544,093
- --------------------------------------------------------------------------------------------------------
Total debt securities . . . . . . 8,724,001 - 170,867 8,553,134
Mortgage-backed debt securities . . . 456,765 - 7,479 449,286
- --------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . $9,180,766 $ - $178,346 $9,002,420
========================================================================================================
</TABLE>
There were no sales of securities held for investment or available for sale
in 1994. The book and market values of pledged securities were $8,487,000
and $8,281,795 respectively, at December 31, 1994; $4,021,000 and
$4,048,878 respectively, at December 31, 1993; and $9,178,570 and
$9,000,224, respectively at March 31, 1995.
The amortized cost and estimated market value of debt securities held for
investment and of available for sale at December 31, 1994 and March 31,
1995, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or repay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
========================================================================================================
Held for Investment Available for Sale
- --------------------------------------------------------------------------------------------------------
Amortized Estimated Amortized Estimated
DECEMBER 31, 1994: Cost Market Value Cost Market Value
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-mortgage backed securities:
Due in one year or less . . . . . . . . $ 390,000 $ 387,888 $5,129,829 $5,080,701
Due after one year through five years. . 225,000 213,080 2,683,547 2,587,437
Due after five years through ten years . 739,444 718,984 851,452 802,094
Due after ten years . . . . . . . . . . 107,446 107,273 - -
- --------------------------------------------------------------------------------------------------------
Total non-mortgage backed securities . 1,461,890 1,427,225 8,664,828 8,470,232
Equity securities . . . . . . . . . . . . 25,000 25,000 - -
Mortgage-backed securities . . . . . . . . - - 465,478 458,403
- --------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . $1,486,890 $1,452,225 $9,130,306 $8,928,635
========================================================================================================
</TABLE>
F-10
<PAGE> 95
TIFTON BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1994
================================================================================
<TABLE>
<CAPTION>
=======================================================================================================
Held for Investment Available for Sale
- -------------------------------------------------------------------------------------------------------
Amortized Estimated Amortized Estimated
MARCH 31, 1995 (UNAUDITED) Cost Market Value Cost Market Value
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-mortgage backed securities:
Due in one year or less . . . . . . . . $ 265,000 $ 263,808 $5,187,707 $5,138,509
Due after one year through five years. . 225,000 215,729 2,934,765 2,848,188
Due after five years through ten years . 845,958 840,859 601,529 566,437
Due after ten years . . . . . . . . . . - - -
- -------------------------------------------------------------------------------------------------------
Total non-mortgage backed securities 1,335,958 1,320,396 8,724,001 8,553,134
Equity securities . . . . . . . . . . . . 25,000 25,000 - -
Mortgage-backed securities . . . . . . . - - 456,765 449,286
- -------------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . $1,360,958 $1,345,396 $9,180,766 $9,002,420
=======================================================================================================
</TABLE>
The market value is established by an independent pricing service as of the
approximate dates indicated. The differences between the book value and
market value reflect current interest rates and represent the potential
loss (or gain) had the portfolio been liquidated on that date. Security
losses (or gains) are realized only in the event of dispositions prior to
maturity.
At December 31, 1994 and March 31, 1995 (unaudited), the Company did not
hold investment securities of any single issuer, other than obligations of
the U.S. Treasury and other U.S. Government agencies, whose aggregate book
value exceeded ten percent of shareholders' equity.
C. LOANS
The following is a summary of the loan portfolio by principal categories at
December 31, 1994 and 1993 and March 31, 1995:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
(Unaudited)
DECEMBER 31, December 31, March 31,
1994 1993 1995
===================================================================================================
<S> <C> <C> <C>
Loans secured by 1 to 4 -family residential
properties . . . . . . . . . . . . . . . . . . . $ 6,960,318 $ 7,765,000 $ 6,383,956
Loans secured by multi-family and non-farm, non-
residential properties . . . . . . . . . . . . . 7,672,000 11,280,000 6,795,953
Other loans secured by real estate . . . . . . . . 1,188,000 2,631,000 1,623,989
Commercial and industrial loans . . . . . . . . . . 15,015,000 6,706,000 16,630,886
Consumer, installment and other loans . . . . . . . 5,050,000 3,799,907 5,504,963
- ---------------------------------------------------------------------------------------------------
Subtotal . . . . . . . . . . . . . . . . . . . . 35,885,318 32,181,907 36,939,747
Less: Unearned income . . . . . . . . . . . . . - (3,167) -
- ---------------------------------------------------------------------------------------------------
Total . . . . . . . . . . . . . . . . . . . $35,885,318 $32,178,740 $36,939,747
===================================================================================================
</TABLE>
F-11
<PAGE> 96
TIFTON BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1994
================================================================================
D. ALLOWANCE FOR LOAN LOSSES
A summary of changes in allowance for loan losses of the Company for the
years ended December 31, 1994, 1993 and 1992, and the three months ended
March 31, 1995 and 1994 is as follows:
<TABLE>
<CAPTION>
(Unaudited)
December 31, March 31,
- ------------------------------------------------------------------------------- ---------------------
1994 1993 1992 1995 1994
- ------------------------------------------------------------------------------- ---------------------
<S> <C> <C> <C> <C> <C>
Beginning Balance $400,000 $371,447 $325,260 $404,322 $400,000
Add: Provision for possible loan losses 60,803 216,758 499,000 35,000 15,803
- ------------------------------------------------------------------------------- ---------------------
Subtotal 460,803 588,205 824,260 439,322 415,803
- ------------------------------------------------------------------------------- ---------------------
Less:
Loans charged off (80,025) (228,291) (473,149) (556) -
Recoveries on loans previously charged 23,544 40,086 20,336 2,319 10,593
- ------------------------------------------------------------------------------- ---------------------
Net loans charged off (56,481) (188,205) (452,813) 1,763 10,593
- ------------------------------------------------------------------------------- ---------------------
Balance, end of year $404,322 $400,000 $371,447 $441,085 $426,396
=============================================================================== =====================
</TABLE>
Loans on which the accural of interest has been discontinued or reduced
amounted to $122,287, $119,410, and $346,000 at December 1994 and 1993,
respectively. If interest on these loans had been accrued, such income
would have approximated $13,757 for 1994 and $5,586 thru March 31, 1995.
E. BANK PREMISES AND EQUIPMENT
The following is a summary of asset classifications and depreciable lives
for the Bank at December 1994, and 1993 and March 31, 1995.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------- -----------
Useful Lives 1994 1993 1995
(Years) (Unaudited)
- ---------------------------------------------------------------------------------- -----------
<S> <C> <C> <C> <C>
Land . . . . . . . . . . . . . . . . . . $ 120,676 $ 120,676 $ 120,676
Banking house and improvements . . . . . . 8-40 604,762 599,690 620,762
Equipment, furniture, and fixtures . . . . 5-10 1,008,214 983,304 1,015,877
Automobiles . . . . . . . . . . . . . . . 5 22,488 22,488 22,488
- ---------------------------------------------------------------------------------- -----------
Total . . . . . . . . . . . . . . . . . 1,756,140 1,726,158 1,779,803
Less - accumulated depreciation . . . . . (567,402) (444,400) (599,050)
- ---------------------------------------------------------------------------------- -----------
Bank premises and equipment, net . . $1,188,738 $1,281,758 $1,180,753
================================================================================== ===========
</TABLE>
Depreciation included in operating expenses for the years end December 31,
1994 and 1993 and the three months ended March 31, 1995 amounted to
$123,002, $108,070, and $32,500, respectively.
F. DEPOSITS
The Bank had deposit liabilities in NOW accounts of approximately
$12,134,000 and $4,560,000 at December 31, 1994 and 1993 respectively and
$10,224,000 at March 31, 1995.
F-12
<PAGE> 97
TIFTON BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1994
================================================================================
G. SHORT-TERM BORROWINGS AND LONG-TERM DEBT
Liabilities for borrowed money consists of a note payable at the prime
interest rate secured by stock of the subsidiary bank. The following is a
summary of liabilities for other borrowed money at December 31, 1994 and
1993 and March 31, 1995:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------- -------------
1994 1993 1995
(Unaudited)
- ------------------------------------------------------------------------------- -------------
<S> <C> <C> <C>
Federal funds purchased . . . . . . . . - $2,500,000 $ -
Note payable - Bank South . . . . . . . . 16,500 33,000 -
- ------------------------------------------------------------------------------- -------------
Total . . . . . . . . . . . . . . . $16,500 $2,533,000 -
=============================================================================== =============
</TABLE>
H. CAPITALIZED LEASE OBLIGATIONS
The Bank leases computer and other processing equipment from a vendor under
lease agreements that have been capitalized. The lease terms are for five
years with imputed interest at rates of six and one-half percent to eight
and one-half percent. The equipment has been included in fixed assets at a
value of $279,395, $295,789, and $279,395, respectively, at December 31,
1994 and 1993 and March 31, 1995, and accumulated amortization of the
capitalized equipment for these same periods was $178,429, $136,874, and
$34,219, respectively. Maturities of these leases, net of interest is as
follows:
1995 . . . . . . . . . . . . . . . . . . $15,177
=======
I. PROVISION FOR INCOME TAXES
The provision for income taxes for the years ended December 31, 1994, 1993
and 1992 and March 31, 1995 and 1994, was computed as follows:
<TABLE>
<CAPTION>
(Unaudited)
Year Ended December 31, 3 Months Ended March 31,
---------------------------------- ------------------------
1994 1993 1992 1995 1994
- ------------------------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
Current tax expense . . . . . . . . . . . . $101,738 $102,672 $53,090 $59,546 $41,102
Deferred tax provision . . . . . . . . . . 22,400 33,723 21,996 1,942 5,597
- ------------------------------------------------------------------------------- ------------------------
Net provision for income taxes expense . $124,138 $136,395 $75,086 $61,488 $46,699
=============================================================================== ========================
</TABLE>
Deferred income taxes are reflected for certain timing differences between
book and taxable income and will be reduced in future years as these
timing differences reverse. The reasons for the difference between the
actual tax expense and tax computed at the federal income tax rate are as
follows:
F-13
<PAGE> 98
TIFTON BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1994
================================================================================
<TABLE>
<CAPTION>
(Unaudited)
Year Ended December 31, 3 Months Ended March 31,
------------------------------------ ------------------------
1994 1993 1992 1995 1994
- ------------------------------------------------------------------------------------ ------------------------
<S> <C> <C> <C> <C> <C>
Tax on pretax income at statutory rate. . . . $228,737 $184,008 $ 63,354 $62,938 $45,004
Benefit of extraordinary item . . . . . . . . (95,389) - - - -
Tax-exempt interest income . . . . . . . . . (20,815) (20,128) (10,796) (5,398) (4,742)
Dividends received deduction . . . . . . . . (264) - - (266) -
Non-deductible interest expense related to
tax-exempt income . . . . . . . . . . . . . 3,906 2,468 6,321 976 -
Non-deductible business entertainment . . . . 1,385 - - 239 418
Non-deductible officer's life insurance . . . 688 490 1,507 203 88
Benefit of graduated taxes . . . . . . . . . - - (7,434) (7,495) -
Other permanent tax differences . . . . . . . 5,890 (30,443) 22,134 10,293 6,785
- ------------------------------------------------------------------------------------ ------------------------
Total . . . . . . . . . . . . . . . . . . $124,138 $136,395 $ 75,086 $61,490 $47,553
==================================================================================== ========================
Net effective tax rate . . . . . . . . . . . 31.7% 25.2% 40.3% 33.2% 35.9%
==================================================================================== ========================
</TABLE>
The sources and tax effects of temporary differences that give rise to
significant portions of deferred income tax assets (liabilities) are as
follows:
<TABLE>
<CAPTION>
1994 1993
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred Income Tax Assets:
Provision for loan losses, net . . . . . . . . . . . . . . . . $ 58,622 $ 78,365
Unrealized losses on investment securities available-for-sale . 68,568 -
- -------------------------------------------------------------------------------------------------------
Total deferred tax assets 127,190 78,365
Deferred Income Tax Liability - Depreciation . . . . . . . . . . (89,825) (111,719)
- -------------------------------------------------------------------------------------------------------
Net deferred tax asset (liability) . . . . . . . . . . . . $ 37,365 $ (33,354)
=======================================================================================================
</TABLE>
There was no deferred tax asset valuation allowance at December 31, 1994.
J. RETIREMENT PLAN
The Bank has a profit-sharing plan qualifying under Section 401(k) of the
Internal Revenue Code covering substantially all of it's employees meeting
age and length-of-service requirements. Contributions to the plan are at
the discretion of the Board of Directors. Profit sharing expenses charged
to operations amounted to $22,377, $23,981, and $18,789 for 1994, 1993, and
1992, respectively.
K. LIMITATION ON DIVIDENDS
The Board of Directors of any state-chartered bank in Georgia may declare
and pay cash dividends on its outstanding capital stock without any request
for approval of the Bank's regulatory agency if the following conditions
are met:
1) Total classified assets at the most recent examination of the bank
do not exceed eighty (80) percent of equity capital.
2) The aggregate amount of dividends declared in the calendar year does
not exceed fifty (50) percent of the prior year's net income.
3) The ratio of equity capital to adjusted total assets shall not be
less than six (6) percent.
As of January 1, 1995, the amount available for dividends without
regulatory consent was $136,918.
F-14
<PAGE> 99
TIFTON BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1994
================================================================================
L. COMMITMENTS AND CONTINGENCIES
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its
customers. These financial instruments include commitments to extend
credit and standby letters of credit. Those instruments involve, to
varying degrees, elements of credit risk and interest rate risk in excess
of the amount recognized in the balance sheet. The contract or notional
amounts of those instruments reflect the extent of involvement the Bank has
in those particular financial instruments.
The Company's exposure to credit loss in the event of nonperformance by the
other party to the financial instrument for commitments to extend credit
and standby letters of credit is represented by the contractual notional
amount of those instruments. The Company uses the same credit policies in
making commitments and conditional obligations as it does for
on-balance-sheet instruments. The subsidiary does require collateral or
other security to support financial instruments with credit risk.
<TABLE>
<CAPTION>
(Unaudited)
December 31, March 31,
- -------------------------------------------------------------------------------------- ------------
1994 1993 1995
- -------------------------------------------------------------------------------------- ------------
<S> <C> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit . . . . . . . . . $6,767,000 $4,775,714 $5,587,000
Standby letters of credit . . . . . . . . . . 226,000 511,600 226,000
- -------------------------------------------------------------------------------------- ------------
Total . . . . . . . . . . . . . . . . . . . $6,993,000 $5,287,314 $5,813,000
====================================================================================== ============
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses and may require payment of a fee. Since many of the commitments
are expected to expire without being drawn upon, the total commitment
amounts do not necessarily represent future cash requirements. The Company
evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained if deemed necessary by the Company upon
extension of credit is based on management's credit evaluation. Collateral
held varies but may include accounts receivable, inventory, property,
plant, and equipment, and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private borrowing
arrangements, including commercial paper, bond financing, and similar
transactions. All letters of credit are due within one year of the
original commitment date. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan
facilities to customers.
M. LITIGATION LOSS - FORGERY CLAIM
The Company's subsidiary bank was a defendant in a lawsuit filed by one of
its customers alleging negligence for wrongly allowing the plaintiff's
attorney to endorse insurance drafts made jointly payable to the plaintiff
and the attorney for deposit in the attorney's trust account. The attorney
later misappropriated the funds from his trust account and the plaintiff
claimed the Bank should not have allowed the drafts to be credited to the
attorney's account. No financial recovery was available against the
attorney and the bank was subsequently sued. The suit resulted in an award
against the Bank for $425,000 which was appealed. On appeal, the award
was reduced to $303,137 which the Bank paid in December, 1994 and charged
in full against 1994 earnings as an extraordinary item. Although the Bank
is considering a possible recovery action against its bonding company, no
provision for any contingent future recovery has been recorded.
F-15
<PAGE> 100
TIFTON BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1994
================================================================================
N. RELATED PARTY TRANSACTIONS
In the ordinary course of business, the Company, through its subsidiary
banks, has direct and indirect loans outstanding to or for the benefit of
certain executive officers and directors. These loans were made on
substantially the same terms as those prevailing, at the time made, for
comparable loans to other persons and did not involve more than the normal
risk of collectibility or present other unfavorable features. The
following is a summary of activity during 1994, 1993 and the three months
ended March 31, 1995 with respect to such loans to these individuals:
<TABLE>
<CAPTION>
(Unaudited)
December 31, March 31,
--------------------------- -----------
1994 1993 1995
- ------------------------------------------------------------------------------------ -----------
<S> <C> <C> <C>
Balances, January 1, 1994 . . . . . . . . . . . . $ 2,397,340 $2,488,189 $ 1,879,357
New loans . . . . . . . . . . . . . . . . . . . 1,975,065 437,799 3,320,142
Repayments . . . . . . . . . . . . . . . . . . (2,493,048) (528,648) (1,883,706)
- ------------------------------------------------------------------------------------ -----------
Balances, December 31, 1994 . . . . . . . . . . . $ 1,879,357 $2,397,340 $ 3,315,793
==================================================================================== ===========
</TABLE>
O. DISCLOSURES RELATING TO STATEMENTS OF CASH FLOWS
Cash paid interest and income taxes - Cash paid during the years for
interest and income taxes was as follows:
<TABLE>
<CAPTION>
(Unaudited)
December 31, March 31,
- ------------------------------------------------------------------------------- -----------------------
1994 1993 1992 1995 1994
- ------------------------------------------------------------------------------- -----------------------
<S> <C> <C> <C> <C> <C>
Interest, net of amount capitalized . . $1,618,727 $1,727,851 $2,809,690 $487,168 $341,970
- ------------------------------------------------------------------------------- -----------------------
Income taxes, net . . . . . . . . . . . $ 171,272 $ 36,000 $ 182,191 $ - $ 76,392
- ------------------------------------------------------------------------------- -----------------------
</TABLE>
Other non-cash transactions - Other non-cash transactions in investing and
financing activities are as follows:
<TABLE>
<CAPTION>
(Unaudited)
December 31, March 31,
- ------------------------------------------------------------------------------ ---------------------
1994 1993 1992 1995 1994
- ------------------------------------------------------------------------------ ---------------------
<S> <C> <C> <C> <C> <C>
Debt assumed on foreclosed property held
as other real estate . . . . . . . . . . $ 90,333 $ - $115,368 $ - $ -
- ------------------------------------------------------------------------------ ---------------------
Total decrease in unrealized gain on
available for sale securities . . . . . . $271,559 $ - $ - $ - $ -
- ------------------------------------------------------------------------------ ---------------------
</TABLE>
P. CREDIT RISK CONCENTRATION
The Company's subsidiary grants agribusiness, commercial, and residential
loans to its customers. Although the Subsidiary has a diversified loan
portfolio, a substantial portion of its debtors' ability to honor their
contracts is dependent on the area's economic stability. The primary trade
area for the Subsidiary is generally that area within fifty miles in each
direction of the Company's subsidiary.
F-16
<PAGE> 101
TIFTON BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1994
================================================================================
Q. SUBSEQUENT EVENTS
On February 9, 1995 a judgement was entered against the Bank for
prejudgement interest relating to the lawsuit reported in Note M. Under
this judgement, the Bank has been ordered to pay $69,053.94. The Bank
plans to appeal the judgement and the Bank's legal counsel has indicated
that the Bank has a better than average chance of having the verdict
overturned. As a result, the financial statements have not been restated
to include the effects of the interest.
R. CONDENSED FINANCIAL STATEMENTS (PARENT COMPANY ONLY)
Condensed parent company financial information on Tifton Banks, Inc. is as
follows:
<TABLE>
<CAPTION>
BALANCE SHEETS
=========================================================================================================================
(Unaudited)
As of December 31, As of March 31,
1994 1993 1995
================================================================================================= ===============
<S> <C> <C> <C>
ASSETS:
Cash in subsidiary. . . . . . . . . . . . . . . . . . . . . . . . $ 20,628 $ 12,301 $ 3,705
Due from subsidiary - income taxes. . . . . . . . . . . . . . . . 5,338 6,245 63,066
Investment in subsidiary, at equity in underlying net assets. . . 4,975,241 4,974,507 5,115,888
Organization costs, net of amortization . . . . . . . . . . . . . 10,000 20,000 7,500
- ------------------------------------------------------------------------------------------------- ---------------
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . $5,011,207 $5,013,053 $5,190,159
================================================================================================= ===============
LIABILITIES:
Notes payable to other banks . . . . . . . . . . . . . . . . . . 16,500 33,000 -
Accrued expenses and other liabilities . . . . . . . . . . . . . 361 664 56,796
- ------------------------------------------------------------------------------------------------- ---------------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 16,861 33,664 56,796
- ------------------------------------------------------------------------------------------------- ---------------
SHAREHOLDERS' EQUITY:
Common stock, $10 par value; authorized 2,000,000
shares, outstanding 200,000 shares . . . . . . . . . . . . . . 2,000,000 2,000,000 2,000,000
Additional paid-in surplus . . . . . . . . . . . . . . . . . . . 1,600,000 1,600,000 1,600,000
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . 1,527,449 1,379,389 1,651,071
Unrealized holding losses in investment securities. . . . . . . . (133,103) - (117,708)
- ------------------------------------------------------------------------------------------------- ---------------
Total shareholders' equity . . . . . . . . . . . . . . . . . . 4,994,346 4,979,389 5,133,363
- ------------------------------------------------------------------------------------------------- ---------------
Total Liabilities and Shareholders' Equity. . . . . . . . . . $5,011,207 $5,013,053 $5,190,159
================================================================================================= ===============
</TABLE>
F-17
<PAGE> 102
TIFTON BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1994
================================================================================
<TABLE>
<CAPTION>
STATEMENTS OF INCOME AND RETAINED EARNINGS
==========================================================================================================================
(Unaudited)
Years Ended December 31, 3 Months Ended March 31,
-------------------------------------- ------------------------
1994 1993 1992 1995 1994
- -------------------------------------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C>
REVENUES:
Dividend income from subsidiary . . . . . . . . . $ 140,000 $ 77,500 $ 60,000 $ - $ -
- -------------------------------------------------------------------------------------------- ------------------------
EXPENSES:
Interest expense. . . . . . . . . . . . . . . . . 1,100 2,886 3,466 175 247
Amortization. . . . . . . . . . . . . . . . . . . 10,000 10,000 10,000 2,500 2,250
Other . . . . . . . . . . . . . . . . . . . . . . 15 1,250 - - 15
- -------------------------------------------------------------------------------------------- ------------------------
Total expenses . . . . . . . . . . . . . . . . 11,115 14,136 13,466 2,675 2,512
- -------------------------------------------------------------------------------------------- ------------------------
INCOME BEFORE TAXES AND EQUITY INCOME
OF SUBSIDIARY . . . . . . . . . . . . . . . . . . 128,885 63,364 46,534 (2,675) (2,512)
Income tax benefit . . . . . . . . . . . . . . . 5,338 6,245 5,252 1,044 854
- -------------------------------------------------------------------------------------------- ------------------------
INCOME BEFORE EQUITY INCOME OF SUBSIDIARY . . . . . 134,223 69,609 51,786 (1,631) (1,658)
Equity in undistributed income of subsidiary . . . 133,837 335,195 59,462 125,253 84,811
- -------------------------------------------------------------------------------------------- ------------------------
NET INCOME . . . . . . . . . . . . . . . . . . . . 268,060 404,804 111,248 123,622 83,153
RETAINED EARNINGS, BEGINNING . . . . . . . . . . . 1,379,389 1,034,585 973,250 1,527,449 1,379,389
- -------------------------------------------------------------------------------------------- ------------------------
Total . . . . . . . . . . . . . . . . . . . 1,647,449 1,439,389 1,084,498 1,651,071 1,462,542
Less - cash dividends . . . . . . . . . . . . . (120,000) (60,000) (49,913) - -
- -------------------------------------------------------------------------------------------- ------------------------
RETAINED EARNINGS, ENDING . . . . . . . . . . . . . $1,527,449 $1,379,389 $1,034,585 $1,651,071 $1,462,542
============================================================================================ ========================
STATEMENTS OF CASH FLOWS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . $ 268,060 $ 404,804 $ 111,248 $ 123,622 $ 83,153
Adjustments to reconcile net income
to net cash provided by operating activities:
Amortization . . . . . . . . . . . . . . . . . 10,000 10,000 10,000 2,500 2,250
Equity investment income . . . . . . . . . . . (133,837) (335,195) (59,462) (125,252) (84,811)
Net change in operating assets
and liabilities:
Due from subsidiary - income taxes . . . . . 907 2,407 (5,252) (57,728) (31,381)
Accrued liabilities . . . . . . . . . . . . (303) 113 551 56,435 30,774
- -------------------------------------------------------------------------------------------- ------------------------
Net cash provided by operating activities . 144,827 82,129 57,085 (423) (15)
- -------------------------------------------------------------------------------------------- ------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal paid on other borrowings . . . . . . . (16,500) (17,000) - (16,500) -
Cash dividends paid . . . . . . . . . . . . . . (120,000) (60,000) (49,913) - -
- -------------------------------------------------------------------------------------------- ------------------------
Net cash used in financing activities . . . . . (136,500) (77,000) (49,913) (16,500) -
- -------------------------------------------------------------------------------------------- ------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS . . . . . 8,327 5,129 7,172 (16,923) (15)
CASH AND CASH EQUIVALENTS, BEGINNING . . . . . . . 12,301 7,172 - 20,628 12,301
- -------------------------------------------------------------------------------------------- ------------------------
CASH AND CASH EQUIVALENTS, ENDING . . . . . . . . $ 20,628 $ 12,301 $ 7,172 $ 3,705 $ 12,286
============================================================================================ ========================
</TABLE>
F-18
<PAGE> 103
TIFTON BANKS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1994
================================================================================
OTHER DISCLOSURES RELATING TO STATEMENTS OF CASH FLOWS:
INTEREST AND INCOME TAXES - Cash paid during the years ended December 31,
1994, 1993, and 1992 for interest and income taxes was as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------- -------------------
(Unaudited)
December 31, March 31,
--------------------------------- -------------------
1994 1993 1992 1995 1994
- -------------------------------------------------------------------------- -------------------
<S> <C> <C> <C> <C> <C>
Interest (net of amount capitalized) $1,100 $2,886 $3,466 $175 $247
========================================================================== ===================
Income taxes $ - $ - $ - $ - $ -
========================================================================== ===================
</TABLE>
F-19
<PAGE> 104
APPENDIX A
<PAGE> 105
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into and is
effective as of the 10th day of May, 1995 (the "Agreement"), by and among First
Liberty Financial Corp., a Georgia corporation ("FLFC"), First Liberty Bank, a
federally chartered savings bank organized under the laws of the United States
("FLB"), Tifton Banks, Inc., a Georgia corporation ("TBI") and Tifton Bank &
Trust Company, a state chartered commercial bank organized under the laws of
the State of Georgia ("Tifton Bank").
W I T N E S S E T H:
WHEREAS, FLFC owns all of the issued and outstanding shares of capital
stock of FLB; and
WHEREAS, TBI is a one-bank holding company that owns all of the issued
and outstanding capital stock of Tifton Bank; and
WHEREAS, the Boards of Directors of FLFC, FLB, TBI and Tifton Bank
have approved the merger of TBI with and into FLFC (the "First Stage Merger")
upon the terms and subject to the conditions set forth herein; and
WHEREAS, it is intended that simultaneous to the First Stage Merger,
Tifton Bank will be merged with and into FLB (the "Second Stage Merger") (the
First Stage Merger and the Second Stage Merger hereinafter are referred to as
the "Mergers");
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements, and upon and subject to the terms and the
conditions hereinafter set forth, the parties do hereby agree as follows:
ARTICLE I
THE MERGERS
1.01 The First Stage Merger. Upon the terms and subject to the
conditions of this Agreement and in accordance with applicable law, at the
Effective Time (as defined in Section 1.02 below) TBI shall be merged with and
into FLFC and the separate existence of TBI shall thereupon cease. FLFC shall
be the surviving corporation in the First Stage Merger (hereinafter sometimes
referred to as the "Surviving Corporation").
1.02 Effective Time of the First Stage Merger. The First Stage Merger
shall become effective at such time (the "Effective Time"), following the
filing of the Articles of Merger with the Secretary of State of the State of
Georgia, as the Secretary of State issues a Certificate of Merger to effect the
First Stage Merger. The filing of the Articles of Merger shall be made
simultaneously with or as soon as possible following the closing of the
transactions contemplated by this Agreement in accordance with Article XI
hereof.
1.03 The Second Stage Merger.
(a) Simultaneous to, or as soon as practicable following, the
Effective Time and in accordance with the Articles of Merger and with
applicable law, Tifton Bank shall be merged with and into FLB and the separate
existence of Tifton Bank shall thereupon cease. FLB shall be the surviving
bank in the Second Stage Merger and shall remain a wholly-owned subsidiary of
FLFC. The charter and bylaws of FLB in effect immediately prior to the Second
Stage Merger shall be the charter and bylaws of the surviving bank following
such merger.
(b) The Board of Directors of FLB following the Second Stage Merger
shall be the same as the Board of Directors of FLB immediately prior to the
Second Stage Merger. FLB shall establish a Tifton Community Board
A-1
<PAGE> 106
of Directors consisting of the same persons who serve as directors of Tifton
Bank immediately prior to the First Stage Merger. The Tifton Community Board
of Directors shall be deemed to consist of advisory directors to FLB to be
known as "Community Directors."
ARTICLE II
THE SURVIVING CORPORATION
2.01 Articles of Incorporation. The Articles of Incorporation of FLFC,
as amended, shall be the Articles of Incorporation of the Surviving Corporation
after the Effective Time.
2.02 Bylaws. The Bylaws of FLFC, as amended, shall be the Bylaws of the
Surviving Corporation after the Effective Time.
2.03 Directors of the Surviving Corporation. The Board of Directors of
the Surviving Corporation immediately after the First Stage Merger shall be the
same as the Board of Directors of FLFC immediately prior to the First Stage
Merger.
ARTICLE III
CONVERSION OF SHARES
3.01 Conversion of TBI Shares in the First Stage Merger.
(a) Subject to adjustment as set forth below, at the Effective Time
the shares of the $10.00 par value Common Stock of TBI (the "TBI Stock")
outstanding immediately prior to the Effective Time shall, based on the
election of the holders thereof, be exchanged for and converted into, and each
holder of TBI Stock immediately prior to the Effective Time (each a "TBI
Stockholder" and collectively the "TBI Stockholders") (other than Dissenting
Stockholders as defined in Section 3.05 hereof) shall have, upon surrender of
the certificates theretofore representing such TBI Stock, the right to receive
$37.00 per share of TBI Stock (the "Price Per Share") in either (i) cash, (ii)
Series B 6.0% Cumulative Convertible Preferred Stock, $25.00 stated value, of
FLFC (the "Series B Preferred"), or (iii) any combination of cash and Series B
Preferred. Individual shares of TBI Stock may not be converted into a
combination of cash and Series B Preferred; however, a TBI Stockholder may
elect to convert a portion of his whole shares of TBI Stock into cash and a
portion into Series B Preferred. The Price Per Share divided by the stated
value of the Series B Preferred ($25.00), i.e., 1.48, shall hereinafter be
referred to as the "Exchange Ratio." The rights and preferences of the Series
B Preferred are set forth in Schedule 3.01(a). The election to exchange shares
of TBI Stock for cash or Series B Preferred, or a combination thereof, shall be
made within 15 days of the date of a letter of transmittal which shall be
delivered to the TBI Stockholders (except that FLFC may, in its discretion,
extend the time period during which TBI Stockholders must make the election by
so providing in the letter of transmittal). In the event any TBI Stockholder
fails to make any election within such time period by delivering to FLFC a
letter of transmittal pursuant to the instructions thereon or by making such
election on the proxy card delivered to TBI in connection with the meeting of
TBI Stockholders held for the purpose of voting upon this Agreement, such TBI
Stockholder shall be deemed to have elected to exchange all of his shares of
TBI Stock for shares of Series B Preferred.
(b) Notwithstanding the provisions of Section 3.01(a), no more than
96,000 shares of the outstanding TBI Stock [48% of the outstanding shares of
TBI Stock] shall be converted into the right to receive cash and no more than
104,000 shares [52% of the outstanding TBI Stock] shall be converted into the
right to receive Series B Preferred, in either case subject to the provisions
of (i) and (ii) below:
A-2
<PAGE> 107
(i) In the event that the number of shares of TBI Stock for which
election has been made to receive cash plus the number of shares of TBI Stock
for which dissenters' rights have been perfected exceeds 96,000, then ueach
share of TBI Stock for which the holder has elected conversion into cash shall,
instead of being converted into the right to receive the consideration referred
to in paragraph (a) hereof, be converted into the right to receive (A) an
amount in cash derived under Formula 1A below, and (B) a number of shares of
Series B Preferred derived under Formula 1B below.
Formula 1A: (1) Multiply 96,000 shares by $37.00 (the Price Per
Share), i.e., $3,552,000. (2) Subtract from $3,552,000 the product obtained by
multiplying $37.00 by the number of shares for which dissenters' rights have
been perfected. (3) Divide that remainder by the number of shares of TBI Stock
for which a cash election has been made.
Formula 1B: (1) Divide $37.00 (the Price Per Share) by 1.48
(the Exchange Ratio), i.e., $25.00. (2) Divide by $25.00 the remainder
obtained by subtracting from $37.00 the per share cash amount determined in
Formula 1A.
(ii) In the event that the number of shares of TBI Stock for which
election has been made to receive Series B Preferred plus the number of shares
of TBI Stock for which dissenters' rights have been perfected is more than
104,000 shares, then each share of TBI Stock for which the holder has elected
conversion into Series B Preferred shall, instead of being converted into the
right to receive the consideration referred to in paragraph (a) hereof, be
converted into the right to receive (A) a number of shares of Series B
Preferred derived under Formula 2A below, and (B) an amount in cash derived
under Formula 2B below.
Formula 2A: (1) Multiply 104,000 shares by $37.00 (the Price Per
Share), i.e., $3,848,000. (2) Divide $3,848,000 by $25.00, i.e., 153,920.
(3) Divide 153,920 by the total number of shares of TBI Stock for which
election has been made to receive Series B Preferred.
Formula 2B: (1) Divide $37.00 by 1.48 (the "Exchange Ratio"),
i.e., $25.00. (2) Multiply $25.00 by the remainder obtained by subtracting the
number of shares of Series B Preferred derived under Formula 2A from 1.48.
3.02 Status of FLFC Stock. All of the shares of equity securities of
FLFC issued and outstanding as of the Effective Time shall remain issued and
outstanding immediately after the Effective Time and shall be unaffected by the
Merger.
3.03 Exchange of Certificates.
(a) From and after the Effective Time, each holder of an
outstanding certificate which immediately prior to the Effective Time
represented shares of TBI Stock (each a "TBI Certificate") shall be entitled to
receive in exchange therefor upon surrender thereof to FLFC, a certificate or
certificates representing the number of whole shares of Series B Preferred, or,
as applicable, cash, to which such holder is entitled pursuant to Section 3.01.
Notwithstanding the other provisions of this Agreement (i) until holders of TBI
Certificates have surrendered them for exchange as provided herein, no
dividends or other distributions shall be paid by FLFC with respect to any
shares represented by such TBI Certificates and no payment for shares or
fractional shares shall be made, and (ii) without regard to when such TBI
Certificates are surrendered for exchange as provided herein, no interest shall
be paid on any dividends or other distributions or on any cash payments for
whole or fractional shares. If any certificate for shares of Series B
Preferred is to be issued in a name other than that in which the TBI
Certificate surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the person requesting such exchange shall pay
any transfer or other taxes similar-type required by reason of the issuance of
certificates for such shares of Series B Preferred in a name other than that of
the registered holder of the TBI Certificate surrendered, or shall establish to
the satisfaction of FLFC that such tax has been paid or is not applicable.
A-3
<PAGE> 108
(b) FLFC shall provide each holder of record of a TBI
Certificate a letter of transmittal in the form approved by TBI's counsel,
which approval shall not unreasonably be withheld (which shall specify that
delivery shall be effected, and risk of loss and title to the TBI Certificates
shall pass, only upon actual delivery of the TBI Certificates to FLFC). Upon
surrender of TBI Certificates to FLFC for cancellation, together with a duly
executed letter of transmittal and such other documents as FLFC shall
reasonably require, the holder of such TBI Certificates shall be entitled to
receive in exchange therefor one or more certificates representing that number
of whole shares of Series B Preferred, or, as applicable, cash into which the
shares of TBI Stock theretofore represented by the TBI Certificates so
surrendered shall have been converted pursuant to the provisions of Section
3.01, and the TBI Certificates so surrendered shall forthwith be canceled.
3.04 Fractional Shares. Notwithstanding any other provision of this
Agreement, no certificates or scrip for fractional shares of Series B Preferred
shall be issued in the First Stage Merger and no Series B Preferred dividend,
stock split or interest shall relate to any fractional security, and any such
fractional interest shall not entitle the owner thereof to vote or to any other
rights of a security holder. In lieu of any such fractional share, each TBI
Stockholder who would otherwise have been entitled to receive a fraction of a
share of Series B Preferred pursuant to this Article III shall be entitled to
receive a cash payment equal to such fraction multiplied by $25.00.
3.05 Dissenters' Rights. Notwithstanding Section 3.01, no
outstanding share of TBI Stock shall be converted into or represent a right to
receive any shares of Series B Preferred or cash pursuant to Section 3.01 if
the holder thereof has demanded and perfected his demand for payment of the
fair value of such share in accordance with the applicable provisions of
Article 13 of the Georgia Business Corporation Code (the "Dissenter
Provisions") and has not effectively withdrawn or lost his right to such
payment. All such shares of TBI Stock shall represent only the rights granted
with respect to such shares pursuant to the Dissenter Provisions. TBI shall
give prompt notice to FLFC upon receipt by TBI of any written demands for
payment of the fair value of TBI Stock and of withdrawals of such demands and
any other written communications provided in accordance with or pursuant to the
Dissenter Provisions (any stockholder duly making such a demand being
hereinafter called a "Dissenting Stockholder"). FLFC shall have the right to
participate in all negotiations and proceedings with respect to any Dissenting
Stockholder. TBI agrees that it will not, except with the prior written
consent of FLFC, make any determination of fair value or any payment with
respect to, or settle or offer to settle any matter arising out of, any
dissent. Each Dissenting Stockholder, if any, who becomes entitled to payment
for his shares of TBI Stock pursuant to the Dissenter Provisions shall receive
payment therefor from FLFC (but only after the amount thereof shall have been
agreed upon or finally determined pursuant to the Dissenter Provisions) and
such dissenting shares of TBI Stock shall be canceled. If any holder of shares
of TBI Stock who demands payment of the fair value of his shares under the
Dissenter Provisions shall effectively withdraw or lose (through failure to
perfect or otherwise) his right to such payment at any time, the shares of TBI
Stock of such holder shall be converted into a right to receive the
consideration set forth in Section 3.01.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF TBI AND TIFTON BANK
TBI and Tifton Bank, jointly and severally, represent and warrant to
FLFC and FLB as follows:
4.01 Organization.
(a) TBI has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Georgia. TBI has
all requisite power and authority to carry on and conduct its business as now
being conducted and to own, lease or operate its properties and assets, and is
duly qualified and in good standing in the State of Georgia.
A-4
<PAGE> 109
(b) The copies of the charter documents and bylaws of TBI and
Tifton Bank attached in Schedule 4.01(b) are the complete, true and correct
charter documents and bylaws of TBI and Tifton Bank in effect as of the date
hereof. The minutes of directors' and stockholders' meetings and the stock
books, including the current list of stockholders, of TBI and Tifton Bank
previously delivered or made available to FLFC are, in all material respects,
the complete, true and correct records of directors' and stockholders' meetings
and stock issuances through and including the date hereof and reflect all
transactions and other matters required to be reflected in such records, as
well as such other matters customarily contained in records of such type.
(c) The current officers and directors of TBI and Tifton Bank
are listed in Schedule 4.01(c).
4.02 Power and Authority of TBI and Tifton Bank. TBI and Tifton Bank
have the right, power and capacity to execute, deliver and perform this
Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement, and the consummation of
the transactions contemplated hereby, have been duly and validly authorized by
all necessary corporate action on the part of TBI and Tifton Bank (subject to
receipt of appropriate approval by the stockholders of TBI). This Agreement
has been duly and validly executed and delivered by TBI and Tifton Bank and
constitutes TBI's and Tifton Bank's legal, valid and binding obligation,
enforceable in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, 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.
4.03 Capitalization.
(a) There are 200,000 shares of TBI Stock outstanding and no
shares of TBI Stock held in the treasury of TBI, all of which are validly
issued, fully paid and nonassessable. All issuances of the capital stock of
TBI have been in compliance with all applicable agreements and all applicable
laws, including federal and state securities laws or, if not registered in
compliance with the applicable federal and state securities laws, any actions
arising from such failure to register any such securities are barred by
applicable statute of limitations.
(b) There are no outstanding subscriptions, options, calls,
contracts, commitments, understandings, restrictions, arrangements, rights or
warrants, including any right of conversion or exchange under any outstanding
security, instrument or other agreement, obligating TBI or any subsidiary of
TBI to issue, deliver or sell, or cause to be issued, delivered or sold,
additional shares of the capital stock of TBI or obligating TBI or any
subsidiary of TBI to grant, extend or enter into any such agreement or
commitment. There are no voting trusts, proxies or other agreements or
understandings to which TBI or any subsidiary of TBI is a party or is bound
with respect to the voting of any shares of capital stock of TBI.
4.04 Subsidiaries. TBI has no direct or indirect subsidiaries other
than Tifton Bank, which is a corporation duly organized, validly existing and
in good standing under the laws of the State of Georgia and has the requisite
power and authority to own, lease and operate its assets and properties and to
carry on its business as it is now being conducted. Each subsidiary of TBI is
qualified to do business, and is in good standing, in each jurisdiction in
which the properties owned, leased or operated by it or the nature of the
business conducted by it makes such qualification necessary except for
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the Company and its subsidiaries taken as a whole. All of
the outstanding shares of capital stock of each subsidiary of TBI are validly
issued, fully paid, nonassessable and free of preemptive rights and those owned
directly or indirectly by TBI are owned free and clear of any liens, claims,
encumbrances, security interests, equities, charges and options of any nature
whatsoever. TBI owns directly all of the issued and outstanding shares of the
capital stock of each of its subsidiaries. There are no subscriptions,
options, warrants, rights, calls, contracts, proxies or other commitments,
understandings, restrictions or arrangements relating to the issuance, sale,
voting, transfer, ownership or other rights with respect to any shares of
capital stock of any subsidiary of TBI, including any right of conversion or
exchange under any outstanding security, instrument or agreement.
A-5
<PAGE> 110
4.05 Information Supplied for Use in Registration Statement. Written
information supplied by TBI to FLFC and designated specifically for use in the
Registration Statement (as hereinafter defined) or any amendment or supplement
thereto, will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading. The Registration Statement on Form 5-4
including the Proxy Statement/Prospectus set forth therein, to be filed by FLFC
with the Securities and Exchange Commission (the "Commission") in connection
with the registration under the Securities Act of 1933, as amended, of the
Series B Preferred, as amended at the time it becomes effective and as
thereafter amended, is referred to herein as the "Registration Statement." The
Proxy Statement/Prospectus in the form included in the Registration Statement
at the time it becomes effective and at the time it is delivered to the
stockholders of TBI is referred to herein as the "Proxy Statement/Prospectus."
4.06 Financial Statements.
(a) Schedule 4.06(a) contains (i) the audited consolidated
balance sheets of TBI as of December 31, 1993 and 1994, the related audited
consolidated statements of income, retained earnings, and cash flows for the
each of the three years in the period ended December 31, 1994, and the related
notes thereto (the "Audited Financial Statements"); and has previously provided
to FLFC(ii) the unaudited consolidated balance sheet of TBI as of March 31,
1994 and 1995, the related unaudited consolidated statements of income,
retained earnings, and cash flows, or in each instance, equivalent statements
as commonly prepared for internal purposes, for the three-month periods then
ended (such unaudited consolidated financial statements together with any other
unaudited interim financial statements that hereafter are included or
incorporated by reference in the Registration Statement hereinafter are
referred to as the "Interim Financial Statements," and the Interim Financial
Statements and the Audited Consolidated Financial Statements are referred to
collectively as the "Financial Statements"). The Audited Financial Statements
are true, correct and complete in all material respects and present fairly the
financial position of TBI and the results of its operations as of the
respective dates and for the respective periods covered by the Financial
Statements. The Audited Consolidated Financial Statements have been prepared
in accordance with generally accepted accounting principles ("GAAP") applied on
a consistent basis. The audited consolidated balance sheet as of December 31,
1994, included in the Audited Financial Statements is referred to herein as the
"Audited Balance Sheet."
(b) Neither TBI nor any subsidiary of TBI has sustained,
directly or indirectly, since the date of the Audited Balance Sheet, any
material loss or interference with its business from fire, explosion, flood,
hurricane, accident or other calamity, whether or not covered by insurance, or
from any labor dispute or arbitrators' or court or governmental or regulatory
action, order or decree, otherwise than as set forth in Schedule 4.06(b)
involving a prospective material adverse change in the financial position, net
worth or results of operations of TBI or its subsidiaries, taken as a whole.
Since the respective dates as of which information is given in the Financial
Statements, there has not been any material change in the capital stock or
long-term debt of TBI or its subsidiaries, or any material adverse change, or
any development involving a prospective material adverse change, in or
affecting the general affairs, management, financial position, stockholders'
equity, loan loss reserves, assets or results of operations of TBI or its
subsidiaries, otherwise than as set forth in Schedule 4.06(b) whether or not
arising in the ordinary course of business involving a prospective material
adverse change in the financial position, net worth or results of operations of
TBI or its subsidiaries, taken as a whole. Since the Interim Financial
Statements date as of which information is given in the Financial Statements,
neither TBI nor any subsidiary of TBI has incurred or undertaken any liability
or obligation, direct, indirect or contingent, not disclosed in Schedule
4.06(b) which is material to the business or condition (financial or other) of
TBI or its subsidiaries, except for liabilities or obligations incurred in the
ordinary course of business involving a prospective material adverse change in
the financial position, net worth or results of operations of TBI or its
subsidiaries, taken as a whole; and, except as disclosed in Schedule 4.06(b),
TBI has not declared or paid any dividend on its capital stock.
4.07 No Undisclosed Liabilities. Except as and to the extent
reflected and adequately reserved against in the Audited Balance Sheet, or
disclosed in the notes thereto, or as shown in Schedule 4.07, as of December
31, 1994 neither TBI nor any subsidiary of TBI has any liability or obligation
whatsoever, whether accrued, absolute, contingent or otherwise. Since December
31, 1994, neither TBI nor any subsidiary of TBI has incurred any liability
A-6
<PAGE> 111
or obligation whatsoever involving a prospective material adverse change in the
financial position, net worth or results of operations of TBI or its
subsidiaries, taken as a whole, except for liabilities and obligations incurred
by TBI in the ordinary course of its business consistent with past practice or
as described in Schedule 4.07.
4.08 No Violation of Law. Except as described in Schedule 4.08,
neither TBI nor any subsidiary of TBI is, has been and will be (by virtue of
any past or present action, omission to act, contract to which it is a party or
any occurrence or state of facts whatsoever) in violation of any applicable
local, state or federal law, ordinance, regulation, order, injunction or
decree, or any other requirement of any governmental body, agency or authority
or court binding on any of them, or relating to their property or business or
their advertising, sales or pricing practices (including, without limitation,
any banking laws or regulations, antitrust laws or regulations, and the
statutes, rules and regulations commonly referred to as the Environmental
Protection Act, the Americans With Disabilities Act, and the statutes and
regulations of any state or other jurisdiction in which TBI or any of its
subsidiaries does business), nor will TBI or any of its subsidiaries hereafter
suffer or incur any loss, liability, penalty or expense (including, without
limitation, attorneys' fees) by virtue of any such violation involving a
prospective material adverse change in the financial position, net worth or
results of operations of TBI or its subsidiaries, taken as a whole.
4.09 Property.
(a) Schedule 4.09(a) sets forth a complete and accurate list and
description of all the real and personal property that TBI or any of its
subsidiaries owns or leases, has agreed (or has an option) to purchase, sell or
lease, or may be obligated to purchase, sell or lease.
(b) Subject to Section 4.09(c) hereof, TBI and each of its
subsidiaries (i) has good and marketable fee simple title to all of its real
property and has good and valid title to all the personal and mixed, tangible
and intangible properties and assets which it purports to own, including all
the real and personal properties and assets reflected, but not shown as leased
or encumbered, in the Audited Balance Sheet or Interim Financial Statements or
disclosed in the notes thereto; and (ii) except for Permitted Liens (as defined
below), owns such real and personal property free and clear of all title
defects or objections, liens, restrictions, claims, charges, security
interests, easements or other encumbrances of any nature whatsoever, including
any mortgages, leases, chattel mortgages, conditional sales contracts,
collateral security arrangements and other title or interest retention
arrangements. "Permitted Liens" shall mean (x) the security interests,
easements or other encumbrances described in Schedule 4.09(b)(1); and (y) liens
for taxes not yet due and payable. All properties and assets of TBI and each
of its subsidiaries are in the possession of TBI or its subsidiaries, as the
case may be, or, in the case of deposit accounts in other banks and
participations, are held for the account of TBI or its subsidiaries.
(c) No real property owned or leased by TBI or any subsidiary is
subject to (i) any governmental decree or order (or threatened or proposed
order known to TBI) to be sold or taken by public authority; or (ii) any rights
of way, building use restrictions, exceptions, variances, reservations or
limitations of any nature whatsoever, not of record.
(d) The facilities, structures and equipment owned or leased by
TBI or any subsidiary are structurally sound with no known material defects and
are in good and safe operating condition and repair.
4.10 Leases.
(a) Schedule 4.10 contains a complete and accurate list of all
material leases (including any capital leases) and lease-purchase arrangements
pursuant to which TBI or any subsidiary leases real or personal property from
others and all of such leases are valid and subsisting. Schedule 4.10
specifies which of such leases, if any, are capital leases. All leases that
are required to be capitalized by GAAP have been so accounted for in the
Financial Statements. TBI has made available to FLFC a true, correct and
complete copy of each of the items listed in Schedule 4.10.
A-7
<PAGE> 112
(b) The premises located on Third Street in Tifton which are
used by Tifton Bank as its Operations Center are the subject of an oral lease
which may be terminated by Tifton Bank without penalty upon not more than 30
days prior notice.
(c) No part of the building or structural facilities of Tifton
Bank's main office are located on either of the parcels of land leased to
Tifton Bank by Norfolk Southern Corporation, and the cancellation of such
leases by Norfolk Southern Corporation would not adversely affect the
operations of Tifton Bank.
4.11 Indebtedness. Schedule 4.11 sets forth a complete and accurate
list and description of all instruments or other documents relating to any
direct or indirect indebtedness for borrowed money of TBI and each of its
subsidiaries (other than deposit liabilities), as well as indebtedness by way
of lease-purchase arrangements, guarantees, undertakings on which others rely
in extending credit and all conditional sales contracts, chattel mortgages and
other security arrangements with respect to personal property used or owned by
TBI or any subsidiary. TBI has made available to FLFC a true, correct and
complete copy of each of the items listed in Schedule 4.11.
4.12 Intellectual Property. Schedule 4.12 sets forth a complete and
accurate list and description of (i) all trademarks and service marks owned or
used by TBI and each of its subsidiaries and all agreements with respect
thereto, and the jurisdiction in or by which such trademarks and service marks
have been registered, filed or issued; (ii) all trade names owned or used by
TBI and each of its subsidiaries, and, in the case of each trade name, the
jurisdiction in which such trade name has been registered or filed; and (iii)
all contracts, agreements or understandings relating to any of the items listed
in clauses (i) and (ii) above that are owned or is the sole and exclusive
owner and has the sole and exclusive right to use the intellectual property set
forth in Schedule 4.12. Except as described in Schedule 4.12, there are no
royalty, commission or similar arrangements, and no licenses, sublicenses or
agreements pertaining to any of the intellectual property set forth in Schedule
4.12 which will remain in effect at Closing. To its knowledge, neither TBI nor
its subsidiaries, have heretofore infringed upon, are now infringing upon, and
the continuation of their business as presently conducted will not infringe
upon, any intellectual property belonging to any other person and TBI and its
subsidiaries, or any of them. Except as disclosed in Schedule 4.12, neither
TBI nor its subsidiaries have agreed to indemnify any person for or against any
infringement of or by the intellectual property set forth in Schedule 4.12.
4.13 Litigation. Except as set forth in Schedule 4.13, there are no
claims, suits, actions, investigations, indictments or informations,
proceedings or arbitrations, grievances or other procedures (including grand
jury investigations, actions or proceedings, and product liability and workers'
compensation suits, actions or proceedings) pending or threatened in writing,
before any court, commission, arbitration tribunal, or judicial, governmental
or administrative department, body, agency, administrator or official, grand
jury, or any other forum for the resolution of grievances, against TBI or any
of its subsidiaries or involving any of its property or business. Schedule
4.13 also indicates which of such matters are being defended by an insurance
carrier, and which of the matters being so defended are being defended under a
reservation of rights.] There are no judgments, orders, writs, injunctions,
decrees, indictments or informations, grand jury subpoenas or civil
investigative demands, plea agreements, stipulations or awards (whether
rendered by a court, commission, arbitration tribunal, or judicial,
governmental or administrative department, body, agency, administrator or
official, grand jury or any other forum for the resolution of grievances)
against or relating to TBI or involving any of its property or business.
4.14 Employees. Schedule 4.14 sets forth the names and current
compensation (broken down by category, e.g., salary, bonus, commission) of all
employees of TBI and each of its subsidiaries. Other than as contemplated by
this Agreement, neither TBI nor any of its subsidiaries is a party to any
employment or other contracts with any of its employees.
A-8
<PAGE> 113
4.15 Employee Benefits.
(a) All Employee Benefit Plans and Arrangements.
(1) List and Description of Plans and Arrangements.
Schedule 4.15(a)(1) sets forth a complete and accurate list and description of
all agreements, arrangements, commitments, policies or understandings of any
kind (whether written or oral) (i) which relate to employee benefits; (ii)
which pertain to present or former employees, retirees, directors or
independent contractors (or their beneficiaries, dependents or spouses) of TBI
or any of its subsidiaries or their predecessors in interest; and (iii) which
are currently or expected to be adopted, maintained by, sponsored by, or
contributed to by TBI or any of its subsidiaries, any of their predecessors in
interest or any employer which, under Section 414 of the Code, would constitute
a single employer with TBI (a "TBI Affiliate") or as to which TBI or any of its
subsidiaries or any of their predecessors in interest has any ongoing liability
or obligation whatsoever (collectively, "Employee Benefit Plans"), including,
but not limited to, all: (A) employee benefit plans as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA");
(B) all other deferred compensation, early retirement, incentive,
profit-sharing, thrift, stock ownership, stock appreciation rights, bonus,
stock option, stock purchase, welfare or vacation, or other nonqualified
benefit plans or arrangements; and (C) trusts, group annuity contracts,
insurance policies or other funding media for the plans and arrangements
described hereinabove.
(2) Compliance with ERISA and the Code. TBI and each of
its subsidiaries, their predecessors in interest and all TBI Affiliates have,
to the best of their knowledge, complied with all of their respective
obligations with respect to all Employee Benefit Plans (including, but not
limited to, (i) filing or distributing all reports or notices required by ERISA
or the Code and (ii) complying with all requirements of Part 6 of ERISA and
Code Section 4980B) and have maintained the Employee Benefit Plans in
compliance with all applicable laws and regulations (including but not limited
to ERISA and the Code). Each eligible Employee Benefit Plan which is intended
to be qualified under Code Section 401(a) has received a favorable
determination letter from the Internal Revenue Service (or such determination
letter has been applied for), and the Internal Revenue Service has not
threatened or taken any action to revoke any favorable determination letter
issued with respect to any such Employee Benefit Plan. No amendment to any
Employee Benefit Plan which is intended to be qualified under Code Section
401(a) or related trust has been adopted since receipt or request of the most
recent determination letter requested with respect to the Employee Benefit Plan
or related trust and it is anticipated that no such amendment would cause
disqualification under Code Section 401(a) of the Employee Benefit Plan or
related trust.
(3) Copies of Documents Provided to FLFC. TBI has made
available to FLFC for its review true, correct and complete copies of all
documents relating to the Employee Benefit Plans that FLFC has requested,
including, but not limited to: (i) all plan texts, amendments, trust
instruments and other agreements adopted or entered into in connection with
each of the Employee Benefit Plans; (ii) all insurance and annuity contracts
related to any Employee Benefit Plan; (iii) the notices and election forms used
to notify employees and their dependents of their continuation coverage rights
under TBI's and each of its subsidiaries' group health plans (under Code
Section 4980B(f) and ERISA Section 606), if applicable; and (iv) the most
recently available Form 5500 annual reports, certified financial statements,
actuarial reports, summary plan descriptions and favorable determination
letters, if applicable, for Employee Benefit Plans. Since the date such
documents were supplied to FLFC, no plan amendments have been adopted, no
changes to the documents have been made, and no such amendments or changes
shall be adopted or made prior to the Closing Date.
(4) Agreements to Create, Continue or Terminate Plans.
Neither TBI, any subsidiaries, their predecessors in interest nor any TBI
Affiliate is aware of any agreement, arrangement, commitment or understanding,
whether legally binding or not, to create any additional Employee Benefit Plan
or to continue, modify, change in any material respect, or terminate any
existing Employee Benefit Plan except as may be required by law.
A-9
<PAGE> 114
(5) Agency Review, Taxes and Fiduciary Liability. TBI and
its subsidiaries or any of them, have not received notice, whether written or
oral, and have no knowledge, that any of the Employee Benefit Plans is
currently under investigation, audit or review by the Department of Labor, the
Internal Revenue Service or any other federal or state agency or is liable for
any federal, state, local or foreign taxes. There is no known transaction in
connection with which TBI, any subsidiary, any TBI Affiliate or any fiduciary
of any of the Employee Benefit Plans could be subject to either a civil penalty
assessed pursuant to ERISA Section 502, a tax imposed by Code Section 4975 or
liability for a breach of fiduciary responsibility under ERISA.
(6) Claims Against Plans and Fiduciaries. Other than
routine claims for benefits payable to participants or beneficiaries in
accordance with the terms of the Employee Benefit Plans, there are no claims,
pending or threatened or, to the knowledge of TBI or any subsidiary,
contemplated by any participant or beneficiary against any of the Employee
Benefit Plans or any fiduciary of any of the Employee Benefit Plans, and TBI is
unaware of any basis for any such claim or claims exists.
(7) Defined Benefit and Multiemployer Plans. Neither TBI,
any subsidiaries, their predecessors in interest nor any TBI Affiliate has at
any time maintained, sponsored or contributed to any "pension plan" as defined
in ERISA Section 3(2) which is subject to Title IV of ERISA or contributed to
any such pension plan which is a multiemployer plan as defined in ERISA Section
3(37)(A).
4.16 Collective Bargaining. There are no labor contracts, collective
bargaining agreements, letters of understanding or other arrangements, formal
or informal, between TBI or any subsidiary or any of TBI's or its subsidiaries'
employees and any union or labor organization covering any of TBI's or its
subsidiaries' employees and none of said employees are represented by any union
or labor organization.
4.17 Labor Disputes. TBI and each of its subsidiaries is in material
compliance with all federal and state laws respecting employment and employment
practices, terms and conditions of employment, wages and hours. Any
noncompliance will not cause a prospective material adverse change in the
financial position, net worth or results of operations of TBI or its
subsidiaries, taken as a whole.TBI and each of its subsidiaries is not and has
not been engaged in any unfair labor practice, and no unfair labor practice
complaint against TBI or any subsidiary is pending before the National Labor
Relations Board. Relations between management and the employees are amicable
and there have not been, nor are there presently, any attempts to organize
employees, nor are there plans for any such attempts.
4.18 Bank Accounts. Schedule 4.18 sets forth a complete and accurate
list of each bank or financial institution in which TBI and each of its
subsidiaries has an account or safe deposit box (giving the address and account
numbers) and the names of the persons authorized to draw thereon or to have
access thereto.
4.19 Investments. Except for TBI's ownership of the capital stock of
Tifton Bank or, as otherwise disclosed in Schedule 4.19, neither TBI nor any
subsidiary owns any capital stock or other securities or have any other
investment in any person or other entity.
4.20 Environmental Requirements. Neither TBI, nor any subsidiary
owns any property (including other real estate owned) but excluding any
property in which TBI or any of its subsidiaries has only a security interest
which is in violation of any federal or state law, regulation, or treaty
relating to the storage, handling, transportation, treatment or disposal of
hazardous substances (as defined in 42 U.S.C. Section 9601) or hazardous
materials (as defined by any federal or state law or regulation) or other waste
products, which violation may result in or have a material effect on the
financial condition, business operations or properties of TBI or any
subsidiary, and TBI and each of its subsidiaries has received all material
permits, licenses or other approvals as may be required of and under applicable
federal and state environmental laws and regulations to conduct its respective
business as described or incorporated by reference in the Proxy
Statement/Prospectus. TBI and each of its subsidiaries is in compliance in all
material respects with the terms and conditions of any such permit, license or
approval, and has not received any notices or claims that it is a responsible
party or a potentially responsible party in connection with
A-10
<PAGE> 115
any claim or notice asserted pursuant to 42 U.S.C. Section 9601 et. seq. or any
state superfund law except where such failure to comply with the terms and
conditions of any such permit, license or approval will not have a material
adverse effect on the financial condition or business operations of TBI or any
of its subsidiaries. TBI and each of its subsidiaries has complied in all
material respects with applicable laws and regulations with respect to the
disposal of all of its hazardous substances, hazardous materials and other
waste products.
4.21 Required Licenses and Permits. TBI and each of its subsidiaries
has all licenses, permits or other authorizations of governmental authorities
necessary for the conduct of its business except for jurisdictions in which the
failure to so qualify would not have a material adverse effect on the Company
and its subsidiaries taken as a whole.
4.22 Insurance Policies. Schedule 4.22 sets forth a complete and
accurate list and description of all insurance policies in force (except in
Tifton Bank's capacity as lender) naming TBI, any of its subsidiaries, or any
employees thereof in their capacity as such, as an insured or beneficiary or as
a loss payable payee), or for which TBI or any of its subsidiaries has paid or
is obligated to pay all or part of the premiums. TBI and each of its
subsidiaries has not received notice of any pending or threatened termination
or premium increase (retroactive or otherwise) with respect thereto, and they
are in compliance with all conditions contained therein. To the best of TBI's
knowledge, there have been no lapses (whether cured or not) in the coverage
provided under the insurance policies, referenced herein and as set forth in
Schedule 4.22, during the term of such policies, as extended or renewed. TBI
has made available to FLFC true, correct and complete copies of each of the
policies listed in Schedule 4.22.
4.23 Contracts and Commitments. Except as set forth in Schedules
4.10 (Leases), 4.11 (Indebtedness); 4.15 (Employee Benefits), 4.22 (Insurance
Policies), 4.23 (Other) and contracts made in the ordinary course of business:
(a) Neither TBI nor any of its subsidiaries has any agreement or
contract that is material to its business, operations or prospects other than
those agreements which have been furnished to FLFC;
(b) No material contracts or commitments of TBI or any of its
subsidiaries continue for a period of more than six (6) months from the date of
the Mergers or require payments for a period of more than six months from the
effective date of the Mergers;
(c) Neither TBI nor any of its subsidiaries has any outstanding
material contract, written or oral, with any officer, employee, agent,
consultant, advisor, or broker that is not cancelable by TBI or its
subsidiaries, on notice of not longer than thirty (30) days and without
liability, penalty or premium of any kind;
(d) Except as noted in Schedule 4.11 and except for negotiable
instruments in the process of collection, neither TBI nor any of its
subsidiaries has any power of attorney outstanding or any material contract,
commitment or liability (whether absolute, accrued, contingent or otherwise),
as guarantor, surety, co-signer, endorser, co-maker, indemnitor in respect of
the contract or commitment of any other person, corporation, partnership, joint
venture, association, organization or other entity; and
(e) TBI has made available to FLFC true, correct and complete
copies of each of the agreements listed in Schedule 4.23.
4.24 No Conflict. The execution and delivery of this Agreement by TBI
and Tifton Bank, the consummation of the transactions contemplated herein by
TBI and Tifton Bank, and the performance of the covenants and agreements of TBI
and Tifton Bank, subject to fulfillment of the conditions set forth in Section
9.05 hereof, will not, with or without the giving of notice or the lapse of
time, or both, (i) violate or conflict with any of the provisions of any
charter document or bylaw of TBI or Tifton Bank; or (ii) conflict with or
result in a breach or
A-11
<PAGE> 116
default under or cause termination of any term or condition of any mortgage,
indenture, material contract, license, permit, instrument, trust document,
will, or other agreement, document or instrument to which TBI or any of its
subsidiaries is a party or by which TBI or any of its subsidiaries or its
properties may be bound whose breach, default or violation would cause a
prospective material adverse change in the financial position, net worth or
results of operations of TBI or its subsidiaries, taken as a whole; or (iii)
violate any provision of law, statute, regulation, court order or ruling of any
governmental authority, to which TBI or any of its subsidiaries is a party or
by which it or its properties may be bound.
4.25 Agreements in Full Force and Effect. All material contracts,
agreements, plans, leases, policies and licenses to which TBI or any of its
subsidiaries is a party and which are described in the Proxy
Statement/Prospectus and/or referred to, or required to be referred to, in any
Schedule delivered hereunder are valid and binding, and are in full force and
effect and are enforceable in accordance with their terms, except to the extent
that the validity or enforceability thereof may be limited by bankruptcy,
insolvency, reorganization and other similar laws affecting creditors' rights
generally. Neither TBI nor any of its subsidiaries has knowledge of any
pending or threatened bankruptcy, insolvency or similar proceeding with respect
to any party to such agreements, and no event has occurred which (whether with
or without notice, lapse of time or the happening or occurrence of any other
event) would constitute a default thereunder by TBI or any of its subsidiaries
or to the knowledge of TBI any other party thereto.
4.26 Required Consents and Approvals. Other than the approval of the
consummation of the First Stage Merger by TBI's stockholders and of the Second
Stage Merger by applicable bank regulatory agencies, no consent or approval is
required by virtue of the execution hereof by TBI or Tifton Bank or the
consummation of any of the transactions contemplated herein by TBI or Tifton
Bank the failure of which to obtain would have a material adverse effect on TBI
and its subsidiaries taken as a whole to avoid the violation or breach of, or
the default under, or the creation of a lien on assets of TBI or any of its
subsidiaries pursuant to the terms of, any regulation, order, decree or award
of any court or governmental agency or any lease, agreement, contract,
mortgage, note, license, or any other instrument to which TBI or any of its
subsidiaries is a party or to which it or any of its property or any of its
outstanding capital stock is subject.
4.27 Absence of Certain Changes and Events. Except as set forth in
Schedule 4.27, since December 31, 1994, TBI and each of its subsidiaries has
conducted its businesses only in the ordinary course, and has not:
(a) suffered any damage or destruction adversely materially
affecting TBI and its subsidiaries taken as a whole properties or business;
(b) made any declaration, setting aside or payment of any dividend
or other distribution of assets (whether in cash, stock or property) with
respect to its capital stock, or any direct or indirect redemption, purchase or
other acquisition of such stock, or otherwise made any payment of cash or any
transfer of other assets; or transferred any assets from any related company to
TBI or such subsidiary;
(c) suffered any material adverse change in its working capital,
assets, liabilities, financial condition or business prospects;
(d) suffered any material adverse change in the collectibility of
its loan portfolio;
(e) except for customary increases based on term of service,
performance or regular promotion of non-officer employees, increased (or
announced any increase in) the compensation payable or to become payable to any
employee, or increased (or announced any increase in) any bonus, insurance,
pension or other employee benefit plan, payment or arrangement for such
employees, or entered into or amended any employment, consulting, severance or
similar agreement;
A-12
<PAGE> 117
(f) incurred, assumed or guaranteed any liability or obligation
(absolute, accrued, contingent or otherwise) other than in the ordinary course
of business consistent with past practice or in connection with this
transaction;
(g) paid, discharged, satisfied or renewed any claim, liability or
obligation other than payment in the ordinary course of business consistent
with past practice;
(h) permitted any of its assets to be subjected to any mortgage,
lien, security interest, restriction, charge or other encumbrance of any kind
except for Permitted Liens;
(i) waived any material claims or rights;
(j) sold, transferred or otherwise disposed of any of its assets,
except in the ordinary course of business consistent with past practice;
(k) made any material capital expenditure or investment except in
the ordinary course of business consistent with past practice;
(l) made any change in any material method, practice or principle
of financial or tax accounting;
(m) managed working capital components, including cash, loans,
deposits and other current liabilities in a fashion inconsistent in any
material respect with past practice, including failing to make all budgeted and
other normal capital expenditures, repairs, improvements and dispositions;
(n) paid, loaned, advanced, sold, transferred or leased any asset
to any employee, except for normal compensation involving salary and benefits
and except for loans to officers and directors which are listed in the minutes
of Tifton Bank's Board of Directors;
(o) issued or sold any of its capital stock or issued any warrant,
option or other right to purchase shares of its capital stock, or any security
convertible into its capital stock; or
(p) agreed in writing, or otherwise, to take any action described
in this Section.
4.28 Tax Matters.
(a) Definitions. For purposes of this Agreement, the following
definitions shall apply:
(i) The term "Taxes" shall mean all taxes, however denominated,
including any interest, penalties or other additions to tax that may become
payable in respect thereof, imposed by any federal, territorial, state, local
or foreign government or any agency or political subdivision of any such
government, which taxes shall include, without limiting the generality of the
foregoing, all income or profits taxes (including, but not limited to, federal
income taxes and state income taxes), payroll and employee withholding taxes,
unemployment insurance, social security taxes, sales and use taxes, ad valorem
taxes, excise taxes, franchise taxes, gross receipts taxes, business license
taxes, occupation taxes, real and personal property taxes, stamp taxes,
environmental taxes, transfer taxes, workers' compensation, PBGC premiums and
other governmental charges, and other obligations of the same or of a similar
nature to any of the foregoing, which TBI or any of its subsidiaries is
required to pay, withhold or collect.
(ii) The term "Returns" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns relating to,
or required to be filed in connection with, any Taxes, including information
returns or reports with respect to backup withholding and other payments to
third parties.
A-13
<PAGE> 118
(b) Returns Filed and Taxes Paid. (i) All Returns required to be
filed by or on behalf of TBI have been duly filed on a timely basis and such
Returns are true, complete and correct in all material respects; (ii) all Taxes
shown to be payable on the Returns or on subsequent assessments with respect
thereto have been paid in full on a timely basis, and no other Taxes are
payable by TBI or any of its subsidiaries with respect to items or periods
covered by such Returns (whether or not shown on or reportable on such Returns)
or with respect to any period prior to the date of this Agreement; (iii) TBI
and each of its subsidiaries has withheld and paid over all Taxes required to
have been withheld and paid over, and complied with all information reporting
and backup withholding requirements, including maintenance of required records
with respect thereto, in connection with amounts paid or owing to any employee,
creditor, independent contractor, or other third party; and (iv) there are no
liens on any of the assets of TBI or any of its subsidiaries with respect to
Taxes, other than liens for Taxes not yet due and payable.
(c) Tax Deficiencies; Audits; Statutes of Limitations. (i) the
Returns of TBI and each of its subsidiaries have never been audited by a
government or taxing authority, nor is any such audit in process, pending or
threatened (either in writing or verbally, formally or informally); (ii) no
deficiencies exist or have been asserted (either in writing or verbally,
formally or informally) or are expected to be asserted with respect to Taxes of
TBI or any of its subsidiaries and neither TBI nor any of its subsidiaries has
received notice (either in writing or verbally, formally or informally) or
expects to receive notice that it has not filed a Return or paid Taxes required
to be filed or paid by it; (iii) neither TBI nor any of its subsidiaries is a
party to any action or proceeding for assessment or collection of Taxes, nor
has such event been asserted or threatened (either in writing or verbally,
formally or informally) against TBI or any of its subsidiaries or any of their
assets; (iv) no waiver or extension of any statute of limitations is in effect
with respect to Taxes or Returns of TBI or any of its subsidiaries; (v) TBI and
each of its subsidiaries has disclosed on its federal income tax returns all
positions taken therein that could give rise to a "substantial understatement
of income tax" within the meaning of Section 6662 of the Code; and (vi) neither
TBI nor any of its subsidiaries have made an application or request (either in
writing or verbally, formally or informally) to the Internal Revenue Service to
change TBI's or any of its subsidiaries' methods of accounting or taxable year.
(d) Tax Sharing Agreements. Except as otherwise disclosed in
Schedule 4.28(d), neither TBI nor any of its subsidiaries is (or have they ever
been) a party to any tax sharing agreement.
4.29 Regulatory Matters.
(a) TBI and each of its subsidiaries is in material compliance (i)
with applicable banking laws and regulations, including, without limitation,
the Community Reinvestment Act and laws and regulations relating to fair
lending practices, truth in lending, truth in savings and currency reporting
and (ii) with all directives of and agreements with the Federal Reserve System,
the Federal Deposit Insurance Corporation (the "FDIC") and the Georgia
Department of Banking and Finance (the "DBF")and any noncompliance will not
cause a prospective material adverse change in the financial position, net
worth or results of operations of TBI or its subsidiaries, taken as a whole.
The depository accounts of Tifton Bank are insured by the FDIC to the maximum
extent allowed by the Federal Deposit Insurance Act, as amended.
(b) Neither TBI nor any of its subsidiaries is a party to any
written agreement or memorandum of understanding with, or a party to any
commitment letter or similar undertaking to, or is subject to any order or
directive by, or is a recipient of any extraordinary supervisory letter from,
the Federal Reserve Board, the FDIC, the DBF or any other state or federal
regulatory agency which restricts the conduct of its business, or in any manner
relates to its capital adequacy, its credit policies or its management, nor has
TBI or any of its subsidiaries been advised by any regulatory agency that it is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, decree, agreement, memorandum of
understanding, extraordinary supervisory letter, commitment letter or similar
submission.
A-14
<PAGE> 119
4.30 Corrupt Practices. Neither TBI, any of its subsidiaries nor any
director, officer, agent or employee of TBI or any of its subsidiaries or other
person associated with or acting on behalf of TBI or any of its subsidiaries
has, directly or indirectly, (i) used any corporate funds for unlawful
contributions, gifts, entertainment or other unlawful expenses relating to
political activities; (ii) made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties
or campaigns; (iii) violated any provision of the Foreign Corrupt Practices Act
of 1977, as amended; (iv) made or received any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment; or (v) made any payment of funds
of TBI or any of its subsidiaries prohibited by law or set aside any such funds
to be used for any payment prohibited by law.
4.31 Loan Loss Reserves. In the opinion of Tifton Bank's management,
Tifton Bank's allowances for possible loan losses is adequate as of the date
hereof in all material respects to provide for all anticipated losses, net of
recoveries related to loans previously charged-off, on loans outstanding as of
the date hereof.
4.32 [This Section intentionally omitted]
4.33 Indemnification Obligations. Other than as listed on Schedule
4.33, there is no provision, agreement or other arrangement pursuant to which
TBI or any of its subsidiaries is obligated or may become obligated, or is
permitted, to indemnify or reimburse any person or entity against any liability
or expense incurred by such person or entity other than pursuant to applicable
law or as allowed by charter documents and Bylaws of TBI and Tifton Bank.
4.34 Special Tax Matters of TBI.
(a) Neither TBI nor Tifton Bank is an investment company within the
meaning of Section 368(a)(2)(F)(iii) and Section 368(a)(2)(F)(iv) of the Code,
nor is it under the jurisdiction of a court in a "Title 11 or similar case"
within the meaning of the Section 368(a)(3)(A) and Section 368(a)(3)(D) of the
Code.
(b) At the Effective Time of the Merger, the fair market value of
the assets of TBI and Tifton Bank will equal or exceed the sum of their
respective liabilities, plus the amount of liabilities, if any, to which the
transferred assets are subject.
(c) The fair market value of the Series B Preferred to be received
by each holder of TBI Stock plus the cash consideration including the cash
received in lieu of a fractional share of Series B Preferred will be
approximately equal to the fair market value of the TBI Stock to be surrendered
in the First Stage Merger.
(d) The liabilities of TBI and Tifton Bank assumed by FLFC and FLB,
respectively and the liabilities to which the transferred assets are subject
were incurred in the ordinary course of business.
(e) There is no plan or intention on the part of any holder of TBI
Stock who owns 1% or more of the TBI Stock, and to the best knowledge of TBI
management, there is no plan or intention on the part of the remaining TBI
Stockholders to sell, exchange, or otherwise dispose of a number of the shares
of the Series B Preferred after the First Stage Merger that would reduce the
aggregate ownership (by former holders of TBI Stock) of Series B Preferred to a
number of shares having a value, as of the Effective Time, of less than 50% of
the value of all the formerly outstanding TBI Stock as of the same date, all
within the meaning of IRS Rev. Proc. 77-37.
(f) There is no intercorporate indebtedness existing between TBI
and FLFC that was issued, acquired, or will be settled at a discount.
(g) At the Effective Time of the Merger, the basis of the assets of
Tifton Bank equals or exceeds its liabilities.
A-15
<PAGE> 120
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF FLFC AND FLB
FLFC and FLB each hereby represents and warrants to TBI and Tifton Bank,
separately as to each of them and not jointly, as follows:
5.01 Organization. FLFC is a corporation duly organized, validly
existing and in good standing under the laws of the State of Georgia. FLB is a
federally chartered savings bank duly organized, validly existing and in good
standing under the laws of the United States.
5.02 Authorized and Outstanding Stock. The authorized capital stock of
FLFC and the number of issued and outstanding shares thereof as of the date
hereof is set forth in Schedule 5.02 hereto. All of such issued and
outstanding shares of capital stock of FLFC are validly issued, fully paid and
nonassessable. All issuances of the capital stock of FLFC have been in
compliance with all applicable agreements and all applicable laws, including
federal and state securities laws, and all taxes thereon have been paid.
5.03 Power and Authority. FLFC and FLB have the corporate right, power
and capacity to execute, deliver and perform this Agreement and to consummate
the transactions contemplated hereby. The execution, delivery and performance
of this Agreement and the consummation of the transactions contemplated hereby
have been duly and validly authorized by all necessary corporate action on the
part of FLFC and FLB. This Agreement has been duly and validly executed and
delivered by FLFC and FLB and constitutes FLFC's and FLB's legal, valid and
binding obligation, enforceable in accordance with its terms.
5.04 No Conflict. The execution and delivery of this Agreement by FLFC
and FLB, the consummation of the transactions contemplated herein by FLFC and
FLB, and the performance of the covenants and agreements of FLFC and FLB,
subject to the fulfillment of the conditions set forth in Section 9.05 hereof,
will not, with or without the giving of notice or the lapse of time, or both,
(i) violate or conflict with any of the provisions of any charter document or
bylaws of FLFC or FLB; (ii) violate, conflict with or result in breach or
default under or cause termination of any term or condition of any mortgage,
indenture, contract, license, permit, instrument, trust document, or other
agreement, document or instrument to which FLFC or FLB is a party or by which
FLFC or FLB or any of its properties may be bound; or (iii) violate any
provision of law, statute, rule, regulation, court order, judgment or decree,
or ruling of any governmental authority, to which FLFC or FLB is a party or by
which FLFC or FLB or its properties may be bound.
5.05 Financial Statements. FLFC previously has delivered to TBI copies
of its Annual Report on Form 10-K for the fiscal year ended September 30, 1994,
including the exhibits and schedules thereto, as filed with the Commission (the
"1993 Form 10-K"). Schedule 5.05 contains the unaudited consolidated balance
sheet of FLFC as of December 31, 1994, the related unaudited statements of
income, retained earnings, and cash flows, or in each instance, equivalent
statements as commonly prepared, for the three-month period then ended (such
unaudited financial statements together with any other unaudited interim
financial statements that hereafter are included or incorporated by reference
in the Registration Statement hereinafter are referred to as the "Holding
Company Interim Financial Statements"). The audited consolidated financial
statements included in the 1994 Form 10-K and FLFC Interim Financial Statements
are true, correct and complete and present fairly in all material respects the
financial position of FLFC and the results of its operations as of the
respective dates and for the respective years covered by such financial
statements. The audited consolidated financial statements included in the 1994
Form 10-K have been prepared in accordance with GAAP applied on a consistent
basis, and FLFC Interim Financial Statements have been or will be, as the case
may be, prepared in accordance with GAAP for interim statements on a basis
consistent with prior periods. All adjustments, consisting of normal,
recurring accruals necessary for a fair presentation, have been or will be, as
the case may be, made in FLFC Interim Financial Statements.
A-16
<PAGE> 121
5.06 No Material Changes. Neither FLFC nor FLB has sustained, directly
or indirectly, since the date of audited consolidated financial statements
included in the 1994 Form 10-K, any material loss or interference with its
business from fire, explosion, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or arbitrators'
or court or governmental or regulatory action, order or decree. Since the date
of the audited consolidated financial statements included in the 1994 Form
10-K, there has not been any change in the capital stock or long-term debt of
FLFC or FLB, or any material adverse change, or any development involving a
prospective material adverse change, in or affecting the general affairs,
management, financial position, stockholders' equity, assets or results of
operations of FLFC or FLB, whether or not arising in the ordinary course of
business. Except as disclosed in the notes to the latest audited consolidated
financial statements of FLFC included in the 1994 Form 10-K, neither FLFC nor
FLB has incurred or undertaken any liability or obligation, direct, indirect or
contingent, which is material to the business or condition (financial or other)
of FLFC, except for liabilities or obligations incurred in the ordinary course
of business.
5.07 Required Consents and Approvals. No consent or approval is
required by virtue of the execution hereof by FLFC or FLB or the consummation
of any of the transactions contemplated herein by FLFC or FLB to avoid the
violation or breach of, or the default under, or the creation of a lien on
assets of FLFC or FLB pursuant to the terms of, any regulation, order, decree
or award of any court or governmental agency or any lease, agreement, contract,
mortgage, note, license, or any other instrument to which FLFC or FLB is a
party or to which it or any of its property or any of its outstanding capital
stock is subject.
5.08 No Undisclosed Liabilities. Except as and to the extent reflected
and adequately reserved against in the Holding Company Interim Financial
Statements, neither FLFC nor any subsidiary of FLFC has any material liability
or obligation whatsoever, whether accrued, absolute, contingent or otherwise.
5.09 No Violation of Law. Neither FLFC nor any subsidiary of FLFC is,
has been and will be (by virtue of any past or present action, omission to
act, contract to which it is a party or any occurrence or state of facts
whatsoever) in material violation of any applicable local, state or federal
law, ordinance, regulation, order, injunction or decree, or any other
requirement of any governmental body, agency or authority or court binding on
any of them, or relating to their property or business or their advertising,
sales or pricing practices (including, without limitation, any banking laws or
regulations, antitrust laws or regulations, and the statutes, rules and
regulations commonly referred to as the Environmental Protection Act, the
Americans With Disabilities Act, and the statutes and regulations of any state
or other jurisdiction in which FLFC or any of its subsidiaries does business),
nor will FLFC or any of its subsidiaries hereafter suffer or incur any material
loss, liability, penalty or expense (including, without limitation, attorneys'
fees) by virtue of any such violation.
5.10 Litigation. Other than as previously disclosed in writing to TBI
by FLFC, the are no charges, suits, actions, investigations of a material
nature pending or threatened against FLFC or any of its subsidiaries.
5.11 Securities and Exchange Commission Matters. On the effective date
of the prospectus, at all times subsequent thereto and including the closing
date and when any post-effective amendment to the registration statement
becomes effective or any amendment or supplement to the prospectus is filed
with the Commission, the registration statement and the prospectus (as amended
or as supplemented if FLFC shall have filed with the Commission any amendment
or supplement thereto), including the financial statements included or
incorporated by reference in the prospectus, did or will comply with all
applicable provisions of the Securities Act of 1933 (the "Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), the rules and
regulations under the Act, and the Exchange Act (collectively, the "Rules and
Regulations"), and will contain all statements required to be stated therein in
accordance with the Act, the Exchange Act, and the Rules and Regulations. On
the Effective Date and when any post-effective amendment to the registration
statement becomes effective, no part of the registration statement, the
prospectus or any such amendment or supplement did or will contain an 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 not
misleading. At the effective date, the date the prospectus or any amendment or
supplement to the prospectus is filed with the Commission and at the closing
date the prospectus did not or will not contain any
A-17
<PAGE> 122
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under which they
were made, not misleading. The foregoing representations and warranties in
this Section 5(11) do not apply to any statements or omissions made in reliance
on and in conformity with information relating to TBI furnished in writing to
FLFC by TBI specifically for inclusion in the registration statement or
prospectus or any amendment or supplement thereto.
Any documents or filings that are incorporated by reference, when they
were or shall be filed with the Commission, as the case may be, complied or
will comply in all material respects with the requirements of the Act, or the
Exchange Act, as applicable, and the Rules and Regulations.
5.12 No Conflict. The execution and delivery of this Agreement by FLFC
and FLB, the consummation of the transactions contemplated herein by FLFC and
FLB, and the performance of the covenants and agreements of FLFC and FLB,
subject to fulfillment of the conditions set forth in Section 9.05 hereof, will
not, with or without the giving of notice or the lapse of time, or both, (i)
violate or conflict with any of the provisions of any charter document or bylaw
of FLFC or FLB; or (ii) conflict with or result in a breach or default under or
cause termination of any term or condition of any mortgage, indenture, material
contract, license, permit, instrument, trust document, will, or other
agreement, document or instrument to which FLFC or any of its subsidiaries is a
party or by which FLFC or any of its subsidiaries or its properties may be
bound whose breach, default or violation would cause a prospective material
adverse change in the financial position, net worth or results of operations of
FLFC or its subsidiaries, taken as a whole; or (iii) violate any provision of
law, statute, regulation, court order or ruling of any governmental authority,
to which FLFC or any of its subsidiaries is a party or by which it or its
properties may be bound.
5.13 Loan Loss Reserves. In the opinion of First Liberty Bank's
management, First Liberty Bank's allowances for possible loan losses is
adequate as of the date hereof in all material respects to provide for all
anticipated losses, net of recoveries related to loans previously charged-off,
on loans outstanding as of the date hereof.
ARTICLE VI
COVENANTS OF TBI AND TIFTON BANK
6.01 Pre-Closing Operations of TBI and its Subsidiaries. TBI and Tifton
Bank hereby covenant and agree that, except as consented to in writing by FLFC,
pending the Closing, TBI and each of its subsidiaries will operate and conduct
its business only in the ordinary course in accordance with prior practices.
Pursuant thereto and not in limitation of the foregoing:
(a) TBI and each of its subsidiaries shall manage its working
capital, including cash, loans, other current assets, deposits and other
current liabilities, in a fashion consistent with past practice, and shall use
all reasonable efforts to preserve intact its present business organization,
maintain its rights and franchises and preserve its relationship with
customers, suppliers and others having business dealings with it to the end
that its goodwill and ongoing business shall not be impaired in any material
respects.
(b) No material contract or commitment of any kind relating to TBI
or any of its subsidiaries shall be entered into without the prior written
consent of FLFC.
(c) TBI and each of its subsidiaries shall maintain its assets in
their present state of repair (ordinary wear and tear excepted) and shall use
its best efforts to keep available the services of its employees.
A-18
<PAGE> 123
(d) TBI and each of its subsidiaries shall not take any of the
following actions after the date of this Agreement without the prior written
consent of FLFC, which consent shall not be unreasonably withheld, conditioned
or delayed:
(i) sell, transfer or otherwise dispose of any assets having a
value of $10,000 or more in the aggregate other than in the ordinary course of
business consistent with past practice;
(ii) Mortgage, pledge or subject to liens or other encumbrances
or charges any assets having a value of $10,000 or more in the aggregate,
except by incurring Permitted Liens;
(iii) Purchase or commit to purchase any capital asset;
(iv) Increase (or announce any increase of) any salaries, wages
or employee benefits or hire any new employees (except to replace existing
employees); any employee;
(v) Amend any charter document or bylaw;
(vi) Issue or sell any of its capital stock, redeem, purchase or
otherwise acquire any shares of its capital stock, or make any other change in
its issued and outstanding capital stock, or issue any warrant, option or other
right to purchase shares of its capital stock or any security convertible into
its capital stock, or declare any dividends or make any other distribution with
respect to its capital stock;
(vii) Incur, assume or guarantee any obligation or liability for
borrowed money, or exchange, refund or renew any outstanding indebtedness of
TBI or any of its subsidiaries in such a manner as to reduce the principal
amount of such indebtedness or increase the interest rate or balance
outstanding;
(viii) Cancel or forgive any indebtedness of $10,000 or more in
the aggregate owed to TBI or any of its subsidiaries;
(ix) Amend or terminate any material agreement, including any
employee benefit plan or any insurance policy, in force on the date hereof;
(x) Solicit or entertain any offer for, or sell or agree to
sell, or participate in any business combination with respect to, any of the
shares of its capital stock or all or substantially all of its assets;
(xi) Make any changes in financial or tax accounting methods,
principles or practices;
(xii) Do any act, omit to do any act or permit any act within
its control which will cause any representation or warranty made herein to be
untrue as of the Closing or prevent TBI or any subsidiary from complying with
any obligation contained in this Agreement or any obligations contained in any
contract;
(xiii) Issue substitute stock certificates to replace
certificates which have been lost, misplaced, destroyed, stolen or are
otherwise irretrievable, unless an adequate bond or indemnity agreement
approved by FLFC has been duly executed and delivered to TBI;
(xiv) Violate or amend in any material respect any of its
existing policies, including, without limitation, its loan policy;
(xv) Make any material changes in the interest rates paid on its
deposits or charged on its loans except on a basis consistent with prevailing
market practices in Tifton, Georgia;
(xvi) Elect any new executive officers or directors; or
A-19
<PAGE> 124
(xvii) Make any material adjustments to its loan loss reserves
without prior notice to FLFC.
6.02 Access. From the date of this Agreement through the Closing Date,
TBI and each of its subsidiaries shall (i) provide FLFC, FLB and their
respective designees (officers, counsel, accountants, and other authorized
representatives) with such information as FLFC and FLB may from time to time
reasonably request with respect to TBI and each of its subsidiaries and the
transactions contemplated by this Agreement; (ii) provide FLFC and FLB and
their designees access during regular business hours and upon reasonable notice
to the books, records, offices, personnel, counsel, accountants and actuaries
of TBI and each of its subsidiaries as FLFC or its designees may from time to
time reasonably request; and (iii) permit FLFC and FLB and their designees to
make such inspections thereof as FLFC or FLB may reasonably request. Any
investigation shall be conducted in such a manner so as not to interfere
unreasonably with the operation of the business of TBI or any subsidiary. No
such investigation shall limit or modify in any way TBI's or Tifton Bank's
obligations with respect to any breach of its representations, warranties,
covenants or agreements contained herein.
6.03 Special Litigation Provision. Pending the Closing, Tifton Bank
shall keep FLFC and FLB fully informed on a timely basis of all material
developments in the case styled "Tifton Bank & Trust Company v. Knight's
Furniture Co., Inc." in the Georgia Court of Appeals and in the case styled
"Tifton Bank & Trust Company v. Reliance Surety Company and Georgia Casualty &
Surety Company" in the Superior Court of Tift County, shall continue diligently
to prosecute both cases, and shall not dismiss, settle or compromise either
case without the prior written consent of FLFC and FLB, which consent shall not
unreasonably be withheld.
6.04 Interim Financials. As promptly as practicable after each regular
accounting period subsequent to March 31, 1995 and prior to the Closing Date,
TBI will deliver to FLFC and FLB periodic financial reports concerning TBI and
each of its subsidiaries in the form which it customarily prepares for its
internal purposes, investment portfolio listings including market values and
book values, and, if available, unaudited statements of the financial position
of TBI and each of its subsidiaries as of the last day of each accounting
period and unaudited statements of income and cash flows of TBI and each of its
subsidiaries for the period then ended.
6.05 Meeting of Stockholders: Preparation of Supporting Documents. As
soon as practicable following the execution of this Agreement, TBI shall call a
special meeting of its stockholders to be held within 45 days of the effective
date of the Registration Statement for the purpose of considering and voting
upon the First Stage Merger. In addition to such actions as TBI and Tifton
Bank may otherwise be required to take under this Agreement or applicable law
in order to consummate the transactions contemplated by this Agreement, TBI and
Tifton Bank shall take such action, shall furnish such information, and shall
prepare, or cooperate in preparing, and execute and deliver such certificates,
agreements and other instruments as FLFC may reasonably request from time to
time, before, at or after the Closing, with respect to compliance with
obligations of TBI and Tifton Bank in connection with FLFC's acquisition of
TBI. Any information so furnished by TBI and Tifton Bank shall be true,
current and complete in all material respects and shall not 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 therein not misleading.
6.06 Contract Cancellation Expenses. Pending the closing, TBI and
Tifton Bank shall use their respective best efforts to minimize all costs and
penalties associated with the early cancellation of contracts, leases, and
other agreements requested by FLFC or FLB.
6.07 Notice of Breach or Potential Breach. TBI shall promptly notify
FLFC of any change, circumstance or event which would cause any of the
representations or warranties made by TBI and Tifton Bank pursuant to this
Agreement to be untrue as of the date hereof or at the Closing or which
prevents TBI or Tifton Bank from complying with any of its obligations
hereunder.
A-20
<PAGE> 125
ARTICLE VII
COVENANTS OF FLFC AND FLB
FLFC and FLB hereby covenants and agrees, separately as to each of them
and not jointly, as follows:
7.01 Access. From the date of this Agreement through the Closing Date,
FLFC and FLB shall (i) provide TBI and Tifton Bank and its designees (officers,
counsel, accountants, actuaries, and other authorized representatives) with
such information as TBI and Tifton Bank may from time to time reasonably
request with respect to FLFC and FLB and the transactions contemplated by this
Agreement; (ii) provide TBI and Tifton Bank and its designees access during
regular business hours and upon reasonable notice to the books, records,
offices, personnel, counsel, accountants and actuaries of FLFC and FLB, as TBI
and Tifton Bank or its designees may from time to time reasonably request; and
(iii) permit TBI and Tifton Bank and its designees to make such inspections
thereof as TBI and Tifton Bank may reasonably request. Any investigation shall
be conducted in such a manner so as not to interfere unreasonably with the
operation of the business of FLFC or FLB. No such investigation shall limit or
modify in any way obligations of FLFC and FLB with respect to any breach of its
representations, warranties, covenants or agreements contained herein.
7.02 Interim Financials. As promptly as practicable after each
quarterly accounting period subsequent to March 31, 1995 and prior to the
Closing Date, FLFC will deliver to TBI periodic financial reports in the form
which it customarily prepares for regulatory purposes and, if available, FLFC
will deliver to TBI unaudited statements of the consolidated financial position
of FLFC and FLB as of the last day of each accounting period and unaudited
consolidated statements of income and cash flow of FLFC and FLB for the period
then ended.
7.03 Information Supplied for Use in Registration Statement. Written
information supplied by FLFC to TBI and designated specifically for use in the
Proxy Statement/Prospectus will not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
7.04 Notice of Breach or Potential Breach. FLFC and FLB shall promptly
notify TBI of any change, circumstance or event which would cause any of the
representations or warranties made by FLFC and FLB pursuant to this Agreement
to be untrue as of the date hereof or at the Closing or which prevents FLFC and
FLB from complying with any of its obligations hereunder.
7.05 NASDAQ Listing. FLFC shall use its best effort to obtain a Nasdaq
Small Cap Market listing of the Series B Preferred on or before the Closing
Date.
ARTICLE VIII
COVENANTS OF THE PARTIES
TBI, Tifton Bank, FLFC and FLB hereby covenant to and agree with one
another as follows:
8.01 Approvals of Third Parties; Satisfaction of Conditions to Closing.
TBI, Tifton Bank, FLFC and FLB will use their reasonable, good faith efforts,
and will cooperate with one another, to secure all necessary consents,
approvals, authorizations and exemptions from governmental agencies and other
third parties, including, without limitation, all consents required by Sections
9.05 and 9.06 hereof. TBI, Tifton Bank, FLFC and FLB will use their
reasonable, good faith efforts to cause or obtain the satisfaction of the
conditions specified in Article X. FLFC and FLB will use their reasonable,
good faith efforts to cause or obtain the satisfaction of the conditions
specified in Article IX.
A-21
<PAGE> 126
8.02 Preparation of Registration Statement and the Proxy
Statement/Prospectus. TBI, Tifton Bank, FLFC and FLB shall promptly prepare
the Proxy Statement/Prospectus and FLFC shall promptly prepare and file with
the Commission the Registration Statement, in which the Proxy
Statement/Prospectus will be included. Each of TBI and FLFC shall use all
reasonable efforts to have the Registration Statement declared effective under
the Act as promptly as practicable after such filing. FLFC shall also take any
action (other than qualifying to do business in any jurisdiction in which it is
now not so qualified) required to be taken under any applicable state
securities laws in connection with the issuance of the Series B Preferred in
the First Stage Merger and TBI shall furnish all information concerning TBI,
its subsidiaries and the holders of TBI Stock as may be reasonably requested in
connection with any such action.
8.03 Confidentiality. In connection with this Agreement the parties
may have access to information which is nonpublic, confidential or proprietary
in nature. All of such information, in whole or in part, together with any
analyses, compilations, studies or other documents prepared by any party, which
contain or otherwise reflect any such information is hereinafter referred to as
the "Information". Each party hereby agrees that the Information will be kept
confidential and shall not, without the prior mutual written consent of the
parties, be disclosed, in any manner whatsoever, in whole or in part, and shall
not be used by any party following the termination of this Agreement. Each
party agrees to transmit the Information only to its respective employees and
representatives who need to know the Information and who shall agree to be
bound by the terms and conditions of this Agreement. In any event, each party
shall be responsible for any breach of this Agreement by its respective
employees or representatives. If the transactions contemplated hereunder are
not consummated, the Information, except for that portion of the Information
which consists of analyses, compilations, studies or other documents prepared
by each party's respective employees and representatives who need to know the
Information to the other promptly upon request and no party shall retain any
copies. That portion of the Information, and all copies thereof, which
consists of analyses, compilations, studies or other documents prepared by each
party's respective employees and representatives will be kept confidential and
subject to the terms of this Agreement or destroyed. In the event any party
becomes legally compelled to disclose any of the Information, such party will
provide to the other parties prompt notice so that each other party may seek a
protective order or other appropriate remedy and/or waive compliance with the
provisions of this Agreement. In the event that such protective order or other
remedy is not obtained, or compliance with the provisions of this Agreement is
waived, a party will furnish only that portion of the Information which is
legally required, and to the extent requested by the other party, will exercise
its best efforts to obtain a protective order or other reliable assurance that
confidential treatment will be accorded the Information. The term
"Information" does not include information which (i) was known to any party
about another party prior to its disclosure, provided that such information was
lawfully obtained or developed, (ii) becomes generally available to the public
other than as a result of a disclosure by a party in violation of this
Agreement, or (iii) becomes available from a source other than a party to this
Agreement, if the source is not bound by a confidentiality agreement and such
source lawfully obtained such information.
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF TBI
Each of the obligations of TBI and Tifton Bank to be performed hereunder
shall be subject to the satisfaction (or waiver by TBI and Tifton Bank) at or
prior to the Closing Date of each of the following conditions:
9.01 Representations and Warranties True at Closing Date. Each of
FLFC's and FLB's representations and warranties contained in this Agreement
shall be true in all material respects on and as of the Closing Date with the
same force and effect as though made on and as of such date; FLFC and FLB shall
have complied in all material respects with the covenants and agreements set
forth herein to be performed or complied with by them on or before the Closing
Date; and FLFC and FLB shall have delivered to TBI and Tifton Bank a
certificate in the form provided as Schedule 9.01 and confirming such other
matters as may be reasonably requested by TBI and Tifton Bank.
A-22
<PAGE> 127
9.02 Litigation. There shall not be any litigation or threat of
litigation against FLB and FLFC (a) challenging the validity or legality of
this Agreement or (b) seeking damages in respect of or seeking to restrain or
invalidate the transactions contemplated by this Agreement which, in the
judgment of either TBI or Tifton Bank, based upon advice of counsel, would have
a material adverse effect on FLB, FLFC or the consummation of the transactions
contemplated by this Agreement.
9.03 Opinion of Counsel and Independent Certified Public Accountants to
FLFC. TBI and Tifton Bank shall have received from counsel to FLFC an opinion
substantially in the form provided as Schedule 9.03, and from FLFC's
Independent Public Accountants an opinion, dated the Closing Date, reasonably
acceptable to TBI and Tifton Bank which shall include an opinion that any share
of the Series B received by TBI's stockholders shall not be subject to
taxation.
9.04 Documents Satisfactory in Form and Substance. All agreements,
certificates, opinions and other documents delivered by FLFC and FLB to TBI or
Tifton Bank hereunder or in connection herewith shall be in form and substance
satisfactory to counsel for TBI and Tifton Bank, in the exercise of such
counsel's reasonable judgment.
9.05 Required Governmental Approvals. All governmental authorizations,
consents and approvals necessary for the valid consummation of the transactions
contemplated hereby shall have been obtained and shall be in full force and
effect. All applicable governmental pre-acquisition filing, information
furnishing and waiting period requirements shall have been met or such
compliance shall have been waived by the governmental authority having
authority to grant such waivers.
9.06 Stockholder Approval. This Agreement shall have been approved and
adopted by the affirmative vote of the holders of a majority of the
outstanding shares of TBI Stock entitled to vote thereon.
9.07 Absence of Adverse Facts. There shall have been no determination
by TBI that any fact, event or condition exists, is likely to occur or has
occurred that, in the reasonable judgment of TBI, (a) could have a material
adverse effect on, has had a material adverse effect on, or which may be
foreseen to have a material adverse effect on, FLB or FLFC or the consummation
of the transactions contemplated by this Agreement which has not been waived by
TBI (in the exercise of its sole and exclusive discretion), (b) would be
materially adverse to the interests of TBI, or (c) would render the
transactions contemplated by this Agreement impractical because of any material
event including but not limited to a state of war, national emergency, banking
moratorium or general suspension of trading on Nasdaq, or other national
securities exchange.
9.08 Indemnification Provisions. FLFC shall have amended its present
resolution which provides for the indemnification of the members of community
boards of directors to further provide for advancing expenses pursuant to
Section 14-2-857 of the Georgia Business Corporation Code.
ARTICLE X
CONDITIONS TO OBLIGATIONS OF FLFC AND FLB
The obligations of FLFC and FLB to be performed hereunder shall be
subject to the satisfaction (or waiver by FLFC and FLB) on or before the
Closing Date of each of the Covenants of TBI and Tifton Bank set forth herein
and of each of the following conditions:
10.01 Representations and Warranties True at Closing Date. Each of the
representations and warranties of TBI and Tifton Bank contained in this
Agreement shall be true in all respects on and as of the Closing Date with the
same force and effect as though made on and as of such date; TBI and Tifton
Bank shall have performed and complied in all respects with the covenants and
agreements set forth herein to be performed or complied with by
A-23
<PAGE> 128
TBI or Tifton Bank on or before the Closing Date; and TBI and Tifton Bank shall
have delivered to FLFC and FLB a certificate in the form provided as Schedule
10.1, and confirming such other matters as may be reasonably requested by FLFC
or FLB.
10.02 No Material Change. Neither TBI nor any of its subsidiaries
shall have suffered any material adverse change since December 31, 1994
(whether or not such change is referred to or described in any Schedule) in its
business, operations, prospects, financial condition, working capital, assets,
liabilities (absolute, accrued, contingent or otherwise), reserves or
operations.
10.03 Ordinary Course of Business. TBI and each of its subsidiaries
shall carry out its operations from the date hereof through the Effective Time
in the ordinary course of business; provided, however, that TBI and each of its
subsidiaries shall not pay any dividends or make other distributions on its
capital stock, issue any additional capital stock, incur any additional debt,
sell or otherwise dispose of any assets or increase the compensation of any of
its directors, officers or employees from the date hereof through the Effective
Time.
10.04 Stock Options. There shall be no outstanding options, warrants
or other rights to purchase any TBI Stock or other securities of TBI or any of
its subsidiaries.
10.05 Litigation. There shall not be any litigation or threat of
litigation against FLB or FLFC (a) challenging the validity or legality of this
Agreement or (b) seeking damages in respect of or seeking to restrain or
invalidate the transactions contemplated by this Agreement which, in the
judgment of either TBI or Tifton Bank, based upon advice of counsel, would have
a material adverse effect on FLB, FLFC or the consummation of the transactions
contemplated by this Agreement.
10.06 Required Governmental Approvals. All governmental
authorizations, consents and approvals necessary for the valid consummation of
the transactions contemplated hereby shall have been obtained and shall be in
full force and effect. All applicable governmental pre-acquisition filing,
information furnishing and waiting period requirements shall have been met or
such compliance shall have been waived by the governmental authority having
authority to grant such waivers.
10.07 [This Section intentionally omitted]
10.08 Opinion of Counsel to TBI. FLFC and FLB shall have received from
counsel to TBI an opinion, dated the Closing Date, substantially in the form
provided as Schedule 10.08.
10.09 Documents Satisfactory in Form and Substance. All agreements,
certificates, opinions and other documents delivered by TBI and Tifton Bank to
FLFC or FLB hereunder shall be in form and substance satisfactory to counsel
for FLFC and FLB, in the exercise of such counsel's reasonable judgment.
10.10 Resignations of Officers and Directors. All officers and
directors of TBI and each of its subsidiaries shall have delivered to FLFC and
FLB their resignations as officers and directors, effective as of the Closing
Date.
10.11 Hall Employment Contract. Gary P. Hall, President and Chief
Executive Officer of TBI and Tifton Bank shall have entered into a contract
with FLB for his employment as its City President in Tifton.
10.12 Accountants' Letters. FLFC and FLB shall have received a letter
from TBI's independent accountants with respect to the financial, accounting
and statistical data regarding TBI and its subsidiaries set forth in the
Registration Statement and a letter from Coopers & Lybrand L.L.P. with respect
to the financial, accounting and statistical data regarding FLFC and FLB and
the pro forma information set forth in the Registration Statement, in each case
dated within five days prior to the Closing Date.
A-24
<PAGE> 129
10.13 Employment Agreements. Neither TBI nor any of its subsidiaries
shall be a party to any employment or similar agreements with any person or
persons and neither TBI nor any of its subsidiaries shall be a party to any
consulting agreements with any persons or entities other than Stevens &
Company, pursuant to which TBI shall pay that party compensation with respect
to the transaction contemplated by this Agreement in an amount equal to 1.25%
of the total consideration paid to TBI Stockholders.
10.14 Limitation on Dissenting Stockholders. All periods for
notification of demands by Dissenting Stockholders pursuant to the Dissenter
Provisions shall have expired. Neither TBI, Tifton Bank, FLFC nor FLB shall
have received notification of demands from Dissenting Stockholders who hold an
aggregate of five percent (5%) or more of the outstanding TBI Stock.
10.15 Director Agreements. At the closing, each director of TBI shall
enter into an agreement in the form provided as Schedule 10.15. Each such
director will receive a monthly fee of $500 for attendance at meetings of the
Tifton Community Board of Directors during the first year after the Effective
Time and a monthly fee of $350 for attendance at such meetings during the
second year after the Effective Time. This is not intended to limit the period
of service of the members of the Tifton Community Board of Directors, which is
intended to continue indefinitely, but rather to set forth their guaranteed
compensation for service during such two-year period, following which
compensation shall be paid on the same basis as paid to other FLB community
boards of directors.
10.16 Loan Loss Reserve. The loan loss reserves of Tifton Bank shall
be not less than $325,000.
ARTICLE XI
CLOSING
11.01 Closing Date. Subject to the satisfaction or waiver of the
conditions set forth herein, the consummation of the Merger (the "Closing")
shall take place at 10:00 a.m. on September 29, 1995 in the offices of FLFC,
201 Second Street, Macon, Georgia 31297, or on such other date or at such other
time and place as the parties shall agree (the "Closing Date"). FLFC and FLB
shall commence to operate and control the business of TBI and its subsidiaries
as of the Closing.
ARTICLE XII
TERMINATION PRIOR TO CLOSING
12.01 Termination of Agreement. This Agreement may be terminated at
any time prior to the Closing:
(a) By the mutual written consent of FLFC, FLB and TBI and Tifton
Bank;
(b) By TBI and Tifton Bank in writing, without liability, if FLFC
or FLB shall (i) fail to perform in any material respect its agreements
contained herein required to be performed by it on or prior to the Closing
Date, or (ii) materially breach any of its representations, warranties or
covenants contained herein, which failure or breach is not cured within ten
(10) days after TBI and Tifton Bank has notified FLFC or FLB of its intent to
terminate this Agreement pursuant to this subparagraph (b);
(c) By FLFC or FLB in writing, without liability, if TBI and
Tifton Bank shall (i) fail to perform in any material respect its agreements
contained herein required to be performed by it on or prior to the Closing
Date, or (ii) materially breach any of its representations, warranties or
covenants contained herein, which failure or breach is not cured within ten
(10) days after FLFC or FLB has notified TBI or Tifton Bank of its intent to
terminate this Agreement pursuant to this subparagraph (c).
A-25
<PAGE> 130
(d) By either FLFC, FLB or TBI and Tifton Bank in writing, without
liability, if there shall be any order, writ, injunction or decree of any court
or governmental or regulatory agency binding on FLFC, FLB, TBI and Tifton Bank,
which prohibits or restrains FLFC, FLB, TBI or Tifton Bank from consummating
the transactions contemplated hereby, provided that FLFC, FLB, TBI and Tifton
Bank shall have used their reasonable, good faith efforts to have any such
order, writ, injunction or decree lifted, and the same shall not have been
lifted within 30 days after entry, by any such court or governmental or
regulatory agency; or
(e) By either FLFC or TBI, in writing, without liability, if for
any reason the Closing has not occurred by October 31, 1995.
(f) By either FLFC or TBI if any event has occurred which would
have a material adverse effect on any other party to this Agreement or their
respective subsidiaries.
12.02 Termination of Obligations. Termination of this Agreement
pursuant to this Article XII shall terminate all obligations of the parties
hereunder; provided, however, that termination pursuant to subparagraphs (b) or
(c) of Section 12.01 hereof shall not relieve a defaulting or breaching party
from any liability to the other party hereto for knowing or willful defaults or
breaches.
ARTICLE XIII
EXPENSES
13.01 Expenses. FLFC, FLB, TBI and Tifton Bank each agrees to pay its
own fees and expenses incurred in connection with the transactions contemplated
by this Agreement. In the event of the termination of this Agreement by FLFC
or FLB pursuant to Section 12.01(c) hereof as a result of any knowing, willful,
or negligent act or omission to act by TBI or Tifton Bank or any director
(acting in any capacity), officer, employee, agent or advisor of TBI or any of
its subsidiaries, TBI and Tifton Bank shall pay all of the fees and expenses
paid or payable by FLFC and FLB to third parties in connection with this
Agreement and the transactions contemplated hereby. In the event of
termination of this Agreement by TBI and Tifton Bank pursuant to Section
12.01(b) hereof as a result of any knowing, willful, or negligent act or
omission to act by FLFC or FLB or any director (acting in any capacity),
officer, employee, agent or advisor of FLFC or FLB, FLFC or FLB shall pay all
of the fees and expenses paid or payable by TBI or Tifton Bank to third parties
in connection with this Agreement and the transactions contemplated hereby
other than any Consultants Fees.
ARTICLE XIV
MISCELLANEOUS
14.01 Survival. The representations and warranties of TBI, Tifton
Bank, FLFC, and FLB contained herein or in any certificate or other document
delivered pursuant hereto or in connection herewith shall not survive the
Closing.
14.02 Entire Agreement. This Agreement (including the Schedules)
constitutes the sole understanding of the parties with respect to the subject
matter hereof and terminates the Letter of Intent dated March 15, 1995;
provided, however, that this provision is not intended to abrogate any other
written agreement between the parties executed with or after this Agreement.
14.03 Amendment. No amendment, modification or alteration of the terms
or provisions of this Agreement shall be binding unless the same shall be in
writing and duly executed by the parties hereto.
A-26
<PAGE> 131
14.04 Parties Bound by Agreement; Successors and Assigns. The terms,
conditions and obligations of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and the respective successors and assigns
thereof.
14.05 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
and all of which shall constitute the same instrument.
14.06 Headings. The headings of the Sections and paragraphs of this
Agreement are inserted for convenience only and shall not be deemed to
constitute part of this Agreement or to affect the construction thereof.
14.07 Modification and Waiver. Any of the terms or conditions of this
Agreement may be waived in writing at any time by the party which is entitled
to the benefits thereof. No waiver of any of the provisions of this Agreement
shall be deemed to or shall constitute a waiver of any other provision hereof
(whether or not similar).
14.08 Notices. Any notice, request, instruction or other document to be
given hereunder by any party hereto to any other party hereto shall be in
writing and delivered personally or sent by registered or certified mail
(including by overnight courier or express mail service), postage or fees
prepaid,
if to TBI or Tifton Bank, to:
Tifton Banks, Inc.
300 Commerce Way
Tifton, Georgia 31794
Attention: Gary P. Hall, President
and Chief Executive Officer
with a copy to:
Nelson Mullins Riley & Scarborough, L.L.P.
400 Colony Square
Suite 2200
Atlanta, Georgia 30361
Attention: Glenn W. Sturm
if to FLFC or FLB, to:
First Liberty Financial Corp.
201 Second Street
Macon, Georgia 31201
Attention: Robert F. Hatcher, President
and Chief Executive Officer
with a copy to:
First Liberty Financial Corp.
6491 Peachtree Industrial Boulevard
Atlanta, Georgia 30360
Attention: Richard A. Hills, Jr., Executive
Vice President and General Counsel
or at such other address for a party as shall be specified by like notice. Any
notice which is delivered personally in the manner provided herein shall be
deemed to have been duly given to the party to whom it is directed upon
A-27
<PAGE> 132
actual receipt by such party or the office of such party. Any notice which is
addressed and mailed in the manner herein provided shall be conclusively
presumed to have been duly given to the party to which it is addressed at the
close of business, local time of the recipient, on the fourth business day
after the day it is so placed in the mail or, if earlier, the time of actual
receipt.
14.09 Brokerage. TBI and Tifton Bank hereby expressly warrant and
represent, that no broker, agent, or finder has rendered services, or is
entitled to be paid any fee or commission, in connection with the transactions
contemplated under this Agreement except that TBI and Tifton Bank have retained
Stevens & Company.
14.10 Governing Law. This Agreement is executed by the parties in, and
shall be construed in accordance with and governed by the laws of, the State of
Georgia without giving effect to the principles of conflicts of law thereof.
14.11 Public Announcements. No public announcement shall be made by
any person with regard to the transactions contemplated by this Agreement
without the prior consent of FLFC; provided that either party may make such
disclosure after consulting with each other if advised by counsel that it is
legally required to do so. FLFC and TBI will discuss any public announcements
or disclosures concerning the transactions contemplated by this Agreement with
the other parties prior to making such announcements or disclosures.
14.12 Acquisition Proposals. From and after the date of this Agreement
and until any termination pursuant to Section 12.01, TBI (including any
subsidiary thereof) shall not (and shall use its best efforts to ensure that
its directors, officers, employees, advisers, consultants and agents shall
not), directly or indirectly, (i) solicit, institute, initiate, encourage or
authorize any inquiries, discussions, negotiations, proposals, offers or
agreements (whether preliminary or definitive) with or from any person,
partnership, corporation, entity or other group (other than FLFC or a
subsidiary thereof), or participate in any discussion regarding any such
inquiry, proposal, offer or agreement or (ii) knowingly provide or furnish any
information about or with respect to TBI or its subsidiaries to any person,
partnership, corporation, entity or other group (other than FLFC or any
subsidiary thereof), that would facilitate, encourage, contemplate or provide
for any acquisition, merger, combination, sale of a significant amount of
assets, or other business combination, tender offer, sale of any equity
securities or change in control of TBI or any of its subsidiaries
(collectively, a "Business Combination"); except in a situation in which a
majority of the full Board of Directors of TBI has determined upon advice of
counsel that such Board has a fiduciary duty to consider and respond to a bona
fide proposal by a third party, regardless of whether such proposal was
directly or indirectly received as a result of conduct sought to be prohibited
by this Section 14.12. Upon the occurrence of such determination by the Board
of Directors of TBI, such Board shall provide written notice of its
determination and intention to consider such proposal to FLFC, at least two
business days before responding to the proposal or providing any information
with respect to TBI or any of its subsidiaries in response to the proposal,
indicating the material terms of such proposal and its further undertaking that
it has and will comply with the provisions of this Section 14.12; provided,
however, that if such proposal by its terms requires a response in a shorter
period, TBI shall provide such notice, information and undertaking to FLFC as
promptly as practicable in the circumstances.
TBI and Tifton Bank, jointly and severally, covenant, acknowledge and
agree that it shall be a specific, absolute and unconditionally a binding
condition precedent to TBI's (or its subsidiaries') entering into a letter of
intent, agreement in principle or definitive agreement (whether or not
considered binding, nonbinding or conditional) with any third person or
recommending (or agreeing to recommend) approval of any offer or proposal from
any third person, with respect to a Business Combination (other than with FLFC
or any subsidiary of FLFC), regardless of whether TBI or its subsidiaries has
otherwise complied with the provisions of this Section 14.12, that such third
party that is a party to the proposed Business Combination shall have first (i)
reimbursed FLFC and FLB for 100% of the costs and expenses (including but not
limited to, cost of legal counsel to FLFC and FLB, accountants, investment
banking fees, printing and mailing costs) incurred by FLFC or FLB in
negotiating and carrying out the proposed Mergers, subject to a maximum amount
of $50,000 and (ii) paid to FLFC the sum of $50,000 as liquidated damages to
compensate FLFC for its direct and indirect costs and expenses in connection
with the mergers, including FLFC's management time devoted to negotiation and
preparation for the Mergers and FLFC's loss as a
A-28
<PAGE> 133
result of such Mergers not being consummated. FLFC and TBI acknowledge that
the actual damages that FLFC will suffer as a result thereof are difficult, if
not impossible, to calculate accurately. FLFC and TBI further acknowledge
that, after considering a number of factors, $50,000 is their best estimate of
what such actual damages would be, and they in good faith believe that $50,000
bears a reasonable relationship to the amount of actual damages that FLFC would
suffer. Accordingly, TBI and Tifton Bank hereby stipulates and covenants that
prior to their entering into or agreeing upon a letter of intent, agreement in
principle or definitive agreement (whether binding or nonbinding) with any
third person or recommending (or agreeing to recommend) approval of any offer
or proposal from any third person, with respect to a Business Combination, such
third person shall have paid to FLFC liquidated damages of $50,000 and
reimbursed FLFC and FLB for all its costs and expenses up to $50,000 to satisfy
the specific, absolute and unconditional, binding condition precedent imposed
by this Section 14.12.
14.13 No Third-Party Beneficiaries. With the exception of the parties
to this Agreement and the Protected Parties, there shall exist no right of any
person to claim a beneficial interest in this Agreement or any rights occurring
by virtue of this Agreement.
14.14 "Including." Words of inclusion shall not be construed as terms
of limitation herein, so that references to "included" matters shall be
regarded as non-exclusive, non-characterizing illustrations.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be duly executed on its behalf as of the date indicated on the first page
hereof.
FIRST LIBERTY FINANCIAL CORP.
By: /s/ Robert F. Hatcher
-------------------------------------
Robert F. Hatcher
President and Chief Executive Officer
FIRST LIBERTY BANK
By: /s/ Robert F. Hatcher
-------------------------------------
Robert F. Hatcher
President and Chief Executive Officer
TIFTON BANKS, INC.
By: /s/ Gary P. Hall
-------------------------------------
Gary P. Hall
President and Chief Executive Officer
TIFTON BANK & TRUST COMPANY
By: /s/ Gary P. Hall
-------------------------------------
Gary P. Hall
President and Chief Executive Officer
A-29
<PAGE> 134
APPENDIX B
<PAGE> 135
APPENDIX B
OFFICIAL CODE OF GEORGIA ANNOTATED
TITLE 14, CHAPTER 2, ARTICLE 13: DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
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 OF SHAREHOLDERS TO DISSENT AND OBTAIN PAYMENT FOR SHARES
(a) A record shareholder of the corporation is entitled to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(1) Consummation of a plan of merger to which the corporation
is a party:
(A) If approval of the shareholders of the corporation is required for
the merger by Code Section 14-2-1103 or the articles of incorporation and
B-1
<PAGE> 136
the shareholder is entitled to vote on the merger; or
(B) If the corporation is a subsidiary that is merged with its parent
under Code Section 14-2-1104;
(2) Consummation of a plan of share exchange to which the corporation is a
party as the corporation whose shares will be acquired, if the shareholder is
entitled to vote on the plan;
(3) Consummation of a sale or exchange of all or substantially all of the
property of the corporation if a shareholder vote is required on the sale or
exchange pursuant to Code Section 14-2-1202, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all or
substantially all of the net proceeds of the sale will be distributed to the
shareholders within one year after the date of sale;
(4) An amendment of the articles of incorporation that materially and
adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares;
(B) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase, of the shares;
(C) Alters or abolishes a preemptive right of the holder of the shares
to acquire shares or other securities;
(D) Excludes or limits the right of the shares to vote on any matter,
or to cumulate votes, other than a limitation by dilution through issuance
of shares or other securities with similar voting rights;
(E) Reduces the number of shares owned by the shareholder to a fraction
of a share if the fractional share so created is to be acquired for cash
under Code Section 14-2-604; or
(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,
B-2
<PAGE> 137
bylaws, or a resolution of the board of directors provides that voting or
nonvoting shareholders are entitled to dissent and obtain payment for their
shares.
(b) A shareholder entitled to dissent and obtain payment for his shares under
this article may not challenge the corporate action creating his entitlement
unless the corporate action fails to comply with 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. ASSERTION OF DISSENTER'S RIGHTS BY BENEFICIAL OWNERS
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf
he asserts dissenters' rights. The rights of a partial dissenter under this
Code section are determined as if the shares as to which he dissents and his
B-3
<PAGE> 138
other shares were registered in the names of different shareholders.
14-2-1320. NOTICE OF SHAREHOLDERS' RIGHT TO DISSENT
(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 no later than ten days after the corporate action was taken.
14-2-1321. DELIVERY OF NOTICE OF INTENT TO DEMAND PAYMENT
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed action
is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of subsection
(a) of this Code section is not entitled to payment for his shares under this
article.
14-2-1322. DELIVERY OF 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
B-4
<PAGE> 139
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. DEMAND FOR PAYMENT REQUIRED
(a) A record shareholder sent a dissenters' notice described in Code Section
14-2-1322 must demand payment and deposit his certificates in accordance with
the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares under
subsection (a) of this Code section retains all other rights of a shareholder
until these rights are canceled or modified by the taking of the proposed
corporate action.
(c) A record shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
14-2-1324. RESTRICTIONS ON TRANSFER OF UNCERTIFICATED SHARES
(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. CORPORATIONS MUST OFFER PAYMENT TO DISSENTERS
(a) Except as provided in Code Section 14-2-1327, within ten days of the
later of the date the proposed corporate action is taken or receipt of a
payment demand, the corporation shall by notice to each dissenter who complied
with Code Section 14-2-1323 offer to pay to such dissenter the amount the
corporation estimates to be the fair value of his or her shares, plus accrued
interest.
(b) The offer of payment must be accompanied by:
(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
B-5
<PAGE> 140
for that year, a statement of changes in shareholders' equity for that year,
and the latest available interim financial statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Code
Section 14-2-1327; and
(5) A copy of this article.
(c) If the shareholder accepts the corporation's offer by written notice to
the corporation within 30 days after the corporation's offer or is deemed to
have accepted such offer by failure to respond within said 30 days, payment for
his or her shares shall be made within 60 days after the making of the offer or
the taking of the proposed corporate action, whichever is later.
14-2-1326. EFFECT OF CORPORATION'S 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 14-2-1322 and repeat the payment demand
procedure.
14-2-1327. DEMAND FOR PAYMENT WHERE SHAREHOLDER BELIEVES FAIR VALUE NOT OFFERED
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code Section
14-2-1325 is less than the fair value of his shares or that the interest due
is incorrectly calculated; or
(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
B-6
<PAGE> 141
demanding payment.
(b) A dissenter waives his or her right to demand payment under this Code
section and is deemed to have accepted the corporation's offer unless he or she
notifies the corporation of his or her demand in writing under subsection (a)
of this Code section within 30 days after the corporation offered payment for
his or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth in
subsection (a) of Code Section 14-2-1325:
(1) The shareholder may demand the information required under subsection
(b) of Code Section 14-2-1325, and the corporation shall provide the
information to the shareholder within ten days after receipt of a written
demand for the information; and
(2) The shareholder may at any time, subject to the limitations period of
Code Section 14-2-1332, notify the corporation of his own estimate of the
fair value of his shares and the amount of interest due and demand payment of
his estimate of the fair value of his shares and interest due.
14-2-1330. DETERMINATION OF FAIR VALUE
(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 or by
publication, or in any other manner permitted by law.
B-7
<PAGE> 142
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) of this Code section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them or in any amendment to it. Except as
otherwise provided in this chapter, Chapter 11 of Title 9, known as the
"Georgia Civil Practice Act," applies to any proceeding with respect to
dissenters' rights under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his shares, plus
interest to the date of judgment.
14-2-1331. ASSESSMENT OF FEES AND COSTS OF APPRAISAL PROCEEDINGS
(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 benefitted.
B-8
<PAGE> 143
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.
B-9
<PAGE> 144
APPENDIX C
<PAGE> 145
<TABLE>
<S> <C> <C> <C>
COOPERS COOPERS & LYBRAND L.L.P. 1100 Campanile Building telephone (404) 870-1100
& LYBRAND (LOGO) 1155 Peachtree Street
Atlanta, Georgia 30309-3630 facsimile (404) 870-1239
a professional services firm
</TABLE>
June 12, 1995
Tifton Banks, Inc.
300 Commerce Way
Tifton, Georgia 31794
First Liberty Financial Corp.
201 Second Street
Macon, Georgia 31201
Gentlemen:
Pursuant to your request, this letter summarizes our opinion regarding the
following tax matters:
- the qualification of the Proposed Mergers, described herein, as
tax-free reorganizations for Federal income tax purposes;
- the Federal income tax consequences to the shareholders of Tifton
Banks, Inc. as a result of the Proposed Mergers; and
- the Federal income tax consequences of owning First Liberty
Financial Corp. Series B Preferred Stock.
UNDERSTANDING OF TRANSACTION
It is our understanding that First Liberty Financial Corp. (FLFC) and First
Liberty Bank (FLB) have entered into an Agreement and Plan of Merger dated May
10, 1995 to acquire Tifton Banks, Inc. (TBI) and Tifton Bank & Trust Company
(Tifton Bank), respectively. FLFC owns all of the issued and outstanding
shares of capital stock of FLB. TBI, a Georgia corporation, owns all the
issued and outstanding shares of capital stock of Tifton Bank, a state
chartered commercial bank organized under the laws of the State of Georgia. In
accordance with applicable law, FLFC will enter into a transaction whereby (i)
TBI will be reorganized and merged with and into FLFC and the separate
existence of TBI shall thereupon cease (the First Stage Merger) and (ii) Tifton
Bank simultaneously will be merged with and into FLB and the separate existence
of Tifton Bank shall thereupon cease (the Second Stage Merger). (The First
Stage Merger and the Second Stage Merger hereinafter are referred to together
as the Proposed Mergers).
C-1
<PAGE> 146
Tifton Banks, Inc.
First Liberty Financial Corp.
June 12, 1995
Page 2
_____________________________
On the effective time of the Proposed Mergers (the Effective Time) following
the First Stage Merger, each of the outstanding shares of TBI common stock (TBI
Stock), will be converted into the right to receive from FLFC the consideration
described in the following paragraph.
Each share of TBI Stock issued and outstanding on the Effective Time (other
than shares held by dissenting stockholders) will be converted into and
exchanged for the right to receive from FLFC, at the option of each TBI
stockholder, (i) cash at $37 per share; (ii) 1.48 shares of FLFC Series B 6%
Cumulative Convertible Preferred Stock, $25 stated value (Preferred Stock); or
(iii) any combination of cash and Preferred Stock on a weighted basis using
those per share values. The cash portion of the total consideration paid to
TBI Shareholders is expected to be 48%.
Preferred Stock used in the transaction is redeemable at FLFC's option in whole
or in part, beginning January 1, 1997, at per share prices of $27.00, $26.60,
$26.20, $25.80, and $25.40, respectively, in 1997, 1998, 1999, 2000, and 2001,
and at the $25 stated value thereafter. It is our understanding that FLFC has
no plan or intention to exercise its option to redeem the Preferred Stock at
any time during the five-year period immediately after the Effective Time of
the Proposed Mergers. The Preferred Stock is convertible into FLFC common
stock at a conversion price of $21.00 per share of common stock. No fractional
shares of Preferred Stock shall be issued.
Any dissenting shareholders of TBI are entitled to exercise their rights under
Article 13 of the Georgia Business Corporation Code in lieu of receiving the
consideration described above.
Also, it is our understanding that there is no plan or intention on the part of
any holder of TBI Stock who owns 1% or more of the TBI Stock to sell, exchange,
or otherwise dispose of a number of the shares of the Preferred Stock after the
First Stage Merger that would reduce the aggregate ownership (by former holders
of TBI Stock) of Preferred Stock to a number of shares having a value, as of
the Effective Time, of less than 50% of the value of all the formerly
outstanding TBI Stock as determined immediately prior to the Effective Date.
It is also our understanding that to the best knowledge of TBI management,
there is no plan or intention on the part of the remaining TBI Shareholders to
sell, exchange, or otherwise dispose of a number of the shares of the Preferred
Stock after the First Stage Merger that would reduce the aggregate ownership
(by former holders of TBI Stock) of Preferred Stock to a number of shares
having a value, as of the Effective Date, of less than 50% of the value of all
the formerly outstanding TBI Stock as determined immediately prior to the
Effective Date. It is also our understanding that FLFC has no plan or
intention to sell, exchange, or otherwise dispose of its shares of FLB common
stock (FLB Stock) after the Second Stage Merger.
C-2
<PAGE> 147
Tifton Banks, Inc.
First Liberty Financial Corp.
June 12, 1995
Page 3
_____________________________
SUMMARY OF OPINION OF TAX CONSEQUENCES
Our analysis of the Proposed Mergers was intended to allow us to express
opinions on the following tax matters:
1. the qualification of the Proposed Mergers as tax-free
reorganizations pursuant to Internal Revenue Code Section
(Code Section) 368(a)(1)(A);
2. the extent to which the holders of TBI Stock will be required
for Federal income tax purposes to recognize taxable income as
a result of the Proposed Mergers; and
3. the Federal income taxation of the ownership of Preferred
Stock issued in the Proposed Mergers.
The following summarizes the conclusions that we have reached:
1. It is our opinion that the Proposed Mergers qualify as
tax-free reorganizations pursuant to Code Section
368(a)(1)(A).
2. It is our opinion that (i) the shareholders of TBI who,
pursuant to the plan of reorganization and merger, exchange
their stock in TBI solely for Preferred Stock recognize no
gain or loss; (ii) the shareholders of TBI who exchange their
stock in TBI for cash only will recognize gain or loss equal
to the difference between the total cash received and such
shareholder's basis in his TBI stock; and (iii) the
shareholders of TBI who exchange their stock in TBI for both
cash and Preferred Stock will recognize gain, but not loss,
equal to the lesser of (a) the cash received or (b) the
realized gain measured by the excess of (x) the sum of the
cash received and the fair market value of the Preferred Stock
received over (y) the shareholder's basis in his TBI stock.
3. It is our opinion that distributions on the shares of
Preferred Stock will constitute dividends for Federal income
tax purposes to the extent of FLFC's current or accumulated
earnings and profits. Also, the sale or exchange of Preferred
Stock for cash will be a taxable event resulting in taxable
gain or loss equal to the difference between the amount of
cash received and the holder's tax basis in the Preferred
Stock sold. Such gain or loss on the disposition of Preferred
Stock (other than Section 306 Preferred Stock) will be
capital gain or loss if the Preferred Stock was held as a
capital asset and will be long-term capital gain or loss if
the holding period for the Preferred Stock is more than one
year. Upon the
C-3
<PAGE> 148
Tifton Banks, Inc.
First Liberty Financial Corp.
June 12, 1995
Page 4
_____________________________
disposition of Section 306 Stock, part or all of any gain
recognized may be taxed as ordinary income.
TAX-FREE REORGANIZATION
In general, Code Section 354 provides that no gain or loss is recognized if
stock or securities in a corporation that is a party to a reorganization are,
in pursuance of the plan of reorganization, exchanged solely for stock or
securities in such corporation or in another corporation that is a party to the
reorganization. Therefore, to the extent that the First Stage Merger and
Second Stage Merger qualify as tax-free reorganizations and meet all of the
requirements of Code Section 354, the TBI shareholders and the Tifton Bank
shareholder will recognize no gain or loss, respectively, except as described
in the section of this letter entitled "Tax Consequences to TBI Shareholders."
Code Section 368 and the regulations promulgated thereunder provide the
definitions of tax-free reorganizations.
Statutory Merger or Consolidation
Code Section 368 describes several types of corporate reorganizations which
are afforded tax-free treatment. Among the types of transactions defined in
Code Section 368 is a statutory merger or consolidation ("A" Reorganization).
See Code Section 368(a)(1)(A). The Regulations add that the merger or
consolidation must be effected pursuant to the applicable corporate laws of the
United States, a state or territory of the United States, or the District of
Columbia. See Treasury Regulations Section (Reg. Section) 1.368-2(b)(1).
Plan of Reorganization
An "A" Reorganization must meet a certain additional requirement explicitly
contained in Code Section 354. This Section grants tax-free treatment to
exchanges only if made in pursuance of a plan of reorganization. While
specifically required, the concept of a plan of reorganization is not defined
in the Code. The Regulations provide guidance as to its meaning as follows:
"The term "plan of reorganization" has reference to a consummated
transaction specifically defined as a reorganization under Code
Section 368(a). The term is not to be construed as broadening the
definition of "reorganization" as set forth in Code Section 368(a),
but it is to be taken as limiting the nonrecognition of gain or loss
to such exchanges or distributions as are directly a part of the
transaction specifically described as a reorganization in Code Section
368(a)." See Reg. Section 1.368-2(g).
Although not statutorily required, it seems to be advisable that FLFC should
have a written plan of reorganization, formally adopted by its corporate board
of directors, and including all details of
C-4
<PAGE> 149
Tifton Banks, Inc.
First Liberty Financial Corp.
June 12, 1995
Page 5
_____________________________
the Proposed Mergers. It is our understanding that such a written plan does
exist; thus, the requirement of a plan of reorganization will be met.
Party to a Reorganization
Code Section 354 refers to a corporation a "party to a reorganization." The
term "party to a reorganization" is defined in Code Section 368(b) to include,
generally, any corporation which results from a reorganization, and, in the
case of an acquisition of stock or assets of one corporation by another, both
such corporations.
Accordingly, in the First Stage Merger, the term "party to a reorganization"
includes both FLFC and TBI as they are parties to the First Stage Merger. In
the Second Stage Merger, the term "party to a reorganization" includes both FLB
and Tifton Bank as they are parties to the Second Stage Merger.
Solely for Stock or Securities
Code Section 354 grants tax-free treatment only if stock or securities in a
corporation that is a party to a reorganization are exchanged solely for stock
or securities in such corporation or in another corporation a party to the
reorganization. The term "stock" includes forms of equity investment in a
corporation. The Preferred Stock used to effect the First Stage Merger and FLB
Stock used to effect the Second Stage Merger qualify as stock pursuant to Code
Section 354, as discussed in the section of this letter titled "Continuity of
Proprietary Interest."
With respect to the term "solely" in Code Section 354, the Code limits
tax-free exchange treatment to the stock and/or securities surrendered and
distributed in the exchange. In the First Stage Merger, this requirement is
not met because cash will also be exchanged for TBI Stock. Thus, TBI
shareholders who receive cash in exchange for their TBI Stock will recognize
taxable income as explained in the section of this letter titled "Tax
Consequences to TBI Shareholders." In the Second Stage Merger, this
requirement will be met because the Tifton Bank common stock (Tifton Bank
Stock) will be deemed to have been exchanged solely for FLB common stock (FLB
Stock).
Other Requirements and Doctrines
Along with the formal statutory and regulatory requirements discussed above,
all acquisitive reorganizations must also meet certain judicial requirements as
adopted in the Regulations as well as judicial doctrines embodied in case law
in order to warrant tax-free treatment. These additional judicial requirements
as adopted in the Regulations consist of the "continuity of proprietary
interest," "continuity of business enterprise," and the "business purpose"
tests. See Reg. Section Section
C-5
<PAGE> 150
Tifton Banks, Inc.
First Liberty Financial Corp.
June 12, 1995
Page 6
_____________________________
1.368-2(a), 1.368-1(d), and 1.368-2(g), respectively. The relevant judicially
developed concept is known as the "step transaction doctrine."
Continuity of Proprietary Interest. The continuity of proprietary interest test
must generally be met by all reorganizations seeking to achieve tax-free
exchange status. The continuity of proprietary interest requirement, set forth
in Reg. Section 1.368-2(a), provides that the former shareholders of the
target corporation must retain a significant equity participation in the
combined corporation following the transaction.
As interpreted by the courts, the continuity of proprietary interest
requirement focuses primarily on the character of the consideration received in
the acquisition by the former shareholders of the target corporation. If a
sufficient portion of such consideration consists of instruments which carry
the requisite degree of continuing proprietary interest, the requirement is
satisfied.
Character of Consideration
In focusing on the character of the consideration received by the target
corporation's shareholders, the continuity of proprietary interest requirement
raises two fundamental issues. These issues relate to the forms of
consideration which carry sufficient indicia of ownership to be "counted" as
providing a continuing interest of the necessary sort, and the amount of the
total consideration which must consist of such "good" forms.
With respect to the first issue concerning the form of the consideration, it is
clear that stock of the acquirer is considered to represent a sufficient
continuing interest in the acquired business. Preferred stock used to
effectuate a reorganization represents such a sufficient continuing interest in
the acquired business. See Nelson v. Helvering, 296 U.S. 374 (1935).
In the First Stage Merger, FLFC will issue Series B 6.00% $25.00 Cumulative
Convertible Nonvoting Preferred Stock as a portion of its total consideration
to the TBI shareholders. In the Second Stage Merger, because the courts and
the Service have ruled that an actual distribution of stock is not required
where the shareholders of the transferor corporation already own all of the
stock in acquiring corporation, FLB will be deemed to have issued as
consideration FLB common stock to FLFC. See Rev. Rul. 70-240, 1970-1 C.B. 81
and Commissioner v. Morgan, 33 T.C. 30 (1959). Thus, both the Preferred Stock
issued in the First Stage Merger and FLB Stock deemed to be issued in the
Second Stage Merger will carry sufficient indicia of ownership to be "counted"
as providing continuity of the necessary sort.
C-6
<PAGE> 151
Tifton Banks, Inc.
First Liberty Financial Corp.
June 12, 1995
Page 7
_____________________________
Amount of Equity Consideration
There exist no definitive guidelines in tax law as to the threshold percentage
of equity consideration to total consideration in order to meet the continuity
of interest doctrine. The general rule is that equity consideration must
represent a "substantial portion" of the value of the total consideration paid
in an acquisition. See Helvering v. Minnesota Tea Co., 296 U.S. 378 (1935).
For purposes of issuing private letter rulings that a transaction will qualify
as a reorganization, the Internal Revenue Service (the "Service") has announced
a more concrete guideline: it requires that at least 50% of the total equity
value of the target corporation be acquired for consideration in the form of
equity. See Revenue Procedure (Rev. Proc.) 77-37, 1977-2 C.B. 568, Section
3.02. The courts have often been more lenient. For example, Nelson v.
Helvering is often cited for the proposition that continuity of proprietary
interest is satisfied where 38 percent of the value of the total consideration
is in the form of stock, and in one extreme case, the Court of Appeals for the
Sixth Circuit held that continuity of interest as low as 25 percent was
sufficient. See Miller v. Commissioner, 84 F.2d 415 (6th Cir. 1936). On the
other hand, the continuity of interest requirement has been held not to have
been satisfied where only 16 percent of the total consideration paid was in the
form of stock. See Kass v. Commissioner, 60 T.C. 218 (1973).
It is our understanding that no more than 96,000 shares of TBI Stock (48%
percent of the total number of outstanding shares and value of TBI Stock) will
be acquired for cash and no less than 104,000 shares of TBI Stock (52% of the
number of outstanding shares and value of TBI Stock) will be acquired in
exchange for Preferred Stock. In addition, it is our understanding that (1) in
lieu of issuing fractional shares of Preferred Stock in the First Stage Merger,
any TBI stockholder who would otherwise receive a fractional share will instead
receive a cash payment equal to such fraction multiplied by the $25 stated
value and (2) cash payments may be made in accordance with Article 13 of the
Georgia Business Corporation Code.
FLFC's management has represented that the fair market value of all the
Preferred Stock used as consideration in the First Stage Merger is expected to
equal or exceed the total cash consideration used. Based on the representation
that the total amount of cash is expected to be no more than 48 percent of the
value of the total consideration used in the acquisition and that the total
value of the Preferred Stock is expected to be no less than 52 percent of the
value of the total consideration used in the acquisition, the First Stage
Merger will satisfy the requirement that equity consideration represent a
"substantial portion" of the total consideration, measured by value.
In the Second Stage Merger, all of the consideration deemed to have been
received by FLFC will be FLB Stock. See Revenue Ruling (Rev. Rul.) 70-240 and
Commissioner v. Morgan. Accordingly, this satisfies the "substantial portion"
requirement.
C-7
<PAGE> 152
Tifton Banks, Inc.
First Liberty Financial Corp.
June 12, 1995
Page 8
_____________________________
In addition to the character and amount of consideration received by the target
shareholders, the Service and courts have interpreted the continuity of
interest doctrine as embodying two additional limitations. First, the target
corporation's shareholders must, for some minimum period of time after the
transaction, possess the unrestricted rights of ownership of the equity in the
reorganized entity. Second, the target shareholders must not have a
preconceived plan or arrangement for disposing of their stock in the acquirer;
if such a plan or arrangement exits, any post-reorganization dispositions of
acquirer stock may be stepped together with the initial receipt of acquirer
stock in the reorganization.
Unrestricted Rights of Ownership
The Service established its "unrestricted rights of ownership" limitation in
Rev. Rul. 66-23, 1966-1 C.B. 67, where the target shareholders were, for
antitrust reasons, under a court order to dispose of acquirer stock within
seven years. For the seven-year period, however, the target shareholders
possessed all the benefits and risks of ownership and were free to retain or
dispose of the stock as they saw fit. In ruling that the continuity of
interest requirement was satisfied, the Service stated:
It is the position of the Internal Revenue Service that the continuity
of interest requirements of a reorganization can be satisfied where
the shareholder [X] of the transferor corporation receives stock of
the transferee corporation [Z] without any preconceived plan or
arrangement for disposing of any of the stock and with unrestricted
rights of ownership for a period of time sufficient to warrant the
conclusion that such ownership is definite and substantial,
notwithstanding that at the time of the reorganization the shareholder
is required by a court decree to dispose of the stock before the end
of such period. Ordinarily, the Service will treat 5 years of
unrestricted rights of ownership as a sufficient period for the
purposes of satisfying the continuity of interest requirements of a
reorganization.
Further, if in fact X does sell some or all of the Z shares within 5
years of the date of the reorganization, the status of the
reorganization will not be affected, since at the time of the
reorganization X had no preconceived plan or arrangement for such
sales.
Accordingly, since X has 7 years of complete discretion as to whether
it will retain or dispose of the Z shares received in the
reorganization, the shares received by X are held to represent a
continuing interest in the enterprise.
The Service has used the above five-year limitation in determining whether
mandatory redemption provisions violate the continuity of interest requirement.
In Rev. Rul. 78-142, 1978-1 C.B. 112,
C-8
<PAGE> 153
Tifton Banks, Inc.
First Liberty Financial Corp.
June 12, 1995
Page 9
_____________________________
in which preferred stock issued in a merger was subject to mandatory serial
redemption requirements beginning five years after the merger, the Service
ruled that the continuity of interest requirement of Reg. Section 1.368-1(b)
was satisfied, citing Rev. Rul. 66-23. In the instant case, the Preferred
Stock has no mandatory redemption feature. The call feature in FLFC's
Preferred Stock is completely subject to FLFC's management's discretion as to
whether it will be exercised. There are no terms existing which will force
redemption at any time in the future.
Presumably, other arrangements that limit the ability of the target
shareholders to retain acquirer stock for at least five years would be subject
to scrutiny by the Service. In Rev. Rul. 68-22, 1968-1 C.B. 142, preferred
capital certificates of a farmer's cooperative association received by
shareholders of a target corporation merged under state law into and with the
association were held to represent equity in the association. The preferred
capital certificates at issue were redeemable solely at the discretion of the
issuer to the extent of ten percent of their face value annually beginning one
year after issuance. The issuer had no present intention to redeem any of the
certificates. The Service held that the merger qualified as an "A"
reorganization; thus, no gain or loss was recognized to the shareholders on the
exchange of their common stock of the corporation for the redeemable preferred
capital certificates. In Schweitzer & Conrad, Inc. v. Commissioner, 41 B.T.A.
533 (1940), the Board of Tax Appeals (Board) accepted the taxpayer's argument
that there was a reorganization when one corporation acquired all of the assets
of another in exchange for preferred stock and cash, even though (1) the entire
net earnings of the new company, after certain payments and retentions, were to
be applied to the redemption of the preferred stock, (2) such stock could be
redeemed in any event on 30 days notice at par plus accumulated and unpaid
dividends, and (3) steps were taken within two months of the agreement of sale
to redeem 20% of the preferred stock which was done a month later. The Court
found that, despite these circumstances, there was no contract requiring the
petitioner to redeem its preferred stock. In Private Letter Ruling 7821127, an
unrestricted right of ownership was found to exist where nonvoting preferred
stock issued in a statutory merger was callable at any time after the merger at
the option of the acquirer and where the acquirer had no plan or intention to
exercise its option during the five years after the merger. Of course, Private
Letter Rulings do not constitute precedence for taxpayers other than the
taxpayer that received the ruling. However, this ruling does provide insight
as to the Service's position with respect to redemption features where no
intent by the issuer is found.
In the present case, the redemption of the Preferred Stock is barred until
January 1, 1997, and FLFC management has represented that FLFC has no
preconceived plan or intention to exercise its option to redeem the Preferred
Stock at any time during the five years immediately after the Effective Time.
Thus, because (1) the Preferred Stock cannot be redeemed until January 1, 1997;
(2) FLFC would have to pay a premium to redeem the Preferred Stock during years
1997 through 2001; (3) FLFC does not have a preconceived plan or any intention
to exercise its option to redeem the Preferred Stock at any time during the
five years immediately after the First Stage
C-9
<PAGE> 154
Tifton Banks, Inc.
First Liberty Financial Corp.
June 12, 1995
Page 10
_____________________________
Merger; and (4) the holders of Preferred Stock possess the right to convert
such stock at any time into FLFC common stock, the unrestricted right of
ownership limitation has been satisfied in the First Stage Merger.
With respect to the Second Stage Merger, the unrestricted right of ownership
limitation is not an issue because FLB and Tifton Bank are wholly owned
subsidiaries of FLFC following the First Stage Merger.
No Preconceived Plan for Disposition of New Shares
With respect to an integration of the initial receipt of Preferred Stock in the
First Stage Merger and the subsequent disposition of that stock by the former
TBI shareholders, for the purpose of determining whether post-transaction
continuity of interest exists, it appears that the step transaction test is not
violated. The holders of TBI Stock who receive Preferred Stock pursuant to the
First Stage Merger have represented in the Agreement that they have no
preconceived plan or arrangement for disposing of their Preferred Stock. In
addition, with respect to the Second Stage Merger, it appears that the step
transaction test is not violated because FLFC has represented that it has no
preconceived plan or arrangement for disposing of its FLB Stock.
In summary, the Proposed Mergers will meet the continuity of interest
requirement because (1) the Preferred Stock and FLB Stock carry sufficient
indicia of equity ownership; (2) the value of the Preferred Stock and FLB Stock
represents a "substantial portion" of the value of the total consideration to
be given; (3) the holders of the Preferred Stock have "unrestricted rights of
ownership" in the equity of FLFC; and (4) the holders of the Preferred Stock
and FLB Stock have no preconceived plan or arrangement for disposing of their
respective stock at the time of the Proposed Mergers.
Continuity of Business Enterprise. The second major judicial requirement as
embodied by the Regulations applicable to "A" Reorganizations is that of
continuity of business enterprise. Continuity of business enterprise focuses
on the business conducted by the acquiring corporate entity itself, rather than
the consideration paid by the acquirer. The Regulations provide that, in order
to satisfy the continuity of business enterprise requirement, the acquiring
corporation must either (1) continue a line of the target's historic business,
or (2) use a significant portion of the target's historic business assets in
any business (whether or not that business was historically conducted by the
target). See Reg. Section 1.368-1(d)(2).
In the First Stage Merger, FLFC will continue to conduct TBI's historic line
of business (i.e., it will continue to be a holding company for a financial
institution). In the Second Stage Merger, FLB will continue to conduct Tifton
Bank's historic line of business (i.e., it will continue to be a
C-10
<PAGE> 155
Tifton Banks, Inc.
First Liberty Financial Corp.
June 12, 1995
Page 11
_____________________________
financial intermediary). Accordingly, the continuity of business enterprise
test for both the First and Second Stage Mergers is satisfied.
Business Purpose. As a form of reorganization described in Code Section 368,
an "A" Reorganization must be undertaken in pursuit of a genuine business
purpose to qualify as a tax-free reorganization. Specifically, the
reorganization must have been planned and carried out for a genuine business
purpose. See Gregory v. Helvering, 293 U.S. 465 (1935). The Regulations
provide some insight into the need for a business purpose by stating that a
corporate reorganization that is a "...device that puts on the form of a
corporate reorganization as a disguise for concealing its real character, and
the object and accomplishment of which is the consummation of a preconceived
plan having no business purpose or corporate purpose, is not a plan of
reorganization." See Reg. Section 1.368-1(c).
In the Proposed Mergers, FLFC management has represented that FLFC and FLB are,
in accordance with applicable corporate laws, primarily merging with TBI and
Tifton Bank to expand their banking operations and presence in south Georgia,
specifically, Tifton, Georgia. Based on this representation, the requisite
business purpose test is satisfied.
Step Transaction Doctrine. The final judicial doctrine to be satisfied by
corporations attempting to structure a tax-free reorganization is the step
transaction doctrine. The step transaction test generally consists of a
judicial requirement that all integrated steps in a single transaction must be
combined in determining the true nature of a transaction for Federal income tax
purposes. The scope of this test is vague and there is no complete and
accepted test as to when or how the test will be applied to different fact
patterns.
There are various circumstances under which the Service could apply the step
transaction doctrine in an attempt to invalidate or recharacterize an "A"
reorganization. These include but are not limited to situations in which a
sale by former target shareholders of newly acquired acquirer stock takes place
shortly after the merger of the target into the acquirer. Similarly, a sale by
a parent corporation of its subsidiary shortly after the merger of a target
corporation into the subsidiary could be construed to lack substance in the "A"
reorganization context.
Where it is determined that the circumstances are appropriate for a step
transaction analysis, there is no universally accepted set of legal standards
for applying the step transaction doctrine to the particular facts. Courts
have generally applied various tests in deciding whether to invoke the step
transaction doctrine in a particular transaction.
In the instant case, it is our understanding that FLFC management has
represented that there is no plan or intention on the part of any holder of TBI
stock who owns 1% or more of the TBI Stock to dispose of a number of shares of
the Preferred Stock after the First Stage Merger that would
C-11
<PAGE> 156
Tifton Banks, Inc.
First Liberty Financial Corp.
June 12, 1995
Page 12
_____________________________
reduce the aggregate ownership (by former holders of TBI Stock) of Preferred
Stock to a number of shares having a value, determined as of the Effective
Time, of less than 50% of the value of all the formerly outstanding TBI Stock
as determined immediately prior to the Effective Date. It is also our
understanding that to the best knowledge of TBI management, there is no plan or
intention on the part of the remaining TBI Shareholders to dispose of a similar
number of shares to result in the circumstances described above. It is also
our understanding that FLFC has no plan or intention to sell, exchange, or
otherwise dispose of its shares of FLB Stock after the Second Stage Merger.
Finally, FLFC management is not aware of any other current and/or future
transactions or events that will be applied to invalidate or recharacterize the
Proposed Mergers' "A" reorganization status under Code Section 368(a)(1)(A).
Non-divisive "D" Reorganization. In certain circumstances, a reorganization may
qualify as both an "A" Reorganization and a reorganization described under Code
Section 368(a)(1)(D) ("D" Reorganization). In such a transaction, it is
possible that gain may be recognized for Federal income tax purposes.
A "D" Reorganization requires that one corporation (the "transferor") transfer
all or part of its assets to another "controlled" corporation (the
"transferee"), and that the transferor then distribute stock or securities of
the controlled corporation either in a non-divisive Code Section 354
transaction or in a "divisive" Code Section 355 transaction. The present
discussion focuses on the qualification of the Second Stage Merger as a
non-divisive "D" Reorganization.
The "control" requirement of Code Section 368(a)(1)(D) is satisfied if,
immediately after the transfer, the transferee corporation (i.e., FLB) is
controlled by the transferor (i.e., Tifton Bank) or by one or more of its
shareholders (i.e., the combined entity after the First Stage Merger)
(including persons who were shareholders immediately before the transfer). For
purposes of non-divisive "D" Reorganizations, control is defined in the same
manner as under Code Section 304(c), i.e., 50% of the voting stock or 50% of
the fair market value of all classes of stock (applying modified Code Section
318 attribution rules). See Code Section 368(a)(2)(H). In the present case,
the control requirement is met because immediately after the Second Stage
Merger, FLFC controls 100% of FLB.
The Second Stage Merger will qualify as a non-divisive "D" Reorganization only
if (i) FLB, the transferee corporation, acquires "substantially all" of the
assets of Tifton Bank, the transferor corporation; and (ii) Tifton Bank, the
transferor, distributes any retained assets, as well as the stock and
securities (and other consideration, if any) received from the transferee,
pursuant to the plan of reorganization. See Code Section 354(b)(1). Because
Tifton Bank will be merged with and into FLB and the separate existence of
Tifton Bank will thereupon cease, both requirements will be satisfied.
C-12
<PAGE> 157
Tifton Banks, Inc.
First Liberty Financial Corp.
June 12, 1995
Page 13
_____________________________
Thus, it appears that the Second Stage Merger qualifies as a "D"
Reorganization, as well as an "A" Reorganization. As a result, it is necessary
to determine if any gain might result through application of the rules
concerning the assumption of liabilities.
In most types of reorganizations, the assumption of the transferor's
liabilities by the acquiring corporation in connection with the reorganization
exchange will generally not constitute other property (boot) to the transferor
as long as there is no tax avoidance purpose. See Code Section 357(a) and (b).
Code Section 357(c) provides an exception which is applicable to exchanges
involved in "D" Reorganizations. See Code Section 357(c)(1). This exception
provides that the transferor in a "D" Reorganization must recognize gain if the
sum of the amount of the liabilities assumed by the transferee, plus the amount
of the liabilities to which the property transferred is subject, exceeds the
total of the transferor's adjusted basis in the property transferred.
By its terms, Section 357(c) does not apply to any type of reorganization
except a "D" Reorganization. The Service, however, has taken the position that
Section 357(c) is applicable to a reorganization that qualifies as both an "A"
and "D" reorganization. See Rev. Rul. 75-161, 1975-1 C.B. 114.
In the present case, Tifton Bank's management has represented that the sum of
the amount of its liabilities assumed by FLB, plus the amount of the
liabilities to which its property is subject, does not exceed the total of its
adjusted basis in the property transferred. As a result, no gain should result
in the Second Stage Merger pursuant to Code Section 357(c).
Conclusion
Because the Proposed Mergers will be effected in accordance with applicable
Georgia state law and will satisfy the regulatory and judicial doctrines, as
discussed above, the Proposed Mergers qualify as tax-free reorganizations
described in Code Section 368(a)(1)(A) pursuant to the controlling statutory
requirements of the Code and Regulations promulgated thereunder.
TAX CONSEQUENCES TO TBI SHAREHOLDERS
General Rule of Taxation
Under the general rule of Code Section 354(a)(1), no gain or loss is
recognized if stock or securities in a corporation which is a party to a
reorganization are, in pursuance of the plan of reorganization, exchanged
solely for stock or securities in such corporation or in another corporation a
party to the reorganization. Thus, shareholders of a target corporation which
is a party to the reorganization who receive only stock of another party to the
reorganization generally do not
C-13
<PAGE> 158
Tifton Banks, Inc.
First Liberty Financial Corp.
June 12, 1995
Page 14
_____________________________
recognize either gain or loss on the exchange. If the exchange involves the
receipt of other property or money in addition to property that can be received
tax-free, reference must be made to the rules of Code Section 356.
In contrast, no loss may generally be recognized on an exchange of stock or
securities in pursuance of a plan of reorganization. This is the case even for
shareholders or security holders who receive money, as well as stock or
securities. See Code Section 356(c). A shareholder who receives no stock or
securities of a party to a reorganization may recognize any loss which is
realized.
TBI Shareholders Who Receive Preferred Stock Only
A TBI shareholder who receives only Preferred Stock for his shares of TBI Stock
will recognize no gain or loss under the general rule of Code Section
354(a)(1).
TBI Shareholders Who Receive Cash Only
A TBI shareholder (including a dissenting shareholder) who receives only cash
for his shares of TBI Stock will recognize gain or loss for Federal income tax
purposes measured by the difference, if any, between the total cash received
for the stock and such shareholder's basis in his stock. See Code Section
1001(a).
TBI Shareholders Who Receive Cash and Preferred Stock
A TBI shareholder who receives cash and preferred stock in exchange for his TBI
Stock must recognize a portion or all of any gain realized. The realized gain,
if any, is measured by the excess of (a) the sum of the cash received and the
fair market value of the Preferred Stock received over (b) the shareholder's
basis in his TBI stock. The amount of gain to be recognized is equal to the
lesser of the realized gain or the amount of cash received by the shareholder.
See Code Section 356(a)(1). No loss may be recognized. See Code Section
356(c).
Character of Gain
The character of any recognized gain may be ordinary or capital, depending on
the effect of the transaction at the shareholder level. See Code Section
356(a). Under Code Section 356(a)(2), if the exchange has the effect of a
distribution of a dividend, the shareholder's recognized gain is treated as a
dividend to the extent of his ratable share of the corporation's earnings and
profits accumulated through the date of the transaction. Any remaining gain is
treated as capital gain if the stock was held as a capital asset by the
shareholder.
C-14
<PAGE> 159
Tifton Banks, Inc.
First Liberty Financial Corp.
June 12, 1995
Page 15
_____________________________
Effect of the distribution of a dividend. Under the approach adopted by the
courts and the Service, the test for dividend equivalency is based on the
principles of Code Section 302 regarding redemptions. See Viereck v. U.S., 3
Cl. Ct. 745 (1983) and Rev. Rul. 66-365, 1966-2 CB 116.
For purposes of Code Section 356, dividend equivalency is determined by
assuming that the consideration paid in a reorganization consisted entirely of
stock, and that a hypothetical redemption of that stock occurred after the
reorganization (i.e., a hypothetical post-reorganization redemption). See
Commissioner v. Clark, 489 U.S. 726 (1989). Thus, target corporation
shareholders are deemed to become shareholders of the acquirer, and the boot
paid is deemed to reduce the amount of acquirer stock owned by former target
corporation shareholders to that actually received. The mere fact that a
shareholder's percentage interest in the post-acquisition combined entity is
smaller than his interest was in the pre-acquisition target corporation
(because the combined entity is larger than the target) is not relevant.
Under Code Section 302, a redemption of stock for cash will be treated as a
distribution that is taxable as a dividend to the extent of the redeeming
corporation's current or accumulated earnings and profits unless the
redemption: (i) is "not essentially equivalent to a dividend" with respect to
the holder under Code Section 302(b)(1) ; (ii) is "substantially
disproportionate" with respect to the holder under Code Section 302(b)(2);
(iii) results in a "complete termination" of the holder's stock interest in the
corporation under Code Section 302(b)(3) ; or (iv) in the case of a
noncorporate shareholder, is in "partial liquidation" of the corporation under
Code Section 302(b)(4). If any one of these four provisions are met, the
redemption is treated as an exchange.
Because these rules are applied on a shareholder by shareholder basis, TBI
shareholders are urged to seek advice from their tax advisors concerning the
character of any gain recognized in this transaction.
Basis of Preferred Stock
Code Section 358(a)(1) provides that, where a shareholder or security holder
exchanges stock or securities in a reorganization and receives stock or
securities which do not constitute boot, the holder's basis in the property
(i.e., the stock or securities) received is equal to his basis in the stock or
securities surrendered, decreased by the fair market value of any boot received
and increased by the amount of any gain recognized on the exchange. The basis
of boot received will be equal to its fair market value. See Code Section
358(a)(2).
The basis of Preferred Stock received by a TBI shareholder who receives only
Preferred Stock will be identical to the basis of the TBI Stock exchanged
therefor. Where a TBI shareholder receives both Preferred Stock and cash, the
basis of the Preferred Stock received will equal (a) the
C-15
<PAGE> 160
Tifton Banks, Inc.
First Liberty Financial Corp.
June 12, 1995
Page 16
_____________________________
basis of all the TBI Stock exchanged, (b) decreased by the amount of cash
received, and (c) increased by the amount of gain, if any, recognized on the
exchange. See Code Section 358(a)(1).
Holding Period
The holding period of Preferred Stock received by a TBI shareholder will
include the holding period for the TBI Stock exchanged because the basis of the
Preferred Stock received is determined in whole or in part by the basis of the
TBI Stock exchanged. See Code Section 1223(1).
OWNERSHIP OF PREFERRED STOCK ISSUED IN REORGANIZATION
Dividends on The Preferred Stock
Code Section 301 prescribes the treatment of nonliquidating distributions of
cash or other property to shareholders with respect to their stock. "Property"
refers to all items of economic benefit to shareholders other than the
corporation's own stock and stock rights. See Code Section 317(a). Under Code
Section 301(c)(1), a Section 301 distribution will be included in the
Preferred Stock shareholders' gross income to the extent that it constitutes a
"dividend," as defined in Code Section 316. Code Section 316, in turn,
defines a dividend for income tax purposes generally as a distribution out of
current or accumulated earnings and profits ("E&P") of the distributing
corporation. To the extent that a Code Section 301 distribution exceeds E&P,
it will be treated under Section 301(c)(2) as a tax-free return of the
shareholders' capital. Any amount in excess of a shareholder's adjusted basis
of Preferred Stock will be treated under Code Section 301(c)(3) as a gain
from a sale or exchange of property. The character of the gain will be capital
if the Preferred Stock is a capital asset in the shareholders' hands. See Code
Section Section 1221 and 1222.
Redemption of Preferred Stock
Redemption of Noncorporate Shareholder. A redemption of Preferred Stock for
cash will be treated under Code Section 302 as a distribution that is taxable
as a dividend to the extent of FLFC's current or accumulated earnings and
profits unless the redemption: (i) is "not essentially equivalent to a
dividend" with respect to the holder under Code Section 302(b)(1); (ii) is
"substantially disproportionate" with respect to the holder under Code Section
302(b)(2); (iii) results in a "complete termination" of the holder's stock
interest in the corporation under Code Section 302(b)(3); or (iv) in the case
of a noncorporate shareholder, is in "partial liquidation" of the corporation
under Code Section 302(b)(4). In determining whether any of these tests has
been met, shares considered to be owned by the holder by reason of certain
constructive ownership rules applicable under Code Section 318(a), as well as
shares actually owned, must generally be taken into account. See Code Section
302(c).
C-16
<PAGE> 161
Tifton Banks, Inc.
First Liberty Financial Corp.
June 12, 1995
Page 17
_____________________________
If any of these tests is met, the redemption of Preferred Stock for cash will
be entitled to "exchange treatment." In such a case, the redemption will
result in taxable gain or loss equal to the difference between the amount of
cash received and the holder's tax basis in the Preferred Stock redeemed. Such
gain or loss will be a capital gain or loss if the Preferred Stock was held as
a capital asset and will be a long-term capital gain or loss if the holding
period for the Preferred Stock is more than one year. See Code Section Section
1221 and 1222.
These rules are applied on a shareholder by shareholder basis. Thus, in the
event of a redemption of Preferred Stock, owners of Preferred Stock are urged
to seek advice from their tax advisors as to the character of taxable income
recognized with respect to a redemption.
Redemption Premium. Under Code Section 305(c), if the redemption price of the
Preferred Stock exceeds its issue price by more than a reasonable amount, such
excess will be taxable as a dividend on an economic accrual basis over the
period during which the Preferred Stock cannot be redeemed. In general, stock
issued as a dividend in a taxable or nontaxable exchange has an issue price
equal to its fair market value. See Reg. Section 1.305-5(d), Ex. 7 and Rev.
Rul. 83-199, 1983-2 C.B. 57. The Regulations provide that where a corporation
issues preferred stock that may be redeemed "after a specified period of time"
at a price higher than the issue price, the difference between the redemption
price and the issue price (the redemption premium) will be considered a
distribution of additional preferred stock on preferred stock during the period
of time "which the preferred stock cannot be called for redemption." See Reg.
Section 1.305-5(b)(1). Such stock dividend is taxed as a dividend
distribution under Code Section 301.
Proposed regulations revising the rules for determining the amount of a
redemption premium were issued on June 22, 1994. As currently proposed, these
regulations would replace the current regulations for stock issued on or after
the date the proposed regulations are finalized. See Proposed Reg. Section
1.305-5. Because it is unknown whether the proposed regulations will become
final prior to issuance of the Preferred Stock, it cannot be determined as to
which regulation will apply to this transaction.
Under the current regulations, the deemed distribution rule will not apply to
the extent the redemption premium is a reasonable redemption premium, i.e., in
the nature of a penalty for a premature redemption by the issuing corporation.
The Regulations indicate a safe harbor provision in that a 10% premium for
preferred stock callable after five years will be considered reasonable. If the
safe harbor provision cannot be met, a redemption premium will be considered
reasonable if it is in the nature of a penalty for premature redemption and if
the premium does not exceed the amount the issuer would be required to pay
under market conditions existing at the time of issuance. See Reg. Section
1.305-5(b)(2).
C-17
<PAGE> 162
Tifton Banks, Inc.
First Liberty Financial Corp.
June 12, 1995
Page 18
_____________________________
The proposed regulations provide new rules and a new safe harbor for
determining if a redemption premium exists and whether it is reasonable. See
Proposed Reg. Section 1.305-5(b)(3). Because these regulations are only in
proposed form, these rules could change substantially when presented in final
form.
In the instant case, whether or not the redemption premium is reasonable cannot
be determined because the issue price of the Preferred Stock has not been
determined. Even if the redemption premium of the Preferred Stock were
determinable, it is clear that the safe harbor test of the existing regulations
could not apply because the Preferred Stock can be redeemed after 2 years. The
determination as to whether the redemption premium is reasonable will depend
upon all the facts and circumstances surrounding the instrument. Further, if
the proposed regulations become final before the date of issuance of the
Preferred Stock, those rules would apply. Accordingly, we are unable to render
an opinion as to whether such premium is "reasonable" for purposes of Code
Section 305(c).
Disposition of Section 306 Stock
If Code Section 306 stock is redeemed, the entire amount is treated as a Code
Section 301 distribution. See Code Section 306(a)(2). The amount received
is taxable as ordinary income to the extent of earnings and profits at the time
of the redemption, and any excess is treated as basis recovery or capital gain.
If Code Section 306 stock is disposed of other than by redemption, the amount
realized is treated as ordinary income to the extent of the shareholder's
ratable share of earnings and profits as of the time of the distribution of the
Code Section 306 stock. The remainder of the amount realized is treated as
basis recovery or capital gain. See Code Section 306(a)(1)(B). If the
shareholder does not recover his entire basis in the stock sold, then the
unrecovered portion of his basis is added back to the basis of his remaining
stock. Under Code Section 306(a)(1)(C), no loss is recognized to the
shareholder.
Code Section 306(c)(1)(B) provides that stock other than common stock is
Section 306 stock if it is received in a corporate reorganization qualifying
within Code Section 368 in which gain or loss was to any extent not
recognized, but only to the extent that either (i) the effect of the
transaction was substantially the same as the receipt of a stock dividend; or
(ii) the stock was received in exchange for Code Section 306 stock.
The Service has turned the "effect of a stock dividend" test into a "cash
substitution" test. See Reg. Section 1.306-3(d). The Regulations hypothesize
a cash distribution in lieu of the preferred stock distribution. If cash had
been distributed in lieu of the preferred stock and the cash would have been
treated as a dividend under Code Section Section 356(a)(2), 356(b), or 302(d),
then the preferred stock is Section 306 stock under the regulation.
C-18
<PAGE> 163
Tifton Banks, Inc.
First Liberty Financial Corp.
June 12, 1995
Page 19
_____________________________
The foregoing rules are applied on a shareholder by shareholder basis. In
general, unless a TBI shareholder owns equity, directly or indirectly, in FLFC
unrelated to this transaction, the Preferred Stock received in the First Stage
Merger, will not be considered Section 306 Stock. In the event of a
disposition or redemption of Preferred Stock, owners of Preferred Stock are
urged to seek advice from their tax advisors as to the character of taxable
income recognized with respect to a disposition or redemption.
Sale or Exchange of Preferred Stock
The sale or exchange of Preferred Stock for cash will be a taxable event
resulting in taxable gain or loss equal to the difference between the amount of
proceeds received and the holder's tax basis in the Preferred Stock sold. Such
gain will be capital gain or loss if Preferred Stock was held as a capital
asset and will be long-term capital gain or loss if the holding period for the
Preferred stock is more than one year. See Code Section Section 1221 and
1222.
Conversion of Preferred Stock Into Common Stock
Gain or loss generally will not be recognized by a holder upon the conversion
of shares of Preferred Stock into shares of FLFC's common stock (FLFC Stock) if
no cash is received. Where a stock-for-stock swap occurs upon the
shareholder's exercise of a conversion option such that the exchange represents
no more than an isolated decision by the shareholder to exercise his privilege,
the Service has ruled that the transaction is a recapitalization under Code
Section 368(a)(1)(E) and the exchange is in pursuance of a plan of
reorganization. See Rev. Rul. 77-238, 1977-2 C.B. 115.
Dividend income may be recognized, however, to the extent cash or FLFC Stock is
received in payment of dividends in arrears. Further, cash received in lieu of
fractional shares of FLFC Stock will be treated as received in redemption of
the fractional shares of FLFC Stock.
Generally, a holder's basis in the FLFC Stock received upon the conversion of
shares of Preferred Stock (other than shares, if any, taxed as a dividend upon
receipt) will equal the basis of the converted Preferred Stock shares, and the
holding period of such FLFC Stock will include the holding period of the
converted Preferred Stock shares. See Code Section Section 354(a)(1), 356(a),
358(a)(1) and 1223.
Changes in Conversion Price
Regulations issued under Code Section 305(c) treat as taxable distributions
certain adjustments in the conversion price of convertible securities such as
the Preferred Stock. See Reg. Section 1.305-7. For example, an adjustment in
the conversion price of the Preferred Stock to reflect taxable
C-19
<PAGE> 164
Tifton Banks, Inc.
First Liberty Financial Corp.
June 12, 1995
Page 20
_____________________________
distributions on the FLFC Stock of cash, property or securities will be treated
as a taxable constructive distribution on the Preferred Stock and will be
taxable in the manner set forth above under "Dividends on the Preferred Stock."
Conversely, adjustments in conversion prices or ratios of convertible preferred
stock under a bona fide reasonable adjustment formula (including, but not
limited to, market price or conversion formulas) to prevent dilution will not
result in a deemed distribution of stock. See Reg. Section 1.305-3(d). Reg.
Section 1.305-3(d) deals with the effect of antidilution adjustments to
conversion ratios of convertible stock and debt securities to take account of
stock dividends paid on other shares. These provisions set forth various
formulas for effecting the necessary "full antidilution adjustments" in order
to prevent taxability of the stock dividend under Code Section Section
305(b(2) and 305(c).
Information Reporting and Backup Withholding Requirement
FLFC will be required to file information returns with the Internal Revenue
Service with respect to payments of dividends on the Preferred Stock. See Code
Section 6042. Holders who fail to provide FLFC with their proper taxpayer
identification numbers may become subject to 31% "backup withholding" on the
payment of dividends unless the holder (a) is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact; or
(b) provides a correct taxpayer identification number, certifies as to no loss
of exemption from backup withholding, and otherwise complies with applicable
requirements of the backup withholding rules. Backup withholding does not
constitute an additional tax and may be credited against the holder's regular
income tax liability. See Code Section 3406.
If you have any questions regarding this letter, please call Joe Reinkemeyer or
Courtnay Bazemore of our Firm.
Very truly yours,
/s/ Coopers & Lybrand L.L.P.
JWR:jma
C-20
<PAGE> 165
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 14-2-202 of the Georgia Business Corporation Code (the "GBCC")
enables a corporation in its articles of incorporation to eliminate or limit
the personal liability of a director to the corporation or its shareholders for
monetary damages for breach of duty of care or other duty as a director. This
Section also provides, however, that no such provision may eliminate or limit
the liability of a director (i) for any appropriation, in violation of his
duties, of any business opportunity of the corporation, (ii) for acts or
omissions involving intentional misconduct or a knowing violation of law, (iii)
for certain other types of liability involving unlawful distributions to
shareholders and (iv) for transactions from which the director received an
improper personal benefit. Section 11 of the Articles of Incorporation of
First Liberty Financial Corporation ("FLFC") contains a provision eliminating
or limiting the personal liability of a director of FLFC to the full extent
authorized by Section 14-2-202. Consequently, the shareholders' potential
recourse for monetary damages against FLFC's directors is limited to situations
in which one of the four exceptions noted above is applicable.
In addition, Section 14-2-856 of the GBCC (as incorporated by Article
VIII of FLFC's Bylaws) provides for indemnification of directors of FLFC for
liability and expenses incurred by them in connection with any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative and whether formal or informal (including civil
actions brought as derivative actions by or in the right of FLFC), in which
they may become involved by reason of being a director of FLFC. This Section
permits a corporation to indemnify or obligate itself to indemnify a director
made a party to any such proceeding, provided, that a corporation may not
indemnify a director for any liability incurred in a proceeding in which the
director is adjudged liable to the corporation or is subjected to injunctive
relief in favor of the corporation (i) for any appropriation, in violation of
his duties, of any business opportunity of the corporation; (ii) for acts or
omissions which involve intentional misconduct or a knowing violation of law;
(iii) for certain types of liability involving unlawful distributions to
shareholders; or (iv) for any transaction from which he received an improper
personal benefit.
Section 14-2-856 also permits a corporation to advance or reimburse
expenses in advance of final disposition of a proceeding if the director
furnishes the corporation a written affirmation of his good faith belief that
his conduct does not constitute behavior of the kind described above, and the
director furnishes the corporation a written undertaking, executed personally
or on his behalf, to repay any advances if it is ultimately determined that he
is not entitled to indemnification. This Section also provides such
indemnification for persons who, at the request of the corporation, act as
directors or officers of other companies in which the corporation is a
shareholder or creditor or is otherwise interested.
Section 14-2-857 provides that a corporation may indemnify or advance
expenses to an officer, employee or agent of the corporation who is not a
director, to the extent consistent with public policy, as provided in the
corporation's articles of incorporation, bylaws or by specific action of the
board of directors. FLFC's Bylaws provide that FLFC shall indemnify officers,
employees and agents to the same extent that FLFC shall indemnify its
directors.
II-1
<PAGE> 166
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS. The following exhibits are filed as part of this
Registration Statement. Where such filing is made by incorporation by
reference to a previously filed registration statement or report, such
registration statement or report is identified in parentheses.
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
2 Agreement and Plan of Merger dated as of May 10, 1995, among
FLFC, First Liberty Bank, Tifton Banks, Inc. and Tifton Bank &
Trust Company (included as Appendix A to the Proxy
Statement/Prospectus filed as part of this Registration
Statement).
3.1(a) Articles of Incorporation of FLFC (Exhibit C to FLFC's
Registration Statement on Form S-1, No. 2-98803).
(b) Articles of Amendment of Articles of Incorporation dated March
31, 1987 (Exhibit 3(a)2 to FLFC's Annual Report on Form 10-K
for the fiscal year ended September 30, 1987).
(c) Articles of Amendment of Articles of Incorporation dated March
4, 1988 (Exhibit 3(a)3 to FLFC's Annual Report on Form 10-K
for the fiscal year ended September 30, 1990).
(d) Articles of Amendment of Articles of Incorporation dated
February 16, 1993 (Exhibit 3.4 to FLFC's Registration
Statement on Form S-2, No. 33-56296).
(e) Articles of Amendment of Articles of Incorporation dated
December 1, 1994 with respect to the Series B Preferred
Stock.*
(f) Form of Articles of Amendment of Articles of Incorporation
with respect to increase in authorized number of shares of
Series B Preferred Stock.**
3.2 Bylaws, as amended (Exhibit 3(b)2 to FLFC's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993).
4.1 Specimen form of FLFC Series B 6% Cumulative Convertible
Preferred Stock Certificate (Exhibit 4.1 to FLFC's
Registration Statement on Form S-4, No. 33-83108).
5 Opinion of Long, Aldridge & Norman.**
8 Opinion of Coopers & Lybrand L.L.P. with respect to certain
federal income tax consequences of the Merger (included as
Appendix C to the Proxy Statement/Prospectus filed as part of
this Registration Statement).
10.1 Plan of Conversion of Liberty Bank (Exhibit 10(a) to FLFC's
Annual Report on Form 10-K for the fiscal year ended September
30, 1986).
10.2 FLFC's Employee Savings and Stock Ownership Plan (Exhibit 4 to
FLFC's Registration Statement on Form S-8, No. 33- 24733).
10.3 FLFC's Shareholder Rights Plan dated as of August 2, 1989
(Exhibit 4.1 to FLFC's Current Report on Form 8-K dated August
14, 1989).
II-2
<PAGE> 167
10.4 FLFC's 1983 Incentive Stock Option Plan and related form of
Option Agreement (Exhibit 10(j) to FLFC's Annual Report on
Form 10-K for the fiscal year ended September 30, 1986).
10.5 FLFC 1992 Stock Incentive Plan dated as of November 24, 1992
(Exhibit 10(m) to FLFC's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992).
10.6(a) Executive Employment Agreement dated as of November 1, 1990,
among Liberty Bank, FLFC and Robert F. Hatcher (Exhibit 10(m)
to FLFC's Annual Report on Form 10-K for the fiscal year ended
September 30, 1991).
(b) First Amendment to Executive Employment Agreement dated as of
November 1, 1991, among Liberty Bank, FLFC and Robert F.
Hatcher (Exhibit 10(n) to FLFC's Annual Report on Form 10-K
for the fiscal year ended September 30, 1991).
(c) Second Amendment to Executive Employment Agreement dated as of
October 21, 1992, among Liberty Bank, FLFC and Robert F.
Hatcher (Exhibit 10(f) to FLFC's Annual Report on Form 10-K
for the fiscal year ended September 30, 1992).
10.7 Employment Agreement dated November 5, 1987 among FLFC,
Liberty Bank and Richard A. Hills, Jr. (Exhibit 10(p) to
FLFC's Annual Report on Form 10-K for the fiscal year ended
September 30, 1991).
10.8 Employment Agreement dated August 1, 1990 between Liberty Bank
and Charles G. Davis (Exhibit 10(q) to FLFC's Annual Report on
Form 10-K for the fiscal year ended September 30, 1991).
10.9 Employment Agreement dated June 30, 1993 among FLFC, Liberty
Bank and David L. Hall (Exhibit 10(j) to FLFC's Annual Report
on Form 10-K for the fiscal year ended September 30, 1992).
10.10 FLFC's Officer Profit Sharing Plan dated as of January 23,
1991 (Exhibit 10(r) to FLFC's Annual Report on Form 10-K for
the fiscal year ended September, 1991).
10.11 Employment Agreement dated July 23, 1993 among FLFC, Liberty
Mortgage and R. Frederick Taylor (Exhibit 10(o) to FLFC's
Annual Report on Form 10-K for the fiscal year ended September
30, 1993).
10.12 FLFC's Officer Profit Sharing Plan as amended and restated
effective October 1, 1993 (Exhibit 10(p) to FLFC's Annual
Report on Form 10-K for the fiscal year ended September 30,
1993).
15 Letter from Coopers & Lybrand L.L.P. regarding unaudited
interim financial information.*
21 Subsidiaries of FLFC (Exhibit 22 to FLFC's Annual Report on
Form 10-K for the year ended September 30, 1990).
23.1 Consent of Long, Aldridge & Norman (included in Exhibit 5).**
23.2 Consent of Coopers & Lybrand L.L.P.*
23.3 Consent of Thigpen, Jones, Seaton & Co., P.C. as to financial
statements and auditor's report for TBI.*
24 Powers of Attorney.*
- ------------------
* Filed herewith.
II-3
<PAGE> 168
** To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES. The financial statement schedules of
FLFC required by Regulation S-X are incorporated herein by reference to the
FLFC Annual Report to Form 10-K for the year ended September 30, 1994.
ITEM 22. UNDERTAKINGS.
(a) RULE 415 OFFERING. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) REGISTRATION ON FORM S-4.
(1) 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.
(2) The undersigned Registrant hereby undertakes as follows:
that every prospectus (i) that is filed pursuant to the paragraph 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 part of an amendment to the registration statement
and will not be used until such 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.
(c) ACCELERATION OF EFFECTIVENESS. Insofar as indemnification for
liabilities arising under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Exchange Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant
II-4
<PAGE> 169
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Exchange Act and will be governed by
the final adjudication of such issue.
(d) RESPONSE TO REQUESTS FOR INFORMATION. The undersigned Registrant
hereby undertakes to respond to requests for information that is incorporated
by reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of 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 this Registration Statement through the date of responding to the
request.
(e) POST-EFFECTIVE AMENDMENT. 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 this Registration Statement when it
became effective.
II-5
<PAGE> 170
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Macon, State of Georgia,
on June 13, 1995.
FIRST LIBERTY FINANCIAL CORP.
By: /s/ Robert F. Hatcher
-----------------------------------------
Robert F. Hatcher
Principal Executive Officer
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed by the following persons in the capacities indicated
on June 13, 1995.
Signature Title
--------- -----
Thomas H. McCook* Chairman of the Board and
- ---------------------------------- Director
Thomas H. McCook
/s/ Robert F. Hatcher President, Chief Executive Officer
- ---------------------------------- and Director
Robert F. Hatcher
F. Don Bradford* Director
- ----------------------------------
F. Don Bradford
Richard W. Carpenter* Director
- ----------------------------------
Richard W. Carpenter
C. Lee Ellis* Director
- ----------------------------------
C. Lee Ellis
Melvin I. Kruger* Director
- ----------------------------------
Melvin I. Kruger
Jo Slade Wilbanks* Director
- ----------------------------------
Jo Slade Wilbanks
/s/ David L. Hall Executive Vice President and Chief
- ---------------------------------- Financial Officer (Principal Financial
David L. Hall Officer and Principal Accounting
Officer)
*By: /s/ Robert F. Hatcher
----------------------------------
Robert F. Hatcher,
As Attorney-in-Fact
II-6
<PAGE> 171
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------ ----------- ----
<S> <C> <C>
2 Agreement and Plan of Merger dated as of May 10, 1995, among
FLFC, First Liberty Bank, Tifton Banks, Inc. and Tifton Bank &
Trust Company (included as Appendix A to the Proxy
Statement/Prospectus filed as part of this Registration
Statement).
3.1(a) Articles of Incorporation of FLFC (Exhibit C to FLFC's
Registration Statement on Form S-1, No. 2-98803).
(b) Articles of Amendment of Articles of Incorporation dated March
31, 1987 (Exhibit 3(a)2 to FLFC's Annual Report on Form 10-K
for the fiscal year ended September 30, 1987).
(c) Articles of Amendment of Articles of Incorporation dated March
4, 1988 (Exhibit 3(a)3 to FLFC's Annual Report on Form 10-K
for the fiscal year ended September 30, 1990).
(d) Articles of Amendment of Articles of Incorporation dated
February 16, 1993 (Exhibit 3.4 to FLFC's Registration
Statement on Form S-2, No. 33-56296).
(e) Articles of Amendment of Articles of Incorporation dated
December 1, 1994 with respect to the Series B Preferred
Stock.*
(f) Form of Articles of Amendment of Articles of Incorporation
with respect to increase in authorized number of shares of
Series B Preferred Stock.**
3.2 Bylaws, as amended (Exhibit 3(b)2 to FLFC's Annual Report on
Form 10-K for the fiscal year ended September 30, 1993).
4.1 Specimen form of FLFC Series B 6% Cumulative Convertible
Preferred Stock Certificate (Exhibit 4.1 to FLFC's
Registration Statement on Form S-4, No. 33-83108).
5 Opinion of Long, Aldridge & Norman.**
8 Opinion of Coopers & Lybrand L.L.P. with respect to certain
federal income tax consequences of the Merger (included as
Appendix C to the Proxy Statement/Prospectus filed as part of
this Registration Statement).
10.1 Plan of Conversion of Liberty Bank (Exhibit 10(a) to FLFC's
Annual Report on Form 10-K for the fiscal year ended September
30, 1986).
10.2 FLFC's Employee Savings and Stock Ownership Plan (Exhibit 4 to
FLFC's Registration Statement on Form S-8, No. 33-24733).
10.3 FLFC's Shareholder Rights Plan dated as of August 2, 1989
(Exhibit 4.1 to FLFC's Current Report on Form 8-K dated August
14, 1989).
10.4 FLFC's 1983 Incentive Stock Option Plan and related form of
Option Agreement (Exhibit 10(j) to FLFC's Annual Report on
Form 10-K for the fiscal year ended September 30, 1986).
10.5 FLFC 1992 Stock Incentive Plan dated as of November 24, 1992
(Exhibit 10(m) to FLFC's Annual Report on Form 10-K for the
fiscal year ended September 30, 1992).
</TABLE>
II-7
<PAGE> 172
10.6(a) Executive Employment Agreement dated as of November 1, 1990,
among Liberty Bank, FLFC and Robert F. Hatcher (Exhibit 10(m)
to FLFC's Annual Report on Form 10-K for the fiscal year ended
September 30, 1991).
(b) First Amendment to Executive Employment Agreement dated as of
November 1, 1991, among Liberty Bank, FLFC and Robert F.
Hatcher (Exhibit 10(n) to FLFC's Annual Report on Form 10-K
for the fiscal year ended September 30, 1991).
(c) Second Amendment to Executive Employment Agreement dated as of
October 21, 1992, among Liberty Bank, FLFC and Robert F.
Hatcher (Exhibit 10(f) to FLFC's Annual Report on Form 10-K
for the fiscal year ended September 30, 1992).
10.7 Employment Agreement dated November 5, 1987 among FLFC,
Liberty Bank and Richard A. Hills, Jr. (Exhibit 10(p) to
FLFC's Annual Report on Form 10-K for the fiscal year ended
September 30, 1991).
10.8 Employment Agreement dated August 1, 1990 between Liberty Bank
and Charles G. Davis (Exhibit 10(q) to FLFC's Annual Report on
Form 10-K for the fiscal year ended September 30, 1991).
10.9 Employment Agreement dated June 30, 1993 among FLFC, Liberty
Bank and David L. Hall (Exhibit 10(j) to FLFC's Annual Report
on Form 10-K for the fiscal year ended September 30, 1992).
10.10 FLFC's Officer Profit Sharing Plan dated as of January 23,
1991 (Exhibit 10(r) to FLFC's Annual Report on Form 10-K for
the fiscal year ended September, 1991).
10.11 Employment Agreement dated July 23, 1993 among FLFC, Liberty
Mortgage and R. Frederick Taylor (Exhibit 10(o) to FLFC's
Annual Report on Form 10-K for the fiscal year ended September
30, 1993).
10.12 FLFC's Officer Profit Sharing Plan as amended and restated
effective October 1, 1993 (Exhibit 10(p) to FLFC's Annual
Report on Form 10-K for the fiscal year ended September 30,
1993).
15 Letter from Coopers & Lybrand L.L.P. regarding unaudited
interim financial information.*
21 Subsidiaries of FLFC (Exhibit 22 to FLFC's Annual Report on
Form 10-K for the year ended September 30, 1990).
23.1 Consent of Long, Aldridge & Norman (included in Exhibit 5).**
23.2 Consent of Coopers & Lybrand L.L.P.*
23.3 Consent of Thigpen, Jones, Seaton & Co., P.C. as to financial
statements and auditor's report for TBI.*
24 Powers of Attorney.*
- ------------------
* Filed herewith.
** To be filed by amendment.
II-8
<PAGE> 1
EXHIBIT 3.1(e)
ARTICLES OF AMENDMENT
OF
THE ARTICLES OF INCORPORATION
OF
FIRST LIBERTY FINANCIAL CORP.
Pursuant to Section 14-2-602 of the Georgia Business Corporation Code,
the Articles of Incorporation, as amended (the "Articles of Incorporation"), of
First Liberty Financial Corp. (the "corporation") are hereby amended according
to these Articles of Amendment.
I.
The name of the corporation is First Liberty Financial Corp.
II.
On June 22, 1994, August 24, 1994 and October 26, 1994, the Board of
Directors of the corporation duly adopted an amendment (the "Amendment") to the
Articles of Incorporation which added an Appendix B to the end of the Articles
of Incorporation. The text of the Amendment is included in Article III hereof.
III.
Section 5 of the Articles of Incorporation authorizes the issuance by
the corporation, as approved by its Board of Directors without the approval of
its stockholders, of up to 5,000,000 shares of preferred stock, without par
value, in one or more series, with the shares of each such series having such
preferences, limitations and relative rights as may be determined by the Board
of Directors and set forth in a supplementary section to the Articles of
Incorporation. In accordance with the provisions of Section 5 of the Articles
of Incorporation, the
<PAGE> 2
Amendment creates a series of preferred stock, designated "Series B 6.00%
Cumulative Convertible Preferred Stock," and establishes the preferences,
limitations and relative rights thereof. Pursuant to said Section 5, the
Articles of Incorporation hereby are amended by adding the following to the end
of the Articles of Incorporation as Appendix B:
APPENDIX B
SERIES B 6.0% CUMULATIVE CONVERTIBLE PREFERRED STOCK
1. DESIGNATION AND AMOUNT.
There hereby is created a series of Preferred Stock with a stated
value of $25.00 per share. The shares of such series shall be designated as
Series B 6.0% Cumulative Convertible Preferred Stock (the "Series B Preferred
Stock"), and the number of shares constituting the Series B Preferred Stock
shall be 250,000. Such number of shares may be decreased by a resolution duly
adopted by the Board of Directors; provided, that no decrease shall reduce the
number of shares of Series B Preferred Stock to a number less than the number
of shares then outstanding plus the number of shares reserved for issuance upon
the exercise of outstanding options, rights, or warrants or upon the conversion
of any outstanding securities issued by the corporation that are convertible
into Series B Preferred Stock.
2. RANKING.
Any class or classes of stock of the corporation shall be deemed to
rank:
(a) prior to the Series B Preferred Stock as to dividends or as to
distribution of assets upon liquidation, dissolution or winding up if the
holders of such class shall be entitled to the receipt of dividends or of
amounts distributable upon liquidation, dissolution or winding up, as the case
may be, in preference or priority to the holders of Series B Preferred Stock;
and
(b) on a parity with the Series B Preferred Stock as to dividends
or as to distribution of assets upon liquidation, dissolution or winding up,
whether or not the dividend rates, dividend payment dates, or redemption or
liquidation prices per share thereof be different from those of the Series B
Preferred Stock, if the holders of such class of stock and the Series B
Preferred Stock shall be entitled to the receipt of dividends or
-2-
<PAGE> 3
of amounts distributable upon liquidation, dissolution or winding up, as the
case may be, in proportion to their respective dividend rates or liquidation
prices, without preference or priority one over the other.
3. DIVIDENDS.
(a) For purposes of this Section 3, each January 1, April 1, July
1 and October 1 on which any share of Series B Preferred Stock shall be
outstanding shall be deemed to be a "Dividend Payment Date." Commencing on the
Dividend Payment Date next following the issuance of Series B Preferred Stock,
the holders of shares of Series B Preferred Stock shall be entitled to receive,
when and as declared by the Board of Directors of the corporation out of funds
legally available therefor, cumulative dividends payable in arrears at the rate
of $1.50 per year on each share of Series B Preferred Stock and no more.
Notwithstanding the foregoing, if the date of issuance of the Series B
Preferred Stock is 15 or fewer days prior to a Dividend Payment Date, the
corporation may, at its option, defer the initial dividend payment to the
second Dividend Payment Date following the date of issuance. Dividends payable
on the initial Dividend Payment Date shall be pro rated based on the number of
days that shall have elapsed since the date of original issue of the Series B
Preferred Stock. Dividends payable on the Preferred Stock for any period
greater or less than a full dividend period shall be computed on the basis of a
360 day year consisting of twelve 30-day months.
(b) The Board of Directors may fix a record date for the
determination of holders of shares of Series B Preferred Stock entitled to
receive payment of a dividend declared thereon, which record date shall be not
more than 45 days prior to the date fixed for the payment thereof.
(c) Except as provided in Subsection 3(a) above, on each Dividend
Payment Date, all dividends which shall have accrued on each share of Series B
Preferred Stock outstanding on such Dividend Payment Date shall accumulate and
be deemed to become "due." Any dividend which shall not be paid on the
Dividend Payment Date on which it shall become due shall be deemed to be "past
due" until such dividend shall be paid or until the share of Series B Preferred
Stock with regard to which such dividend became due shall no longer be
outstanding, whichever is the earlier to occur. No interest or sum of money in
lieu of interest shall be payable with regard to any dividend payment or
payments which are past due. Dividends paid on shares of Series B Preferred
Stock in an amount less than the total amount of such dividends at the time
accumulated and payable on such share shall be allocated pro rata on a
share-by-share basis among all such shares at the time outstanding.
-3-
<PAGE> 4
(d) If there shall be outstanding shares of any other series of
Preferred Stock of the corporation ranking junior to the Series B Preferred
Stock as to dividends, no dividends shall be declared or paid or set apart for
payment on any such other series for any period unless full cumulative
dividends have been or contemporaneously are declared and paid or declared and
a sum sufficient for the payment thereof set apart for such payment on the
Series B Preferred Stock for all dividend payment periods terminating on or
prior to the date of payment of such full cumulative dividends. When dividends
are not paid in full or are past due on the shares of the Series B Preferred
Stock and on any other series of Preferred Stock ranking on a parity as to
dividends with the Series B Preferred Stock, all dividends declared on all
outstanding shares of the Series B Preferred Stock and shares of such other
series of Preferred Stock shall be declared pro rata so that the amount of
dividends declared per share on the Series B Preferred Stock and such other
Preferred Stock shall in all cases bear to each other the same ratio that
accrued and unpaid dividends per share on the shares of the Series B Preferred
stock and such other Preferred Stock to the date of such dividend payment bear
to each other. Holders of shares of Series B Preferred Stock shall not be
entitled to any dividend, whether payable in cash, property or securities, in
excess of full cumulative dividends, as herein provided, on the Series B
Preferred Stock.
(e) So long as any shares of the Series B Preferred Stock are
outstanding, no dividend (other than a dividend or distribution in Common Stock
or in any other stock ranking junior to the Series B Preferred Stock as to
dividends and upon liquidation, dissolution or winding up) shall be declared or
paid or set aside for payment or other distribution declared or made upon the
Common Stock or upon any other stock ranking junior to, or on a parity with,
the Series B Preferred Stock as to dividends or upon liquidation, dissolution
or winding up, nor shall any Common Stock or any other stock of the corporation
ranking junior to, or on a parity with, the Series B Preferred Stock as to
dividends or upon liquidation, dissolution or winding up, be redeemed,
purchased or otherwise acquired for any consideration (or any moneys be paid to
or made available for a sinking fund for the redemption of any shares of any
such stock) by the corporation (except for the conversion of such junior or
parity stock into, or the exchange of such junior or parity stock for, stock of
the corporation ranking junior to the Series B Preferred Stock as to dividends
and upon liquidation, dissolution, or winding up) unless, in each case, the
full cumulative dividends on all outstanding shares of the Series B Preferred
Stock shall have been paid or declared and set aside for payment for all past
dividend payment periods.
(f) The corporation shall not permit any subsidiary of the
corporation to purchase or otherwise acquire for consideration
-4-
<PAGE> 5
any shares of stock of the corporation unless the corporation could, under
paragraph (e) of this Section 3, purchase or otherwise acquire such shares at
such time and in such manner; provided, however, that this paragraph shall not
prohibit the acquisition of shares of stock of the corporation which have been
pledged to the corporation or any subsidiary of the corporation for a bona fide
debt.
4. VOTING RIGHTS.
Except as otherwise from time to time required by applicable law, the
Series B Preferred Stock shall have no voting rights.
5. REDEMPTION
(a) The shares of Series B Preferred Stock shall not be redeemable
prior to January 1, 1997. At any time on or after such date, except as
otherwise provided below, the shares of Series B Preferred Stock may be
redeemed, in whole or in part, at the option of the corporation, during the
twelve-month periods commencing on January 1 of the years indicated below at
the following redemption prices per share of Series B Preferred Stock, plus
accrued and unpaid dividends thereon up to but excluding the date fixed for
redemption:
<TABLE>
<CAPTION>
- -------------------------------------------- --------------------------------------------
Redemption Redemption
Year Price Year Price
- ---- ---------- ---- ----------
<S> <C> <C> <C>
1997 . . . . . . . . . . . . . $27.00 2000 . . . . . . . . . . . . . $25.80
1998 . . . . . . . . . . . . . 26.60 2001 . . . . . . . . . . . . . 25.40
1999 . . . . . . . . . . . . . 26.20 2002 and
thereafter . . . . . . . . . . 25.00
</TABLE>
(b) In the event the corporation shall elect to redeem shares of
Series B Preferred Stock, the corporation shall give notice of such redemption
to the holders of record of shares of the Series B Preferred Stock being so
redeemed, not less than 30 nor more than 60 days prior to such redemption, by
first class mail, postage prepaid, at their addresses as shown on the stock
registration books of the corporation; PROVIDED, that without limiting the
obligation of the corporation hereunder to give the notice provided in this
Subsection 5(b), the failure of the corporation to give such notice shall not
invalidate any corporate action by the corporation. Each such notice shall
state (i) the redemption date; (ii) the number of shares of Series B Preferred
Stock to be redeemed and, if fewer than all of the shares held by such holder
are to be redeemed, the number of such shares to be redeemed from such holder;
(iii) the redemption price; (iv) the place or places where certificates for
such shares are to be surrendered for payment of the redemption price; (v) that
dividends on the shares to be redeemed will cease to
-5-
<PAGE> 6
accrue on such redemption date; and (vi) that such holder has the right to
convert such shares into a number of shares of Common Stock of the corporation
prior to the close of business on the date fixed for the redemption.
(c) In the event that fewer than all the outstanding shares of
Series B Preferred Stock are to be redeemed, the number of shares to be
redeemed shall be determined by the Board of Directors of the corporation and
the shares to be redeemed shall be determined pro rata or by lot as may be
determined by the Board of Directors of the corporation or by any other method
as may be determined by the Board of Directors of the corporation in its sole
discretion to be equitable, provided that such method satisfies any applicable
requirements of any securities exchange or automated quotation system on which
the Series B Preferred Stock is then listed or traded.
(d) Notice having been mailed as aforesaid, from and after the
applicable redemption date (unless the corporation shall default in providing
money for the payment of the redemption price), dividends on the shares of
Series B Preferred Stock to be redeemed on such redemption date shall cease to
accrue and said shares shall no longer be deemed to be outstanding, and all
rights of the holders thereof as stockholders of the corporation (except the
right to receive from the corporation the redemption price) shall cease;
PROVIDED, HOWEVER, that notwithstanding the foregoing, if notice of redemption
has been given pursuant to this Section 5 and any holder of shares of Series B
Preferred Stock shall, prior to the close of business on the redemption date,
surrender for conversion any or all of the shares to be redeemed held by such
holder in accordance with Section 6 hereof, then the conversion of such shares
to be redeemed shall become effective as provided in Section 6. Upon surrender
of the certificates for any shares so redeemed (properly endorsed or assigned
for transfer, if the Board of Directors of the corporation shall so require and
the notice shall so state), such shares shall be redeemed by the corporation at
the redemption price aforesaid. In case fewer than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares without cost to the holder thereof.
(e) Any shares of Series B Preferred Stock which at any time shall
have been redeemed shall have, after such redemption, the status of authorized
but unissued shares of Preferred Stock, without designation as to series, until
such shares are once more designated as part of a particular series by the
Board of Directors of the corporation.
(f) Notwithstanding the foregoing provisions of this Section 5, if
any dividends on Series B Preferred Stock are past due, no shares of Series B
Preferred Stock shall be redeemed
-6-
<PAGE> 7
unless all outstanding shares of Series B Preferred Stock are simultaneously
redeemed, and the corporation shall not purchase or otherwise acquire any
shares of Series B Preferred Stock; PROVIDED, HOWEVER, that the foregoing shall
not prevent the purchase or acquisition of shares of Series B Preferred Stock
pursuant to a purchase or exchange offer made on the same terms to holders of
all outstanding shares of Series B Preferred Stock.
6. CONVERSION
(a) The holder of any share of Series B Preferred Stock shall have
the right at any time, at such holder's option (except that if such share is
called for redemption, then in respect of such share only to and including but
not after the close of business on the date fixed for such redemption, provided
that no default by the corporation in the payment of the applicable redemption
price (including any accrued and unpaid dividends) shall have occurred and be
continuing on the date fixed for such redemption) to convert such share into
that number of fully paid and non-assessable shares of Common Stock of the
corporation (calculated as to each conversion to the nearest 1/100th of a
share) obtained by dividing $25.00 by the Conversion Price then in effect. The
Conversion Price initially shall be $21.00 per share of Common Stock and shall
be subject to adjustment as set forth below.
(b) To exercise the conversion privilege, the holder of shares of
Series B Preferred Stock shall surrender the certificates representing such
shares, accompanied by transfer instruments satisfactory to the corporation and
sufficient to transfer the Series B Preferred Stock being converted to the
corporation free of any adverse interest, at any of the offices or agencies
maintained for such purpose by the corporation ("Conversion Agent") and shall
give written notice to the corporation at such Conversion Agent that the holder
elects to convert such shares. Such notice shall also state the names,
together with addresses, in which the certificates for shares of Common Stock
which shall be issuable upon such conversion shall be issued. As promptly as
practicable after the surrender of such shares of Series B Preferred Stock as
aforesaid, the corporation shall issue and shall deliver at such Conversion
Agent to such holder, or on his or her written order, a certificate for the
number of full shares of Common Stock issuable upon the conversion of such
shares in accordance with the provisions hereof. Balance certificates will be
issued for the remaining shares of Series B Preferred Stock in any case in
which fewer than all of the shares of Series B Preferred Stock represented by a
certificate are converted. Each conversion shall be deemed to have been
effected immediately prior to the close of business on the date on which shares
of Series B Preferred Stock shall have been so surrendered and such notice
received by the corporation as aforesaid, and the persons in
-7-
<PAGE> 8
whose names any certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holders of record of the
Common Stock represented thereby at such time, unless the stock transfer books
of the corporation shall be closed on the date on which shares of Series B
Preferred Stock are so surrendered for conversion, in which event such
conversion shall be deemed to have been effected immediately prior to the close
of business on the next succeeding day on which such stock transfer books are
open, and such persons shall be deemed to have become such holders of record of
the Common Stock at the close of business on such later day. In either
circumstance, such conversion shall be at the Conversion Price in effect on the
date upon which such share shall have been surrendered and such notice received
by the corporation.
(c) In the case of any share of Series B Preferred Stock which is
converted after any record date with respect to the payment of a dividend on
the Series B Preferred Stock and on or prior to the next succeeding Dividend
Payment Date, the dividend due on such Dividend Payment Date shall be payable
on such Dividend Payment Date to the holder of record of such share as of such
preceding record date notwithstanding such conversion. However, shares of
Series B Preferred Stock surrendered for conversion during the period from the
close of business on any record date with respect to the payment of a dividend
on the Series B Preferred Stock next preceding any Dividend Payment Date to the
opening of business on such Dividend Payment Date shall (except in the case of
shares of Series B Preferred Stock which have been called for redemption on a
redemption date within such period) be accompanied by payment in New York
Clearing House or other funds acceptable to the corporation in an amount equal
to the portion of the dividend payable on such Dividend Payment Date which
accrues during the period from the date of such surrender until such Dividend
Payment Date on the shares of Series B Preferred Stock being surrendered for
conversion. The dividend with respect to a share of Series B Preferred Stock
called for redemption on a redemption date during the period from the close of
business on any record date with respect to the payment of a dividend on the
Series B Preferred Stock next preceding any Dividend Payment Date to the
opening of business on such Dividend Payment Date shall be payable on such
Dividend Payment Date to the holder of record of such share on such dividend
record date notwithstanding the conversion of such share of Series B Preferred
Stock after such record date and prior to such Dividend Payment Date, and the
holder converting such share of Series B Preferred Stock need not include a
payment of such dividend amount upon surrender of such share of Series B
Preferred Stock for conversion. Except as provided in this Subsection (c), no
payment or adjustment shall be made upon any conversion on account of any
dividends accrued on shares of Series B Preferred Stock surrendered for
conversion or on account of any dividends on the Common Stock issued upon
conversion.
-8-
<PAGE> 9
(d) No fractional shares or scrip representing fractions of shares
of Common Stock shall be issued upon conversion of any shares of Series B
Preferred Stock. Instead of any fractional interest in a share of Common Stock
which would otherwise be deliverable upon the conversion of a share of Series B
Preferred Stock, the corporation shall pay to the holder of such share of
Series B Preferred Stock an amount in cash (computed to the nearest cent, with
one- half cent being rounded upward) equal to such fraction multiplied by the
then current market price (as defined in Subsection 6(e)(v) hereof) of the
Common Stock at the close of business on the day on which such share or shares
of Series B Preferred Stock are surrendered for conversion in the manner set
forth above, or if such date is not a trading date, on the next succeeding
trading date. If more than one certificate representing shares of Series B
Preferred Stock shall be surrendered for conversion at one time by the same
holder, the number of full shares issuable upon conversion thereof shall be
computed on the basis of the aggregate number of shares of Series B Preferred
Stock represented by such certificates, or the specified portions thereof to be
converted, so surrendered.
(e) The Conversion Price shall be adjusted from time to time as
follows:
(i) In case the corporation shall pay or make a dividend
or other distribution in Common Stock on any class of capital stock of
the corporation, the Conversion Price in effect at the opening of
business on the day following the date fixed for the determination of
stockholders entitled to receive such dividend or other distribution
shall be reduced by multiplying such Conversion Price by a fraction of
which the numerator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination and of which the denominator shall be the sum of such
number of shares and the total number of shares constituting such
dividend or other distribution, such reduction to become effective
immediately after the opening of business on the day following the
date fixed for such determination. For the purposes of this
Subparagraph (i), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the
corporation but shall include shares issuable with regard to scrip
certificates issued in lieu of fractions of shares of Common Stock.
The corporation shall not pay any dividend or make any distribution on
shares of Common Stock held in the treasury of the corporation.
(ii) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock, the
Conversion Price in effect at the opening of business on the day
following the day upon which such subdivision becomes effective shall
be proportionately
-9-
<PAGE> 10
reduced, and, conversely, in case outstanding shares of Common Stock
shall each be combined into a smaller number of shares of Common
Stock, the Conversion Price in effect at the opening of business on
the day following the day upon which such combination becomes
effective shall be proportionately increased, such reduction or
increase, as the case may be, to become effective immediately after
the opening of business on the day following the day upon which such
subdivision or combination becomes effective.
(iii) In case the corporation shall issue rights or warrants
to all holders of its Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the
then current market price per share (determined as provided in
Subparagraph (v) below) of the Common Stock on the date fixed for the
determination of stockholders entitled to receive such rights or
warrants (other than pursuant to a dividend reinvestment plan), the
Conversion Price in effect at the opening of business on the day
following the date fixed for such determination shall be reduced by
multiplying such Conversion Price by a fraction of which the numerator
shall be the number of shares of Common Stock outstanding at the close
of business on the date fixed for such determination plus the number
of shares of Common Stock which the aggregate of the offering price of
the total number of shares of Common Stock so offered for subscription
or purchase would purchase at such current market price and of which
the denominator shall be the number of shares of Common Stock
outstanding at the close of business on the date fixed for such
determination plus the number of shares of Common Stock so offered for
subscription or purchase, such reduction to become effective
immediately after the opening of business on the day following the
date fixed for such determination. For the purpose of this
Subparagraph (iii), the number of shares of Common Stock at any time
outstanding shall not include shares held in the treasury of the
corporation but shall include shares issuable with regard to scrip
certificates issued in lieu of fractions of shares of Common Stock.
The corporation shall not issue any rights or warrants with regard to
shares of Common Stock held in the treasury of the corporation.
(iv) In case the corporation shall, by dividend or
otherwise, distribute to all holders of its Common Stock (x) evidences
of its indebtedness, (y) cash or other assets (including securities,
but excluding any rights or warrants referred to in Subparagraph (iii)
above, any regular quarterly dividend payable solely in cash out of
retained earnings of the corporation that may from time to time be
fixed by the Board of Directors of the corporation and any dividend or
distribution referred to in Subparagraph (i) above) or (z) any
combination thereof, then in each case the
-10-
<PAGE> 11
Conversion Price shall be adjusted so that the same shall equal the
price determined by multiplying the Conversion Price in effect
immediately prior the close of business on the date fixed for the
determination of stockholders entitled to receive such distribution by
a fraction of which the numerator shall be the then current market
price per share (determined as provided in subparagraph (v) below) of
the Common Stock on the date fixed for such determination less the
then fair market value (as determined by the Board of Directors, whose
determination, if made in good faith, shall be conclusive and shall be
described in a statement filed with any Conversion Agent) of the
portion of the cash or other assets or evidences of indebtedness so
distributed (and for which an adjustment to the Conversion Price has
not previously been made pursuant to the terms of this Section 6)
applicable to one share of Common Stock and of which the denominator
shall be such then current market price per share of the Common Stock,
such adjustment to become effective immediately prior to the opening
of business on the day following such record date; PROVIDED, HOWEVER,
that if and to the extent that the fair market value of such
distribution, as so determined by the Board of Directors, shall exceed
the retained earnings of the corporation, then in lieu of adjusting
the Conversion Price as provided above with respect to the portion of
such distribution which exceeds the corporation's retained earnings,
the holder of the Series B Preferred Stock then outstanding shall have
the right thereafter to convert the share of Series B Preferred Stock
into (i) the kind and amount of indebtedness or cash or other assets
of the corporation receivable in such distribution by a holder of the
number of shares of Common Stock into which the Series B Preferred
Stock might have been converted at the close of business on the date
fixed for the determination of stockholders entitled to receive such
distribution, and (ii) such number of shares of Common Stock into
which the Series B Preferred Stock may then be convertible, as
adjusted from time to time pursuant to this Section 6.
(v) For the purpose of any computation under
Subparagraphs (iii) and (iv) above and for certain definitions under
Subparagraphs (viii) below, the current market price per share of
Common Stock on any date shall be deemed to be the average of the last
reported sales prices of the Common Stock for five consecutive trading
days selected by the Board of Directors commencing no more than 20
trading days before and ending no later than the day before the day in
question, as reported on the principal national securities exchange on
which the Common Stock is listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, on
the Nasdaq National Market or, if the Common Stock is not listed
-11-
<PAGE> 12
on the Nasdaq National Market, the average of the closing bid and
asked prices for the Common Stock on such day in the over-the-counter
market as reported by Nasdaq or, if bid and asked prices for the
Common Stock on each such day shall not have been reported through
Nasdaq, the average of the bid and asked prices for such date as
furnished by any New York Stock Exchange member firm regularly making
a market in the Common Stock selected from time to time by the Board
of Directors of the corporation for such purpose or, if no such
quotations are available, the fair market value of the Common Stock as
determined by a New York Stock Exchange member firm regularly making a
market in the Common Stock selected from time to time by the Board of
Directors of the corporation for such purpose.
(vi) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease
of at least one percent of such price; PROVIDED, HOWEVER, that any
adjustments which by reason of this Subparagraph (vi) are not required
to be made shall be carried forward and taken into account in any
subsequent adjustment; and PROVIDED FURTHER, that adjustment shall be
required and made in accordance with the provisions hereof not later
than such time as may be required in order to preserve the tax-free
nature of a distribution to the holders of shares of Series B
Preferred Stock or Common Stock. All calculations shall be made to
the nearest cent or to the nearest 1/100th of a share, as the case may
be. The corporation may make such reductions in the Conversion Price,
in addition to those required by Subparagraphs (i), (ii), (iii) and
(iv) above, as it considers to be advisable in order to avoid or
diminish any income tax to any holders of shares of Common Stock
resulting from any dividend or distribution of stock or issuance of
rights or warrants to purchase or subscribe for stock or from any
event treated as such for income tax purposes or for any other
reasons.
(vii) Whenever the Conversion Price is adjusted as herein
provided, (x) the corporation shall promptly file with any Conversion
Agent a certificate of a firm of independent public accountants
setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment and the
manner of computing the same, which certificate shall be conclusive
evidence of the correctness of such adjustment, and (y) a notice
stating that the Conversion Price has been adjusted and setting forth
the adjusted Conversion Price shall forthwith be given by the
corporation to any Conversion Agent and mailed by the corporation to
each record holder of shares of Series B Preferred Stock at their last
address as the same appears on the books of the corporation.
-12-
<PAGE> 13
(viii) Notwithstanding any other provision herein to the
contrary, in case of (aa) any capital reorganization of the
corporation, (bb) any reclassification or change of outstanding shares
of Common Stock (other than a change relating to par value, or as a
result of a subdivision or combination of the Common Stock), (cc) any
consolidation, merger or combination of the corporation with or into
another corporation, or (dd) any sale or conveyance of the properties
and assets of the corporation as, or substantially as, an entirety to
any other entity, in each case as a result of which Common Stock
holders are entitled to receive stock, securities or other property or
assets (including cash) with respect to or in exchange for their
Common Stock, then there shall be no adjustment of the Conversion
Price, but the holder of each share of Series B Preferred Stock then
outstanding shall have the right thereafter to convert such share into
the kind and amount of securities, cash or other property that the
holder would have owned or been entitled to receive immediately after
such reorganization, reclassification, change, consolidation, merger,
combination, sale or conveyance if such share had been converted
immediately before the effective date of such reorganization,
reclassification, change, consolidation, merger, combination, sale or
conveyance. In the event that the corporation engages in a
transaction set forth in Subparagraphs (aa)-(dd) above and holders of
Series B Preferred Stock do not convert their shares of Series B
Preferred Stock as provided above, then the continuing or surviving
entity shall be obligated to redeem all remaining outstanding shares
of Series B Preferred Stock and the holders of Series B Preferred
Stock shall surrender their shares of Series B Preferred Stock for
redemption, all in accordance with the redemption provisions otherwise
applicable to the Series B Preferred Stock as set forth in Section 5
hereof. The Adjustments described in this Subparagraph (viii) shall
be subject to further adjustments as appropriate that shall be as
nearly equivalent as may be practicable to the relevant adjustments
provided for in the preceding subparagraphs and in this subparagraph.
If, in the case of any such reorganization, reclassification, change,
consolidation, merger, combination, sale or conveyance, the stock or
other securities and property receivable thereupon by a holder of
shares of Common Stock includes shares of stock, securities or other
property or assets (including cash) of an entity other than the
successor or acquiring entity, as the case may be, in such
reorganization, reclassification, change, consolidation, merger,
combination, sale or conveyance, then the corporation shall enter into
an agreement with such other entity for the benefit of the holders of
Series A Preferred Stock that shall contain such provisions to protect
the interests of such holders as the Board of
-13-
<PAGE> 14
Directors of the corporation shall reasonably consider necessary by
reason of the foregoing.
(f) For purposes of this Section 6, "Common Stock" includes any
stock of any class of the corporation which has no preference in respect of
dividends or of amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the corporation and which is not
subject to redemption by the corporation. However, subject to the provisions
of Subparagraph (viii) above, shares issuable upon conversion of shares of
Series B Preferred Stock shall include only shares of the class designated as
Common Stock of the corporation on the date of the initial issuance of Series B
Preferred Stock by the corporation, or shares of any class or classes resulting
from any reclassification thereof and which have no preference in respect of
dividends or of amounts payable in the event of any voluntary or involuntary
liquidation, dissolution or winding up of the corporation and which are not
subject to redemption by the corporation.
(g) In case:
(i) the corporation shall declare a dividend (or any other
distribution) on its Common Stock that would cause an adjustment to the
Conversion Price of the Series B Preferred Stock pursuant to the terms of
Subparagraph (i) or Subparagraph (iv) above (including such an adjustment that
would occur but for the terms of the first sentence of Subparagraph (vi)
above); or
(ii) the corporation shall authorize the granting to the holders of
its Common Stock of rights or warrants to subscribe for or purchase any shares
of capital stock of any class or of any rights; or
(iii) of any reclassification of the Common Stock of the corporation
(other than a subdivision or combination of its outstanding shares of Common
Stock), or of any consolidation, merger or share exchange to which the
corporation is a party and for which approval of any stockholders of the
corporation is required, or of the sale or conveyance of the property of the
corporation as an entirety or substantially as an entirety; or
(iv) of the voluntary or involuntary dissolution, liquidation or
winding up of the corporation; then the corporation shall cause to be filed
with any Conversion Agent, and shall cause to be mailed to all record holders
of shares of Series B Preferred Stock at each such holder's last address as the
same appears on the books of the corporation, at least 20 days (or 10 days in
any case specified in clause (i) or (ii) above) prior to the applicable record
or effective date hereinafter specified, a notice stating (x) the date on which
a record is to be taken for the purpose of such dividend,
-14-
<PAGE> 15
distribution, rights or warrants or, if a record is not to be taken, the date
as of which the holders of Common Stock of record to be entitled to such
dividend, distribution, rights or warrants are to be determined, or (y) the
date on which such reclassification, consolidation, merger, share exchange,
sale, conveyance, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that holders of Common Stock
of record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, share exchange, sale, conveyance, dissolution,
liquidation or winding up. Neither the failure to give such notice nor any
defect therein shall affect the legality or validity of the proceedings
described in clauses (i) through (iv) above.
(h) The corporation will pay any and all documentary stamp or
similar issue or transfer taxes payable in respect of the issue or delivery of
shares of Common Stock upon conversions of shares of Series B Preferred Stock
pursuant hereto; PROVIDED, HOWEVER, that the corporation shall not be required
to pay any tax which may be payable in respect of any transfer involved in the
issue or delivery of shares of Common Stock in a name other than that of the
holder of the shares of Series B Preferred Stock to be converted, and no such
issue or delivery shall be made unless and until the person requesting such
issue or delivery has paid to the corporation the amount of any such tax or has
established, to the satisfaction of the corporation, that such tax has been
paid.
(i) All shares of Common Stock which may be delivered upon
conversions of shares of Series B Preferred Stock shall upon delivery be duly
and validly issued and fully paid and non-assessable, free of all liens and
charges and not subject to any preemptive rights. If necessary, the
corporation shall reduce the par value of the Common Stock so that all shares
of Common Stock delivered upon conversions of shares of Series B Preferred
Stock shall be fully paid and non-assessable.
(j) The corporation at all times shall reserve and keep available,
free from preemptive rights, out of its authorized but unissued shares of
Common Stock or its issued shares of Common Stock held in its treasury, or
both, for the purpose of effecting conversions of shares of Series B Preferred
Stock, the full number of shares of Common Stock deliverable upon the
conversion of all outstanding shares of Series B Preferred Stock not
theretofore converted. For purposes of this reservation of Common Stock, the
number of shares of Common Stock which shall be deliverable upon the conversion
of all outstanding shares of Series B Preferred Stock shall be computed as if
at the time of computation all outstanding shares of Series B Preferred Stock
were held by a single holder. The issuance of shares of Common
-15-
<PAGE> 16
Stock upon conversion of shares of Series B Preferred Stock is authorized in
all respects.
7. LIQUIDATION
(a) In the event of any voluntary or involuntary dissolution,
liquidation or winding up of the corporation (for the purposes of this Section
7, a "Liquidation"), before any distribution of assets shall be made to the
holders of the Common Stock or the holders of other stock that ranks junior to
the Series B Preferred Stock in respect of distributions upon the Liquidation
of the corporation, the holder of each share of Series B Preferred Stock then
outstanding shall be entitled to be paid, out of the assets of the corporation
available for distribution to its stockholders, an amount equal to $25.00 per
share plus all dividends (whether or not declared or due) accrued and unpaid on
such share on the date fixed for the distribution of assets of the corporation
to the holders of Series B Preferred Stock.
(b) If, upon any Liquidation of the corporation, the assets
available for distribution to the holders of Series B Preferred Stock and any
other stock of the corporation ranking on a parity with the Series B Preferred
Stock upon Liquidation issued by the corporation which shall then be
outstanding (hereinafter in this paragraph called the "Total Amount Available")
shall be insufficient to pay the holder of all outstanding shares of Series B
Preferred Stock and all other such parity stock the full amounts (including all
dividends accrued and unpaid) to which they shall be entitled by reason of such
Liquidation of the corporation, then there shall be paid to the holders of the
Series B Preferred Stock in connection with such Liquidation of the corporation
an amount equal to the product derived by multiplying the Total Amount
Available times a fraction of which the numerator shall be the full amount to
which the holders of the Series B Preferred Stock shall be entitled under the
terms of Subsection (a) by reason of such Liquidation of the corporation and of
which the denominator shall be the total amount which would have been
distributed by reason of such Liquidation of the corporation with respect to
the Series B Preferred Stock and all other stock ranking on a parity with the
Series B Preferred Stock upon Liquidation then outstanding had the corporation
possessed sufficient assets to pay the maximum amount which the holders of all
such stock would be entitled to receive in connection with such Liquidation of
the corporation.
(c) The voluntary sale, conveyance, lease, exchange or transfer of
the property of the corporation as an entirety or substantially as an entirety,
or the merger or consolidation of the corporation into or with any other
corporation, or the merger of any other corporation into the corporation, or
any purchase or redemption of some or all of the shares of any class or series
of
-16-
<PAGE> 17
stock of the corporation shall not be deemed to be a Liquidation of the
corporation for the purposes of this Section 7 (unless in connection therewith
the Liquidation of the corporation is specifically approved).
(d) The holder of any shares of Series B Preferred Stock shall not
be entitled to receive any payment owed for such shares under this Section 7
until such holder shall cause to be delivered to the corporation (i) the
certificate or certificates representing such shares of Series B Preferred
Stock and (ii) a transfer instrument or instruments satisfactory to the
corporation and sufficient to transfer such shares of Series B Preferred Stock
to the corporation free of any adverse interest. As in the case of the
redemption price, no interest shall accrue on any payment upon Liquidation
after the due date thereof.
(e) After payment of the full amount of the liquidating
distribution to which they are entitled, the holders of shares of Series B
Preferred Stock will not be entitled to any further participation in any
distribution of assets by the corporation.
8. PAYMENTS
(a) The corporation may provide funds for any payment of the
redemption price for any shares of Series B Preferred Stock or any amount
distributable with respect to any Series B Preferred Stock under Section 7
hereof by depositing such funds with a bank or trust company selected by the
corporation having a net worth of at least $50,000,000 and organized under the
laws of the United States or any state thereof, in trust for the benefit of the
holder of such shares of Series B Preferred Stock under arrangements providing
irrevocably for payment upon satisfaction of any conditions to such payment by
the holder of such shares of Series B Preferred Stock which shall reasonably be
required by the corporation. The corporation shall be entitled to make any
deposit of funds contemplated by this Section 8 under arrangements designated
to permit such funds to generate interest or other income for the corporation,
and the corporation shall be entitled to receive all interest and other income
earned by any funds while they shall be deposited as contemplated by this
Section 8, provided that the corporation shall maintain on deposit funds
sufficient to satisfy all payments which the deposit arrangement shall have
been established to satisfy. If the conditions precedent to the disbursement
of any funds deposited by the corporation pursuant to this Section 8 shall not
have been satisfied within two years after the establishment of the trust for
such funds, then (i) such funds shall be returned to the corporation upon its
request; (ii) after such return, such funds shall be free of any trust which
shall have been impressed upon them; (iii) the person entitled to the payment
for which such funds shall have been originally intended shall have the right
to look only to the corporation for such payment, subject
-17-
<PAGE> 18
to applicable escheat laws; and (iv) the trustee which shall have held such
funds shall be relieved of any responsibility for such funds upon the return of
such funds to the corporation.
(b) Any payment which may be owed in payment of the redemption
price for any shares of Series B Preferred Stock pursuant to Section 5 or in
payment of any amount distributable with respect to the shares of Series B
Preferred Stock under Section 7 shall be deemed to have been paid or properly
provided for upon the earlier to occur: (i) the date upon which funds
sufficient to make such payment shall be deposited in a manner contemplated by
Subsection (a) hereof or (ii) the date upon which a check payable to the person
entitled to receive such payment shall be delivered to such person or mailed to
such person at the address of such person then appearing on the books of the
corporation.
9. STATUS OF REACQUIRED SHARES.
Shares of Series B Preferred Stock issued and reacquired by the
corporation (including, without limitation, shares of Series B Preferred Stock
which have been redeemed pursuant to the terms of Section 5 hereof and shares
of Series B Preferred Stock which have been converted into shares of Common
Stock) shall have the status of authorized and unissued shares of Preferred
Stock, undesignated as to series and subject to later issuance.
10. PREEMPTIVE RIGHTS.
Holders of shares of Series B Preferred Stock are not entitled to any
preemptive or subscription rights in respect of any securities of the
corporation.
11. LEGAL HOLIDAYS.
In any case where any Dividend Payment Date, redemption date or the
last date on which a holder of Series B Preferred Stock has the right to
convert such holder's shares of Series B Preferred Stock shall not be a
Business Day (as defined below), then notwithstanding any other provision
hereof, payment of a dividend due or a redemption price or conversion of the
shares of Series B Preferred Stock need not be made on such date but may be
made on the next succeeding Business Day with the same force and effect as if
made on the Dividend Payment Date or redemption date or the last day for
conversion; provided, that for purposes of computing such payment, no interest
shall accrue for the period from and after such Dividend Payment Date or
redemption date, as the case may be. As used in this Section 11, "Business
Day" means each Monday, Tuesday, Wednesday, Thursday and Friday which is not a
day on which banking institutions in the State of Georgia are authorized or
obligated by law or executive order to close.
-18-
<PAGE> 19
IN WITNESS WHEREOF, the corporation has caused these Articles of
Amendment to be executed by its President and its corporate seal to be hereunto
affixed and to be attested by its Secretary, this 30th day of November, 1994.
FIRST LIBERTY FINANCIAL CORP.
By: /s/ Robert F. Hatcher
------------------------------
Robert F. Hatcher
President and Chief Executive
Officer
[SEAL]
ATTEST: /s/ Richard A. Hills, Jr.
---------------------------
Richard A. Hills, Jr.
Secretary
-19-
<PAGE> 1
EXHIBIT 15
June 13, 1995
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
RE: First Liberty Financial Corp.
Registration on Form S-4
We are aware that our reports dated February 11, 1995 and May 12, 1995, on our
reviews of interim financial information of First Liberty Financial Corp. (the
"Company") for the three-month and six-month periods ended December 31, 1994
and March 31, 1995, respectively, and included in the Company's quarterly
reports on Form 10-Q for the quarters then ended, respectively, are
incorporated by reference in this registration statement. Pursuant to Rule
436(c) under the Securities Act of 1933, these reports should not be considered
part of the registration statement prepared or certified by us within the
meaning of Sections 7 and 11 of that Act.
/s/ Coopers & Lybrand L.L.P.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement of First Liberty
Financial Corp. (the "Company") on Form S-4 (file no. 33- ) of our letter,
dated June 12, 1995, containing our opinion regarding certain tax matters.
We also consent to the incorporation by reference of our report, which includes
an explanatory paragraph regarding a change in accounting for income taxes in
1992 and a change in accounting for investments in 1993, dated November 10,
1994, except for the third and fourth paragraphs of Note 3, as to which the
date is December 2, 1994, on our audits of the consolidated financial
statements of the Company as of September 30, 1994 and 1993, and for the years
ended September 30, 1994, 1993, and 1992, which report is included in the
Company's Annual Report of Form 10-K for the year ended September 30, 1994. We
also consent to the reference to our firm under the captions "Certain Federal
Income Tax Consequences" and "Experts".
Atlanta, Georgia /s/ Coopers & Lybrand L.L.P.
June 13, 1994
<PAGE> 1
EXHIBIT 23.3
(LOGO) THIGPEN, JONES, SEATON & CO., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
211 North Franklin Street Robert E. Thigpen, Jr., CPA
P.O. Box 400 Scotty C. Jones, CPA
Dublin, Georgia 31040-0400 Frank W. Seaton Jr., CPA
Tel: 912-272-2030 Fax: 912-272-3318
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use of our report dated February 3, 1995 and
February 9, 1995 relating to the consolidated financial statements of Tifton
Bank and Trust Company included in the Registration Statement on Form S-4 and
to the reference of our Firm under the caption "Experts" in the Prospectus.
/s/ THIGPEN, JONES, SEATON & CO., PC
------------------------------------
THIGPEN, JONES, SEATON & CO., PC
Dublin, Georgia
June 9, 1995
<PAGE> 1
EXHIBIT 24
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Robert F. Hatcher, David L. Hall and Richard A. Hills, Jr., and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign a Registration Statement on Form S-4 under the provisions
of the Securities Act of 1933, as amended, for the registration of shares of
Series B 6.0% Cumulative Convertible Preferred Stock of First Liberty Financial
Corp., and to sign any and all amendments thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
This 4th day of June, 1995.
/s/ F. Don Bradford
----------------------------------------
F. Don Bradford
<PAGE> 2
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Robert F. Hatcher, David L. Hall and Richard A. Hills, Jr., and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign a Registration Statement on Form S-4 under the provisions
of the Securities Act of 1933, as amended, for the registration of shares of
Series B 6.0% Cumulative Convertible Preferred Stock of First Liberty Financial
Corp., and to sign any and all amendments thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
This 4th day of June, 1995.
/s/ Richard W. Carpenter
----------------------------------------
Richard W. Carpenter
<PAGE> 3
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Robert F. Hatcher, David L. Hall and Richard A. Hills, Jr., and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign a Registration Statement on Form S-4 under the provisions
of the Securities Act of 1933, as amended, for the registration of shares of
Series B 6.0% Cumulative Convertible Preferred Stock of First Liberty Financial
Corp., and to sign any and all amendments thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
This 4th day of June, 1995.
/s/ C. Lee Ellis
----------------------------------------
C. Lee Ellis
<PAGE> 4
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints David L. Hall and Richard A. Hills, Jr., and each of them, his true
and lawful attorneys-in-fact and agents, with full power of substitution, for
him and in his name, place and stead, in any and all capacities, to sign a
Registration Statement on Form S-4 under the provisions of the Securities Act
of 1933, as amended, for the registration of shares of Series B 6.0% Cumulative
Convertible Preferred Stock of First Liberty Financial Corp., and to sign any
and all amendments thereto, and to file the same, with all exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done, as fully to all intents and purposes as he
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
This 4th day of June, 1995.
/s/ Robert F. Hatcher
----------------------------------------
Robert F. Hatcher
<PAGE> 5
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Robert F. Hatcher, David L. Hall and Richard A. Hills, Jr., and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign a Registration Statement on Form S-4 under the provisions
of the Securities Act of 1933, as amended, for the registration of shares of
Series B 6.0% Cumulative Convertible Preferred Stock of First Liberty Financial
Corp., and to sign any and all amendments thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
This 4th day of June, 1995.
/s/ Melvin I. Kruger
----------------------------------------
Melvin I. Kruger
<PAGE> 6
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Robert F. Hatcher, David L. Hall and Richard A. Hills, Jr., and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign a Registration Statement on Form S-4 under the provisions
of the Securities Act of 1933, as amended, for the registration of shares of
Series B 6.0% Cumulative Convertible Preferred Stock of First Liberty Financial
Corp., and to sign any and all amendments thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
This 4th day of June, 1995.
/s/ Thomas H. McCook
----------------------------------------
Thomas H. McCook
<PAGE> 7
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Robert F. Hatcher, David L. Hall and Richard A. Hills, Jr., and each
of them, his true and lawful attorneys-in-fact and agents, with full power of
substitution, for him and in his name, place and stead, in any and all
capacities, to sign a Registration Statement on Form S-4 under the provisions
of the Securities Act of 1933, as amended, for the registration of shares of
Series B 6.0% Cumulative Convertible Preferred Stock of First Liberty Financial
Corp., and to sign any and all amendments thereto, and to file the same, with
all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite or necessary to be done, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming
all that said attorneys-in-fact and agents or any of them, or their or his
substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
This 4th day of June, 1995.
/s/ Jo Slade Wilbanks
----------------------------------------
Jo Slade Wilbanks
