<PAGE> 1
As filed with the Securities and Exchange Commission on October 10, 1996
Registration No. 333-10617
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________________
POST EFFECTIVE
AMENDMENT NO. 1
TO
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:
<TABLE>
<S> <C>
William L. Floyd
David M. Calhoun John D. Comer
Long, Aldridge & Norman, LLP Sell & Melton
5300 One Peachtree Center P. O. Box 229
303 Peachtree Street Macon, Georgia 31297
Atlanta, Georgia 30308 (912) 746-8521
(404) 527-4000
</TABLE>
__________________________
Approximate date of commencement of proposed sale to the public: The
exchange of common stock of Middle Georgia Bank for Common Stock of the
Registrant will take place upon consummation of the merger of Middle Georgia
Bank and a wholly owned subsidiary of the Registrant. The merger is expected
to become effective upon filing of Articles of Combination with the Office of
Thrift Supervision following approval of the transaction by the shareholders of
Middle Georgia Bank 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
____________________
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
MIDDLE GEORGIA BANK
102 HIGHWAY 49
BYRON, GEORGIA 31008
Dear Stockholder: October 15, 1996
Recently, we delivered to you a Proxy Statement/Prospectus dated October
2, 1996 (the "Initial Proxy Statement/Prospectus"), with respect to a Special
Meeting of Stockholders (the "Special Meeting") of Middle Georgia Bank ("MGB")
which was to be held on November 6, 1996 for the purpose of considering and
voting upon the approval of an Agreement and Plan of Merger by and among First
Liberty Financial Corp., First Liberty Bank and MGB. Subsequent to the
mailing of the Initial Proxy Statement/Prospectus, we discovered an error in the
calculation of MGB's income tax expense. As a result, MGB's net income for the
six and nine months ended June 30, 1996 and certain other financial information
that was derived from the net income of MGB for such periods was not correct.
As a result, MGB overstated its income tax expense by approximately $147,000 for
such periods and understated its net income by the same amount.
Enclosed with this letter is a revised Proxy Statement/Prospectus dated
October 15, 1996, with the corrected information.
PLEASE NOTE THAT THE DATE OF THE SPECIAL MEETING HAS BEEN CHANGED IN
ORDER TO ALLOW YOU MORE TIME TO REVIEW THE REVISED PROXY STATEMENT/PROSPECTUS.
THE LOCATION OF THE SPECIAL MEETING ALSO HAS BEEN CHANGED. THE SPECIAL MEETING
WILL BE HELD AT THE BYRON DEPOT, 102 EAST HERITAGE BOULEVARD, BYRON, GEORGIA, AT
2:00 P.M., LOCAL TIME, ON THURSDAY, NOVEMBER 14, 1996. INCLUDED WITH THE
REVISED PROXY STATEMENT/PROSPECTUS IS A NEW PROXY CARD WHICH WE URGE YOU TO
COMPLETE, SIGN AND RETURN IN THE ENCLOSED ENVELOPE. ALL PREVIOUSLY SUBMITTED
PROXY CARDS FOR THE SPECIAL MEETING ARE CONSIDERED NULL AND VOID. ACCORDINGLY,
IF YOU INTEND TO VOTE BY PROXY AT THE SPECIAL MEETING, YOU MUST COMPLETE, DATE
AND SIGN THE PROXY CARD ENCLOSED WITH THE REVISED PROXY STATEMENT/PROSPECTUS
AND RETURN IT TO MGB EVEN IF YOU HAVE ALREADY COMPLETED THE PROXY CARD INCLUDED
WITH THE INITIAL PROXY STATEMENT/PROSPECTUS.
We sincerely apologize for any inconvenience the above referenced
changes may have caused you.
Sincerely,
/s/ W.L. Brown
W.L. Brown
President and
Chief Executive Officer
<PAGE> 4
MIDDLE GEORGIA BANK
102 HIGHWAY 49
BYRON, GEORGIA 31008
October 15, 1996
Dear Stockholder:
You are cordially invited to attend a Special Meeting of Stockholders
(the "Special Meeting") of Middle Georgia Bank ("MGB") to be held at The Byron
Depot, 102 East Heritage Boulevard, Byron, Georgia, at 2:00 p.m., local time,
on Thursday, November 14, 1996.
At this important meeting, you will be asked to consider and vote upon
the approval of an Agreement and Plan of Merger dated as of June 11, 1996, as
amended on July 24, 1996 and September 10, 1996 (the "Merger Agreement"), by
and among First Liberty Financial Corp. ("FLFC"), First Liberty Bank, a wholly
owned subsidiary of FLFC ("FLB"), and MGB. The Merger Agreement, among other
things, provides for the merger (the "Merger") of MGB with and into FLB. FLB
will be the surviving savings bank in the Merger and will remain a wholly owned
subsidiary of FLFC. If the proposed Merger is consummated, each outstanding
share of MGB Common Stock (excluding shares held by stockholders who perfect
their dissenters' rights under Georgia law) will be converted into and
exchanged for the right to receive the number of shares (the "Merger
Consideration") of Common Stock, $1.00 par value per share, of FLFC (the "FLFC
Stock") equal to $85.00 divided by the "FLFC Stock Price." The "FLFC Stock
Price" will be equal to the average closing price of the FLFC Stock as reported
on the Nasdaq National Market on the ten trading days ending five days before
the effective time of the Merger. Notwithstanding the foregoing, the Merger
Consideration will not be more than 5.667 shares of FLFC Stock per share of MGB
Stock nor less than 5.204 shares of FLFC Stock per share of MGB Stock. As a
result, FLFC will issue an aggregate of between approximately 1,040,700 shares
and 1,133,400 shares of FLFC Stock in the Merger. The affirmative vote of the
holders of a majority of the shares of MGB Common Stock entitled to vote at the
Special Meeting is required for approval of the Merger Agreement and the
transactions contemplated thereby. The directors and the principal stockholder
of MGB, as a group, own or control voting power of approximately 66.7% of the
shares of MGB Common Stock entitled to vote. Each of these individuals has
agreed to vote his shares of MGB Common Stock in favor of the Merger Agreement
and the transactions contemplated thereby. Accordingly, approval of the Merger
Agreement and the transactions contemplated thereby is assured.
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 MGB stockholders.
As soon as practicable after the Merger, FLFC will send to you a letter
of transmittal providing instructions for exchanging your MGB Common Stock
certificates for FLFC Stock.
YOUR BOARD OF DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY ARE IN THE BEST INTERESTS
OF MGB'S STOCKHOLDERS AND THAT THE MERGER IS FAIR TO THE MGB'S 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/ W. L. Brown
--------------------------------
W. L. Brown
President and
Chief Executive Officer
MGB STOCKHOLDERS SHOULD NOT SURRENDER OR OTHERWISE ATTEMPT TO EXCHANGE
THEIR MGB COMMON STOCK CERTIFICATES FOR FLFC STOCK CERTIFICATES UNLESS AND
UNTIL THEY HAVE RECEIVED APPROPRIATE NOTICE AND INSTRUCTIONS FOR EXCHANGE.
<PAGE> 5
MIDDLE GEORGIA BANK
102 HIGHWAY 49
BYRON, GEORGIA 31008
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To be held at 2:00 p.m. on Thursday, November 14, 1996
To the Stockholders of Middle Georgia Bank:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the
"Special Meeting") of Middle Georgia Bank ("MGB") will be held at The Byron
Depot, 102 East Heritage Boulevard, Byron, Georgia, at 2:00 p.m., local time,
on Thursday, November 14, 1996, 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 June 11, 1996, as amended on
July 24, 1996 and September 10, 1996 (the "Merger Agreement"), by and among
First Liberty Financial Corp. ("FLFC"), First Liberty Bank, a federally
chartered savings bank and a wholly owned subsidiary of FLFC ("FLB"), and MGB,
and the consummation of the transactions contemplated thereby. The Merger
Agreement provides, among other things, that MGB will merge (the "Merger") with
and into FLB, which will be the surviving savings bank in the Merger. As a
result of the Merger each share of MGB 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 number of shares (the "Merger
Consideration") of FLFC Stock equal to $85.00 divided by the "FLFC Stock
Price." The "FLFC Stock Price" will be equal to the average closing price of
the FLFC Stock as reported on the Nasdaq National Market on the ten trading
days ending five days before the effective time of the Merger. Notwithstanding
the foregoing, the Merger Consideration will not be more than 5.667 shares of
FLFC Stock per share of MGB Stock nor less than 5.204 shares of FLFC Stock per
share of MGB Stock. As a result, FLFC will issue an aggregate of between
approximately 1,040,700 shares and 1,133,400 shares of FLFC Stock in the
Merger. The Merger Agreement and the Merger are more fully described in the
accompanying Proxy Statement/Prospectus.
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 September 30,
1996, 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 MGB Common Stock
entitled to vote at the Special Meeting. The directors, executive officers and
the principal stockholder of MGB, as a group, own or control voting power of
approximately 66.7% of the shares of MGB Common Stock entitled to vote. Each
of these individuals has agreed to vote his shares of MGB Common Stock in favor
of the Merger Agreement and the transactions contemplated thereby.
Accordingly, approval of the Merger Agreement and the transactions contemplated
thereby is assured.
THE BOARD OF DIRECTORS OF MGB RECOMMENDS THAT STOCKHOLDERS VOTE "FOR"
APPROVAL OF THE MERGER AGREEMENT AND CONSUMMATION OF THE TRANSACTIONS
CONTEMPLATED THEREBY.
Each stockholder of MGB has the right to dissent from the Merger
Agreement and demand payment of the fair value of his or her shares of MGB
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/ W. L. Brown
-----------------------------
W. L. Brown
President and
Chief Executive Officer
Byron, Georgia
October 15, 1996
<PAGE> 6
PROXY STATEMENT
OF
MIDDLE GEORGIA BANK
____________________
PROSPECTUS
OF
FIRST LIBERTY FINANCIAL CORP.
____________________
This Proxy Statement/Prospectus is being furnished to holders of
Common Stock, $1.00 par value per share ("MGB Stock"), of Middle Georgia Bank,
a state chartered commercial bank organized under the laws of the State of
Georgia ("MGB"), in connection with the solicitation of proxies by the Board of
Directors of MGB for use at a Special Meeting of Stockholders to be held at
2:00 p.m., local time, on Thursday, November 14, 1996, at The Bryon Depot, 102
East Heritage Boulevard, Byron, 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 June
11, 1996, as amended on July 24, 1996 and September 10, 1996 (the "Merger
Agreement"), by and among First Liberty Financial Corp., a Georgia corporation
("FLFC"), First Liberty Bank, a federally chartered savings bank and a wholly
owned subsidiary of FLFC ("FLB"), and MGB 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, among other things, that MGB will merge
(the "Merger") with and into FLB, which will be the surviving savings bank in
the Merger and will remain a wholly owned subsidiary of FLFC. Upon
consummation of the Merger, each outstanding share of MGB Stock (excluding
shares held by stockholders who perfect their dissenters' rights pursuant to
Georgia law ("Dissenting Stockholders")) will cease to be outstanding and will
be converted into and exchanged for the right to receive a number of shares
(the "Merger Consideration") of Common Stock, $1.00 par value per share, of
FLFC (the "FLFC Stock") equal to $85.00 divided by the "FLFC Stock Price."
The "FLFC Stock Price" will be equal to the average closing price of the FLFC
Stock as reported on the Nasdaq National Market on the ten trading days ending
five days before the effective time of the Merger. Notwithstanding the
foregoing, the Merger Consideration will not be more than 5.667 shares of FLFC
Stock per share of MGB Stock (the "Maximum Exchange Ratio") nor less than 5.204
shares of FLFC Stock per share of MGB Stock (the "Minimum Exchange Ratio"). As
a result, FLFC will issue an aggregate of between approximately 1,040,700 shares
and 1,133,400 shares of FLFC Stock in the Merger. No fractional shares of FLFC
Stock will be issued in the Merger. Instead, each holder of shares of MGB
Stock who would otherwise be entitled to receive a fraction of a share of FLFC
Stock will receive, in lieu of such fractional share, cash (without interest)
in an amount equal to such fractional part of a share of FLFC Stock multiplied
by the closing price of the FLFC Stock as of the effective date of the Merger.
The shares of FLFC Stock are listed on the Nasdaq National Market under the
symbol "FLFC."
As soon as practicable after the Merger, FLFC will send to
holders of MGB Stock a letter of transmittal providing instructions for
exchanging their MGB Stock certificates for FLFC Stock.
This Proxy Statement/Prospectus also constitutes a prospectus of FLFC
relating to the shares of FLFC Stock issuable to MGB stockholders in the
Merger.
All shares of MGB Stock outstanding immediately before the effective
time of the Merger (the "Effective Time") will, as a result of the Merger, no
longer be outstanding and will automatically be canceled and retired and will
cease to exist, and each holder of a certificate representing any shares of MGB
Stock (a "MGB Certificate") will cease to have any rights with respect thereto,
except the right to receive the Merger Consideration in consideration therefor
upon the surrender of such certificate or, in the case of shares held by
Dissenting Stockholders, the rights accorded to such shares under the Financial
Institutions Code of Georgia and the Georgia Business Corporation Code (the
"GBCC").
This Proxy Statement/Prospectus and the accompanying proxy card are
first being mailed to stockholders of MGB on or about October 15, 1996.
THE FLFC STOCK 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 FLFC STOCK 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 October 15, 1996
<PAGE> 7
TABLE OF CONTENTS
<TABLE>
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PAGE
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<S> <C>
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE . . . . . . . . . . . . . . . . . . . . . . . . . 5
SUMMARY
Parties to the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
The Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Market Prices and Dividends on FLFC and MGB Stock . . . . . . . . . . . . . . . . . . . . . . 11
Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
THE SPECIAL MEETING
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Record Date; Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Solicitation and Revocability of Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Recommendation of MGB's Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . 20
THE MERGER
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Merger Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Effective Time . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Exchange of MGB Stock Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
No Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Management and Operations After the Merger . . . . . . . . . . . . . . . . . . . . . . . . . 22
Interests of Certain Persons in the Merger . . . . . . . . . . . . . . . . . . . . . . . . . 22
Background of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Reasons for the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Opinion of Financial Advisor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Certain Federal Income Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Summary of Certain Provisions of the Merger Agreement . . . . . . . . . . . . . . . . . . . . 30
Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Accounting Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Restrictions on Resales of FLFC Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Dissenters' Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
PRO FORMA COMBINED CONDENSED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
MIDDLE GEORGIA BANK MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Results of Operations for the Six Months Ended June 30, 1996 and 1995 . . . . . . . . . . . . 43
Results of Operations for the Years Ended December 31, 1995 and 1994 . . . . . . . . . . . . 43
Results of Operations for the Years Ended December 31, 1994 and 1993 . . . . . . . . . . . . 43
Average Balance and Net Income Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
Rate and Volume Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Asset/Liability Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
Investment Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Loan Portfolio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Nonperforming Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
Summary of Loan Loss Experience . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
Return on Assets and Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . 52
</TABLE>
-2-
<PAGE> 8
<TABLE>
<S> <C>
Liquidity and Capital Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Commitments and Lines of Credits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
Impact of Inflation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
Current Accounting Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54
OWNERSHIP OF MGB STOCK
Security Ownership of Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55
Principal Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56
BUSINESS INFORMATION CONCERNING FLFC AND FLB . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
DESCRIPTION OF FLFC CAPITAL STOCK
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
FLFC Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
Limitation of Personal Liability of Directors and Officers . . . . . . . . . . . . . . . . . 60
COMPARISON OF STOCKHOLDER RIGHTS
Authorized Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Stockholder Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Anti-Takeover Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Stockholder Rights Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
CERTAIN REGULATORY CONSIDERATIONS
General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
Federal Savings and Loan Holding Company Regulation . . . . . . . . . . . . . . . . . . . . . 67
Recent Legislation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 68
Regulation of FLB . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
OTHER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
MIDDLE GEORGIA BANK FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-1
APPENDICES:
Appendix A - Agreement and Plan of Merger dated as of June 11, 1996, as amended on July 24, 1996, by and between
FLFC, FLB and MGB.
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.
Appendix D - Opinion of The Robinson-Humphrey Company, Inc. as to the fairness of the Merger.
</TABLE>
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<PAGE> 9
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 FLFC
Stock 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 Citicorp
Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661-2511;
Seven World Trade Center, 13th Floor, New York, New York 10048; 1401 Brickell
Avenue, Suite 200, Miami, Florida 33131; 1801 Wilshire Boulevard, 11th Floor,
Los Angeles, California 90036-3648; and 1801 California Street, Suite 4800,
Denver, Colorado 80202-2648. 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 MGB
has been supplied by MGB.
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
MGB. 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, MGB or any subsidiary thereof 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.
-4-
<PAGE> 10
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 RECEIVED BY FLFC NO LATER THAN FIVE BUSINESS DAYS PRIOR TO THE
SPECIAL MEETING.
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,
1995, a copy of which is being delivered to the MGB stockholders with this
Proxy Statement/Prospectus;
(ii) FLFC's Quarterly Report on Form 10-Q for the three months ended
December 31, 1995;
(iii) FLFC's Quarterly Report on Form 10-Q for the six months ended March
31, 1996;
(iv) FLFC's Quarterly Report on Form 10-Q for the nine months ended June
30, 1996, a copy of which is being delivered to the MGB stockholders with this
Proxy Statement/Prospectus; and
(v) FLFC's Current Report on Form 8-K dated January 19, 1996.
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.
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<PAGE> 11
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 term "FLFC" refers
to such corporation and, where the context requires, such corporation and its
subsidiaries. Unless indicated otherwise, the information in this Proxy
Statement/Prospectus gives effect to a three-for-two split of this FLFC Stock
effected in the form of a 50% stock dividend paid on October 1, 1996.
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 before extraordinary item of $8.1
(912) 743-0911 million and $7.4 million for the year ended September 30, 1995 and the
nine months ended June 30, 1996, respectively. At June 30, 1996, FLFC had
total assets of approximately $991.2 million, total deposits of
approximately $751.4 million and stockholders' equity of approximately
$76.0 million.
FLB is a federally chartered stock savings bank based in Macon, Georgia
which serves Macon, Savannah, Valdosta, Tifton, Swainsboro and other
Georgia cities through its home office and 28 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 June 30, 1996, FLB is
the 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."
MIDDLE GEORGIA BANK . . . . . . . . . . . MGB is a state chartered commercial bank organized under the laws of the
102 HIGHWAY 49 State of Georgia and headquartered in Byron, Georgia. MGB operates two
BYRON, GEORGIA 31008 offices in Peach County, Georgia from which it provides a wide range of
(912) 956-4300 commercial and retail banking services.
For the year ended December 31, 1995, MGB reported net income of
approximately $1.3 million. For the six months ended June 30, 1996, MGB
reported net income of approximately $602,000. As of June 30, 1996, MGB
had total assets of approximately $112.5 million, total deposits of
approximately $100.6 million and stockholders' equity of approximately
$9.6 million. See "The Merger - Background of the Merger" and "Middle
Georgia Bank - Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Based on June 30, 1996 financial information, MGB would have comprised
approximately 10.19% of FLFC's total assets, 11.17% of its stockholder's
equity, 8.20% of its total revenue and 10.30% of its net income.
</TABLE>
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<PAGE> 12
THE SPECIAL MEETING
<TABLE>
<S> <C>
TIME, DATE AND PLACE . . . . . . . . . The Special Meeting will be held at 2:00 p.m., local time, on Thursday,
November 14, 1996, at The Byron Depot, 102 East Heritage Boulevard, Byron,
Georgia, and at any adjournments or postponements thereof.
RECORD DATE AND SHARES ENTITLED
TO VOTE . . . . . . . . . . . . . . . Holders of record of the MGB Stock at the close of business on September
30, 1996 (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 MGB
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 MGB 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 MGB
Stock. As of September 30, 1996, all directors, executive officers and
the principal stockholder of MGB as a group beneficially owned 133,470
shares (66.7%) of the outstanding MGB Stock. Each of the directors and the
principal stockholder of MGB has agreed to 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 MGB Stock, the
approval of the Merger Agreement and the transactions contemplated thereby
by the stockholders of MGB is assured. 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 MGB Stock - Principal Stockholders."
</TABLE>
THE MERGER
General. The Merger Agreement provides, among other things, that MGB
will merge with and into FLB. FLB will be the surviving savings bank in the
Merger and will remain a wholly owned savings bank subsidiary of FLFC. Upon
consummation of the Merger, each outstanding share of MGB Stock (excluding
shares held by Dissenting Stockholders) will cease to be outstanding and will
be converted into and exchanged for the right to receive the Merger
Consideration. 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 MGB Stock (excluding shares held by
Dissenting Stockholders) will cease to be outstanding and will, at the option
of the holder thereof and subject to certain limitations described herein, be
converted into and exchanged for the right to receive a number of shares of
FLFC Stock equal to $85.00 divided by the "FLFC Stock Price." The "FLFC Stock
Price" will be equal to the average closing price of the FLFC Stock as reported
on the Nasdaq National Market on the ten trading days ending five days before
the effective time of the Merger. Notwithstanding the foregoing, the Merger
Consideration will not be more than 5.667 shares of FLFC Stock per share of MGB
Stock (the "Maximum Exchange Ratio") nor less than 5.204 shares of FLFC Stock
per share of MGB Stock (the "Minimum Exchange Ratio"). As a result, FLFC will
issue an aggregate of between approximately 1,040,700 shares and 1,133,400
shares of FLFC Stock in the Merger.
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<PAGE> 13
As an example, if the FLFC Stock Price is equal to or lower than
$15.00 per share, the Merger Consideration will be 5.667 shares of FLFC Stock
per share of MGB Stock. If the FLFC Stock Price is equal to or higher than
$16.33 per share, the Merger Consideration will be 5.204 shares of FLFC Stock
per share of MGB Stock.
Description of FLFC Stock. The holders of FLFC Stock are entitled to
dividends as and when declared by the Board of Directors out of funds legally
available therefor, to one vote for each share held on matters submitted to a
vote of stockholders, and, in the event of liquidation, to the net assets
remaining after satisfaction of all liabilities (subject to the terms of any
outstanding series of FLFC Preferred Stock). As of September 15, 1996, FLFC had
approximately 6,020,000 shares of FLFC Stock outstanding held by approximately
650 stockholders of record. See "Description of FLFC Capital Stock" and
"Comparison of Stockholder Rights."
Reasons for the Merger and Recommendation of the MGB Board of
Directors.
The Board of Directors of MGB, after consideration of relevant
business, financial, legal and market factors, approved the Merger Agreement
and the transactions contemplated thereby. MGB's Board of Directors did not
assign any relative or specific weight to the factors considered which
included:
(1) The Financial Terms of the Merger. The Board of Directors of
MGB believes that the Merger Consideration is fair to MGB's stockholders based
upon MGB's current financial condition and future prospects and upon its
perception of the future prospects of FLFC.
(2) Comparing MGB's Value As A Continuing Independent Entity With
Its Value in Combining With FLFC. The Board of Directors of MGB considered the
benefits that could be expected to accrue to MGB stockholders from the Merger,
including the liquidity of the FLFC Stock and the possibility of higher stock
price for the FLFC Stock, with the Board's view of what would be achieved by
MGB operating as an independent entity.
(3) Tax Free Nature of Acquisition. The Board of Directors of MGB
considered the non-financial terms and structure of the Merger, in particular
the fact that the Merger will qualify as a tax-free reorganization for the MGB
stockholders for federal income tax purposes to the extent such stockholders
receive FLFC Stock in the Merger. See "The Merger - Certain Federal Income Tax
Consequences."
(4) Likelihood of Regulatory Approval. The Board of Directors
considered the likelihood that the Merger would be approved by the appropriate
regulatory authorities.
(5) Added Services to Customers. The Board of Directors of MGB
believes the competitive nature of the MGB's financial market necessitates the
ability to offer a wide range of banking services. Due to capital requirements
and added regulatory requirements, MGB is presently unable to provide some
services it deems necessary to compete effectively in the financial market in
the Middle Georgia area with other financial institutions. The Merger will
provide the necessary capital, support personnel and financial services
required to remain competitive.
(6) Possible Legislative Developments. The Board of Directors of
MGB considered recent legislative proposals concerning state-wide banking.
Such 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.
(7) Marketability of Shares of FLFC. The Board of Directors of
MGB considered the fact that there is no established market for MGB shares
whereas, after the Merger, the shares received by MGB stockholders will be
traded on the Nasdaq National Market.
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<PAGE> 14
(8) Opinion of The Robinson-Humphrey Company, Inc. The Board of
Directors of MGB considered the fact that The Robinson-Humphrey Company, Inc.
("R-H") has rendered its opinion that the exchange ratio is fair from the
viewpoint of MGB stockholders. The opinion of R-H is set forth in Appendix D
and is incorporated herein by reference. See "The Merger - Opinion of
Financial Advisor."
THE BOARD OF DIRECTORS OF MGB UNANIMOUSLY 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."
Opinion of Financial Advisor. MGB's financial advisor, R-H, has
rendered an opinion to the Board of Directors of MGB that the Merger is fair to
the stockholders of MGB from a financial point of view. A copy of such opinion
is set forth in Appendix D hereto and should be read in its entirety with
respect to the assumptions made, other matters considered and limitations on
the reviews undertaken. See "The Merger - Opinion of Financial Advisor."
Effective Time of the Merger. If the Merger Agreement and the
transactions contemplated thereby are approved by the requisite vote of the MGB
stockholders, all required governmental and other consents and approvals are
obtained and not withdrawn, 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 that Articles of Combination, reflecting the Merger, are filed with the
Office of Thrift Supervision (the "OTS"). All required regulatory approvals
have been obtained with respect to the Merger Agreement and the transactions
contemplated thereby. Assuming satisfaction of all conditions to consummation,
the Merger is expected to become effective on November 15, 1996. Both MGB and
FLFC have the right to terminate the Merger Agreement should the Merger not be
consummated by November 15, 1996. 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."
Exchange of MGB Stock. As soon as practicable after the Merger, FLFC
will send to the holders of MGB Stock a letter of transmittal providing
instructions for exchanging their MGB Certificates for the Merger
Consideration. FLFC will not be obligated to deliver the FLFC Stock to which
any former holder of MGB Stock is entitled until such holder surrenders his or
her MGB Certificate or Certificates for exchange. The MGB Certificate or
Certificates so surrendered must be duly endorsed as FLFC may require. MGB
STOCKHOLDERS SHOULD NOT SEND THEIR MGB CERTIFICATES WITH THEIR PROXY CARDS.
See "The Merger - Exchange of MGB Stock Certificates."
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 the Internal Revenue Code (the
"Code") for federal income tax purposes. As a tax-free reorganization (i) no
gain or loss will be recognized by FLFC, FLB or MGB and (ii) no gain or loss
will be recognized by the MGB stockholders (excluding Dissenting Stockholders)
except in respect of cash received in lieu of fractional shares of FLFC 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 MGB STOCKHOLDER AND OTHER FACTORS, EACH
HOLDER OF MGB 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 as a "pooling
of interests" transaction by FLFC for financial reporting purposes. See "The
Merger - Accounting Treatment."
Management and Operations After the Merger. Pursuant to the Merger
Agreement, at the Effective Time MGB will merge with and into FLB, with FLB as
the surviving savings bank in the Merger. The Board of Directors and executive
officers of FLFC and FLB immediately prior to the Merger will be the Board of
Directors and executive officers
-9-
<PAGE> 15
of FLFC and FLB following the Merger except that Harold W. Peavy, Jr. will be
elected as a director of FLFC and FLB. Certain of the current directors of MGB
will become members of FLB's Peach County Community Board of Directors (the
"Community Board"), an advisory board to be established at the Effective Time.
Additionally, W. L. Brown, the President and Chief Executive Officer of MGB,
will serve as Senior Vice President and Peach County City President of FLB
following the 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 MGB's
management and Board of Directors have interests in the Merger in addition to
their interests as stockholders of MGB generally. These include provisions in
the Merger Agreement relating to service of certain of MGB's current directors
on the Community Board, the execution by W. L. Brown, the President and Chief
Executive Officer of MGB, of an employment agreement with FLB pursuant to which
Mr. Brown will serve as Senior Vice President and Peach County City President
of FLB, the election of Harold W. Peavy, Jr to FLFC's and FLB's Boards of
Directors, eligibility for certain FLFC employee benefits and provisions for
employment of certain other MGB 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 holders of a majority of the
outstanding shares of MBG Stock entitled to vote thereon; (ii) receipt of all
governmental and other consents and approvals necessary to permit consummation
of the Merger, including those of 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 MGB Stock; (iv) the
execution by each director of MGB of an agreement (A) not to sell any FLFC
Stock that he or she receives in the Merger until financial results covering at
least 30 days of post-Merger combined operations have been published and (B)
that he will not become a director of or acquire beneficial ownership of stock
in any other locally-based financial institution or its holding company doing
business in Peach County, Georgia for a period of three years after the
Effective Time; and (v) MGB's loan loss reserve shall not be less than
$1,539,000 or 2.35% of gross loans. 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
received the requisite approvals or waivers from each of these agencies prior
to the date hereof. See "The Merger - Regulatory Approvals."
Conduct of Business Pending the Merger. MGB has 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, MGB has agreed not to take certain actions
relating to the operation of MGB 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 (or announce any
increase of) 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 except that MGB may declare and pay a dividend of
$.15 per share prior to the Closing Date, 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."
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<PAGE> 16
Termination. The Merger Agreement may be terminated at any time prior
to the Effective Time by mutual written consent of MGB and FLFC. In addition,
the Merger Agreement may be terminated prior to the Effective Time by either
FLFC or MGB if (i) the other party fails to perform in any material respect its
agreements contained in the Merger Agreement on or prior to the Closing Date,
(ii) the other party materially breaches any of its representations, warranties
or covenants contained in the Merger Agreement and fails to cure such breach
within ten (10) days after notification by the opposite party of intent to
terminate, (iii) any event has occurred which would have a material adverse
effect on any other party to the Agreement or their respective subsidiaries,
(iv) if any court, governmental or regulatory authority takes any action which
prohibits or restrains either party from consummating the Merger, or (v) if the
Merger is not consummated by November 15, 1996. See "The Merger - Summary of
Certain Provisions of the Merger Agreement."
Dissenters' Rights. Under Georgia law, record holders of MGB Stock
who prior to the MGB 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 MGB
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 FLFC Stock. The FLFC Stock 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 MGB or
FLFC under applicable federal securities laws and under the accounting
requirements for a pooling of interests transaction. Affiliates of FLFC or MGB
may not sell shares of FLFC Stock acquired in connection with the Merger except
pursuant to an effective registration statement under the Securities Act or in
compliance with Rule 145 promulgated under the Securities Act or another
applicable exemption from the registration requirements of the Securities Act.
Each director, executive officer and principal stockholder of MGB has agreed
not to sell the shares of FLFC Stock that he or she receives in connection with
the Merger until financial results covering at least 30 days of post-Merger
combined operations have been published. The FLFC Stock is listed for trading
on the Nasdaq National Market under the symbol "FLFC." See "The Merger -
Restrictions on Resales of FLFC Stock."
MARKET PRICES AND DIVIDENDS ON FLFC STOCK AND MGB 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 7.75% Cumulative
Convertible Preferred Stock (the "Series A Preferred") and Series B 6.0%
Cumulative Convertible Preferred Stock (the "Series B Preferred"), for the
periods indicated. FLFC has paid all declared dividends.
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<PAGE> 17
<TABLE>
<CAPTION>
DIVIDENDS DECLARED DIVIDENDS DECLARED
SALE PRICES PER DIVIDENDS DECLARED PER SHARE OF FLFC PER SHARE OF FLFC
FISCAL YEAR ENDED SHARE OF PER SHARE OF SERIES A SERIES B
SEPTEMBER 30, FLFC STOCK FLFC STOCK PREFERRED STOCK(1) PREFERRED STOCK(2)
- ----------------- ---------------------- ------------------ ------------------ ------------------
HIGH LOW
---- ---
<S> <C> <C> <C> <C> <C>
1994
First Quarter . . . . . . . $11.00 $ 9.67 $.053 $ .48
Second Quarter . . . . . 10.50 9.17 .053 .48
Third Quarter . . . . . . . 10.17 8.67 .053 .48
Fourth Quarter . . . . . . 10.33 8.83 .053 .48
1995
First Quarter . . . . . . $ 9.50 $ 8.50 $.067 $ .48 $ .06
Second Quarter . . . . . . 9.17 8.67 .067 .48 .18
Third Quarter . . . . . . . 12.33 8.67 .067 .48 .18
Fourth Quarter . . . . . . 13.67 10.67 .087 - .22
1996
First Quarter . . . . . . $15.00 $13.17 $.087 - $ .38
Second Quarter . . . . . . 15.00 14.00 .087 - .38
Third Quarter . . . . . . 15.17 13.50 .087 - .38
Fourth Quarter (through
September 24, 1996) . . . 16.92 13.67 .087 - .38
</TABLE>
- --------------------------
(1) FLFC redeemed all of the issued and outstanding shares of FLFC Series A
Preferred Stock on July 31, 1995.
(2) FLFC issued the outstanding shares of Series B Preferred on December 2,
1994 and September 15, 1995 and has declared and paid all accrued dividends
as and when due and payable.
ON AUGUST 28, 1996, THE BOARD OF DIRECTORS OF FLFC DECLARED A
THREE-FOR-TWO STOCK SPLIT PAYABLE ON OCTOBER 1, 1996 IN THE FORM OF A 50% STOCK
DIVIDEND. UNLESS INDICATED OTHERWISE, ALL OF THE INFORMATION IN THIS PROXY
STATEMENT/PROSPECTUS GIVES EFFECT TO THE STOCK SPLIT.
There is no established public trading market for the MGB Stock.
Trading of the MGB Stock has been sporadic and generally is confined to the
Peach County, Georgia area. Management of MGB does not maintain a record of
the sales prices of trades of MGB Stock; however, to the knowledge of MGB, the
last reported sales prices of the MGB Stock was $30.00 per share on September
19, 1995 and $20.00 per share on March 24, 1995. MGB had 126 stockholders of
record as of September 30, 1996. MGB paid dividends of $.70, $.80 and $.90 per
share during the years ended December 31, 1993, 1994 and 1995, respectively,
and paid a dividend of $.15 per share on August 23, 1996.
The following table sets forth (i) the last reported sale price per
share of FLFC Stock on the Nasdaq National Market on January 18, 1996 (the last
trading day prior to public announcement that FLFC and MGB entered into a
non-binding letter of intent with respect to the Merger) and September 24, 1996,
and (ii) the equivalent per share price of the MGB Stock as if the Merger had
been consummated on such dates.
<TABLE>
<CAPTION>
Equivalent
FLFC Stock Per Share Price
---------- ---------------
<S> <C> <C>
January 18, 1996....... $ 14.50 $ 82.17
September 24, 1996..... $ 16.67 $ 87.64
</TABLE>
The equivalent per share price of a share of MGB Stock at each
specified date represents the closing sales price of a share of FLFC Stock on
such date multiplied by the amount of the Merger Consideration that would have
been paid per share of MGB Stock had the Merger been effected on such date.
Stockholders are advised to obtain current market quotations for the
FLFC Stock. No assurance can be given as to the market price of FLFC Stock or
MGB Stock at or, in the case of FLFC Stock, after the Effective Time.
-12-
<PAGE> 18
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 each of the three years in the
period ended September 30, 1995, and FLFC's Quarterly Report on Form 10-Q and
the unaudited interim consolidated financial statements of FLFC for the nine
months ended June 30, 1996, including the respective notes thereto, which are
incorporated by reference herein. See "Incorporation of Certain Information by
Reference." UNLESS INDICATED OTHERWISE, THE INFORMATION IN THIS PROXY
STATEMENT/PROSPECTUS GIVES EFFECT TO A THREE-FOR-TWO SPLIT OF THE FLFC STOCK
EFFECTED IN THE FORM OF A 50% STOCK DIVIDEND PAID ON OCTOBER 1, 1996. 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 nine months ended June 30, 1996, are not necessarily
indicative of the results to be expected for the full year.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, JUNE 30,
--------------------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- ---------- ------- --------
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income . . . . . . . . $ 18,487 $ 20,014 $ 22,229 $ 23,445 $ 28,757 $ 21,096 $ 25,096
Provision for loan losses . . . . . 3,358 3,950 1,979 1,500 1,440 900 900
Noninterest income, excluding
gains and losses on asset sales . 4,280 3,160 4,766 6,055 5,952 4,527 5,317
Gains (losses) on sale of loans and
securities . . . . . . . . . . . 10 (1,319) 1,190 461 (173) 56 1,243
Gain on sale of servicing rights . 1,725 5,424 3,321 3,367 2,353 1,794 791
Noninterest expense . . . . . . . . 19,439 20,996 22,175 23,029 24,171 17,614 19,978
Income before income
taxes, accounting changes and
extraordinary items . . . . . . . 1,705 2,333 7,352 8,799 11,278 8,959 11,569
Net income . . . . . . . . . . . . 5,353 2,831 4,212 6,049 8,071 5,878 7,439
COMMON SHARE DATA:
Net income per share,
fully diluted . . . . . . . . . . $ 1.31 $ .63 $ .77 $ 1.00 $ 1.29 $ .94 $ 1.12
Cash dividends per share . . . . . - - - .21 .27 .20 .26
Book value per share . . . . . . . 7.96 8.61 9.39 9.95 10.62 11.11 11.39
Tangible book value per share . . . 7.18 7.89 8.53 9.17 8.72 9.05 9.65
Weighted average common shares
outstanding, fully diluted . . . 5,064 4,559 5,531 6,074 6,308 6,287 6,659
BALANCE SHEET DATA (PERIOD END):
Total assets . . . . . . . . . . . $713,209 $679,376 $728,248 $693,205 $919,274 $833,247 $991,226
Loans (1) . . . . . . . . . . . . . 495,748 469,207 465,491 487,315 625,641 584,132 686,245
Non-performing assets (excluding
troubled debt restructurings) . . 39,427 22,647 20,460 14,951 6,793 8,974 6,719
Loans and securities
available-for-sale (2) . . . . . 131,268 125,147 195,668 161,405 237,157 195,877 241,915
Mortgage-backed securities
held-for-investment . . . . . . . 8,308 11,637 - - - - -
Deposits . . . . . . . . . . . . . 526,811 494,734 546,379 561,616 719,226 674,567 751,396
Stockholders' equity . . . . . . . 35,550 38,453 53,884 56,391 70,669 65,469 75,953
</TABLE>
-13-
<PAGE> 19
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED SEPTEMBER 30, June 30,
----------------------------------------------------- -----------------
1991 1992 1993 1994 1995 1995(3) 1996(3)
------ -------- -------- -------- --------- -------- -------
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
PERFORMANCE RATIOS:
Return on average assets . . . . .73% .40% .60% .86% 1.01% 1.01% 1.04%
Return on average equity . . . . 18.50 7.60 8.96 10.98 12.93 12.88 13.41
Interest rate spread . . . . . . 3.13 3.21 3.58 3.70 3.90 3.92 3.89
Net interest margin (4) . . . . . 2.83 3.15 3.57 3.72 3.94 3.96 3.90
Efficiency (5) . . . . . . . . . 77.20 72.26 67.66 66.60 64.97 63.35 60.54
Earnings to fixed charges: (6)
Excluding interest on deposits. 1.13x 1.23x 1.99x 2.65x 2.72x 2.83x 2.77x
Including interest on deposits. 1.03x 1.06x 1.25x 1.35x 1.34x 1.38x 1.38x
ASSET QUALITY RATIOS:
Allowance for loan losses to
period end loans (1)(7) . . . . .97% 1.19% 1.30% 1.15% 1.23% 1.17% 1.16%
Allowance for loan losses to
period end non-performing
loans(1)(7) . . . . . . . . . 76.02 158.06 97.55 124.51 323.64 176.18 275.20
Non-performing assets to period
end loans and foreclosed
properties (1)(7) . . . . . . . 7.37 4.58 4.21 2.97 1.07 1.51 .96
Non-performing assets to period
end total assets . . . . . . . 5.53 3.33 2.81 2.16 .74 1.08 .68
Net charge-offs to average loans. 1.06 .57 .60 .38 .03 .03 .13
CAPITAL AND LIQUIDITY:
Tangible capital to adjusted
total assets (8) . . . . . . . 4.34% 5.07% 5.34% 6.26% 5.69% 5.79% 6.10%
Core capital to adjusted total
assets (8) . . . . . . . . . . 4.66 5.36 5.59 6.57 5.89 6.02 6.26
Core capital to risk-based assets(8) 6.10 6.95 7.66 9.14 8.18 8.53 8.57
Risk-based capital to risk-based.
assets (8) . . . . . . . . . . 9.17 10.32 10.92 12.61 11.07 11.63 11.24
Average equity to average assets 3.97 5.26 6.70 7.82 7.81 7.84 7.76
Loans to deposits (1) . . . . . . 94.10 94.84 85.20 86.77 86.99 86.59 91.33
</TABLE>
- ---------------------
(1) Excludes loans available-for-sale.
(2) Includes loans and securities available-for-sale, Federal Funds sold,
repurchase agreements and cash and cash equivalents.
(3) Return on average assets, return on average equity, interest rate
spread, net interest margin and net charge-offs to average loans are
annualized.
(4) Net interest income divided by average earning assets.
(5) Computed by dividing noninterest expense less provision for real
estate losses and nonrecurring items by the sum of net interest income
before provision for loan losses and noninterest income excluding
nonrecurring items.
(6) 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.
(7) Loans before allowance for losses.
(8) The information presented is on a FLB-only basis and is not
consolidated.
-14-
<PAGE> 20
Selected Financial Data of MGB. The following table sets forth
selected historical financial data of MGB and has been derived from and should
be read in conjunction with, and is qualified in its entirety by, the
Consolidated Financial Statements of MGB for the three years ended December 31,
1995, and the notes thereto included elsewhere herein. The interim financial
data is unaudited but reflects all adjustments which, in the opinion of
management of MGB, 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 June 30, 1996, are not necessarily
indicative of the results to be expected for the full year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------ --------------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------- -------- -------- --------- --------
(In thousands, except per share data and ratios)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income . . . . . . . . $ 2,446 $ 2,717 $ 2,676 $ 3,151 $ 3,882 $ 1,967 $ 2,075
Provision for loan losses . . . . . 630 953 585 687 925 350 707
Noninterest income, excluding
gains (losses) on asset sales . . 999 880 1,027 1,246 1,073 518 541
Gains (losses) on sale of loans and
securities . . . . . . . . . . . 10 97 108 (58) (64) (31) -
Noninterest expense . . . . . . . . 1,790 2,001 2,124 2,113 2,304 1,140 1,086
Net income . . . . . . . . . . . . 745 582 977 1,151 1,274 732 602
COMMON SHARE DATA:
Net income per share, fully diluted $ 3.72 $ 2.91 $ 4.88 $ 5.75 $ 6.37 $ 3.66 $ 3.01
Cash dividends per share . . . . . .70 .60 .70 .80 .90 .30 -
Book value per share . . . . . . . 29.52 31.82 35.99 38.88 46.90 44.45 47.76
Weighted average common shares
outstanding, fully diluted . . . 200 200 200 200 200 200 200
BALANCE SHEET DATA (PERIOD END):
Total assets . . . . . . . . . . . $71,453 $76,735 $88,241 $100,678 $112,082 $109,875 $112,475
Loans . . . . . . . . . . . . . . 47,149 54,215 57,840 61,483 63,905 64,396 64,886
Non-performing assets (excluding
troubled debt restructurings) . . 2,960 1,307 1,192 2,182 2,566 2,256 2,289
Mortgage-backed securities
held-for-investment . . . . . . . - - - 17 - 11 -
Deposits . . . . . . . . . . . . . 63,142 68,492 79,268 90,653 100,634 98,738 100,643
Stockholders' equity . . . . . . . 5,904 6,364 7,198 7,776 9,379 8,889 9,551
PERFORMANCE RATIOS:
Return on average assets . . . . . 1.06% .77% 1.17% 1.21% 1.18% 1.39% 1.07%
Return on average equity . . . . . 13.13 9.52 14.25 14.97 14.71 18.47 12.11
Interest rate spread . . . . . . . 2.96 3.13 2.77 2.89 3.07 3.33 3.11
Net interest margin . . . . . . . 3.76 3.81 3.38 3.49 3.76 3.92 3.85
Efficiency . . . . . . . . . . . . 51.80 54.24 57.35 48.06 46.50 45.88 41.51
</TABLE>
-15-
<PAGE> 21
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
--------------------------------------------------- ---------------------
1991 1992 1993 1994 1995 1995(1) 1996(1)
------- ------- ------ ------ ------ --------- ---------
(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 . . . . . . . . 1.82% 2.00% 1.91% 2.23% 2.85% 2.43% 3.55%
Allowance for loan losses to
period end non-performing
loans(2) . . . . . . . . . . . . 45.62 156.72 145.65 139.15 186.28 375.12 172.48
Non-performing assets to period
end loans and foreclosed
properties . . . . . . . . . . . 6.14 2.39 2.05 2.90 2.45 3.48 3.49
Non-performing assets to period
end total assets(3) . . . . . . 4.14 1.70 1.35 1.79 1.40 2.05 2.04
Net charge-offs to average loans . .48 1.42 .99 .71 .75 .24 .33
CAPITAL AND LIQUIDITY:
Average equity to average assets . 8.11% 8.06% 8.22% 8.09% 8.02% 7.55% 8.79%
Loans to deposits . . . . . . . . . 74.67 79.16 72.97 67.82 63.50 65.22 64.47
</TABLE>
- ---------------
(1) Return on average assets, return on average equity, interest rate
spread, net interest margin and net charge-offs to average loans
are annualized.
(2) Nonperforming loans consist of nonaccrual loans, renegotiated loans
and loans now current for which there are serious doubts as to the
ability of the borrower to comply in the future with present loan
repayment terms.
(3) Nonperforming assets consist of nonperforming loans, foreclosed
properties and repossessed assets.
Selected Pro Forma Combined Condensed Financial and Per Share Data. The
following table sets forth unaudited selected pro forma combined condensed
financial data of FLFC after giving effect to the Merger accounted for under the
pooling of interests method as of October 1, 1992 for income statement data and
as of June 30, 1996 for balance sheet data. The table also presents on a per
share basis the book value, cash dividend and income from continuing operations
of FLFC and MGB on a historical basis, an equivalent pro forma and pro forma
combined basis assuming the Merger with MGB. The pro forma combined condensed
financial and per share 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 had been consummated on the dates
indicated, nor is it necessarily indicative of future operating results or
financial position. UNLESS INDICATED OTHERWISE, THE INFORMATION IN THIS PROXY
STATEMENT/PROSPECTUS GIVES EFFECT TO A THREE-FOR-TWO SPLIT OF THE FLFC STOCK
EFFECTED IN THE FORM OF A 50% STOCK DIVIDEND PAID ON OCTOBER 1, 1996. The pro
forma combined condensed financial and per share 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."
-16-
<PAGE> 22
SELECTED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30, (FLFC) AND DECEMBER 31, (MGB)
---------------------------------------------------------------------------------------
1993 1994 1995
---- ---- ----
EXCHANGE RATIO : EXCHANGE RATIO : EXCHANGE RATIO :
-------------------------- ----------------------- -----------------------
MINIMUM MAXIMUM MINIMUM MAXIMUM MINIMUM MAXIMUM
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income. . . . . . . . . $24,905 $24,905 $26,596 $26,596 $32,639 $32,639
Provision for loan losses. . . . . . 2,564 2,564 2,187 2,187 2,365 2,365
Noninterest income . . . . . . . . . 10,412 10,412 11,071 11,071 9,141 9,141
Noninterest expense. . . . . . . . . 24,299 24,299 25,142 25,142 26,475 26,475
Income before income taxes and
extraordinary item. . . . . . . . . 8,454 8,454 10,338 10,338 12,940 12,940
Income before extraordinary item . . 5,556 5,556 7,200 7,200 9,345 9,345
COMMON SHARE DATA:
FLFC HISTORICAL:
Income per share before extra-
ordinary item, fully diluted . . . $ .86 $ .86 $ 1.00 $ 1.00 $ 1.29 $ 1.29
Book value per share . . . . . . . 10.62 10.62
Dividends per share . . . . . . . . - - .21 .21 .27 .27
MGB HISTORICAL:
Income per share before extra-
ordinary item, fully diluted . . . $ 4.11 $ 4.11 $ 5.75 $ 5.75 $ 6.37 $ 6.37
Book value per share . . . . . . . 46.90 46.90
Dividends per share . . . . . . . . .70 .70 .80 .80 .90 .90
MGB EQUIVALENT PRO FORMA:
Income per share before extra-
ordinary item, fully diluted . . . $ 4.44 $ 4.76 $ 5.31 $ 5.70 $ 6.66 $ 7.14
Book value per share . . . . . . . 54.01 58.07
Dividends per share . . . . . . . .14 .15 1.04 1.13 1.39 1.47
FLFC PRO FORMA COMBINED:
Income per share before extra-
ordinary item, fully diluted. . . $ .85 $ .84 $ 1.02 $ 1.01 $ 1.28 $ .26
Book value per share . . . . . . . 10.38 10.25
Dividends per share . . . . . . . .03 .03 .20 .20 .27 .26
Weighted average common shares
outstanding, fully diluted. . . . 6,572 6,664 7,115 7,207 7,349 7,441
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
JUNE 30, 1995 JUNE 30, 1996
------------- -------------
EXCHANGE RATIO : EXCHANGE RATIO :
----------------------- ----------------------
MINIMUM MAXIMUM MINIMUM MAXIMUM
------- ------- ------- ---------
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net interest income. . . . . . . . . . . $23,956 $23,956 $ 28,148 $ 28,148
Provision for loan losses. . . . . . . . 1,690 1,690 1,934 1,934
Noninterest income . . . . . . . . . . . 7,085 7,085 8,152 8,152
Noninterest expense. . . . . . . . . . . 19,292 19,292 21,675 21,675
Income before income taxes and
extraordinary item . . . . . . . . . . 10,059 10,059 12,691 12,691
Income before extraordinary item . . . . 6,745 6,745 8,293 8,293
COMMON SHARE DATA:
FLFC HISTORICAL:
Income per share before extra-
ordinary item, fully diluted . . . . . $ .94 $ .94 $ 1.12 $ 1.12
Book value per share. . . . . . . . . . 11.39 11.39
Dividends per share . . . . . . . . . . .20 .20 .26 .26
MGB HISTORICAL:
Income per share before extra-
ordinary item, fully diluted . . . . . $ 4.34 $ 4.34 $ 4.27 $ 4.27
Book value per share . . . . . . . . . 47.76 47.76
Dividends per share . . . . . . . . . . .50 .50 .30 .30
MGB EQUIVALENT PRO FORMA:
Income per share before extra-
ordinary item, fully diluted . . . . . $ 4.79 $ 5.14 $ 5.82 $ 6.01
Book value per share . . . . . . . . . 57.61 61.88
Dividends per share . . . . . . . . . . .94 1.02 1.19 1.30
FLFC PRO FORMA COMBINED:
Income per share before extra-
ordinary item, fully diluted. . . . . $ .92 $ .91 $ 1.08 $ 1.06
Book value per share . . . . . . . . . 11.10 10.97
Dividends per share . . . . . . . . . . .18 .18 .23 .23
Weighted average common shares
outstanding, fully diluted. . . . . . 7,328 7,420 7,700 7,792
BALANCE SHEET DATA (PERIOD END):
Total assets. . . . . . . . . . . . . . $1,103,701 $ 1,103,701
Loans, net. . . . . . . . . . . . . . . 793,136 793,136
Securities, available-for-sale. . . . . 196,683 196,683
Deposits . . . . . . . . . . . . . . . 852,039 852,039
Total stockholders' equity. . . . . . . 85,504 85,504
</TABLE>
-17-
<PAGE> 23
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus is being furnished by MGB to its
stockholders in connection with the solicitation of proxies by the Board of
Directors of MGB from holders of the outstanding shares of MGB Stock for use at
the Special Meeting to be held at The Byron Depot, 102 East Heritage Boulevard,
Byron, Georgia at 2:00 p.m., local time, on Thursday, November 14, 1996, 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 MGB on or about October 15, 1996.
This document is also being furnished by FLFC to the stockholders of
MGB as a Prospectus in connection with the issuance by FLFC of shares of FLFC
Stock in connection with the Merger.
RECORD DATE; QUORUM
The Board of Directors of MGB has fixed the close of business on
September 30, 1996 as the Record Date for determining the MGB stockholders
entitled to receive notice of and to vote at the Special Meeting. Only holders
of record of MGB 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 MGB Stock issued and outstanding and held by 126 record holders. Holders of
MGB Stock are entitled to one vote on each matter considered and voted on at
the Special Meeting for each share of MGB 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 MGB 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 MGB 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 MGB 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, MGB's directors and principal stockholders,
and their affiliates, held approximately 66.7% of the outstanding shares of MGB
Stock entitled to vote at the Special Meeting. The directors and principal
stockholders of MGB have agreed to 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 MGB Stock, the approval of the
Merger Agreement and the transactions contemplated
-18-
<PAGE> 24
thereby is assured. See "Ownership of MGB Stock." As of the Record Date,
FLFC's directors and executive officers, and their affiliates, held no shares
of MGB Stock.
SOLICITATION AND REVOCABILITY OF PROXIES
Shares of MGB 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
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 MGB
BOARD OF DIRECTORS AS TO ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE
SPECIAL MEETING. ANY HOLDER OF MGB 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 MGB 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 MGB, (ii) properly submitting to MGB 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 MGB as follows: Middle Georgia
Bank, 102 Highway 49, Byron, Georgia, 31008, Attention: Patricia E. Joiner,
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 MGB's
Corporate Secretary or other person responsible for tabulating votes on behalf
of MGB.
Holders of MGB Stock have the right to dissent to the Merger and
demand appraisal of, and obtain payment for, the "fair value" of their shares
of MGB 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 MGB Stock who
votes by proxy and who wishes to exercise his dissenters' rights must, after
notifying MGB 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 MGB 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 MGB, although FLFC and MGB have agreed to share the cost of preparing
and mailing this Proxy Statement/Prospectus.
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RECOMMENDATION OF MGB'S BOARD OF DIRECTORS
The Board of Directors of MGB has unanimously adopted and approved the
Merger Agreement and the transactions contemplated thereby, and believes the
Merger is in the best interest of MGB and its stockholders. Accordingly, the
Board of Directors recommends that stockholders of MGB vote "FOR" approval of
the Merger Agreement and the consummation of the transactions contemplated
thereby. See "The Merger - Reasons for the Merger."
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
Appendices 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 MGB stockholders are urged to read the Appendices in their
entirety.
THE MERGER
The Merger Agreement provides, among other things, that MGB will merge
with and into FLB, a savings bank and a wholly owned subsidiary of FLFC. FLB
will be the surviving savings bank in the Merger and will remain a wholly owned
savings bank subsidiary of FLFC. 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 MGB Stock shall cease
to be outstanding and will be converted into and exchanged for the right to
receive the Merger Consideration. The Merger Consideration per share of MGB
Stock will be equal to a number determined by dividing $85.00 (the value
attributable to each share of MGB Stock for purposes of the Merger) by the
"FLFC Stock Price", with fractional shares to be settled in cash. The "FLFC
Stock Price" will be the average of the closing price of FLFC Stock on the
Nasdaq National Market for the ten trading days which ends five days before the
Effective Time. Notwithstanding the foregoing, the Merger Consideration will
not be more than 5.667 shares of FLFC Stock per share of MGB Stock (the Maximum
Exchange Ratio) nor less than 5.204 shares of FLFC Stock per share of MGB Stock
(the Minimum Exchange Ratio). As an example, if the FLFC Stock Price is equal
to or lower than $15.00 per share, the Merger Consideration will be 5.667
shares of FLFC Stock per share of MGB Stock. If the FLFC Stock Price is equal
to or higher than $16.33 per share, the Merger Consideration will be 5.204
shares of FLFC Stock per share of MGB Stock.
In the event the Merger is approved and consummated, each of the
stockholders of MGB who do not exercise and perfect their dissenters rights
will receive the Merger Consideration. 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 MGB stockholder could
attempt to insure that he receives cash for all of his shares of MGB Stock by
exercising and perfecting his dissenters rights pursuant to the GBCC. However,
the Merger
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Agreement provides that in the event the holders of 5% or more of the
outstanding shares of MGB Stock exercise their dissenters rights, FLFC may
terminate the Merger Agreement. Accordingly, a MGB stockholder who elects to
exercise his dissenters rights takes the risk that such exercise will result in
the termination of the Merger Agreement. A MGB stockholder that exercises and
perfects his dissenters rights under the GBCC is entitled to the "fair value"
of his shares of MGB Stock plus interest in the event the Merger is
consummated. There can be no assurance that the "fair value" of the MGB Stock
will equal or exceed the Merger Consideration. For a description of
dissenters' rights and a discussion of the procedure for perfecting such rights
and determining the "fair value" of shares of MGB Stock, see " Dissenters'
Rights" below.
Pursuant to the Merger Agreement, in the event the Merger is
consummated, FLFC will issue an aggregate of between approximately 1,040,700
shares (assuming the Minimum Exchange Ratio) and approximately 1,133,400 shares
(assuming the Maximum Exchange Ratio) of FLFC Stock in exchange for 200,000
shares of MGB Stock (assuming no MGB stockholder exercises his or her
dissenter's rights).
EFFECTIVE TIME
If the Merger Agreement is approved by the requisite vote of MGB
stockholders, and if the 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 Combination,
reflecting the Merger, are filed with the OTS. FLFC and MGB have agreed to use
their reasonable efforts to cause the Effective Time to occur on November 15,
1996. Either party may terminate the Merger Agreement if the Merger has not
been consummated by November 15, 1996. See "Conditions to the Merger" and
"Summary of Certain Provisions of the Merger Agreement - Amendment, Waiver and
Termination."
EXCHANGE OF MGB STOCK CERTIFICATES
As soon as practicable after the Merger, FLFC will send to the holders
of MGB Stock a letter of transmittal providing instructions for exchanging
their MGB Stock certificates for FLFC Stock. MGB STOCKHOLDERS SHOULD NOT
SURRENDER THEIR MGB CERTIFICATES FOR EXCHANGE UNTIL THEY RECEIVE SUCH LETTER OF
TRANSMITTAL AND INSTRUCTIONS. After the Effective Time, each holder of shares
of MGB Stock issued and outstanding at the Effective Time (other than shares
held by Dissenting Stockholders) shall surrender their MGB Certificate or
Certificates to FLFC or its agent, and the MGB Certificates thus surrendered
will be canceled. Unless otherwise designated by a MGB stockholder on the
transmittal letter, certificates representing shares of FLFC Stock issued in
connection with the Merger will be issued and delivered to the tendering record
holder. FLFC shall not be obligated to deliver the Merger Consideration to
which any holder of MGB Stock is entitled until such holder surrenders his MGB
Certificate or Certificates for exchange. The MGB Certificate or Certificates
so surrendered must be duly endorsed as FLFC or its agent may require.
From and after the Effective Time, holders of MGB Certificates will
have no rights with respect to the shares of MGB Stock formerly represented
thereby other than the right to surrender such MGB Certificates and receive in
exchange therefor the shares of FLFC Stock 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
FLFC Stock will be paid to the holder of any MGB Certificates until such holder
surrenders such MGB Certificates for exchange as instructed. Subject to
applicable law,
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upon surrender of the MGB Certificates, such holders will receive the
certificates representing the number of whole shares of FLFC Stock issuable
upon the exchange or conversion of such shares of MGB Stock, all withheld
dividends or other distributions (without interest), and any withheld cash
payments (without interest) for a fractional share of FLFC Stock to which such
stockholder is entitled.
If any certificate for FLFC Stock is to be issued in a name other than
that in which the MGB Certificate surrendered for exchange is issued, the MGB
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 MGB Stock exchanged pursuant to the Merger who would otherwise be entitled
to receive a fraction of a share of FLFC Stock shall receive, in lieu of such
fractional share, cash (without interest) in an amount equal to such fraction
multiplied by the closing price of FLFC Stock as of the effective date of the
Merger. 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 the Merger Consideration is 5.484 shares of FLFC Stock for each
share of MGB Stock, and the closing price of the FLFC Stock is $15.50 on the
effective date of the Merger, a holder of 20 shares of MGB Stock would be
entitled to 109.68 shares of FLFC Stock (20 multiplied by 5.484). However,
because no fractional shares of FLFC Stock will be issued, that stockholder
would receive 109 shares of FLFC Stock and $10.54 in cash (.68 x $15.50) in lieu
of the fractional share.
MANAGEMENT AND OPERATIONS AFTER THE MERGER
FLB will be the surviving savings bank following the Merger and will
continue to operate under its Articles of Incorporation and Bylaws in effect at
the time of the Merger. The Board of Directors and executive officers of FLFC
will not change as a result of the Merger except the Board of Directors of FLFC
will be increased by one member at its next meeting after the Effective Time
and will elect Harold W. Peavy, Jr. as a director for a term that will expire
at the next annual meeting of stockholders of FLFC. Additionally, Mr. Peavy
will be nominated for reelection as a director of FLFC by the stockholders at
that meeting. The Board of Directors of FLB also will be increased by one
member and will elect Mr. Peavy as a director. Further, W. L. Brown, the
President and Chief Executive Officer of MGB, will serve as Senior Vice
President and Peach County City President of FLB following the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Other than as described herein, no director or executive officer of
FLFC or MGB, 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 MGB 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 MGB
Stock.
Following the Effective Time, the Boards of Directors of FLFC and FLB
will elect Harold W. Peavy, Jr. as a director of each such entity. Certain
other directors of MGB have agreed to serve on the
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Community Board for a period of at least one year following the Effective Time.
Pursuant to the Merger Agreement, each member of the Community Board will
receive a fee of $250.00 per monthly meeting of the Community Board attended.
At the Effective Time, FLB will enter into an employment agreement
with W. L. Brown, the President and Chief Executive Officer of MGB, pursuant to
which Mr. Brown will serve as Senior Vice President and Peach County City
President of FLB. Under the agreement, Mr. Brown will be entitled to receive
compensation on a basis substantially comparable to that which he receives in
his present position with MGB. The agreement, which will have a three-year
term, will also provide that Mr. Brown may not be employed by another financial
institution within Peach County for a period of three years following the
termination of his employment with FLB.
After the Effective Time, FLFC will provide generally to officers and
employees of MGB 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 MGB or its subsidiaries prior to the Effective Time will be
treated as service with FLFC or its subsidiaries.
BACKGROUND OF THE MERGER
In early 1995, certain major stockholders, including Harold W. Peavy,
Jr., and certain directors of MGB had informal discussions to the effect that
MGB stockholders might benefit from a business combination with a larger
financial institution. Among the factors that precipitated these discussions
were the strong financial position of MGB; the favorable economic conditions
and MGB's future prospects in its market area; the absence of an established
market for the MGB Stock; the maturity and age of MGB's stockholder group; the
possibility of a favorable acquisition price for the MGB Stock; the desire of
some stockholders to realize an enhanced profit from their investment; the
favorable climate for bank consolidations and acquisitions; and regulatory
compliance and expense considerations. In connection with these discussions,
Mr. Peavy, Jr. agreed to take the lead in pursuing a possible business
combination that would address these concerns. Mr. Peavy, Jr. is the founder
of MGB and was the first chief executive officer of MGB. Mr. Peavy, Jr. and
his family and associates own a controlling interest in MGB. He had retired as
an officer of MGB for health reasons in January 1991. However, he continues to
be active as an emeritus director of MGB.
Mr. Peavy, Jr. contacted William O. Faulkner, Jr. for assistance in
finding a solution to these concerns. Mr. Faulkner has significant experience
in the banking industry having served in various capacities with the Citizens
and Southern Corporation and its subsidiary, the Citizens and Southern National
Bank, until his retirement in 1989 at which time he served as a Senior
Executive Vice President. Mr. Faulkner's wife is a relative of Mr. Peavy, Jr.
After discussions of various alternatives, Mr. Faulkner and Mr. Peavy, Jr.
identified FLFC as a possible business combination partner.
In the Summer of 1995, Mr. Faulkner had an informal and casual
conversation with a director of FLFC concerning the possible interest of FLFC
in a business combination with MGB. Following these discussions, FLFC provided
to Mr. Faulkner certain publicly available financial and business information
concerning FLFC. Mr. Faulkner reported this information to Mr. Peavy, Jr. who
believed that MGB should further pursue a possible combination with FLFC.
Accordingly, Mr. Faulkner met again with representatives of FLFC to discuss the
possible business combination. At this meeting, FLFC expressed
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its interest in pursuing a business combination; however, no financial aspects
of a transaction were discussed. Additionally, Mr. Faulkner approached another
substantial financial institution but found that it had no interest at that
time in a business combination with MGB.
After considering the indication of interest from FLFC, the Board of
Directors of MGB concluded that MGB should continue to pursue the possibility
of a business combination with FLFC and, in October 1995, MGB retained the law
firm of Sell & Melton to represent MGB in its negotiations with FLFC. The
Board of Directors of MGB also determined that it would benefit from the
counsel and advice of an investment banking firm with experience in bank
mergers and acquisitions. Representatives of MGB met with three investment
banking firms, including R-H, in October 1995. As a result of these meetings,
the Board of Directors of MGB chose to retain R-H. On November 9, 1995, MGB
and R-H executed an engagement letter pursuant to which R-H agreed to advise
MGB in connection with possible business combinations, participate in
negotiations with possible acquirors and, if negotiations were successful,
render an opinion as to the fairness of the transaction to the stockholders of
MGB.
In discussions between representatives of MGB and R-H, the full
panoply of possible arrangements was discussed, including a possible auction
process, approaching selected logical acquirors regarding their interest in a
possible business combination, development of an active market for the MGB
Stock, acquiring other financial institutions, internal expansion and growth,
and active pursuit of a business combination with FLFC. Based on these
discussions, MGB decided that the interest evidenced by FLFC in acquiring MGB
should be pursued as a matter of first priority and that further efforts should
await the outcome of negotiations with FLFC.
With the active participation in negotiations by R-H, FLFC made a
tentative offer to acquire the shares of MGB in a tax free merger transaction
at a value of $90.00 for each share of MGB Stock payable in shares of FLFC
Stock. Based upon its analysis of the advantages to MGB stockholders of the
proposed terms, and with the counsel and advice of R-H, the Board of Directors
of MGB reached the conclusion that it was in the best interest of MGB's
stockholders to proceed with the business combination with FLFC. Therefore, on
January 16, 1996, MGB entered into a letter of intent (the "Letter of Intent")
with FLFC. In general, the Letter of Intent was a non-binding letter
expressing the intention of MGB and FLFC to engage in a business combination in
which the stockholders of MGB would receive FLFC Stock having a value of $90.00
in exchange for each of their shares of MGB Stock. The Letter of Intent
provided that the business combination was subject to a number of factors,
including detailed due diligence investigations by FLFC and MGB of the other's
financial condition and prospects and the negotiation of the terms of a
definitive merger agreement. While the Letter of Intent generally was of a
non-binding nature, it included a binding provision that limited the
circumstances under which MGB could solicit or pursue acquisition proposals
from other financial institutions. Among other things, the Letter of Intent
would have required MGB to pay certain liquidated damages and expense
reimbursements to FLFC in the event that MGB entered into a letter of intent or
agreement with a third party regarding a proposed business combination.
Subsequent to the execution of the Letter of Intent, the parties began
their respective due diligence investigations. In May 1996, FLFC informed MGB
that FLFC was not willing to proceed with a definitive agreement based upon the
$90.00 per share exchange ratio contemplated in the Letter of Intent due to
FLFC's concerns regarding, among other things, the prospects of MGB, the
adequacy of MGB's loan loss reserve and the impact of the dilution to FLFC's
earnings which would be caused by the transaction. FLFC and MGB then engaged
in further negotiations and agreed to reduce the agreed value of the MGB Stock
to $85.00 per share for purposes of determining the exchange ratio.
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On June 11, 1996, the Board of Directors of MGB, with the counsel of R-H,
approved the terms of the Merger Agreement.
REASONS FOR THE MERGER
The Board of Directors of MGB, after consideration of relevant
business, financial, legal and market factors, approved the Merger Agreement
and the transactions contemplated thereby. MGB's Board of Directors did not
assign any relative or specific weight to the factors considered which
included:
(1) The Financial Terms of the Merger. The Board of
Directors of MGB believes that the Merger Consideration is fair to MGB's
stockholders based upon MGB's current financial condition and future prospects
and upon its perception of the future prospects of FLFC.
(2) Comparing MGB's Value As A Continuing Independent
Entity With Its Value in Combining With FLFC. The Board of Directors of MGB
considered the benefits that could be expected to accrue to MGB stockholders
from the Merger, including the liquidity of the FLFC Stock and the possibility
of higher stock price for the FLFC Stock, with the Board's view of what would
be achieved by MGB operating as an independent entity.
(3) Tax Free Nature of Acquisition. The Board of
Directors of MGB considered the non-financial terms and structure of the
Merger, in particular the fact that the Merger will qualify as a tax-free
reorganization for the MGB stockholders for federal income tax purposes to the
extent such stockholders receive FLFC Stock in the Merger. See "The Merger -
Certain Federal Income Tax Consequences."
(4) Likelihood of Regulatory Approval. The Board of
Directors considered the likelihood that the Merger would be approved by the
appropriate regulatory authorities.
(5) Added Services to Customers. The Board of Directors
of MGB believes the competitive nature of the MGB's financial market
necessitates the ability to offer a wide range of banking services. Due to
capital requirements and added regulatory requirements, MGB is presently unable
to provide some services it deems necessary to compete effectively in the
financial market in the Middle Georgia area with other financial institutions.
The Merger will provide the necessary capital, support personnel and financial
services required to remain competitive.
(6) Possible Legislative Developments. The Board of
Directors of MGB considered recent legislative proposals concerning state-wide
banking. Such 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.
(7) Marketability of Shares of FLFC. The Board of
Directors of MGB considered the fact that there is no established market for
MGB shares whereas, after the Merger, the shares received by MGB stockholders
will be traded on the Nasdaq National Market.
(8) Opinion of The Robinson-Humphrey Company, Inc. The
Board of Directors of MGB considered the fact that The Robinson-Humphrey
Company, Inc. ("R-H") has rendered its opinion
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that the exchange ratio is fair from the viewpoint of MGB stockholders. The
opinion of R-H is set forth in Appendix D and is incorporated herein by
reference. See "The Merger - Opinion of Financial Advisor."
THE BOARD OF DIRECTORS OF MGB UNANIMOUSLY 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.
OPINION OF FINANCIAL ADVISOR
General
MGB retained R-H to act as its financial adviser in connection with
the Merger. R-H has rendered an opinion to MGB's Board of Directors that,
based on the matters set forth therein, consideration to be received pursuant
to the Merger is fair, from a financial point of view, to MGB's stockholders.
The text of such opinion is set forth in Appendix D of this Proxy
Statement/Prospectus and should be read in its entirety by stockholders of MGB.
The consideration to be received by MGB stockholders in the Merger was
determined by MGB and FLFC in their negotiations. No limitations were imposed
by the Board of Directors or management of MGB upon R-H with respect to the
investigations made or the procedures followed by R-H in rendering its opinion.
In connection with rendering its opinion to the MGB Board of
Directors, R-H performed a variety of financial analyses. However, the
preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the application
of those methods to the particular circumstances, and, therefore, such an
opinion is not readily susceptible to summary description. R-H, in conducting
its analysis and in arriving at its opinion, has not conducted a physical
inspection of any of the properties or assets of MGB, and has not made or
obtained any independent valuation or appraisals of any properties, assets or
liabilities of MGB. R-H has assumed and relied upon the accuracy and
completeness of the financial and other information that was provided to it by
MGB or that was publicly available. Its opinion is necessarily based on
economic, market and other conditions as in effect on, and the information made
available to it as of the date of its analyses.
Valuation Methodologies
In connection with its opinion on the Merger and the presentation of
that opinion to the MGB Board of Directors, R-H performed two valuation
analyses with respect to MGB: (i) an analysis of comparable prices and terms of
recent transactions involving financial institutions purchasing banks; and (ii)
a discounted cash flow analysis. Each of these methodologies is discussed
briefly below. For purposes of the comparable transaction analyses, FLFC's
stock was valued at $15.00 per share.
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Comparable Transaction Analysis. R-H performed two analyses of
premiums paid for selected banks with comparable characteristics to MGB.
Comparable transactions were considered to be (i) transactions since January 1,
1995, where the seller was a bank headquartered in the Southeastern United
States with assets between $50 million and $250 million and non-performing
assets/total assets ("NPAs/assets") greater than 1.2%, (ii) transactions
since January 1, 1995, where the seller was a bank headquartered in the United
States with assets between $50 and $250 million and non-performing assets/
total assets greater than 1.2%.
Based on the first type of comparable transactions, financial
institutions purchasing Southeastern banks since January 1, 1995 with NPAs/
assets greater than 1.2%, the analysis yielded a range of transaction values to
book value of 1.27 times to 2.51 times, with a mean of 1.77 times and a median
of 1.63 times. These compare to a transaction value for the Merger of
approximately 1.73 times MGB's book value as of June 30, 1996.
The analysis yielded a range of transaction values as a multiple of
tangible book value for the comparable transactions ranging from 1.37 times to
3.03 times, with a mean of 1.85 times and a median of 1.63 times. These
compare to a transaction value to tangible book value at June 30, 1996 of
approximately 1.73 times MGB's tangible book value for the Merger.
The analysis yielded a range of transaction values as a multiple of
trailing twelve month earnings per share. These values ranged from 13.21 times
to 30.59 times, with a mean of 18.56 times and a median of 16.79 times. These
compare to a transaction value to MGB's last twelve months earnings as of June
30, 1996 of approximately 13.37 times for the Merger.
The analysis yielded a range of transaction values as a percent of
total assets. These values ranged from 6.19 percent to 18.46 percent, with a
mean of 13.50 percent and a median of 13.21 percent. These compare to a
transaction value to the June 30, 1996 total assets of MGB of 15.08 percent for
the Merger.
Based on transactions since January 1, 1995, where the seller was a
U.S. bank with total assets between $50 and $250 million and NPAs/assets
greater than 1.2%, the analysis yielded a range of transaction values to book
value of .83 times to 2.82 times, with a mean of 1.61 times and a median of
1.53 times. These compare to a transaction value for the Merger of
approximately 1.73 times MGB's book value as of June 30, 1996.
The analysis yielded a range of transaction values as a multiple of
tangible book value for the comparable transactions ranging from .85 times to
3.03 times, with a mean of 1.66 times and a median of 1.58 times. These
compare to a transaction value to MGB's tangible book value at June 30, 1996 of
approximately 1.73 times for the Merger.
The analysis yielded a range of transaction values as a multiple of
trailing twelve month earnings per share, from 9.69 times to 30.59 times, with
a mean of 16.93 times and a median of 16.71 times. These compare to a
transaction value to MGB's last twelve months earnings as of June 30, 1996 of
approximately 13.37 times for the Merger.
The analysis yielded a range of transaction values as a percent of
total assets, from 4.89 percent to 24.95 percent, with a mean of 13.90 percent
and a median of 14.03 percent. These compare to a transaction value to the
June 30, 1996 total assets of MGB of 15.08 percent for the Merger.
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No company or transaction used in the comparable transaction analyses
is identical to MGB. Accordingly, an analysis of the foregoing necessarily
involves complex considerations and judgments, as well as other factors that
affect the public trading value or the acquisition value of the company to
which it is being compared.
Discounted Cash Flow Analysis. Using discounted cash flow analysis,
R-H estimated the present value of the future stream of after-tax cash flows
that MGB could produce through 1999, under various circumstances, assuming that
MGB performed in accordance with the earnings/return projections of management
at the time that MGB entered into acquisition discussions in September 1995.
R-H estimated the terminal value for MGB at the end of the period by applying
multiples of earnings ranging from 8.0 to 10.0x and then discounting the cash
flow streams, dividends paid to stockholders and terminal value using differing
discount rates ranging from 12.0 percent to 14.0 percent chosen to reflect
different assumptions regarding the required rates of return of MGB and the
inherent risk surrounding the underlying projections. This discounted cash
flow analysis indicated a reference range of $16.3 million to $19.7 million, or
$81.27 to $98.65 per share, for MGB.
Compensation of R-H
Pursuant to an engagement letter dated September 20, 1995 between MGB
and R-H, MGB agreed to pay R-H a $50,000 fairness opinion fee and an
incremental success fee (to be paid at closing) equal to a percentage of the
total value of the transaction (the "Transaction Value") less the fairness
opinion fee. The success fee will be .75% of the Transaction Value if the
Transaction Value is less than $17.5 million, 1.0% if the Transaction Value
equals or exceeds $17.5 million, 1.25% if the Transaction Value equals or
exceeds $20.0 million and 1.5% if the Transaction Value exceeds $22,499,999.
MGB has also agreed to indemnify and hold harmless R-H and its officers and
employees against certain liabilities in connection with its services under
the engagement letter, except for liabilities resulting from the negligence of
R-H.
As part of its investment banking business, R-H is regularly engaged
in the valuation of securities in connection with mergers and acquisitions,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements, and valuations for estate, corporate and other
purposes. MGB's Board of Directors decided to retain R-H based on its
experience as a financial advisor in mergers and acquisitions of financial
institutions, particularly transactions in the Southeastern region of the
United States, and its knowledge of financial institutions and MGB in
particular.
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 MGB's
stockholders as a result of the Merger; and the federal income tax consequences
of ownership of FLFC Stock. The summary, except where noted, deals only with
FLFC Stock 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 applicable to certain classes of taxpayers, including insurance
companies, securities dealers, financial institutions and foreign persons).
Furthermore, the discussion below is based upon the provisions of the Code,
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 MGB's stockholders. A more
detailed
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<PAGE> 34
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.
MGB 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 Sections 368(a)(1)(A) and
368(a)(2)(D) of the Code.
Federal Income Tax Consequences to MGB Stockholders.
Consequences to MGB Stockholders Who Receive FLFC Stock. A stockholder
who receives only FLFC Stock in exchange for his or her shares of MGB Stock will
recognize no gain or loss upon the exchange of such stock.
Consequences to Dissenting Stockholders Who Receive Cash Only. A
Dissenting Stockholder who receives only cash for his or her shares of MGB
Stock will recognize gain or loss for federal income tax purposes measured by
the difference, if any, between the total cash received for the MGB Stock and
such holder's basis in his or her MGB Stock. The gain or loss will be
characterized for federal income tax purposes as capital gain or loss if the
holder's shares of MGB Stock were held as capital assets.
Basis of FLFC Stock. The basis of the total amount of FLFC Stock
received by a MGB stockholder who receives only FLFC Stock will be identical to
the basis of the total amount of MGB Stock exchanged.
Holding Period. The holding period for federal income tax purposes of
the FLFC Stock received by a MGB stockholder will include the holding period
for the MGB Stock exchanged.
Federal Income Tax Consequences of Ownership of FLFC Stock Issued in the
Merger.
Dividends on the FLFC Stock. Distributions on the shares of FLFC
Stock 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 FLFC
Stock will qualify as dividends for federal income tax purposes. Nevertheless,
any distributions on the shares of FLFC Stock 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 FLFC Stock. Any distribution on the shares of FLFC Stock in
excess of
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<PAGE> 35
FLFC's current and accumulated earnings and profits and in excess of the
holder's basis in his or her shares of FLFC Stock generally will be treated 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 FLFC Stock 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 FLFC Stock or if there is a subsequent sale or redemption of the
holder's FLFC Stock.
Sale or Exchange of FLFC Stock. The sale or exchange of FLFC 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 FLFC Stock sold. Such gain will be capital gain or loss if FLFC Stock
was held as a capital asset and will be long-term capital gain or loss if the
holding period for the FLFC Stock is more than one year.
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 FLFC Stock. Holders of FLFC Stock 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 received the
requisite approvals or waivers from the OTS, Federal Reserve and DBF in
connection with the Merger.
SUMMARY OF CERTAIN PROVISIONS OF THE MERGER AGREEMENT
Conditions to the Merger. The obligation of MGB and FLFC to
consummate the Merger are subject to the satisfaction or waiver of certain
conditions including: (i) the Merger Agreement and the transactions
contemplated thereby shall have been approved by holders of a majority of the
outstanding shares of MGB Stock entitled to vote thereon; (ii) the required
regulatory approvals described under "Regulatory Approvals" above shall have
been received and not withdrawn; (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) MGB shall have suffered no material adverse change since December
31, 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 MGB or FLFC 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) MGB 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 MGB Stock or other securities of
MGB; (x) all officers and directors of MGB and its subsidiaries shall have
delivered to FLFC and FLB their
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<PAGE> 36
resignations; (xi) MGB shall not be party to any employment or similar
agreements; (xii) each director shall have executed an agreement (A) not to
sell any shares of FLFC Stock that he receives in the Merger until financial
results covering at least 30 days of post-Merger combined operations have been
published, (B) to serve as a member of the Community Board for one year and
(C) that he will not become a director of or acquire beneficial ownership of
stock in any other locally-based financial institution or its holding company
doing business in Peach County, Georgia for a period of three years after the
Effective Time; and (xiii) MGB's loan loss reserve shall not be less than
$1,539,000 or 2.35% of gross loans.
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 MGB
stockholders. See "Amendment, Waiver and Termination" below.
Conduct of Business Pending the Merger. MGB 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 preserve
its relationship with customers, suppliers and others having business dealings
with it and to take no action that would adversely affect the ability of either
party to perform its covenants and agreements under the Merger Agreement.
MGB 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, MGB, 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 MGB 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,
or (x) make any material adjustments in its loan loss reserves without prior
notice to FLFC.
In addition, MGB has agreed not to solicit, directly or indirectly,
any acquisition proposal from any other person or entity. MGB 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 situation where its Board of Directors has a
fiduciary obligation to consider and respond to a bona fide proposal. MGB 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,
MGB 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 MGB, provided that after the approval of the
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<PAGE> 37
Merger by MGB's stockholders, no amendment may decrease the Merger
Consideration to be received by MGB stockholders without the requisite approval
of MGB stockholders.
Prior to or at the Effective Time, either MGB 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 written consent of MGB and
FLFC. In addition, the Merger Agreement may be terminated, and the Merger
abandoned, prior to the Effective Time (i) by either FLFC or MGB 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 MGB in writing, without liability, if any action by a court,
governmental or regulatory agency prohibits or restrains the consummation of
the Merger provided that FLFC, FLB or MGB shall have used their reasonable,
good faith efforts to have any such action lifted, and the same shall not have
been lifted within 30 days after entry, (iii) by either FLFC or MGB if any
event has occurred which would have a material adverse effect on any other
party to the Merger Agreement or their respective subsidiaries, or (iv) by
FLFC or FLB if the Merger has not been consummated by November 15, 1996.
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 or any director (acting in any capacity), officer, employee, agent
or advisor of the other party, such party shall reimburse the damaged party all
fees and expenses incurred in connection with the Merger. In addition, if MGB
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
for 100% of its costs and expenses (including but not limited to, cost of legal
counsel to FLFC and FLB, accountants, investment banking fees, printing and
mailing costs) subject to a maximum amount of $100,000, plus pay $100,000 as
liquidated damages.
ACCOUNTING TREATMENT
The Merger will be accounted for as a pooling of interests transaction
in accordance with generally accepted accounting principles, which, among other
things, require that the number of shares of MGB Stock exchanged in the Merger
for cash pursuant to the exercise of dissenters' rights or in lieu of
fractional shares not exceed 10% of the outstanding shares of MGB Stock. Under
pooling of interests accounting, the assets and liabilities of MGB as of the
Effective Time are recorded at their recorded book values and added to those of
FLFC, and the stockholders' equity of MGB will be combined in FLFC's
consolidated balance sheet. Financial statements issued after consummation of
the Merger will be restated retroactively to reflect the consolidated
historical financial position and results of operations of FLFC and MGB as if
the Merger was effected prior to the periods covered by the financial
statements. See "Pro Forma Combined Condensed Financial Data."
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<PAGE> 38
RESTRICTIONS ON RESALES OF FLFC STOCK
The shares of FLFC Stock 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 MGB or FLFC for
purposes of Rule 145 under the Securities Act as of the date of the Special
Meeting. Such affiliates may not sell their shares of FLFC Stock 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 FLFC Stock issued to all persons who are
deemed to be "affiliates" of MGB or FLFC under Rule 145. In addition, each
director and executive officer of MGB has agreed not to sell the shares of FLFC
Stock that he or she receives in connection with the Merger until financial
results covering at least 30 days of post-Merger combined operations have been
published.
The FLFC Stock is listed for trading on the Nasdaq National Market
under the symbol "FLFC."
DISSENTERS' RIGHTS
Pursuant to Section 7-1-537 of the Financial Institutions Code of
Georgia and Sections 14-2-1301 through 14-2-1332, inclusive, of the GBCC, any
MGB stockholder who desires to receive the fair value of his or her MGB Stock
in cash (a "Dissenting Stockholder") rather than to receive the Merger
Consideration 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 MGB Stock must deliver, prior
to the vote of the MGB Stockholders, written notice of his intent to demand
payment of the fair value of his shares of MGB Stock if the Merger is
effectuated. The notice must be delivered to Middle Georgia Bank, Attention:
Patricia E. Joiner, Corporate Secretary, 102 Highway 49, Byron, Georgia 31008.
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 MGB Stockholders, MGB 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 MGB Stock certificates, (ii) state
the date by which MGB must receive the First Payment Demand, which date shall
be fixed by MGB 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 MGB or to receive payment of the fair value of his
shares of MGB Stock. MGB shall send the Dissenters' Notice to each of the
Dissenting Stockholders no later than ten days after the date on which the MGB
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
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<PAGE> 39
in the stock transfer books of MGB or at such address as the Dissenting
Stockholder supplies by notice to MGB.
Each Dissenting Stockholder to whom MGB sends a Dissenter's Notice
must demand payment for his shares by written notice to MGB (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 MGB Stock which he owns) and a
demand for payment to the Dissenting Stockholder of the fair value of his
shares. In addition, the Dissenting Stockholder must deposit his MGB Stock
certificate(s) with MGB in accordance with the terms of the Dissenters' Notice.
Any Dissenting Stockholder who does not submit a First Payment Demand or
deposit his MGB Stock certificate(s) at MGB, 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 MGB's
receipt of the First Payment Demand, MGB shall offer to pay the Dissenting
Stockholders who have complied with the provisions of the GBCC the amount MGB
estimates to be the fair value of the shares plus accrued interest. MGB's
offer of payment shall be accompanied by (i) MGB'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 MGB'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 MGB's offer by providing written
notice to MGB within 30 days after the date the offer is made or is deemed to
have accepted such offer by failure to respond within said 30 days, MGB shall
make payment for the Dissenting Stockholder's MGB Stock within 60 days after
the date MGB made the offer or the date on which the Merger occurs, whichever
date is later. If a Dissenting Stockholder is dissatisfied with MGB's offer,
such Dissenting Stockholder may notify MGB 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"). A Dissenting Stockholder waives his right
to demand payment of a different amount than that offered by MGB unless such
Dissenting Stockholder makes a Second Payment Demand within 30 days after the
date MGB makes its offer.
In the event a Dissenting Stockholder's Second Payment Demand remains
unsettled within 60 days after MGB receives the Dissenting Stockholder's Second
Payment Demand, MGB shall commence a nonjury equitable valuation proceeding in
the Peach County Superior Court to determine the fair value of the shares and
accrued interest. MGB 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 MGB does not commence the proceeding within 60 days after
receiving the Dissenting Stockholder's Second Payment Demand, MGB 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.
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<PAGE> 40
PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following Pro Forma Combined Condensed Balance Sheet as of June
30, 1996, assumes the Merger had been completed as of June 30, 1996, and
reflects the assumed consummation of the Merger accounted for as a pooling of
interests as of such date. The following Pro Forma Combined Condensed Income
Statements for the nine months ended June 30, 1995 and 1996, and for the years
ended September 30, 1993, 1994 and 1995, assume the Merger had been completed
as of October 1, 1992 and assume both the Minimum Exchange Ratio and the
Maximum Exchange Ratio. The Pro Forma Combined Condensed Income Statements for
the nine months ended June 30, 1995 and 1996 and for the years ended September
30, 1993, 1994 and 1995 include the historical consolidated income statements
of FLFC for such periods and of MGB for the nine months ended June 30, 1995 and
1996 and the years ended December 31, 1993, 1994 and 1995. The following pro
forma information assumes that no MGB stockholders exercise their Dissenter's
Rights. These pro forma combined condensed financial statements do not reflect
any potential savings which may result from the consolidation of the operations
of MGB.
The pro forma combined condensed financial data has been prepared
based upon the historical consolidated financial statements of FLFC and MGB.
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.
On August 28, 1996, the Board of Directors of FLFC declared a
three-for-two stock split payable on October 1, 1996 in the form of a 50% stock
dividend. Unless otherwise indicated, all of the information in this Proxy
Statement/Prospectus gives effect to the stock split.
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 MGB, appearing elsewhere
or incorporated by reference herein. See "Incorporation of Certain Information
by Reference" and "Middle Georgia Bank Financial Statements."
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<PAGE> 41
PRO FORMA COMBINED CONDENSED BALANCE SHEET
AT JUNE 30, 1996
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
EXCHANGE RATIO EXCHANGE RATIO
--------------------------- ---------------------------
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
ASSETS FLFC MGB ADJUSTMENTS COMBINED ADJUSTMENTS COMBINED
---- --- ----------- -------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Cash and due from banks . . . . . . $ 30,368 $ 10,105 $ 40,473 $ 40,473
Federal funds sold . . . . . . . . 5,001 810 5,811 5,811
Securities available-for-sale . . . 164,541 32,142 196,683 196,683
Loans, net . . . . . . . . . . . . 728,250 64,886 793,136 793,136
Accrued interest receivable . . . . 6,902 1,360 8,262 8,262
Premises and equipment, net . . . . 22,047 1,328 23,375 23,375
Real estate, net . . . . . . . . . 3,310 675 3,985 3,985
Intangible assets . . . . . . . . . 10,489 - 10,489 10,489
Other assets . . . . . . . . . . . 20,318 1,169 21,487 21,487
-------- -------- ---------- ----------
TOTAL ASSETS . . . . . . . . . . . $991,226 $112,475 $ - $1,103,701 $ - $1,103,701
======== ======== ========== ========== =========== ==========
LIABILITIES
Deposits . . . . . . . . . . . . . $751,396 $100,643 $ 852,039 $ 852,039
Notes payable and
other borrowed money . . . . . . 122,871 1,480 124,351 124,351
Subordinated debentures . . . . . . 12,639 - 12,639 12,639
Other liabilities . . . . . . . . . 28,367 801 29,168 29,168
-------- -------- ---------- ----------
TOTAL LIABILITIES 915,273 102,924 1,018,197 1,018,197
-------- -------- ---------- ----------
STOCKHOLDERS' EQUITY
Series B 6.00% cumulative convertible
preferred stock, $25.00 stated value 7,564 - 7,564 7,564
Common stock . . . . . . . . . . . 6,036 200 $ (200)(1) 7,077 $ (200)(1) 7,169
1,041 (2) 1,133 (2)
Additional paid-in capital . . . . 25,594 5,800 (5,800)(1) 30,553 (5,800)(1) 30,461
4,959 (2) 4,867 (2)
Retained earnings . . . . . . . . . 37,117 3,907 41,024 41,024
Net unrealized loss on securities . (89) (356) (445) (445)
Treasury stock at cost . . . . . . (269) - (269) (269)
-------- -------- ---------- ----------
TOTAL STOCKHOLDERS' EQUITY . . . . 75,953 9,551 - 85,504 - 85,504
-------- -------- ---------- ---------- ----------- ----------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY . . . . . . . $991,226 $112,475 $ - $1,103,701 $ - $1,103,701
======== ======== ========== ========== =========== ==========
</TABLE>
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<PAGE> 42
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1996
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
EXCHANGE RATIO EXCHANGE RATIO
--------------------------- ----------------------
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
FLFC MGB ADJUSTMENTS COMBINED ADJUSTMENTS COMBINED
---- --- ----------- -------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest income . . . . . . . . . . $55,404 $7,129 $62,533 $62,533
Interest expense . . . . . . . . . 30,308 4,077 34,385 34,385
------- ------ ------- -------
Net interest income . . . . . . . 25,096 3,052 28,148 28,148
Provision for loan losses . . . . . 900 1,034 1,934 1,934
------- ------ ------- -------
Net interest income after provision
for loan losses . . . . . . . . 24,196 2,018 26,214 26,214
Noninterest income . . . . . . . . 7,351 801 8,152 8,152
Noninterest expense . . . . . . . . 19,978 1,697 21,675 21,675
------- ------ ------- -------
Income before income tax
expense and extraordinary item. 11,569 1,122 12,691 12,691
Income tax expense . . . . . . . . 4,130 268 4,398 4,398
------- ------ ------- -------
Income before
extraordinary item . . . . . . 7,439 854 8,293 8,293
Dividends on preferred stock . . . 340 - 340 340
------- ------ ------- -------
Income before extraordinary
item applicable to common
stockholders . . . . . . . . . $ 7,099 $ 854 $ 7,953 $ 7,953
======= ====== ======= =======
Income per common share before
extraordinary item:
Primary . . . . . . . . . . . . $1.17 $4.27 $1.12 $ 1.11
Fully diluted . . . . . . . . . $1.12 $4.27 $1.08 $ 1.06
Average common shares outstanding:
Primary . . . . . . . . . . . . 6,057 200 (200) (1) 7,098 (200)(1) 7,190
1,041 (2) 1,133 (2)
Fully diluted . . . . . . . . . 6,659 200 (200) (1) 7,700 (200)(1) 7,792
1,041 (2) 1,133 (2)
</TABLE>
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<PAGE> 43
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 30, 1995
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
EXCHANGE RATIO EXCHANGE RATIO
---------------------------- -----------------------------
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
FLFC MGB ADJUSTMENTS COMBINED ADJUSTMENTS COMBINED
---- --- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest income . . . . . . $44,679 $6,315 $50,994 $50,994
Interest expense . . . . . 23,583 3,455 27,038 27,038
------ ----- ------ ------
Net interest income . . . 21,096 2,860 23,956 23,956
Provision for loan
losses . . . . . . . . . 900 790 1,690 1,690
------ ----- ------ ------
Net interest income after
provision for loan
losses . . . . . . . . 20,196 2,070 22,266 22,266
Noninterest income . . . . 6,377 708 7,085 7,085
Noninterest expense . . . 17,614 1,678 19,292 19,292
------ ----- ------ ------
Income before income
tax expense and extra-
ordinary item . . . . . . 8,959 1,100 10,059 10,059
Income tax expense. . . . . 3,081 233 3,314 3,314
----- ----- ------ ------
Income before extra-
ordinary item . . . . . . 5,878 867 6,745 6,745
Dividends on preferred
stock . . . . . . . . . . 797 - 797 797
------ ----- ------ ------
Income before extra-
ordinary item applicable to
common stockholders . . . $5,081 $ 867 $5,948 $5,948
====== ===== ====== ======
Earnings per common share
before extraordinary item:
Primary . . . . . . . . . $ 1.09 $4.34 $ 1.05 $ 1.03
Fully diluted . . . . . . $ 1.94 $4.34 $ .92 $ .91
Average common shares
outstanding:
Primary . . . . . . . . . 4,625 200 (200) (1) 5,666 (200) (1) 5,758
1,041 (2) 1,133 (2)
Fully diluted . . . . . . 6,287 200 (200) (1) 7,328 (200) (1) 7,420
1,041 (2) 1,133 (2)
</TABLE>
-38-
<PAGE> 44
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1995 (FLFC)
YEAR ENDED DECEMBER 31, 1995 (MGB)
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
EXCHANGE RATIO EXCHANGE RATIO
--------------------------- -----------------------
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
FLFC MGB ADJUSTMENTS COMBINED ADJUSTMENTS C0MBINED
---- --- ----------- --------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest income . . . . . . . . . . . $61,490 $9,072 $70,562 $70,562
Interest expense . . . . . . . . . . 32,733 5,190 37,923 37,923
------- ------ ------- -------
Net interest income . . . . . . . . 28,757 3,882 32,639 32,639
Provision for loan losses . . . . . . 1,440 925 2,365 2,365
------- ------ ------- -------
Net interest income after provision
for loan losses . . . . . . . . . 27,317 2,957 30,274 30,274
Noninterest income . . . . . . . . . 8,132 1,009 9,141 9,141
Noninterest expense . . . . . . . . . 24,171 2,304 26,475 26,475
------- ------ ------- -------
Income before income tax
expense and extraordinary item. . 11,278 1,662 12,940 12,940
Income tax expense . . . . . . . . . 3,207 388 3,595 3,595
------- ------ ------- -------
Income before
extraordinary item . . . . . . . 8,071 1,274 9,345 9,345
Dividends on preferred stock . . . . 864 - 864 864
------- ------ ------- -------
Income before extraordinary
item applicable to common
stockholders . . . . . . . . . . $ 7,207 $1,274 $ 8,481 $ 8,481
======= ====== ======= =======
Earnings per common share before
extraordinary item:
Primary . . . . . . . . . . . . . $ 1.49 $ 6.37 $ 1.44 $ 1.42
Fully diluted . . . . . . . . . . $ 1.29 $ 6.37 $ 1.28 $ 1.26
Average common shares outstanding:
Primary . . . . . . . . . . . . . 4,844 200 (200) (1) 5,885 (200) (1) 5,977
1,041 (2) 1,133 (2)
Fully diluted . . . . . . . . . . 6,308 200 (200) (1) 7,349 (200) (1) 7,441
1,041 (2) 1,133 (2)
</TABLE>
-39-
<PAGE> 45
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1994 (FLFC)
YEAR ENDED DECEMBER 31, 1994 (MGB)
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
EXCHANGE RATIO EXCHANGE RATIO
--------------------------- ------------------------
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
FLFC MGB ADJUSTMENTS COMBINED ADJUSTMENTS COMBINED
---- ---- ----------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest income . . . . . . . . . . $48,562 $6,995 $55,557 $55,557
Interest expense . . . . . . . . . 25,117 3,844 28,961 28,961
------- ------ ------- -------
Net interest income . . . . . . . 23,445 3,151 26,596 26,596
Provision for loan losses . . . . . 1,500 687 2,187 2,187
------- ------ ------- -------
Net interest income after provision
for loan losses . . . . . . . . 21,945 2,464 24,409 24,409
Noninterest income . . . . . . . . 9,883 1,188 11,071 11,071
Noninterest expense . . . . . . . . 23,029 2,113 25,142 25,142
------- ------ ------- -------
Income before income tax
expense and extraordinary item. 8,799 1,539 10,338 10,338
Income tax expense . . . . . . . . 2,750 388 3,138 3,138
------- ------ ------- -------
Income before
extraordinary item . . . . . . 6,049 1,151 7,200 7,200
Dividends on preferred stock . . . 891 - 891 891
------- ------ ------- -------
Income before extraordinary
item applicable to common
stockholders . . . . . . . . . $ 5,158 $1,151 $ 6,309 $ 6,309
======= ====== ======= =======
Income per common share before
extraordinary item:
Primary . . . . . . . . . . . . $1.11 $5.75 $1.11 $1.09
Fully diluted . . . . . . . . . $1.00 $5.75 $1.02 $1.01
Average common shares outstanding:
Primary . . . . . . . . . . . . 4,634 200 (200) (1) 5,675 (200) (1) 5,767
1,041 (2) 1,133 (2)
Fully diluted . . . . . . . . . 6,074 200 (200) (1) 7,115 (200) (1) 7,207
1,041 (2) 1,133 (2)
</TABLE>
-40-
<PAGE> 46
PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1993 (FLFC)
YEAR ENDED DECEMBER 31, 1993 (MGB)
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
EXCHANGE RATIO EXCHANGE RATIO
--------------------------- ------------------------
PRO FORMA PRO FORMA PRO FORMA PRO FORMA
FLFC MGB ADJUSTMENTS COMBINED ADJUSTMENTS COMBINED
---- --- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest income . . . . . . . . . . $51,241 $6,128 $57,369 $57,369
Interest expense . . . . . . . . . 29,012 3,452 32,464 32,464
------- ------ ------- -------
Net interest income . . . . . . . 22,229 2,676 24,905 24,905
Provision for loan losses . . . . . 1,979 585 2,564 2,564
------- ------ ------- -------
Net interest income after provision
for loan losses . . . . . . . . 20,250 2,091 22,341 22,341
Noninterest income . . . . . . . . 9,277 1,135 10,412 10,412
Noninterest expense . . . . . . . . 22,175 2,124 24,299 24,299
------- ------ ------- -------
Income before income tax
expense and extraordinary item. 7,352 1,102 8,454 8,454
Income tax expense . . . . . . . . 2,619 279 2,898 2,898
------- ------ ------- -------
Income before
extraordinary item . . . . . . 4,733 823 5,556 5,556
Dividends on preferred stock . . . 557 - 557 557
------- ------ ------- -------
Income before extraordinary
item applicable to common
stockholders . . . . . . . . . $ 4,176 $ 823 $ 4,999 $ 4,999
======= ====== ======= =======
Income per common share before
extraordinary item:
Primary . . . . . . . . . . . . $ .91 $ 4.11 $ .89 $ .87
Fully diluted . . . . . . . . . $ .86 $ 4.11 $ .85 $ .84
Average common shares outstanding:
Primary . . . . . . . . . . . . 4,572 200 (200) (1) 5,613 (200) (1) 5,705
1,041 (2) 1,133 (2)
Fully diluted . . . . . . . . . 5,531 200 (200) (1) 6,572 (200) (1) 6,664
1,041 (2) 1,133 (2)
</TABLE>
-41-
<PAGE> 47
NOTES TO PRO FORMA COMBINED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
MINIMUM MAXIMUM
EXCHANGE RATIO EXCHANGE RATIO
--------------------- ---------------------
(in thousands except per share data)
<S> <C> <C> <C> <C>
(1) To eliminate MGB's capital stock:
Common stock, at par value . . . . . $ (200) $ (200)
Contributed capital . . . . . . . . (5,800) (5,800)
-------- --------
$ (6,000) $ (6,000)
======== ========
(2) To record the issuance of shares of
FLFC Stock in exchange for all of the
outstanding shares of MGB:
MGB outstanding shares . . . . . . . . . 200 200
Conversion ratio, determined as follows:
$85.00/$16.33 or $15.00 per share . . . . 5.204 5.667
-------- --------
FLFC shares to be issued . . . . . . . . 1,041 1,133
======== ========
Par value of 1,041 or 1,133 shares issued
at $1.00 per share . . . . . . . . . . $ 1,041 $ 1,133
Shares issued at par . . . . . . . . . . $1,041 $1,133
Total capital stock of MGB . . . . . . . 6,000 6,000
------ ------
Excess recorded as an increase in
contributed capital . . . . . . . 4,959 4,867
-------- --------
$ 6,000 $ 6,000
======== ========
</TABLE>
-42-
<PAGE> 48
MIDDLE GEORGIA BANK
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
MGB had net income after provision for income taxes for the six
months ended June 30, 1996 and June 30, 1995 of $602,000 or $3.01 per share and
$732,000 or $3.66 per share, respectively. Total assets were $112 million and
$110 million at June 30, 1996 and June 30, 1995, respectively. The most
significant difference in operations for the six months ended June 30, 1996 as
compared to the same period in 1995 was the amount provided for loan loss
reserve. For the 1996 period, $706,000 was provided, and $350,000 was provided
for the 1995 period. The provision for loan losses in 1996 increased the loan
loss reserve to 3.43% of gross loans. Noninterest income increased $54,000
between the periods while noninterest expenses (excluding the provision for
loan losses) decreased by $54,000. Loans increased by $490,000 and deposits
increased by $1.9 million. In summary, MGB performed very well with efficiency
ratios below 50% for both periods. The Peach County area continues to grow and
realize a considerable benefit from the residential development in Houston
County, which is primarily in areas adjacent to Peach County.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
As of December 31, 1995, MGB had total assets of $112.1 million, an
increase of $11.4 million or an increase of 11.3% from total assets at
December 31, 1994 of $100.7. The net income after taxes for 1995 was $1.3
million or $6.37 per share compared to $1.2 million or $5.75 per share for
1994. Between December 31, 1994 and December 31, 1995, loans increased by $2.4
million or 3.9% and deposits increased by $10.0 million or 11.01%. Noninterest
expense increased by $191,000 or 9.04% while noninterest income decreased by
$173,000 or 13.9%. The efficiency ratio for 1995 was 57.17% compared with
56.96% for 1994. The loan loss provision for 1995 was $925,000 compared with
$687,000 for 1994. At year-end 1995, the loan loss reserve was 2.85% of gross
loans, compared with 2.23% at year-end 1994. Net charge-offs for 1995 were
$477,024 and $423,305 for 1994. Over the last several years, management has
continued to address loan portfolio concerns and has increased the reserve from
1.82% at year-end 1991 to 2.85% at year-end 1995, while at the same time
increasing net income from $745,000 at year-end 1991 to $1.274 million at
year-end 1995. During the same period, the efficiency ratio was improved from
51.8% for 1991 to 41.5% for 1995.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1994 AND 1993
Net income after taxes for 1994 was $1.151 million compared to
$977,000 for 1993 or an increase of 17.8% Loans increased from $57.8 million
at year-end 1993 to $61.5 million at year-end 1994 or an increase of 6.3%.
Deposits increased from $79.3 million at year-end 1993 to $90.7 million at
year-end 1994 or an increase of 14.4%. During 1994, the MGB introduced its
prime rate account which was met with tremendous success. Noninterest income
increased from $1.0 million to $1.2 million from 1993 to 1994 or an increase of
20% while noninterest expenses decreased from $2.12 million to $2.11 million
for the same period. The provision for loan losses was $586,000 and $687,000
for 1993 and 1994, respectively. Net charge-offs for 1993 were $565,000 and
$423,000 for 1994. The Bank's efficiency ratio improved to 56.96% for 1994
from 68.12% for 1993. The continued improvement in earnings was reflected by
MGB paying dividends in 1994 of $.80 per share compared with $.70 per share in
1993. The economic outlook for MGB market area continues to be very positive.
AVERAGE BALANCES AND NET INCOME ANALYSIS
The following tables set forth the amount of MGB'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.
-43-
<PAGE> 49
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
--------------------------------- -----------------------------------
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 . . . . . . . . . . . . . . . . . . . $ 63,814 $6,642 10.41% $59,400 $5,376 9.05%
Investment securities:
Taxable . . . . . . . . . . . . . . . . . 24,773 1,633 6.59% 19,323 1,080 5.59
Nontaxable . . . . . . . . . . . . . . . 6,804 314 4.61 6,318 283 4.48
Interest bearing deposits
in other banks . . . . . . . . . . . . . . 3,345 218 6.52 1,422 85 5.98
Federal funds sold . . . . . . . . . . . . . 4,432 265 5.98 3,945 171 4.33
-------- ----- ------- ------
Total interest-earning assets . . . . 103,168 9,072 8.79% 90,408 6,995 7.74%
-------- ----- ----- ------- ------ -----
Noninterest-earning assets:
Cash . . . . . . . . . . . . . . . . . . . 729 634
Allowance for loan losses . . . . . . . . . (1,570) (1,166)
Other assets . . . . . . . . . . . . . . . 5,694 5,079
-------- -------
Total noninterest-earning Assets . . . . . . . 4,853 4,547
-------- -------
Total assets . . . . . . . . . . . . . $108,021 $94,955
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Savings and interest-bearing demand
deposits . . . . . . . . . . . . . . . . $ 35,907 $1,653 4.60% $39,598 $1,691 4.27%
Time deposits . . . . . . . . . . . . . . . 53,659 3,382 6.30 38,566 2,005 5.20
Debt . . . . . . . . . . . . . . . . . . . 1,491 155 10.40 1,411 148 10.49
-------- ------ ------- ------
Total interest-bearing liabilities . . . . 91,057 5,190 5.70% 79,575 3,844 4.83%
-------- ------ ----- ------- ------ -----
Noninterest-bearing liabilities:
Demand deposits . . . . . . . . . . . . . . 7,677 6,706
Other liabilities . . . . . . . . . . . . . 624 989
Stockholders' equity . . . . . . . . . . . 8,663 7,685
-------- -------
Total noninterest-bearing
liabilities . . . . . . . . . . . . 16,964 15,380
-------- -------
Total liabilities and stockholders'
equity . . . . . . . . . . . . . . . $108,021 $94,955
======== =======
Net interest income . . . . . . . . . . . . . $3,882 $3,151
====== ======
Interest rate spread . . . . . . . . . . . . . 3.09% 2.91%
==== ======
Net interest margin . . . . . . . . . . . . . . 3.76% 3.49%
==== ======
</TABLE>
-44-
<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,
-------------------------------------------------------------------
1995 VS. 1994 1994 VS. 1993
CHANGES DUE TO CHANGES DUE TO
---------------------------- -----------------------------
INCREASE INCREASE
(DECREASE) RATE VOLUME (DECREASE) RATE VOLUME
---------- ---- ------ ---------- ---- ------
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Increase (decrease) in:
Income from earning assets:
Interest and fees on loans $1,266 $ 867 $ 399 $421 $ 233 $188
Interest on securities:
Taxable . . . . . . . . . . 553 248 305 295 (100) 395
Tax exempt . . . . . . . . 31 9 22 122 (57) 179
Other interest income . . . . 133 18 115 15 (29) 44
Interest on Federal funds . . 94 73 21 14 55 (41)
------ ------ ----- ---- ----- ----
Total interest income . . $2,077 $1,215 $ 862 $867 $ 102 $765
------ ------ ----- ---- ----- ----
Expense from interest-bearing
liabilities:
Interest on savings and
interest-bearing demand
deposits . . . . . . . . . $ (38) $ 120 $(158) $407 $ 84 $323
Interest on time deposits 1,377 592 785 (13) (109) 96
Interest on debt . . . . . . 7 (1) 8 (2) 3 (5)
------ ------ ----- ---- ----- ----
Total interest expense. . . $1,346 $ 711 $ 635 $392 $ (22) $414
------ ------ ----- ---- ----- ----
Net interest income . . . $ 731 $ 504 $ 227 $475 $ 124 $351
====== ====== ===== ==== ===== ====
</TABLE>
ASSET/LIABILITY MANAGEMENT
A principal objective of MGB'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 under the direction of MGB's Board of Directors.
MGB 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 MGB has been to
originate loans with maturities of five years or less which would correspond to
the liability structure of MGB. 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
MGB's earning assets and interest-bearing liabilities as of December 31, 1995,
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 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
-45-
<PAGE> 51
and the needs of MGB'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 . . . . . $ 591 $ 3,327 $ 654 $ - $ 4,572
Federal funds sold . . . . . . . . 2,510 - - - 2,510
Investment securities:
Held to maturity . . . . . . . . - - - - -
Available for sale . . . . . . . 10,510 2,245 14,913 7,454 35,122
Repurchase . . . . . . . . . . . - - - - -
Loans . . . . . . . . . . . . . . . 20,729 27,340 13,175 2,640 63,884
------- ------- ------- ------- --------
$34,340 $32,912 $28,742 $10,094 $106,088
------- ------- ------- ------- --------
Interest-bearing liabilities:
Interest-bearing demand deposits . $25,516 $ - $ - $ - $ 25,516
Savings . . . . . . . . . . . . . . 9,598 - - - 9,598
Certificates, less than $100,000 . 3,673 15,548 26,744 - 45,965
Certificates, $100,000 and over . . 2,620 6,275 2,641 - 11,536
Short-term borrowings . . . . . . . 73 - - - 73
------- ------- ------- ------- --------
$41,480 $21,823 $29,385 $ - $ 92,688
------- ------- ------- ------- --------
Interest rate sensitivity gap . . . . $(7,140) $11,089 $ (643) $10,094 $13,400
Cumulative interest rate
sensitivity gap . . . . . . . . . . $(7,140) $ 3,949 $ 3,306 $13,400 $13,400
Interest rate sensitivity gap ratio . 82.79% 150.81% 97.81% -% 114.46%
Cumulative interest rate
sensitivity gap ratio . . . . . . . 82.79% 106.24% 103.57% 114.46% 14.46%
</TABLE>
As of December 31, 1995, the cumulative one-year interest rate
sensitivity gap ratio for MGB was 106.24%. This indicates that the
interest-earning assets of MGB 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 MGB 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 36% of the investment portfolio
reprices within one year.
-46-
<PAGE> 52
INVESTMENT PORTFOLIO
Types of Investments. The amortized cost and estimated market value of
investment securities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------------------
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 . . . . $ 982 $ 9 $ - $ 991
Other U.S. government
agencies . . . . . 16,757 92 (27) 16,822
State and political
subsidivisions . . 6,733 92 (26) 6,799
Mortgage-backed debt
securities . . . . . 10,080 124 (106) 10,098
Equity securities . . . 442 - (30) 412
--------- ------ ----- --------
$ 34,994 $ 317 $(189) $ 35,122
========= ====== ===== ========
<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:
U.S. Treasury . . . . $ 1,365 $ - $ (27) $ 1,338
Other U.S. government
agencies . . . . . . 14,114 - (521) 13,593
State and political
subdivisions . . . . 7,233 24 (307) 6,950
Mortgage-backed debt
securities . . . . . 6,240 12 (170) 6,082
Equity securities . . . . 442 90 (59) 473
------- ---- ------- -------
$29,394 $126 $(1,084) $28,436
======= ==== ======= =======
</TABLE>
As of June 30, 1996, the carrying value of investment securities
amounted to $32.1 million with unrealized gains of $129,000, unrealized losses
of $645,000 and estimated market value of $32.1 million. See "Asset/Liability
Management."
-47-
<PAGE> 53
Maturities. The amounts of investment securities in each category as
of December 31, 1995 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>
AMORTIZED MARKET
COST VALUE YIELD(1)
----------- ---------- -------------
(Dollars in thousands)
<S> <C> <C> <C>
U.S. treasuries
Due in one year or less.................................. $ 982 $ 991 6.53%
Due after one year through five years.................... - - -
Due after five years through ten years................... - - -
Due after ten years...................................... - - -
-------- ------- ----
Total U.S. treasuries...................................... $ 982 $ 991 6.53%
-------- ------- ----
U.S. government agencies
Due in one year or less.................................. 199 200 5.71
Due after one year through five years.................... 11,335 11,364 6.57
Due after five years through ten years................... 5,223 5,258 7.21
Due after ten years...................................... - - -
-------- ------- ----
Total U.S. government agencies............................. $ 16,757 $16,822 6.76%
-------- ------- ----
State and political subdivisions
Due in one year or less................................. 1,051 1,054 7.18
Due after one year through five years................... 3,537 3,549 7.10
Due after five years through ten years.................. 1,594 1,635 9.07
Due after ten years..................................... 551 561 8.87
-------- ------- ----
Total state and political subdivisions.................... $ 6,733 $ 6,799 7.72%
-------- ------- ----
Mortgaged-backed debt securities.......................... $ 10,080 $10,098 6.92%
-------- ------- ----
Equity Securities......................................... $ 442 $ 412 -
-------- ------- ----
Total Securities.......................................... $ 34,994 $35,122 6.91%
======== ======= ====
</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.
-48-
<PAGE> 54
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,
------------------------------
1995 1994
---- ----
(In thousands)
<S> <C> <C>
Commercial, financial and agricultural . . . . . . . . . . . . . . . . . $12,820 $14,668
Real estate-construction . . . . . . . . . . . . . . . . . . . . . . . . 5,444 6,035
Real estate-mortgage . . . . . . . . . . . . . . . . . . . . . . . . . . 34,238 32,693
Installment loans to individuals . . . . . . . . . . . . . . . . . . . . 11,403 8,031
Lease financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - 56
-------- ---------
Subtotal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63,905 61,483
Less: Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . (21) (28)
--------- ----------
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 63,884 $ 61,455
======== =========
</TABLE>
Maturities and Sensitivity to Changes in Interest Rates. Total loans
as of December 31, 1995 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>
<CAPTION>
ONE YEAR AFTER ONE YEAR AFTER FIVE
TYPE OF LOAN OR LESS THROUGH FIVE YEARS TOTAL
- -------------------------------------------- -------- ----------------- ---------- ---------
(In thousands)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural . . $11,168 $ 1,582 $ 70 $12,820
Real estate. . . . . . . . . . . . . . . . 31,731 5,662 2,289 39,682
Other. . . . . . . . . . . . . . . . . . . 5,170 5,931 281 11,382
------- ------- ------ -------
$48,069 $13,175 $2,640 $63,884
======= ======= ====== =======
</TABLE>
The following table summarizes loans at December 31, 1995 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 . . . . . . . . . . . . $15,483
Floating or adjustable interest rates . . . . . . . . 332
-------
Total . . . . . . . . . . . . . . . . . . . . . . . $15,815
=======
</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.
-49-
<PAGE> 55
Following is a summary of nonperforming and past due loans and foreclosed
assets as of December 31, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
------ ------
(In thousands)
<S> <C> <C>
Loans accounted for on a nonaccrual
basis . . . . . . . . . . . . . . . . . . . . . . $ 976 $ 985
Installment loans and term loans
contractually past due ninety days
or more as to interest or principal
payments and still accruing . . . . . . . . . . . . 993 376
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 . . . . . . . . . . . . . . . . . . 597 821
------ ------
Total . . . . . . . . . . . . . . . . . . . . . . $2,566 $2,182
====== ======
</TABLE>
If interest on these loans had been accrued and paid, such interest income
would have approximated $148,000 and $105,000 for 1995 and 1994, 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.
MGB's allowance for loan losses was approximately $1.8 million at December 31,
1995, representing 2.85% of year-end total loans outstanding, compared with
approximately $1.4 million at December 31, 1994, which represented 2.23% of
year-end total loans outstanding. MGB's allowance for loan losses was
approximately $2.3 million at June 30, 1996, representing 3.43% 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. Based on management's best estimate, approximately 56% of the allowance
should be allocated to real estate loans, 22% to commercial and industrial
loans, and 21% to consumer/installment loans as of December 31, 1995, as shown
in the following table.
-50-
<PAGE> 56
The following table presents MGB's allocation of the allowance for loan
losses as of December 31:
<TABLE>
<CAPTION>
1995 1994
---------------------------- ----------------------------
PERCENT PERCENT
OF LOANS OF LOANS
IN EACH IN EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
------ ------------ ------ ------------
(Dollars in thousands)
<S> <C> <C> <C> <C>
Balance at end of period applicable to:
Commercial, financial and
agricultural............................. $ 406 20% $ 281 24%
Real estate-construction.................... 9 10
Real estate-mortgage........................ 1,027 53 777 53
Consumer.................................... 385 18 313 13
------ --- ------ ---
Total....................................... $1,818 100% $1,371 100%
====== === ====== ===
</TABLE>
The following table presents an analysis of MGB's loan loss experience for
the periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1995 1994
---- ----
(Dollars in thousands)
<S> <C> <C>
Average amount of loans outstanding . . . . . . . . . . $63,814 $59,400
======= =======
Balance of reserve for possible loan
losses at beginning of period . . . . . . . . . . . . $ 1,371 1,107
------- -------
Charge-offs:
Commercial, financial and agricultural . . . . . . . 268 250
Real estate - mortgage . . . . . . . . . . . . . . . 30 94
Consumer . . . . . . . . . . . . . . . . . . . . . . 247 142
------- -------
545 486
------- -------
Recoveries:
Commercial, financial and agricultural . . . . . . . 25 21
Real estate-mortgage . . . . . . . . . . . . . . . . 37 13
Consumer . . . . . . . . . . . . . . . . . . . . . . 6 29
------- -------
68 63
------- -------
Net charge-offs . . . . . . . . . . . . . . . 477 423
------- -------
Additions to reserve charged to operating
expenses . . . . . . . . . . . . . . . . . . . . . . 924 687
------- -------
Balance of reserve for possible
loan losses at period end . . . . . . . . . . . . . . $ 1,818 $ 1,371
======= =======
Ratio of net loan charge-offs to
average loans outstanding during period . . . . . . . .75% .71%
======= =======
</TABLE>
-51-
<PAGE> 57
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,
--------------------------------------------------------------------
1995 1994
----------------------------- ----------------------------
AMOUNT RATE AMOUNT RATE
------ ---- ------ ----
(Dollars in thousands)
<S> <C> <C> <C> <C>
Noninterest-bearing
demand deposits . . . . . $ 7,677 -% $ 6,706 -%
Interest-bearing demand . . 24,688 4.88 21,303 4.46
Savings deposits . . . . . 11,219 4.00 18,295 4.06
Time deposits . . . . . . . 53,659 6.30 38,566 5.20
------- -------
Total deposits. . $97,243 5.18 $84,870 4.35
======= =======
</TABLE>
The amounts of time certificates of deposit issued in amounts of
$100,000 or more at December 31, 1995, are shown below by category, which is
based on time remaining until maturity for the periods indicated from December
31, 1995.
<TABLE>
<CAPTION>
TIME DEPOSITS
OF $100,000 OR MORE
-------------------
(In thousands)
<S> <C>
Three months or less . . . . . . . . . . . . . . $ 2,620
Over three through six months . . . . . . . . . . 4,715
Over six through twelve months . . . . . . . . . 1,560
Over twelve months . . . . . . . . . . . . . . . 2,641
-------
Total . . . . . . . . . . . . . . . . . $11,536
=======
</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,
------------------------------
1995 1994
---- ----
<S> <C> <C>
Return on assets (1) . . . . . . . . . . 1.18% 1.21%
Return on equity (2) . . . . . . . . . . 14.71% 14.97%
Dividend payout ratio (3) . . . . . . . . 14.13% 13.91%
Equity to assets ratio (4) . . . . . . . 8.02% 8.09%
</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.
-52-
<PAGE> 58
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 MGB to meet those needs. MGB 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, MGB maintains relationships with correspondent banks which could
provide funds on short notice, if needed.
The liquidity and capital resources of MGB are monitored on a periodic
basis by state and federal regulatory authorities. At June 30, 1996, MGB's
short-term investments were adequate to cover any reasonably anticipated
immediate need for funds. MGB 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 MGB. The guidelines define capital as
either core (Tier 1) capital or supplementary (Tier 2) capital. Tier 1 capital
consists primarily of stockholder' 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
risk-weighted assets of 8%, with at least 4% consisting of Tier 1 capital and a
minimum leverage ratio of 3%. Under these guidelines, MGB's capital ratios as
of December 31, 1995 and 1994 and June 30, 1996 were:
<TABLE>
<CAPTION>
ACTUAL CAPITAL RATIO
--------------------------------
DECEMBER 31, JUNE 30, MINIMUM
---------------- -------- REGULATORY
1995 1994 1996 REQUIREMENT
---- ---- ---- -----------
<S> <C> <C> <C> <C>
Leverage capital ratio . . . . . . 8.59% 7.85% 8.83% 3%
Risk based capital ratios:
Tier 1 capital . . . . . . . . . 13.64% 12.07% 13.89% 4%
Tier 2 capital . . . . . . . . . 14.90% 13.33% 15.16% 8%
</TABLE>
COMMITMENTS AND LINES OF CREDITS
In the ordinary course of business, MGB 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 MGB's Board of Directors. MGB 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. MGB 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.
-53-
<PAGE> 59
Following is a summary of the commitments outstanding at December 31,
1995 and 1994 and June 30, 1996.
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- --------
1995 1994 1996
---- ---- --------
(In thousands)
<S> <C> <C> <C>
Commitments to extend credit . . . . . $4,617 $4,715 $5,107
Standby letters of credit . . . . . . . 573 674 -
------ ------ ------
$5,190 $5,389 $5,107
====== ====== ======
</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.
CURRENT ACCOUNTING ISSUES
In March 1995, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be
Disposed of, which requires impairment losses to be recorded on long-lived
assets used in operations when indicators of impairment are present and the
undiscounted cash flows estimated to be generated by those assets are less than
assets' carrying amount. SFAS No. 121 also addresses the accounting for
long-lived assets that are expected to be disposed of. The adoption of SFAS
No. 121 on January 1, 1996 did not have a material impact on MGB's financial
statements as a whole.
-54-
<PAGE> 60
OWNERSHIP OF MGB STOCK
SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth as of April 1, 1996, information
concerning the beneficial ownership of MGB Stock for each current director of
MGB 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>
W.L. Brown . . . . . . . . . . . . . . . . . . 1,487 *
Director, President and
Chief Executive Officer
Lawrence C. Collins . . . . . . . . . . . . . . 1,130 (2) *
Director
Billy A. Dick . . . . . . . . . . . . . . . . . 650 *
Director
Michael L. Gilstrap . . . . . . . . . . . . . . 210 (3) *
Director
Dennis N. Herbert . . . . . . . . . . . . . . . 1,270 *
Director
Patricia E. Joiner . . . . . . . . . . . . . . 4,000 2.0%
Director and Secretary
Martin H. Moseley . . . . . . . . . . . . . . . 25,000 (4) 12.5%
Director
Harold W. Peavy, Sr. . . . . . . . . . . . . . 29,500 (5) 14.8%
Director
All current directors and
executive officers
as a group (eight persons) . . . . . . . . . 63,247 (6) 31.6%
- ---------------
</TABLE>
* Less than one percent.
(1) The stock ownership information shown has been furnished to MGB 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 footnote 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 include 300 shares held of record by Mr. Collins' spouse
and as to which he disclaims beneficial ownership.
(3) The shares shown include 10 shares owned jointly by Mr. Gilstrap and his
spouse.
(4) The shares shown include (i) 20,000 shares owned jointly by Mr. Moseley and
his spouse and (ii) 5,000 shares owned by Mr. Moseley's spouse.
(5) The shares shown are held of record by Oakland Fruit Farm, LTD. Mr. Peavy,
Sr. owns a controlling interest in such entity.
(6) Includes 20,010 shares owned jointly with others, 5,000 shares owned by
spouses of directors and 29,500 shares owned by businesses in which a
director has control.
-55-
<PAGE> 61
PRINCIPAL STOCKHOLDERS
The following table sets forth information as of April 1, 1996,
regarding the ownership of the MGB Stock by each person known to MGB to be the
beneficial owner of more than 5% of the MGB 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.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENT
NAME AND ADDRESS OWNED OF CLASS
- ---------------- ------------------- --------
<S> <C> <C>
Martin H. Moseley . . . . . . . . . . . . . . . 25,000 (1) 12.5%
P.O. Box 91
Byron, Georgia 31008
Robert L. Murdock, Jr. . . . . . . . . . . . . 15,714 (2) 7.9%
P.O. Box 418
Byron, Georgia 31008
Oakland Fruit Farm, LTD . . . . . . . . . . . . 29,500 14.8%
P. O. Box 66
Byron, Georgia 31008
Harold W. Peavy, Jr. . . . . . . . . . . . . . 54,509 (3) 27.3%
P.O. Box 25
Byron, Georgia 31008
Harold W. Peavy, Sr. . . . . . . . . . . . . . 29,500 (4) 14.8%
P.O. Box 66
Byron, Georgia 31008
Quick Cession, LTD . . . . . . . . . . . . . . 54,509 (5) 27.3%
P. O. Box 1059
Byron, Georgia 31008
</TABLE>
- ---------------
(1) The shares shown include (i) 20,000 shares owned jointly by Mr. Moseley
and his spouse and (ii) 5,000 shares owned by Mr. Moseley's spouse.
(2) The shares shown include 2,064 shares owned jointly by Mr. Murdock, Jr.
and his wife.
(3) The shares shown include (i) 30,000 shares owned jointly by Mr. Peavy,
Jr. and Quick Cession, LTD and (ii) 24,509 shares owned of record by
Quick Cession, LTD. Mr. Peavy, Jr. owns all of the voting stock of
Quick Cession, LTD. Mr. Peavy, Jr. is the son of Mr. Peavy, Sr.
(4) The shares shown are held of record by Oakland Fruit Farm, LTD. Mr.
Peavy, Sr. owns a controlling interest in such entity.
(5) The shares shown include 30,000 shares owned jointly by Quick Cession,
LTD and Harold Peavy, Jr. See note (3) above.
-56-
<PAGE> 62
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 June 30, 1996, FLFC had total assets of approximately
$991.2 million, total deposits of approximately $751.4 million and
stockholders' equity of approximately $76.0 million.
FLB is a federally chartered stock savings bank based in Macon,
Georgia which serves Macon, Savannah, Valdosta, Tifton, Swainsboro and other
Georgia cities through its home office and 28 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 June 30, 1996, FLB is the
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 .96% at June 30, 1996, the ratio of core capital to
adjusted total assets has increased from 3.49% at September 30, 1990 to 6.26%
at June 30, 1996 and net income improved from a loss of $5.6 million for the
year ended September 30, 1990 to net income of $8.1 million for the year ended
September 30, 1995 and $7.4 million for the nine months ended June 30, 1996.
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. On September 15, 1995, FLFC acquired Tifton Banks, Inc. and its bank
subsidiary, Tifton Bank & Trust Company, which had a primary market area in
Tifton, Georgia. On the acquisition date, Tifton Banks, Inc. had total assets
of approximately $49 million and total deposits of $45 million.
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 may occur. 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 October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation". SFAS No. 123 establishes accounting and reporting
standards for stock-based employee compensation plans including stock purchase
plans, stock options, restricted stock and stock appreciation rights. SFAS No.
123 defines a fair value based method of accounting for an employee stock
option or similar equity
-57-
<PAGE> 63
instrument and encourages all entities to adopt that method of accounting for
all of their employee stock compensation plans. However, it also allows an
entity to continue to measure compensation cost using the intrinsic value based
method of accounting prescribed by APB Opinion No. 25, "Accounting for Stock
Issued to Employees". Entities electing to remain with the accounting in
Opinion No. 25 must make pro forma disclosures of net income and earnings per
share as if the fair value method of accounting defined in SFAS No. 123 had
been applied. SFAS No. 123 is generally effective for FLFC for the year ending
September 30, 1997, although earlier adoption is permitted. Management of FLFC
is reviewing SFAS No. 123 to determine the effects of the two methods on the
financial condition and results of operations of FLFC.
For further information concerning FLFC and FLB, see FLFC's Annual
Report on Form 10-K for the fiscal year ended September 30, 1995 and its
Quarterly Report on Form 10-Q for the quarter ended June 30, 1996, copies of
which are being delivered to the MGB stockholders with this Proxy
Statement/Prospectus and are incorporated herein by reference. See
"Incorporation of Certain Information by Reference."
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"). As of September 15, 1996,
approximately 6,020,000 shares of FLFC Stock were outstanding and are fully
paid and nonassessable and 302,580 shares of FLFC Preferred Stock designated
as Series B 6.0% Cumulative Convertible Preferred Stock, stated value $25 per
share (the "Series B Preferred"), are outstanding and are fully paid and
nonassessable. On June 30, 1995, 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"), were issued and outstanding.
On July 31, 1995, FLFC redeemed all of the then outstanding shares of Series A
Preferred. Accordingly, no shares of Series A Preferred are issued and
outstanding.
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."
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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 B Preferred is,
and the Series A Preferred was, a series of FLFC Preferred Stock. The Board of
Directors of FLFC could issue additional series of FLFC Preferred Stock with
rights more favorable than the rights of holders of FLFC Stock.
SERIES B PREFERRED.
FLFC is authorized to issue up to 350,000 shares of Series B
Preferred. In December 1994 and September 1995, FLFC issued an aggregate of
302,580 shares of Series B Preferred in connection with FLFC's acquisition of
Central Banking Company and Tifton Banks, Inc.
The Series B Preferred ranks prior to the FLFC Stock with respect to
the payment of dividends and rights upon liquidation. 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. 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, and (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).
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 . . . . . . . . . . . . . . . . . . . . . . $18.00
1998 . . . . . . . . . . . . . . . . . . . . . . 17.73
1999 . . . . . . . . . . . . . . . . . . . . . . 17.47
2000 . . . . . . . . . . . . . . . . . . . . . . 17.20
2001 . . . . . . . . . . . . . . . . . . . . . . 16.93
2002 and thereafter . . . . . . . . . . . . . . . 16.67
</TABLE>
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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.
Each share of Series B Preferred will be convertible at the holder's
option at any time before redemption or maturity initially at $14.00 per share
(equivalent to 1.786 shares of FLFC Stock for each share of Series B Preferred
converted) (the "Conversion Price"), subject to adjustment under certain
circumstances.
The holders of Series B Preferred have no voting rights except as
otherwise expressly required by applicable law.
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, MGB stockholders 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 MGB and should be read in
conjunction with the information set forth in "Description of FLFC Capital
Stock." This summary does not purport to be a complete discussion of, and is
qualified in its entirety by reference to, the GBCC and the Financial
Institutions Code of Georgia, which governs MGB, and the respective Articles of
Incorporation and Bylaws of FLFC and MGB.
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AUTHORIZED CAPITAL STOCK
MGB. MGB is authorized to issue 200,000 shares of MGB Stock, $1.00
par value per share, all of which were issued and outstanding as of September
30, 1996. Accordingly, the Board of Directors of MGB does not have the
authority to issue additional shares of MGB 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 September 15, 1996, approximately 6,020,000 shares
of FLFC Stock, 302,580 shares of FLFC Preferred Stock designated as Series B
Preferred were issued and outstanding, 610,350 shares of FLFC Stock were
reserved for issuance under FLFC's 1983 Incentive Stock Option Plan and 1992
Stock Incentive Plan, and 75,000 shares of FLFC Stock were reserved for
issuance under the 1995 Director Stock Option Plan. Accordingly, following the
Merger, the Board of Directors of FLFC will have the authority to issue
approximately 18,296,000 shares of FLFC Stock and approximately 4,697,400
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 and FLB's Boards 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 and FLB's Boards 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."
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PREEMPTIVE RIGHTS. The Financial Institutions Code of Georgia,
requires that, unless provided otherwise in MGB's Articles of Incorporation,
MGB shall issue shares, option rights, or securities having conversion or
option rights by first offering them to stockholders of the same class in
proportion to their holdings of shares of such class. However, the Financial
Institutions Code also provides that there are no preemptive rights to: (i)
shares issued as a share dividend; (ii) fractional shares; (iii) shares issued
pursuant to a share plan duly authorized pursuant to the Financial Institutions
Code; (iv) shares issued pursuant to the acquisition of substantially all of
the assets of another bank or trust company; (v) shares released by waiver from
their preemptive right by the affirmative vote or written consent of the
holders of two-thirds of the shares of the class to be issued; (vi) shares
which have been offered to stockholders to satisfy their preemptive rights but
not purchased by them within the prescribed time and which are thereafter
issued or sold to any other person or persons at a price not less than the
price at which they were offered to such stockholders.
MGB stockholders currently enjoy the above-described preemptive rights
pursuant to the Financial Institutions Code. FLFC's Articles of Incorporation
do not provide for preemptive rights for the stockholders of FLFC.
DIVIDEND RESTRICTIONS. The payment of dividends on MGB Stock is
subject to the Financial Institutions Code and the regulations of the DBF
promulgated thereunder which, among other things, provide that MGB may pay
dividends on MGB Stock in cash or property only if MGB is not insolvent and the
payment of dividends would not render MGB insolvent. Additionally, MGB may pay
dividends only out of retained earnings of MGB, and no dividends may be paid if
paid-in capital plus appropriated retained earnings are less than 20% of MGB's
capital stock. Further dividends may not be declared and paid without the
approval of the DBF if (i) MGB's total classified assets exceed 80% of its
equity capital, (ii) MGB's ratio of equity capital to adjusted total assets is
less than 6%, or (iii) the aggregate amount of dividends declared or
anticipated to be declared in the calendar year exceeds 50% of the net
profits of MGB, after taxes but before dividends, for the previous calendar
year.
Payment of dividends on FLFC Stock will not be subject to the Financial
Institutions Code or the regulations of the DBF but will be subject to the
GBCC. The GBCC provides, among other things, that dividends may be paid in
cash, property or stock unless FLFC is insolvent or the dividend payment would
render it insolvent.
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DIRECTORS
MGB. The Board of Directors of MGB shall consist of not less than
three nor more than twenty-five members. Presently there are eight members of
the Board, including three employees of MGB. In addition, there is one
nonvoting advisory member and one nonvoting emeritus member. Members of the
Board of Directors are elected by the stockholders at the annual meeting of
stockholders and serve until the next stockholder's meeting and until their
successors are named. Vacancies of the Board are filled by the stockholders at
the next annual stockholders meeting. The Board of Directors meet at least
monthly and have general charge of and authority over the operations of the
business of MGB. Special meetings of the Board may be called by the President
or upon the request of three or more directors. A quorum of any meeting of the
Board shall consist of a majority of the Directors.
FLFC. Pursuant to FLFC's Amended and Restated Articles of
Incorporation, the Board of Directors of FLFC is divided into three classes as
nearly equal in number as possible, with the term of office of one class
expiring each year. At each annual meeting of the stockholders of FLFC the
directors of one class are elected to hold office for a term expiring at the
third annual meeting following their election and until their successors have
been duly elected and qualified. During the intervals between annual meetings
of stockholders, any vacancy occurring in the Board of Directors caused by the
resignation, removal, death or other incapacity of one or more directors, and
any newly created directorships resulting from an increase in the number of
directors, shall be filled by a majority vote of the directors then in office,
whether or not a quorum. Each director elected by the Board of Directors to
fill a vacancy holds office for the unexpired term in respect of which such
vacancy occurred.
The Board of Directors of FLFC consists of not less than six nor more
than 15 members, with the precise number to be fixed by resolution of the board
of directors from time to time. The minimum number of directors may be reduced
below six and the maximum number of directors may be increased above 15 only
upon the affirmative vote of the stockholders of record holding two-thirds of
the then outstanding shares of stock of each class of the corporation entitled
to vote in elections for directors at a meeting of stockholders called for that
purpose. Pursuant to GBCC, directors of FLFC may be removed only for cause.
The effect of these provisions is to make it more difficult and time consuming
to change majority control of the Board of Directors.
STOCKHOLDER MEETINGS
MGB. The annual meeting of the stockholders of MGB shall be held at
the call of the President, such meeting to be held not later than 60 days
following the end of each fiscal year. Ten days notice of the time and the
place of the meeting shall be given in writing to each stockholder.
Stockholders may vote by being present in person, or by being represented by
written proxy. Roberts' Rules of Order shall govern the order and conduct of
the meeting, except that there shall be no cumulative voting.
Special meetings of the stockholders may be called by the Board of
Directors, or upon written request of the owners of record of 25% of the stock,
or upon call of the President. Each stockholder shall be given ten days
written notice of the time, place and purpose of such meeting.
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
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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.
ANTI-TAKEOVER PROVISIONS
MGB. The Articles of Incorporation and Bylaws of MGB contain no
anti-takeover provisions.
FLFC. In addition to the classified Board of Directors discussed
under "- Directors" above, the provisions of FLFC's Amended and Restated
Articles of Incorporation, Bylaws, and Stockholder Rights Plan (described under
"- Stockholder Rights Plan" below) 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 Amended and Restated 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.
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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 Preferred Stock 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 FLFC
Preferred Stock 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.
STOCKHOLDER RIGHTS PLAN
MGB. MGB has not adopted a stockholder 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
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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 $.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.
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
MGB 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 MGB.
As a state chartered bank, MGB is subject to the supervision of the
DBF and Federal Deposit Insurance Corporation (the "FDIC"). MGB is subject to
regulatory capital requirements imposed by the FDIC. The FDIC has issued
risk-based capital rules for banks which make regulatory capital requirements
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sensitive to differences in risk profiles of various banking organizations.
The FDIC's risk capital rules apply directly to state-chartered banks, such as
MGB, which are not members of the Federal Reserve System and whose deposits are
insured by the FDIC. The requirements 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
General.
FLFC is a savings and loan holding company and, as such, is subject to
regulation, examination, supervision and reporting requirements of the OTS and
the DBF. FLB is a federally chartered savings institution and is a member of
the Federal Home Loan Bank ("FHLB") system, subject to examination and
supervision by the OTS and the FDIC, and subject to regulations of the Federal
Reserve governing reserve requirements. To the extent that the following
information describes statutory and regulatory provisions, it is qualified in
its entirety by reference to particular statutory and regulatory provisions.
Any change in applicable laws or regulations may have a material effect on the
business and prospects of FLFC.
Federal Savings and Loan Holding Company Regulations.
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.
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 or group of
persons acting in concert, directly or indirectly, acquires more than 25% of
any class of voting stock of the institution or holding company or controls in
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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.
A number of legislative proposals have been introduced during the last
twelve months in both the House and the Senate that contain provisions to
recapitalize the Savings Association Insurance Fund (the "SAIF") by means of a
one-time assessment on the deposits of all depository institutions such as
FLB, the accounts of which are insured by the SAIF. See "Regulation of FLB -
Insurance of Accounts." One of these proposals, the Deposit Insurance Funds
Act of 1996, was enacted into law on September 30, 1996. It requires a
one-time assessment on the SAIF-assessable deposits of all depository
institutions to be used for the recapitalization of the SAIF. The assessment
rate applicable to FLB will be 65.7 cents per $100 of deposits as of March
31, 1995, which will result in a one-time assessment in the amount of
$3,601,711, payable on November 27, 1996. The Act also provides for the
establishment of a new premium rate on SAIF-insured deposits which is
expected to be significantly lower than FLB's current deposit insurance premium
rate. Additionally, the Act provides for the merger of the SAIF and the BIF
by January 1, 1999, but only if no insured depositary institution is a
savings association on such date.
In addition to recapitalization of the SAIF, other legislative
proposals are pending that provide for the elimination of all federal savings
association charters as of varying dates. The effect of such legislative
proposals would be to require all savings associations to convert to either a
national bank or state bank charter by a specified date, with any related
holding company required to become a bank holding company, subject to the
limitations regarding permitted activities of the Bank Holding Company Act of
1956. In addition, other legislative proposals are pending, the effect of
which would reform the Glass-Stegall Act as well as to effect regulatory relief
for financial institutions. The regulatory relief provisions contained in
several Bills are proposed to eliminate or reduce and simplify disclosures and
reporting requirements contained in current statute and regulations. The
likelihood of enactment of any of the pending or proposed legislation is
unknown.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of
1994 (the "Interstate Banking Act") allows bank holding companies to acquire
existing banks across state lines, regardless of state statutes. Further, under
the Interstate Banking Act, effective June 1, 1997, a bank holding company may
consolidate interstate bank subsidiaries into branches and a bank may merge
with an unaffiliated bank across state lines to the extent that the applicable
states have not "opted out" of interstate branching prior to such effective
date. States may elect to permit interstate mergers prior to June 1, 1997. The
Interstate Banking Act also permits de novo branching to the extent that a
particular state "opts into" the de novo branching provisions. The Interstate
Banking Act generally prohibits an interstate acquisition (other than an
initial entry into a state by a bank holding company), which would result in
either the control of more than (i) 10% of the total amount of insured deposits
in the United States, or (ii) 30% of the total insured deposits in the home
state of the target bank, unless such 30% limitation is waived by the home
state on a basis which does not discriminate against out-of-state institutions.
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
thrift institutions are allowed to participate in such community development
banks. Said Act also contains (i) provisions designed to enhance small business
capital formation and to enhance disclosure with regard to high cost mortgages
for the protection of consumers, and (ii) more than 50 regulatory relief
provisions that apply to banks and thrift 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.
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Regulation of FLB.
Federal Home Loan Bank System . FLB is a member of the FHLB, 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) 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 stock of the FHLB of Atlanta at June 30,
1996 of $9.7 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.
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 June 30,
1996.
Insurance of Accounts. Deposits at FLB are insured to a maximum of
$100,000 for each insured depositor by the FDIC through the 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. 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. The FDIC
requires an annual audit by independent accountants and also periodically makes
its own examinations of insured institutions.
Insured institutions are members of either the SAIF or the Bank
Insurance Fund. Pursuant to the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), an insured institution may not convert from
one insurance fund to the other without the advance approval of the FDIC;
provided,
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however, that conversions are not permitted until 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. 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. 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.
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 upon the amount of FLB's deposits and the
risk that it poses to the 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. The rates
assessed for SAIF insured deposits range from $.23 per $100 of domestic
deposits to $.31 per $100 of domestic deposits. Deposits insured by the Bank
Insurance Fund such as the deposits of MGB are subject to significantly lower
premium assessment. See "-- Recent Legislation."
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 1996, FLB paid $196,000 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 may
be obtained by a member institution from the FHLB has been subject to the
institution's compliance with a qualified thrift lender ("QTL") test. In order
to comply with the QTL test, 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. 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. 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.
Qualified Thrift Investments also include certain other specified investments,
subject to a percentage of Portfolio Assets limitation. FLB's Qualified Thrift
Investments as of June 30, 1996 were $664 million, or 72% of its Portfolio
Assets at that date. FLB expects to remain in compliance with the QTL test.
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Capital Requirements. Effective December 7, 1989, OTS capital
regulations established capital standards applicable to all savings
institutions, including a core capital requirement, a tangible capital
requirement and a risk-based capital requirement. The OTS also has established
pursuant to FDICIA five classifications for institutions based upon the capital
requirements: well capitalized, adequately capitalized, under capitalized,
significantly under capitalized and critically under capitalized. At June 30,
1996, FLB was "well capitalized." Failure to maintain that status could result
in greater regulatory oversight or restrictions on FLB's activities.
The OTS requires a savings institution to maintain "core capital" in
an amount not less than 3% of the savings institution's total assets. "Core
capital" includes, generally, common stockholders' equity, noncumulative
perpetual preferred stock and related surplus, nonwithdrawable accounts and
pledged deposits of mutual savings associations, and minority interests in
fully-consolidated subsidiaries, less (i) investments in certain
"non-includable" subsidiaries (as determined by regulation) and (ii) certain
intangible assets (except for purchased mortgage servicing rights and purchased
credit card relationships).
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 any intangible assets
(except for purchased mortgage servicing rights included in core capital).
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 for savings institutions may not be less stringent than
capital standards established for national banks, savings institutions will be
required to maintain core capital levels at least as high as national banks. At
June 30, 1996, FLB's core capital was $62 million or 6.26% of adjusted total
assets.
The OTS capital regulations require savings institutions to maintain a
ratio of total capital to total risk-weighted assets of 8.0%. Total capital,
for purposes of the risk-based capital requirement, equals the sum of core
capital plus supplementary capital, which includes 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. 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); and (iii) the resulting
amounts are added together and constitute total risk-weighted assets. As of
June 30, 1996, FLB's ratio of total capital to total risk-weighted assets was
11.24%.
In addition, the OTS requires institutions with an "above-normal"
degree of interest rate risk 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.
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Capital Distributions. "Capital distributions" by OTS-regulated
savings institutions also are regulated by the OTS. Capital distributions are
defined to include, in part, dividends, stock repurchases and cash-out mergers.
An association is categorized as either a "Tier 1," "Tier 2," or "Tier 3"
association. 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. 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. A Tier 3 association is defined
as an association that has current capital less than its minimum capital
requirement.
FLB currently is in compliance with the regulatory capital
requirements and therefore is a Tier 1 association. A "Tier 1" association is
permitted 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. In addition, a savings
association must provide the OTS with a 30-day advance written notice of all
proposed capital distributions, whether or not advance approval is required by
OTS regulations. Currently, FLB periodically notifies the OTS of the gross
amount of dividends it intends to pay to FLFC as the sole stockholder of the
FLB. FLB's ability to pay dividends to FLFC is subject to the financial
performance of FLB which is dependent upon, among other things, the local
economy, the success of FLB's lending activities, compliance by FLB with
applicable regulations, investment performance and the ability to generate fee
income.
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.
Consumer Protection and Other Laws and Regulations. FLB is 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 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.
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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, 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.
Note the reserve method of accounting for bad debts utilized by thrift
institutions described in the preceding paragraph was repealed by the Small
Business Job Protection Act of 1996. As a result of the repeal of the reserve
method of accounting for bad debts, FLB will be required to use the specific
charge-off method of accounting for bad debts for the tax years ending after
September 30, 1996. Management believes there will be no material adverse
impact on the consolidated financial statements as a result of the repeal of
the reserve method of accounting.
For the years ended September 30, 1993, 1994 and 1995, 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, 1993, 1994 and 1995.
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
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, 1995,
the cumulative amount of this temporary difference for which FLFC is not
required to recognize a deferred tax liability is approximately $12 million.
The amount of the unrecognized deferred tax liability related to this temporary
difference is $4.1 million.
FLFC's income tax returns are periodically examined by various taxing
authorities. The Internal Revenue Service ("IRS") conducted an examination of
FLFC's federal income tax returns for the years
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<PAGE> 79
1986 through 1989. Management has tentatively settled with the IRS and
the expected settlement will not result in an 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, 1995 and 1994 and the consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the period
ended September 30, 1995, included in FLFC's Annual Report on Form 10-K for the
year ended September 30, 1995 and incorporated by reference in this Proxy
Statement/Prospectus, have been incorporated herein in reliance on the report,
which includes an explanatory paragraph regarding 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, 1995 and 1994, March 31, 1996 and 1995 and June 30, 1996 and
1995, 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 FLFC's Quarterly Reports on
Forms 10-Q for the quarters ended December 31, 1995, March 31, 1996 and June
30, 1996, 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 MGB at December 31, 1995 and
1994 and for the three year period ended December 31, 1995 appearing herein
have been audited by McNair, McLemore, Middlebrooks & Co., LLP, certified
public accountants, 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 FLFC Stock being offered hereby is being
passed upon for FLFC by Long, Aldridge & Norman, LLP, 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."
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<PAGE> 80
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, MGB'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.
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MIDDLE GEORGIA BANK
BYRON, GEORGIA
FINANCIAL STATEMENTS AS OF
JUNE 30, 1996, DECEMBER 31, 1995 AND 1994 AND
REPORT OF INDEPENDENT ACCOUNTANTS
<PAGE> 82
MIDDLE GEORGIA BANK
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-2
Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-3
Statements of Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Statements of Changes in Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-8
Notes to Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-10
</TABLE>
F-1
<PAGE> 83
[MCNAIR, MCLEMORE, MIDDLEBROOKS & CO., LLP
CERTIFIED PUBLIC ACCOUNTANTS
A PARTNERSHIP INCLUDING A PROFESSIONAL CORPORATION LETTERHEAD]
<TABLE>
<S> <C>
RALPH S. McLEMORE, SR., C.P.A. (1963-1977) 389 MULBERRY STREET
SIDNEY B. McNAIR, C.P.A. (1954-1992) POST OFFICE BOX ONE
- ------------------------------------------ MACON, GEORGIA 31202
SIDNEY E. MIDDLEBROOKS, C.P.A., P.C. (912) 746-6277
RAY C. PEARSON, C.P.A. FAX (912) 741-8353
J. RANDOLPH NICHOLS, C.P.A.
WILLIAM H. EPPS, JR., C.P.A.
RAYMOND A. PIPPIN, JR., C.P.A. 1117 MORNINGSIDE DRIVE
JERRY A. WOLFE, C.P.A. POST OFFICE BOX 1287
W. E. BARFIELD, JR., C.P.A. PERRY, GA 31069
HOWARD S. HOLLEMAN, C.P.A. (912) 987-0947
F. GAY McMICHAEL, C.P.A. FAX (912) 987-0526
KENNETH R. NEIL, C.P.A.
RICHARD A. WHITTEN, JR., C.P.A.
ELIZABETH WARE HARDIN, C.P.A.
CAROLINE E. GRIFFIN, C.P.A.
RONNIE K. GILBERT, C.P.A.
</TABLE>
March 25, 1996
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Middle Georgia Bank
We have audited the accompanying balance sheets of MIDDLE GEORGIA BANK as of
December 31, 1995 and 1994 and the related statements of income, changes in
stockholders' equity and cash flows for each of the years in the three-year
period ended December 31, 1995. These financial statements are the
responsibility of the Bank'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 financial statements referred to above present fairly, in
all material respects, the financial position of MIDDLE GEORGIA BANK as of
December 31, 1995 and 1994 and the results of operations and cash flows for
each of the years in the three-year period ended December 31, 1995 in
conformity with generally accepted accounting principles.
As discussed in Notes 3 and 8 to the financial statements, MIDDLE GEORGIA BANK
changed its methods of accounting for investment securities in 1994 and income
taxes in 1993.
/s/ McNair, McLemore, Middlebrooks & Co., LLP
---------------------------------------------
McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLP
Macon, Georgia
F-2
<PAGE> 84
MIDDLE GEORGIA BANK
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------------- -------------------------------------
1996 1995 1994
-------------- ------------ -----------
(Unaudited)
<S> <C> <C> <C>
CASH AND BALANCES DUE FROM DEPOSITORY
INSTITUTIONS (NOTE 2) $ 3,515,765 $ 3,924,758 $ 4,000,260
------------ ------------ ------------
FEDERAL FUNDS SOLD 810,000 2,510,000 1,340,000
------------ ------------ ------------
INTEREST-BEARING DEPOSITS WITH OTHER BANKS 6,589,000 4,572,000 2,467,000
------------ ------------ ------------
INVESTMENT SECURITIES (NOTE 3) 32,141,876 35,122,134 28,736,807
------------ ------------ ------------
LOANS (NOTE 4) 67,210,988 63,905,276 61,483,293
Allowance for Loan Losses (Note 5) (2,306,110) (1,818,109) (1,370,633)
Unearned Interest (18,535) (21,437) (28,218)
------------ ------------ ------------
64,886,343 62,065,730 60,084,442
------------ ------------ ------------
ACCRUED INTEREST RECEIVABLE 1,359,897 1,352,581 1,075,022
------------ ------------ ------------
BANK PREMISES AND EQUIPMENT (NOTE 7) 1,328,427 1,404,628 1,363,893
------------ ------------ ------------
OTHER REAL ESTATE (NET OF ALLOWANCE OF $174,242 AS
OF JUNE 30, 1996, $179,057 IN 1995 AND $-0- IN 1994)
(NOTE 6) 674,812 390,401 794,148
------------ ------------ ------------
OTHER ASSETS 1,168,693 740,192 816,175
------------ ------------ ------------
TOTAL ASSETS $112,474,813 $112,082,424 $100,677,747
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE> 85
MIDDLE GEORGIA BANK
BALANCE SHEETS
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
-------------- ---------------------------------------
1996 1995 1994
-------------- ------------ ------------
(Unaudited)
<S> <C> <C> <C>
DEPOSITS
Demand $ 11,019,789 $ 8,018,079 $ 8,362,272
Interest-Bearing Demand 27,005,330 25,515,997 25,768,188
Savings 10,285,764 9,598,874 16,152,971
Time, $100,000 and Over 9,725,418 11,536,198 7,006,835
Other Time 42,606,714 45,964,999 33,362,592
------------ ------------ ------------
100,643,015 100,634,147 90,652,858
------------ ------------ ------------
BORROWED MONEY
Demand Note to U.S. Treasury 287,754 72,838 130,984
Obligation Under Capital Lease (Note 12) 1,191,818 1,191,817 1,191,817
------------ ------------ ------------
1,479,572 1,264,655 1,322,801
------------ ------------ ------------
OTHER LIABILITIES 800,991 804,401 925,679
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES (NOTE 11)
STOCKHOLDERS' EQUITY
Common Stock, Par Value $1 a Share; 200,000
Shares Authorized, Issued and Outstanding 200,000 200,000 200,000
Surplus 5,800,000 3,800,000 3,800,000
Undivided Profits 3,907,214 5,305,335 4,211,002
Unrealized Gain (Loss) on Securities Available for
Sale, Net of Tax of $53,555 and Tax Benefit of $223,881
as of December 31, 1995 and 1994, Respectively (355,979) 73,886 (434,593)
------------ ------------ ------------
9,551,235 9,379,221 7,776,409
------------ ------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $112,474,813 $112,082,424 $100,677,747
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-4
<PAGE> 86
MIDDLE GEORGIA BANK
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $6,642,488 $5,376,425 $4,954,547
Interest on Federal Funds Sold 265,028 170,642 157,231
Interest and Dividends on Investment Securities
Taxable 1,601,262 1,072,121 782,486
Nontaxable 313,647 283,375 160,649
Dividends 32,207 7,530 2,954
Other Interest Income 217,327 84,982 70,080
---------- ---------- ----------
9,071,959 6,995,075 6,127,947
---------- ---------- ----------
INTEREST EXPENSE
Interest on Deposits 5,034,104 3,695,953 3,302,010
Interest on Short-Term Borrowings 12,396 5,520 6,782
Interest on Long-Term Debt 143,018 143,018 143,018
---------- ---------- ----------
5,189,518 3,844,491 3,451,810
---------- ---------- ----------
NET INTEREST INCOME 3,882,441 3,150,584 2,676,137
Provision for Loan Losses (Note 5) 924,500 687,000 585,500
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 2,957,941 2,463,584 2,090,637
---------- ---------- ----------
OTHER INCOME
Service Charges on Deposits 441,197 393,603 374,920
Other Service Charges, Commissions and Fees 598,553 830,315 646,004
Securities Gains (Losses) (63,963) (57,861) 107,580
Other 32,868 22,629 6,153
---------- ---------- ----------
1,008,655 1,188,686 1,134,657
---------- ---------- ----------
OTHER EXPENSES
Salaries and Employee Benefits 1,164,289 1,053,757 1,040,998
Occupancy and Equipment 333,555 315,325 331,853
Advertising 35,969 33,442 34,960
Professional Fees 55,904 75,807 53,849
FDIC Assessment 105,047 193,425 182,335
OREO Unrealized Loss Expense 179,057 - 133,111
Other 430,381 441,501 346,714
---------- ---------- ----------
2,304,202 2,113,257 2,123,820
---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT
OF ACCOUNTING CHANGE 1,662,394 1,539,013 1,101,474
INCOME TAXES (NOTE 8) 388,061 388,435 278,650
---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE 1,274,333 1,150,578 822,824
CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR
INCOME TAXES (NOTE 8) - - 154,095
---------- ---------- ----------
NET INCOME $1,274,333 $1,150,578 $ 976,919
========== ========== ==========
EARNINGS PER SHARE $ 6.37 $ 5.75 $ 4.88
========== ========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 200,000 200,000 200,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 87
MIDDLE GEORGIA BANK
STATEMENTS OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30
(UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
INTEREST INCOME
Interest and Fees on Loans $3,465,494 $3,234,667
Interest on Federal Funds Sold 75,732 140,109
Interest and Dividends on Investment Securities
Taxable 877,838 730,307
Nontaxable 140,998 159,280
Dividends 19,420 32,207
Other Interest Income 176,729 85,742
---------- ----------
4,756,211 4,382,312
---------- ----------
INTEREST EXPENSE
Interest on Deposits 2,605,360 2,339,795
Interest on Short-Term Borrowings 4,383 3,902
Interest on Long-Term Debt 71,711 71,313
---------- ----------
2,681,454 2,415,010
---------- ----------
NET INTEREST INCOME 2,074,757 1,967,302
Provision for Loan Losses (Note 5) 706,920 350,000
---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,367,837 1,617,302
---------- ----------
OTHER INCOME
Service Charges on Deposits 223,891 227,641
Other Service Charges, Commissions and Fees 293,738 274,222
Securities Gains (Losses) 22 (30,531)
Other 23,514 16,006
---------- ----------
541,165 487,338
---------- ----------
OTHER EXPENSES
Salaries and Employee Benefits 588,755 567,214
Occupancy and Equipment 172,251 153,873
Advertising 15,653 11,508
Professional Fees 21,739 21,313
FDIC Assessment 1,000 109,387
OREO Unrealized Loss Expense - 54,971
Other 286,233 221,558
---------- ----------
1,085,631 1,139,824
---------- ----------
INCOME BEFORE INCOME TAXES 823,371 964,816
INCOME TAXES 221,492 233,105
---------- ----------
NET INCOME $ 601,879 $ 731,711
========== ==========
EARNINGS PER SHARE $ 3.01 $ 3.66
========== ==========
WEIGHTED AVERAGE SHARES OUTSTANDING 200,000 200,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 88
MIDDLE GEORGIA BANK
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
AND FOR THE PERIOD ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
UNREALIZED
GAIN (LOSS)
COMMON UNDIVIDED ON INVESTMENT
STOCK SURPLUS PROFITS SECURITIES TOTAL
-------- ---------- ---------- ------------- ----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 $200,000 $3,800,000 $2,383,505 $ (19,171) $6,364,334
Net Income 976,919 976,919
Cash Dividends (140,000) (140,000)
Unrealized Loss on Investment
Securities (2,973) (2,973)
-------- ---------- ---------- --------- ----------
BALANCE, DECEMBER 31, 1993 200,000 3,800,000 3,220,424 (22,144) 7,198,280
Cumulative Effect of Accounting
Change for Investment Securities
On Years Prior to 1994 (10,644) (10,644)
Net Income 1,150,578 1,150,578
Cash Dividends (160,000) (160,000)
Unrealized Loss on Securities
Available for Sale, Net of
Tax Benefit (401,805) (401,805)
-------- ---------- ---------- --------- ----------
BALANCE, DECEMBER 31, 1994 200,000 3,800,000 4,211,002 (434,593) 7,776,409
Net Income 1,274,333 1,274,333
Cash Dividends (180,000) (180,000)
Unrealized Gain on Securities
Available for Sale, Net of Tax 508,479 508,479
-------- ---------- ---------- --------- ----------
BALANCE, DECEMBER 31, 1995 200,000 3,800,000 5,305,335 73,886 9,379,221
Net Income 601,879 601,879
Unrealized Gain on Securities
Available for Sale, Net of Tax (429,865) (429,865)
Transfer to Surplus 2,000,000 (2,000,000) -
-------- ---------- ---------- --------- ----------
BALANCE, JUNE 30, 1996 (Unaudited) $200,000 $5,800,000 $3,907,214 $(355,979) $9,551,235
======== ========== ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-7
<PAGE> 89
MIDDLE GEORGIA BANK
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 1,274,333 $ 1,150,578 $ 976,919
Adjustments to Reconcile Net Income to Net Cash
Provided from Operating Activities
Depreciation 119,340 115,646 122,615
Amortization and Accretion (70,404) (55,066) 14,278
Provision for Loan Losses 924,500 687,000 585,500
Deferred Taxes (217,643) (53,525) 66,304
Securities Losses (Gains) 63,963 57,861 (107,580)
Loss (Gain) on Sale of Premises and Equipment (1,063) (2,288) 291
(Gain) Loss on Sale of Other Real Estate 4,861 738 (19,258)
Unrealized Loss on Other Real Estate 179,057 133,111
Change In
Interest Receivable (277,558) (239,524) (94,007)
Interest Payable on Deposits 155,528 87,260 22,431
Other (260,617) 242,779 (128,999)
------------ ------------- ------------
1,894,297 1,991,459 1,571,605
------------ ------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES
Interest-Bearing Deposits in Other Banks (2,105,000) (1,881,000) 491,000
Purchases of Securities Available for Sale (23,370,041) (11,461,010) (10,171,623)
Proceeds from Sales and Maturities of Securities
Available for Sale 14,351,526 7,662,280 2,010,453
Purchases of Securities Held to Maturity (750,275) (5,611,680) -
Proceeds from Sales and Maturities of Securities
Held to Maturity 4,175,819 318,403 -
Loans, Net (3,244,392) (4,938,463) (4,603,908)
Purchase of Bank Premises and Equipment (166,512) (44,848) (63,310)
Proceeds from Sale of Other Real Estate 558,433 378,925 618,263
Proceeds from Sale of Bank Equipment 7,500 11,000 350
------------ ------------- ------------
(10,542,942) (15,566,393) (11,718,775)
------------ ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Demand, Interest-Bearing Demand and Savings Accounts (7,150,481) 8,448,074 6,494,635
Time Deposits 17,131,770 2,936,839 4,281,418
Dividends Paid (180,000) (160,000) (140,000)
Demand Note to U.S. Treasury (58,146) 65,859 (380,309)
------------ ------------- ------------
9,743,143 11,290,772 10,255,744
------------ ------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,094,498 (2,284,162) 108,574
CASH AND CASH EQUIVALENTS, BEGINNING 5,340,260 7,624,422 7,515,848
------------ ------------- ------------
CASH AND CASH EQUIVALENTS, ENDING $ 6,434,758 $ 5,340,260 $ 7,624,422
============ ============= ============
NONCASH INVESTING TRANSACTIONS
Other Real Estate Acquired through Loan Foreclosure $ 338,604 $ 858,066 $ 385,364
============ ============= ============
Unrealized Gain (Loss) on Securities Available for Sale $ 785,915 $ (636,330) $ -
============ ============= ============
Transfer of Securities from Held to Maturity to
Available for Sale $ 6,588,377 $ - $ -
============ ============= ============
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE> 90
MIDDLE GEORGIA BANK
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30
(Unaudited)
<TABLE>
<CAPTION>
1996 1995
--------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $ 601,879 $ 731,711
Adjustments to Reconcile Net Income to Net Cash
Provided from Operating Activities
Depreciation 65,636 56,758
Amortization and Accretion (11,046) (68,229)
Provision for Loan Losses 706,920 350,000
Deferred Taxes 29,335 -
Securities Losses (Gains) (22) 30,531
(Gain) Loss on Sale of Other Real Estate 4,294 4,268
Unrealized Loss on Other Real Estate - 54,971
Change In
Interest Receivable (7,316) (218,469)
Interest Payable on Deposits (55,410) 153,487
Other (191,795) (710,853)
----------- -------------
1,142,475 384,175
----------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Interest-Bearing Deposits in Other Banks (2,017,000) (1,222,000)
Purchases of Securities Available for Sale (4,165,528) (11,656,871)
Proceeds from Sales and Maturities of Securities
Available for Sale 6,512,948 4,726,656
Purchases of Securities Held to Maturity - (750,275)
Proceeds from Sales and Maturities of Securities
Held to Maturity - 3,300,005
Loans, Net (4,023,517) (3,258,206)
Purchase of Bank Premises and Equipment (11,884) (14,409)
Proceeds from Sale of Other Real Estate 207,279 501,749
Proceeds from Sale of Bank Equipment 22,449 -
----------- -------------
(3,475,253) (8,373,351)
----------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Demand, Interest-Bearing Demand and Savings Accounts 5,177,933 (7,526,545)
Time Deposits (5,169,065) 15,611,403
Dividends Paid - (60,000)
Demand Note to U.S. Treasury 214,917 410,474
----------- -------------
223,785 8,435,332
----------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,108,993) 446,156
CASH AND CASH EQUIVALENTS, BEGINNING $ 6,434,758 $ 5,142,735
----------- -------------
CASH AND CASH EQUIVALENTS, ENDING $ 4,325,765 $ 5,588,891
=========== =============
NONCASH INVESTING TRANSACTIONS
Other Real Estate Acquired through Loan Foreclosure $ 495,984 $ 164,094
=========== =============
Unrealized Gain (Loss) on Securities Available for Sale $ 643,906 $ 656,089
=========== =============
</TABLE>
The accompanying notes are an integral part of these statements.
F-9
<PAGE> 91
MIDDLE GEORGIA BANK
NOTES TO FINANCIAL STATEMENTS
(Notes relating to the quarterly financial data are unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Middle Georgia Bank (the Bank) is a state-chartered commercial bank located in
Byron, Georgia. The accounting and reporting policies of Middle Georgia Bank
conform to generally accepted accounting principles and practices utilized in
the commercial banking industry. The following is a description of the more
significant of those policies.
BASIS OF PRESENTATION
In preparing the financial statements, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities as
of the balance sheet date and revenues and expenses for the period. Actual
results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change in
the near-term relate to the determination of the allowance for loan losses, the
valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans and the valuation of deferred tax assets.
INVESTMENT SECURITIES
Investment securities are recorded under the provisions of Statement of
Financial Accounting Standards No. 115 whereby the Bank must classify its
securities as trading, available for sale or held to maturity. Trading
securities are purchased and held for sale in the near term. Securities held
to maturity are those which the Bank has the ability and intent to hold until
maturity. All other securities not classified as trading or held to maturity
are considered available for sale.
Securities available for sale are measured at fair value with unrealized gains
and losses reported net of deferred taxes as a separate component of
stockholders' equity. Fair value represents an approximation of realizable
value as of December 31, 1995 and 1994. Realized and unrealized gains and
losses are determined using the specific identification method.
LOANS
Loans are generally reported at principal amount less unearned interest and
fees. On January 1, 1995, the Bank adopted Statement of Financial Accounting
Standards (SFAS) No. 114, Accounting by Creditors for Impairment of a Loan and
SFAS No. 118, Accounting by Creditors for Impairment of a Loan-Income
Recognition and Disclosures. Impaired loans are loans for which principal and
interest are unlikely to be collected in accordance with the original loan
terms and, generally, represent loans delinquent in excess of 90 days which
have been placed on nonaccrual status and for which collateral values are less
than outstanding principal and interest. Small balance, homogeneous loans are
excluded from impaired loans. Generally, interest payments received on
impaired loans are applied to principal. Upon receipt of all loan principal,
additional interest payments are recognized as interest income on the cash
basis. No loans were classified as impaired loans as of December 31, 1995 and
for the year then ended.
Other nonaccrual loans are loans for which payments of principal and interest
are considered doubtful of collection under original terms but collateral
values equal or exceed outstanding principal and interest.
Middle Georgia Bank's loans consist of commercial, financial and agricultural
loans, real estate mortgage loans and consumer loans primarily to individuals
and entities located throughout middle Georgia. Accordingly, the ultimate
collectibility of the loans is largely dependent upon economic conditions in
the middle Georgia area.
F-10
<PAGE> 92
ALLOWANCE FOR LOAN LOSSES
The allowance method is used in providing for losses on loans. Accordingly,
all loan losses decrease the allowance and all recoveries increase it. The
provision for loan losses is based on factors which, in management's judgment,
deserve current recognition in estimating possible loan losses. Such factors
considered by management include growth and composition of the loan portfolio,
economic conditions and the relationship of the allowance for loan losses to
outstanding loans.
When impaired loans exist, an allowance for impaired loan losses is maintained.
Provisions are made for impaired loans upon changes in expected future cash
flows or estimated net realizable value of collateral. When determination is
made that impaired loans are wholly or partially uncollectible, the
uncollectible portion is charged off.
Management believes the allowance for possible loan losses is adequate. While
management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions. In addition, various regulatory agencies, as an integral part of
their examination process, periodically review the Bank's allowance for loan
losses. Such agencies may require the Bank to recognize additions to the
allowance based on their judgment about information available to them at the
time of their examination.
PREMISES AND EQUIPMENT
Premises and equipment are recorded at acquisition cost net of accumulated
depreciation.
Depreciation is charged to operations over the estimated useful lives of the
assets. The estimated useful lives and methods of depreciation are as follows:
<TABLE>
<CAPTION>
DESCRIPTION LIFE IN YEARS METHOD
- ---------------------------------- ------------- --------------
<S> <C> <C>
Banking Premises 3-45 Straight-Line
Furniture and Equipment 3-12 Straight-Line
</TABLE>
Expenditures for major renewals and betterments are capitalized. Maintenance
and repairs are charged to operations as incurred. When property and equipment
are retired or sold, the cost and accumulated depreciation are removed from the
respective accounts and any gain or loss is reflected in other income or
expense.
INCOME TAXES
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consist of taxes currently due plus deferred taxes.
Deferred taxes are recognized for differences between the bases of assets and
liabilities for financial statement and income tax purposes. The differences
relate primarily to depreciable assets (use of different depreciation methods
for financial statement and income tax purposes) and allowance for loan losses
(use of the allowance method for financial statement purposes and the
experience method for tax purposes). The deferred tax assets and liabilities
represent the future tax return consequences of those differences, which will
be either taxable or deductible when the assets and liabilities are recovered
or settled.
CASH FLOWS
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and federal funds sold. Cash flows from demand
deposits, NOW accounts, savings accounts, certificates of deposit and loans are
reported net.
F-11
<PAGE> 93
Cash payments for interest expense in 1995, 1994 and 1993 totaled $5,033,989,
$3,792,463 and $3,642,834, respectively. Cash payments for income taxes were
$812,024 in 1995, $186,306 in 1994 and $157,500 in 1993.
OTHER REAL ESTATE
Other real estate generally represents real estate acquired through foreclosure
and is initially recorded at the lower of cost or estimated market value less
costs of disposal at the date of acquisition. An allowance for estimated
losses is recorded when a subsequent decline in value occurs.
Other real estate as of December 31, 1995 has been reduced by an allowance
totaling $179,057. A corresponding provision has reduced 1995 net income by
the same amount.
(2) CASH AND BALANCES DUE FROM DEPOSITORY INSTITUTIONS
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
------------ --------------------------------
1996 1995 1994
------------ ---------- ----------
<S> <C> <C> <C>
Cash on Hand and Cash Items 1,529,868 $1,123,699 $1,622,683
Noninterest-Bearing Deposits with Other Banks 1,985,897 2,801,059 2,377,577
---------- ---------- ----------
$3,515,765 $3,924,758 $4,000,260
========== ========== ==========
</TABLE>
As of December 31, 1995, the Bank had required deposits with the Federal
Reserve of $235,000.
F-12
<PAGE> 94
(3) INVESTMENT SECURITIES
Investment securities as of December 31, 1995 are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
Equity $ 442,006 $ (30,074) $ 411,932
U.S. Treasury 982,288 $ 8,650 990,938
U.S. Government Agencies 16,757,128 92,104 (27,354) 16,821,878
Mortgaged-Backed 10,080,255 124,035 (106,021) 10,098,269
State, County and Municipal 6,733,016 91,594 (25,493) 6,799,117
------------ ---------- ---------- ------------
$ 34,994,693 $ 316,383 $ (188,942) $ 35,122,134
============ ========== ========== ============
</TABLE>
Investment securities as of June 30, 1996 are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ ---------- ----------- ------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
Equity $ 442,006 $ (44,446) $ 397,560
U.S. Treasury 2,096,467 $ 2,607 (3,168) 2,095,906
U.S. Government Agencies 13,986,525 2,858 (365,124) 13,624,259
Mortgaged-Backed 9,612,003 77,634 (151,686) 9,537,951
State, County and Municipal 6,521,340 45,434 (80,574) 6,486,200
------------ --------- --------- ------------
$ 32,658,341 $ 128,533 $(644,998) $ 32,141,876
============ ========= ========= ============
</TABLE>
F-13
<PAGE> 95
The amortized cost and fair value of investment securities as of December 31,
1995 by contractual maturity are shown below. Expected maturities will differ
from contractual maturities because issuers have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
------------------------------------
AMORTIZED FAIR
COST VALUE
------------ -----------
<S> <C> <C>
Due in One Year or Less $ 2,232,278 $ 2,244,774
Due After One Year Through Five Years 14,872,733 14,913,246
Due After Five Years Through Ten Years 6,817,053 6,893,211
Due After Ten Years 550,368 560,702
----------- -----------
24,472,432 24,611,933
Mortgage-Backed 10,080,255 10,098,269
Equity 442,006 411,932
----------- -----------
$34,994,693 $35,122,134
=========== ===========
</TABLE>
The amortized cost and fair value of investment securities as of June 30, 1996
by contractual maturity are shown below. Expected maturities will differ from
contractual maturities because issuers have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
AVAILABLE FOR SALE
------------------------------------
AMORTIZED FAIR
COST VALUE
------------ -----------
<S> <C> <C>
Due in One Year or Less $ 4,837,360 $ 4,838,713
Due After One Year Through Five Years 11,013,894 10,843,420
Due After Five Years Through Ten Years 6,205,463 5,989,916
Due After Ten Years 547,615 534,316
------------ -----------
22,604,332 22,206,365
Mortgage-Backed 9,612,003 9,537,951
Equity 442,006 397,560
------------ -----------
$ 32,658,341 $32,141,876
============ ===========
</TABLE>
F-14
<PAGE> 96
(3) INVESTMENT SECURITIES (CONTINUED)
Investment securities as of December 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------ ----------- ----------- ------------
<S> <C> <C> <C> <C>
SECURITIES AVAILABLE FOR SALE
Equity $ 442,006 $ 90,353 $ (58,818) $ 473,541
U.S. Treasury 965,413 (17,960) 947,453
U.S. Government Agencies 11,320,685 (498,669) 10,822,016
Mortgaged-Backed 6,223,814 12,106 (170,339) 6,065,581
State, County and Municipal 470,000 4,616 (19,763) 454,853
----------- -------- ---------- ------------
$19,421,918 $107,075 $ (765,549) $ 18,763,444
=========== ======== ========== ============
SECURITIES HELD TO MATURITY
U.S. Treasury $ 399,832 $ (8,837) $ 390,995
U.S. Government Agencies 2,793,761 (22,707) 2,771,054
Mortgaged-Backed 16,584 (10) 16,574
State, County and Municipal 6,763,186 $ 19,227 (287,662) 6,494,751
----------- -------- ---------- ------------
$ 9,973,363 $ 19,227 $ (319,216) $ 9,673,374
=========== ======== ========== ============
</TABLE>
As of December 31, 1993, marketable equity securities were carried at the lower
of cost or market. The unrealized loss totaling $22,144 was recorded as a
component of stockholders' equity.
Gross realized gains and gross realized losses on sales of securities for the
years ended December 31 were:
<TABLE>
<CAPTION>
1995 1994 1993
--------- -------- ---------
<S> <C> <C> <C>
GROSS REALIZED GAINS
U.S. Treasury $ 17,745 $111,252
U.S. Government Agencies $ 26,920
State, County and Municipal 33,543
--------- -------- --------
$ 60,463 $ 17,745 $111,252
========= ======== ========
GROSS REALIZED LOSSES
U.S. Treasury $ 51,933
U.S. Government Agencies $ 124,426 23,673 $ 3,672
--------- -------- --------
$ 124,426 $ 75,606 $ 3,672
========= ======== ========
</TABLE>
Investment securities having a carrying value approximating $17,481,100 and
$12,720,000 were pledged to secure public and trust deposits and for other
purposes required or permitted by law for the years ended December 31, 1995 and
1994, respectively.
F-15
<PAGE> 97
(4) LOANS
Loans by type as of December 31, 1995, 1994 and June 30, 1996 are:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, -----------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Commercial, Financial and Agricultural $21,882,881 $12,820,479 $14,667,936
Real Estate - Construction 5,028,567 5,443,766 6,034,687
Real Estate - Mortgage 27,996,368 34,238,008 32,693,005
Installment Loans to Individuals 12,303,172 11,403,023 8,031,346
Lease Financing - - 56,319
----------- ----------- -----------
$67,210,988 $63,905,276 $61,483,293
=========== =========== ===========
</TABLE>
Nonaccrual loans are delinquent loans for which accruals of interest have been
discontinued for reasons related to the debtors' financial difficulties. As of
December 31, 1995 and 1994, nonaccrual loans totaled $975,729 and $985,212,
respectively. The reduction in interest income for the years ended December
31, 1995, 1994 and 1993, resulting from nonaccrual loans, approximated
$147,982, $104,900 and $124,900, respectively.
(5) ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses for the years ended December 31
and for the six months ended June 30, 1996 are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
JUNE 30, ---------------------------------------------------
1996 1995 1994 1993
---------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
BALANCE BEGINNING $1,818,109 $1,370,633 $1,106,938 $1,086,054
Provision Charged to Operating Expenses 706,920 924,500 687,000 585,500
Loan Losses (269,254) (545,294) (485,928) (619,470)
Recoveries 50,335 68,270 62,623 54,854
---------- ---------- ---------- ----------
BALANCE ENDING $2,306,110 $1,818,109 $1,370,633 $1,106,938
========== ========== ========== ==========
</TABLE>
(6) ALLOWANCE FOR OTHER REAL ESTATE OWNED LOSSES
Transactions in the allowance for other real estate owned losses for the years
ended December 31 are summarized as follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------------- -------------- -------------
<S> <C> <C> <C>
BALANCE, JANUARY 1 $ - $ 133,111 $ -
Provision Charged to Operating Expenses 179,057 - 133,111
Other Real Estate Losses - (133,111) -
------------- ------------- -------------
BALANCE, DECEMBER 31 $ $179,057 $ - $ 133,111
============= ============= =============
</TABLE>
F-16
<PAGE> 98
(7) BANK PREMISES AND EQUIPMENT
The detail of Bank premises and equipment for the periods ended December 31,
1995 and 1994 and June 30, 1996 is as follows:
<TABLE>
<CAPTION>
JUNE 30, DECEMBER 31,
--------------- --------------------------------------
1996 1995 1994
--------------- ------------- ------------
<S> <C> <C> <C>
Land $ 503,854 $ 526,303 $ 526,303
Buildings 1,024,080 1,019,653 927,414
Furniture, Fixtures and Equipment 610,218 606,733 554,534
---------- ---------- ----------
2,138,152 2,152,689 2,008,251
Accumulated Depreciation (809,725) (748,061) (644,358)
---------- ---------- ----------
$1,328,427 $1,404,628 $1,363,893
========== ========== ==========
</TABLE>
(8) INCOME TAXES
Effective January 1, 1993, the Bank adopted Statement of Financial Accounting
Standards No. 109, Accounting for Income Taxes, which requires an asset and
liability approach to financial accounting and reporting for income taxes.
Deferred income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. Income tax expense is the tax payable or refundable for the
period plus or minus the change during the period in deferred tax assets and
liabilities.
The adoption of Statement 109 had the effect of increasing 1993 net income by
$154,095, the cumulative effect of the accounting change on years prior to
January 1, 1993.
The components of income tax expense for the years ended December 31 are:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
FEDERAL INCOME TAX
Current $ 572,243 $ 440,498 $ 212,346
Deferred (194,732) (53,525) 66,304
--------- --------- ---------
377,511 386,973 278,650
--------- --------- ---------
STATE INCOME TAX
Current 33,461 1,462
Deferred (22,911)
--------- --------- ---------
10,550 1,462
--------- --------- ---------
$ 388,061 $ 388,435 $ 278,650
========= ========= =========
</TABLE>
Federal income tax expense of $377,511 in 1995, $386,973 in 1994 and $278,650
in 1993 is less than the tax expense computed by applying the federal statutory
tax rate of 34 percent to income before income taxes. The reasons for the
differences are as follows:
F-17
<PAGE> 99
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
FEDERAL STATUTORY INCOME TAXES $ 565,214 $ 523,264 $ 374,501
Increase (Reductions) Resulting from
Tax-Exempt Interest Income (172,347) (162,973) (123,798)
Interest Expense Disallowed 23,392 19,266 11,754
State Tax Deduction (11,377)
Other (27,371) 7,416 16,193
--------- --------- ---------
ACTUAL FEDERAL INCOME TAXES $ 377,511 $ 386,973 $ 278,650
========= ========= =========
</TABLE>
The components of the net deferred tax assets included in other assets in the
accompanying balance sheets as of December 31 are as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ---------
<S> <C> <C>
DEFERRED TAX ASSETS
Reserve for Loan Losses $464,818 $317,012
Allowance on Other Real Estate 68,042
-------- --------
532,860 317,012
DEFERRED TAX LIABILITY
Depreciation and Disposal of Premises and Equipment (8,150) (9,945)
-------- --------
524,710 307,067
DEFERRED TAX (LIABILITY) ASSET ON AVAILABLE FOR SALE SECURITIES (53,555) 223,881
-------- --------
NET DEFERRED TAX ASSETS $471,155 $530,948
======== ========
</TABLE>
(9) PROFIT SHARING PLAN
The Bank has a profit sharing plan that covers substantially all employees.
Contributions to the plan are made at the discretion of the board of directors.
Contributions charged to operations were $124,241, $111,624 and $108,874 for
the years ended December 31, 1995, 1994 and 1993, respectively.
(10) RELATED PARTY TRANSACTIONS
The Bank has direct and indirect loans outstanding to certain officers,
directors and related interests which approximated $852,000 and $525,000 as of
December 31, 1995 and 1994, respectively. All related party loans were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and
involve no more than the normal risk of collectibility.
The following is an analysis of such loans to related parties for the year
ending December 31, 1995:
<TABLE>
<S> <C>
DECEMBER 31, 1994, BALANCE $ 524,664
New Loans 569,731
Repayments (242,005)
---------
DECEMBER 31, 1995, BALANCE $ 852,390
=========
</TABLE>
F-18
<PAGE> 100
(11) COMMITMENTS AND CONTINGENCIES
The Bank is contingently liable with respect to various loan commitments and
other contingent liabilities in the normal course of business. Maximum
exposure to credit risk for loan commitments (unfunded loans and unused lines
of credit) and standby letters of credit as of December 31 is as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Commitments to Extend Credit $4,617,000 $4,715,000
Standby Letters of Credit $ 572,600 $ 674,300
</TABLE>
The credit risk associated with loan commitments and standby letters of credit
is essentially the same as that involved in extending loans to customers and is
subject to the Bank's credit policies. Collateral is obtained based on
management's assessment of the customer.
In the ordinary course of business, Middle Georgia Bank is subject to laws and
regulations related to the lending function. Failure to appropriately and
completely comply with such laws and regulations could have an adverse impact
on the financial position and results of operations of the Bank. In the
opinion of management, noncompliance with bank lending regulations will not
materially affect the financial position or operating results of the Bank.
(12) CAPITAL LEASES
The Bank leases land and buildings at the Byron and Fort Valley locations under
capital leases with the Downtown Development Authorities of Byron and Fort
Valley. Lease terms are for 15-year periods at 12 percent interest with
interest payments due monthly. The Fort Valley lease expires September 1, 1997
and the Byron lease expires April 1, 1998. The assets and liabilities under
capital leases are recorded at the lower of the present value of the minimum
lease payments or the fair market value of the assets. The assets are
depreciated over their estimated productive lives. Depreciation of assets
under capital leases is included in depreciation expense for 1995, 1994 and
1993.
A summary of depreciable property held under capital leases for the years ended
December 31 follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Buildings $ 673,707 $ 673,707
Building Equipment 469,331 469,331
---------- ----------
1,143,038 1,143,038
Accumulated Depreciation (574,863) (504,362)
---------- ----------
$ 568,175 $ 638,676
========== ==========
</TABLE>
F-19
<PAGE> 101
Future minimum lease payments under capital leases as of December 31 are:
<TABLE>
<CAPTION>
YEAR AMOUNT
<S> <C>
1996 $ 143,018
1997 789,322
1998 534,142
----------
Total Minimum Lease Payments 1,466,482
Amount Representing Interest (274,665)
----------
Present Value of Minimum Lease Payments $1,191,817
==========
</TABLE>
Interest rates on capitalized leases are 12 percent and are imputed based on
the total principal amount of the lease.
(13) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, Disclosures about Fair Value of Financial Instruments requires
disclosure of fair value information about financial instruments, whether or
not recognized on the face of the balance sheet, for which it is practicable to
estimate that value. The assumptions used in the estimation of the fair value
of the Bank's financial instruments are detailed below. Where quoted prices
are not available, fair values are based on estimates using discounted cash
flows and other valuation techniques. The use of discounted cash flows can be
significantly affected by the assumptions used, including the discount rate and
estimates of future cash flows. The following disclosures should not be
considered a surrogate of the liquidation value of the Bank, but rather a
good-faith estimate of the increase or decrease in value of financial
instruments held by the Bank since purchase, origination or issuance.
CASH AND SHORT-TERM INVESTMENTS - For cash, due from banks, interest-bearing
deposits with other banks and federal funds sold, the carrying amount is a
reasonable estimate of fair value.
INVESTMENT SECURITIES - Fair values for investment securities are based on
quoted market prices.
LOANS - The fair value of fixed rate loans is estimated by discounting the
future cash flows using the current rates at which similar loans would be made
to borrowers with similar credit ratings. For variable rate loans, the
carrying amount is a reasonable estimate of fair value.
DEPOSIT LIABILITIES - The fair value of demand deposits, savings accounts and
certain money market deposits is the amount payable on demand at the reporting
date. The fair value of fixed maturity certificates of deposit is estimated by
discounting the future cash flows using the rates currently offered for
deposits of similar remaining maturities.
BORROWINGS - The fair value of capital leases is assumed to be the carrying
value since the leases are offset by assets with identical characteristics.
The carrying value of short-term borrowings, subject to frequent repricing,
approximates fair value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT - Because
commitments to extend credit and standby letters of credit are made using
variable rates, the contract value is a reasonable estimate of fair value.
F-20
<PAGE> 102
LIMITATIONS - Fair value estimates are made at a specific point in time, based
on relevant market information and information about the financial instrument.
These estimates do not reflect any premium or discount that could result from
offering for sale at one time the Bank's entire holdings of a particular
financial instrument. Because no market exists for a significant portion of
the Bank's financial instruments, fair value estimates are based on many
judgments. These estimates are subjective in nature and involve uncertainties
and matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
Fair value estimates are based on existing on and off-balance sheet financial
instruments without attempting to estimate the value of anticipated future
business and the value of assets and liabilities that are not considered
financial instruments. Significant assets and liabilities that are not
considered financial instruments include the mortgage banking operation,
brokerage network, deferred income taxes, premises and equipment and goodwill.
In addition, the tax ramifications related to the realization of the unrealized
gains and losses can have a significant effect on fair value estimates and have
not been considered in the estimates.
The carrying amount and estimated fair values of the Bank's financial
instruments as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
CARRYING ESTIMATED
AMOUNT FAIR VALUE
-------- ----------
(in thousands)
<S> <C> <C>
ASSETS
Cash and Short-Term Investments $11,007 $11,007
Investment Securities Available for Sale 35,122 35,122
Loans 63,905 63,829
LIABILITIES
Deposits 100,634 101,965
Demand Note to U.S. Treasury 73 73
Obligation Under Capital Lease 1,192 1,192
UNRECOGNIZED FINANCIAL INSTRUMENTS
Standby Letters of Credit 573 573
Commitments to Extend Credit 4,617 4,617
</TABLE>
(14) STOCKHOLDERS' EQUITY
Dividends payable to stockholders by the Bank are limited by various banking
regulatory agencies. The amount of cash dividends available for payment in
1996, without prior approval from the banking regulatory agencies, approximates
$637,000. Upon approval by regulatory authorities, banks may pay cash
dividends to stockholders in excess of regulatory limitations.
The bank is also required to maintain minimum amounts of capital to total "risk
weighted" assets, as defined by the banking regulations. As of December 31,
1995, the bank is required to have minimum Tier 1 and Total Capital ratios of 4
percent and 8 percent, respectively, and a leverage ratio (Tier 1 Capital to
total assets) of at least 3 percent. The bank's actual ratios as of December
31, 1995 are follows:
F-21
<PAGE> 103
<TABLE>
<CAPTION>
ACTUAL MINIMUM
------- --------
<S> <C> <C>
Tier 1 Capital Ratio 13.64% 4.00%
Total Capital Ratio 14.90% 8.00%
Leverage Ratio 8.72% 3.00%
</TABLE>
(15) RECLASSIFICATIONS
Certain reclassifications have been made within the 1994 and 1993 financial
statements to conform to the 1995 presentation.
(16) SUBSEQUENT EVENT
On January 18, 1996, the Bank signed a letter of intent with First Liberty
Financial Corporation (FLFC) to exchange all of its outstanding common stock
for shares of FLFC Stock. The proposed merger is subject to the approval of
various regulatory authorities and pending the results of the due diligence
reviews performed by each company.
F-22
<PAGE> 104
APPENDIX A
<PAGE> 105
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER is made and entered into and is
effective as of the 11th day of June 1996 (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"), and Middle Georgia Bank, a state chartered commercial bank organized
under the laws of the State of Georgia ("MGB").
WITNESSETH:
WHEREAS, the parties by Letter of Intent dated January 17, 1996, as
amended (the "Letter of Intent"), expressed their mutual intent to enter into
this Agreement and the transaction contemplated hereby; and
WHEREAS, the parties have completed the due diligence review
contemplated by the Letter of Intent and have agreed to adjust the "Exchange
Ratio" from that provided for in the Letter of Intent to that provided for in
Section 3.01 hereof; and
WHEREAS, the Boards of Directors of FLFC, FLB and MGB have approved
the merger of MGB with and into FLB (the "Merger"), the issuance of shares of
common stock of FLFC ("FLFC Stock") to the stockholders of MGB in exchange for
their shares of common stock of MGB ("MGB Stock"), and the related transactions
contemplated hereby upon the terms and subject to the conditions set forth
herein; and
WHEREAS, it is intended that for federal income tax purposes, the
Merger shall qualify as a "reorganization" within the meaning of Section 368(a)
of the Internal Revenue Code, and for accounting purposes shall qualify for
treatment as a pooling of interests;
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 MERGER
1.01 The 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) MGB shall be merged with and into FLB and the
separate existence of MGB shall thereupon cease. FLB shall be the surviving
corporation in the Merger (hereinafter sometimes referred to as the "Surviving
Corporation") and shall remain a wholly-owned subsidiary of FLFC.
1.02 Effective Time of the Merger. The 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 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.
A-1
<PAGE> 106
ARTICLE II
THE SURVIVING CORPORATION
2.01 Articles of Incorporation. The Articles of Incorporation of
FLB shall be the Articles of Incorporation of the Surviving Corporation after
the Effective Time.
2.02 Bylaws. The Bylaws of FLB 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 Merger shall be
the same as the Board of Directors of FLB immediately prior to the Merger.
ARTICLE III
CONVERSION OF SHARES
3.01 Conversion of MGB Shares in the Merger. At the Effective
Time, MGB Stock outstanding immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of the holder thereof,
be exchanged for and converted into, and each holder of MGB Stock immediately
prior to the Effective Time (each a "MGB Stockholder" and collectively the "MGB
Stockholders") (other than Dissenting Stockholders as defined in Section 3.05
hereof) shall have, upon surrender of the certificates theretofore representing
such MGB Stock, the right to receive one or more certificates representing a
number of shares of FLFC Stock (the "Exchange Ratio") determined by dividing
$85.00 (the value attributable to each share of MGB Stock for purposes of the
Merger) by the FLFC Stock Price, with fractional shares to be settled in cash.
The term "FLFC Stock Price" means the average of the closing price of FLFC
Stock on the Nasdaq Stock Market for the period of ten trading days which ends
five days before the date on which the Effective Time occurs (the "Effective
Date"). For example, if the FLFC Stock Price is $22.50 per share, the Exchange
Ratio will be 3.778 However, the Exchange Ratio shall not be more than 3.778
or less than 3.469 (reflecting an FLFC Stock Price of 24.50).
3.02 Status of FLFC Stock. All of the shares of FLFC Stock 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 MGB Stock (each a "MGB 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 FLFC Stock to which
such holder is entitled pursuant to Section 3.01. Notwithstanding the other
provisions of this Agreement (i) until holders of MGB 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 MGB Certificates and no payment for shares or fractional shares shall be
made, and (ii) without regard to when such MGB 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 FLFC Stock is to be issued in a name other than
that in which the MGB 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
A-2
<PAGE> 107
or other taxes similar-type required by reason of the issuance of certificates
for such shares of FLFC Stock in a name other than that of the registered
holder of the MGB Certificate surrendered, or shall establish to the
satisfaction of FLFC that such tax has been paid or is not applicable.
(b) FLFC shall provide each holder of record of an MGB
Certificate a letter of transmittal in the form approved by MGB'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 MGB Certificates
shall pass, only upon actual delivery of the MGB Certificates to FLFC. Upon
surrender of MGB 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 MGB Certificates shall be entitled to
receive in exchange therefor one or more certificates representing that number
of whole shares of FLFC Stock into which the shares of MGB Stock theretofore
represented by the MGB Certificates so surrendered shall have been converted
pursuant to the provisions of Section 3.01, and the MGB 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 FLFC Stock shall
be issued in the Merger and no FLFC Stock 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 MGB Stockholder who would
otherwise have been entitled to receive a fraction of a share of FLFC Stock
pursuant to this Article III shall be entitled to receive a cash payment equal
to such fraction multiplied by the market value of FLFC Stock as of the
Effective Date.
3.05 Dissenters' Rights. Notwithstanding Section 3.01, no
outstanding share of MGB Stock shall be converted into or represent a right to
receive any shares of FLFC Stock 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 MGB Stock
shall represent only the rights granted with respect to such shares pursuant to
the Dissenter Provisions. MGB shall give prompt notice to FLFC upon receipt by
MGB of any written demands for payment of the fair value of MGB 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. MGB 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 MGB 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 MGB Stock shall be
canceled. If any holder of shares of MGB 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 MGB Stock of such holder shall be converted into a
right to receive the consideration set forth in Section 3.01.
A-3
<PAGE> 108
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF MGB
MGB represents and warrants to FLFC and FLB as follows:
4.01 Organization.
(a) MGB has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State of
Georgia. MGB 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.
(b) The copies of the charter documents and bylaws of
MGB attached in Schedule 4.01(b) are the complete, true and correct charter
documents and bylaws of MGB 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 MGB 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 MGB are listed
in Schedule 4.01(c).
4.02 Power and Authority of MGB. MGB has 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 MGB (subject to receipt of appropriate approval by the stockholders of
MGB). This Agreement has been duly and validly executed and delivered by MGB
and constitutes MGB'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 MGB Stock outstanding all
of which are validly issued, fully paid and nonassessable and no shares of MGB
Stock are held in the treasury of MGB. All issuances of the capital stock of
MGB 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 MGB to issue,
deliver or sell, or cause to be
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issued, delivered or sold, additional shares of the capital stock of MGB or
obligating MGB to grant, extend or enter into any such agreement or commitment.
There are no voting trusts, proxies or other agreements or understandings to
which MGB is a party or is bound with respect to the voting of any shares of
capital stock of MGB.
4.04 Subsidiaries. MGB has no direct or indirect subsidiaries.
4.05 Information Supplied for Use in Registration Statement.
Written information supplied by MGB 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
S-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 FLFC Stock, 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 MGB 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 MGB as of December 31, 1994 and 1995, 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, 1995,
and the related notes thereto (the "Audited Financial Statements"); and has
previously provided to FLFC (i) the unaudited consolidated balance sheet of MGB
as of March 31, 1996, 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 period 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 MGB 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,
1995 included in the Audited Financial Statements is referred to herein as the
"Audited Balance Sheet."
(b) MGB has not 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 MGB, 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 MGB, 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
MGB, 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 MGB, taken as
a whole. Since the Interim Financial Statements date as of which information
is given in the Financial Statements, MGB has not incurred or undertaken any
liability or
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obligation, direct, indirect or contingent, not disclosed in Schedule 4.06(b)
which is material to the business or condition (financial or other) of MGB,
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 MGB, taken as a whole; and,
except as disclosed in Schedule 4.06(b), MGB 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, 1995, MGB has no liability or obligation whatsoever, whether accrued,
absolute, contingent or otherwise. Since December 31, 1995, MGB has incurred
no liability or obligation whatsoever involving a prospective material adverse
change in the financial position, net worth or results of operations of MGB,
taken as a whole, except for liabilities and obligations incurred by MGB 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,
MGB is, has not been and will not 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 it, or relating
to its property or business or its 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 MGB does
business), nor will MGB 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 MGB, 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 MGB 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, MGB (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 MGB are in the possession of MGB, as the case may be,
or, in the case of deposit accounts in other banks and participations, are held
for the account of MGB.
(c) No real property owned or leased by MGB is subject to
(i) any governmental decree or order (or threatened or proposed order known to
MGB) 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.
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(d) The facilities, structures and equipment owned or
leased by MGB are structurally sound with no known material defects and are in
good and safe operating condition and repair.
4.10 Leases. Schedule 4.10 contains a complete and accurate list
of all material leases (including any capital leases) and lease-purchase
arrangements pursuant to which MGB 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.
MGB has made available to FLFC a true, correct and complete copy of each of the
items listed in Schedule 4.10.
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 MGB (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 MGB. MGB 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 MGB 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 MGB, and, in the case of each
trade name, the jurisdiction in which such trade name has been registered or
filed; and (ii) 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 MGB 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 MGB has not 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 MGB 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 MGB 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 MGB. MGB is not a party to any employment or other contracts with
any of its employees.
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4.15 Employee Benefits.
(a) All Employee Benefit Plans and Arrangements.
(1) List and Description of Plans 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;
which pertain to present or former employees, retirees, directors or
independent contractors (or their beneficiaries, dependents or spouses) of
MGB or their predecessors in interest; and (iii) which are currently or
expected to be adopted, maintained by, sponsored by, or contributed to by MGB,
any of its predecessors in interest or any employer which under Section 414 of
the Code, would constitute a single employer with MGB (an "MGB Affiliate") or
as to which MGB or any of its 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. MGB, its
predecessors in interest and all MGB 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. MGB 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 MGB's 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.
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(4) Agreements to Create, Continue or Terminate Plans.
MGB is not 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.
(5) Agency Review, Taxes and Fiduciary Liability. MGB
has not received notice, whether written or oral, and has 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 action in connection with which MGB, any subsidiary,
any MGB 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 Plan 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 MGB, contemplated by any
participant or beneficiary against any of the Employee Benefit Plans or any
fiduciary of any of the Employee Benefit Plans, and MGB is unaware of any basis
for any such claim or claims exists.
(7) Defined Benefit and Multiemployer Plans. Neither
MGB, its predecessors in interest nor any MGB 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 MGB or any of MGB's employees and any
union or labor organization covering any of MGB's or its subsidiaries'
employees and none of said employees are represented by any union or labor
organization.
4.17 Labor Disputes. MGB 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 MGB, taken as a whole. MGB is not and has
not been engaged in any unfair labor practice, and no unfair labor practice
complaint against MGB 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 MGB 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 as otherwise disclosed in Schedule 4.19,
MGB does not own any capital stock or other securities or have any other
investment in any person or other entity.
4.20 Environmental Requirements. MGB does not own any property
(including other real estate owned but excluding any property in which MGB has
only a security interest) which is in violation of any federal or state law or
regulation relating to the storage, handling, transportation, treatment or
disposal of hazardous substances (as
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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 MGB, and MGB 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.
MGB 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 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
MGB. MGB 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. MGB has all licenses, permits
or other authorizations of governmental authorities necessary for the conduct
of its business.
4.22 Insurance Policies. Schedule 4.22 sets forth a complete and
accurate list and description of all insurance policies in force (except in
MGB's capacity as lender) naming MGB subsidiaries, or any employees thereof in
their capacity as such, as an insured or beneficiary or as a loss payable
payee, or for which MGB has paid or is obligated to pay all or part of the
premiums. MGB has not received notice of any pending or threatened termination
or premium increase (retroactive or otherwise) with respect thereto, and is in
compliance with all conditions contained therein. To the best of MGB'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. MGB
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) MGB has no 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 MGB continue for
a period of more than six (6) months from the date of the Merger or require
payments for a period of more than six months from the effective date of the
Merger;
(c) MGB has no outstanding material contract, written or
oral, with any officer, employee, agent, consultant, advisor, or broker that is
not cancelable by MGB, on notice of not more 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, MGB has no 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
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(e) MGB 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
MGB, the consummation of the transactions contemplated herein by MGB, and the
performance of the covenants and agreements of MGB, subject to fulfilment 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 MGB; 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 MGB is a party or by which MGB 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 MGB, taken as
a whole; or (iii) violate any provision of law, statute, regulation, court
order or ruling of any governmental authority, to which MGB 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 MGB 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. MGB has no 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 MGB or to the
knowledge of MGB any other party thereto.
4.26 Required Consents and Approvals. Other than the approval of
the consummation of the Merger by MGB's stockholders and by applicable bank
regulatory agencies, no consent or approval is required by virtue of the
execution hereof by MGB or the consummation of any of the transactions
contemplated herein by MGB the failure of which to obtain would have a material
adverse effect on MGB taken as a whole to avoid the violation or breach of, or
the default under, or the creation of a lien on assets of MGB 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 MGB 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, 1995, MGB has conducted its businesses only
in the ordinary course, and has not:
(a) suffered any damage or destruction adversely materially
affecting MGB, taken as a whole;
(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 MGB;
(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;
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(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;
(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;
(1) 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 MGB'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,
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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 MGB 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.
(b) Returns Filed and Taxes Paid. (i) All Returns
required to be filed by or on behalf of MGB 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 MGB 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) MGB 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 MGB 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 MGB 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 MGB, and MGB has not
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) MGB is not 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 MGB
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 MGB; (v) MGB 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) MGB has not made an application
or request (either in writing or verbally, formally or informally) to the
Internal Revenue Service to change MGB's method of accounting or taxable year.
(d) Tax Sharing Agreements. Except as otherwise
disclosed in Schedule 4.28(d), MGB has not (or has never been) a party to any
tax sharing agreement.
4.29 Regulatory Matters.
(a) MGB 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
MGB, taken as a whole. The depository accounts of MGB are insured
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by the FDIC under the Bank Insurance Fund to the maximum extent allowed by the
Federal Deposit Insurance Act, as amended.
(b) MGB is not 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 MGB 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.
4.30 Corrupt Practices. Neither MGB, nor any director, officer,
agent or employee of MGB or other person associated with or acting on behalf of
MGB 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 MGB 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 MGB's management, MGB'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
MGB 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 MGB.
4.34 Special Tax Matters of MGB.
(a) MGB is not 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 MGB will equal or exceed the sum of its liabilities,
plus the amount of liabilities, if any, to which the transferred assets are
subject.
(c) The fair market value of the FLFC Stock to be
received by each holder of MGB Stock will be approximately equal to the fair
market value of the MGB Stock to be surrendered in the Merger.
(d) The liabilities of MGB assumed by FLB and the
liabilities to which the transferred assets are subject were incurred in the
ordinary course of business.
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(e) There is no plan or intention on the part of any
holder of MGB Stock who owns 1% or more of the MGB Stock, and to the best
knowledge of MGB management, there is no plan or intention on part of the
remaining MGB Stockholders to sell, exchange, or otherwise dispose of a number
of the shares of FLFC Stock after the Merger that would reduce the
aggregate ownership (by former holders of MGB Stock) of FLFC 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 MGB Stock as of the same date, all within
the meaning of IRS Rev. Proc. 77-37.
(f) There is no intercorporate indebtedness existing
between MGB 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 MGB equals or exceeds its liabilities.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF FLFC AND FLB
FLFC and FLB each hereby represents and warrants to MGB, 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,
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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 MGB
copies of its Annual Report on Form 10-K for the fiscal year ended September
30, 1995, including the exhibits and schedules thereto, as filed with the
Commission (the "1995 Form 10-K"). Schedule 5.05 contains the unaudited
consolidated balance sheet of FLFC as of March 31, 1996, 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 1995 Form 10K 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 1995
Form 10-K have been prepared in accordance with GAAP applied on a consistent
basis, and FLFC Interim Financial Statements have been or all 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.
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 1995 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
1995 Form 10-K, there has not been any material 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 1995 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 hen 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,
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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 MGB by FLFC, the are no charges, suits, actions, or 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 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 MGB furnished in writing to FLFC by MGB
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.
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5.13 Rights Agreement. FLFC has taken all necessary action so
that the entering into of this Agreement and consummation of the Merger and
the transactions contemplated hereby do not and will not result in the ability
of any Person to exercise any FLFC Rights under the FLFC Shareholder Rights
Plan or enable or require the FLFC Rights to be separated from shares of FLFC
Stock to which they are attached or to be triggered or become exercisable.
5.14 FLFC Board Membership. FLFC has obtained the commitment of
its Board of Directors (the "FLFC Board") to take such action, consistent with
its fiduciary duties, as may be necessary (i) cause the FLFC Board to be
increased by one member at its next meeting after the Effective Date and to
appoint MGB director Harold W. Peavy, Jr. to fill that position for a term that
will expire at the next annual meeting of stockholders of FLFC; and (ii) to
nominate Mr. Peavy for reelection as a director by the stockholders at that
meeting.
ARTICLE VI
COVENANTS OF MGB
6.01 Pre-Closing Operations of MGB. MGB hereby covenants and
agrees that, except as consented to in writing by FLFC, pending the Closing,
MGB 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) MGB 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 MGB shall be entered into without the prior written consent of FLFC.
(c) MGB 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.
(d) MGB 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, commit to hire, or terminate any
employees);
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(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 except that MGB may
declare and pay a dividend of 15 cents per share prior to the Closing Date;
(vii) Incur, assume or guarantee any obligation or
liability for borrowed money, or exchange, refund or renew any outstanding
indebtedness of MGB 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 MGB;
(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 MGB 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 MGB;
(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 Peach County, Georgia;
(xvi) Elect any new executive officers or
directors; or
(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, MGB shall (i) provide FLFC and FLB and their respective designees
(officers, attorneys, accountants, and other authorized representatives) with
such information as FLFC and FLB may from time to time reasonably request with
respect to MGB 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,
attorneys, accountants and actuaries of MGB as FLFC or its designees may from
time to time reasonably request; and (iii) permit FLFC and
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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 MGB. No
such investigation shall limit or modify in any way MGB's obligations with
respect to any breach of its representations, warranties, covenants or
agreements contained herein.
6.03 [This Section intentionally omitted]
6.04 Interim Financials. As promptly as practicable after
each regular accounting period subsequent to March 31, 1996, and prior to
the Effective Date, MGB will deliver to FLFC and FLB periodic financial reports
concerning MGB 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
MGB as of the last day of each accounting period and unaudited statements of
income and cash flows of MGB for the period then ended.
6.05 Meeting of Stockholders: Preparation of Supporting Documents.
As soon as practicable following the execution of this Agreement, MGB 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 Merger. In addition to such actions as MGB may otherwise be
required to take under this Agreement or applicable law in order to consummate
the transactions contemplated by this Agreement, MGB shall take such action,
furnish such information, and 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 MGB in connection with FLFC's
acquisition of MGB. Any information so furnished by MGB 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, MGB
shall use its best efforts to 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. MGB shall promptly
notify FLFC of any change, circumstance or event which would cause any of the
representations or warranties made by MGB pursuant to this Agreement to be
untrue as of the date hereof or at the Closing or which prevents MGB from
complying with any of its obligations hereunder.
6.08 Director and Affiliate Agreements. MGB shall on the date of
execution of this Agreement, or as soon thereafter as practicable but in no
event later than the date of filing the Registration Statement, obtain (i) an
agreement from each of the directors of MGB substantially in the form set forth
as Schedule 6.08(i), which shall provide that each director of MGB will vote
his shares of MGB Stock in favor of this Agreement and the transactions
contemplated hereby and will publicly support this Agreement and such
transactions, and (ii) an agreement from each director of MGB and from each
"affiliate" (as such term is used in Rule 145 of the Commission under the
Securities Act) of MGB substantially in the form of Schedule 6.08(ii), which
shall provide that (A) such person shall not make a "distribution," within the
meaning of Rule 145 under the Securities Act, of the FLFC Stock that he
receives in the Merger and will hold such FLFC Stock subject to the rules and
regulations of the Commission hereunder, and (B) such person will not sell or
otherwise reduce his risk relative to any shares of FLFC Stock acquired in the
Merger until financial results covering at least 30 days of post-Merger
combined operations have been published.
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ARTICLE VII
COVENANTS OF FLFC AND FLB
FLFC and FLB hereby covenant and agree, 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 provide MGB and its designees (officers, attorneys,
accountants, actuaries, and other authorized representatives) with such
information as MGB may from time to time reasonably request with respect to
FLFC and FLB and the transactions contemplated by this Agreement; (ii) provide
MGB 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 MGB or its designees may from time to time
reasonably request; and (iii) permit MGB and its designees to make such
inspections thereof as MGB 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, 1996 and prior to the
Closing Date, FLFC will deliver to MGB periodic financial reports in the form
which it customarily prepares for regulatory purposes and, if available, FLFC
will deliver to MGB 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 MGB 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 MGB 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.
ARTICLE VIII
COVENANTS OF THE PARTIES
MGB, FLFC and FLB hereby covenant to and agree with one another as
follows:
8.01 Approvals of Third Parties; Satisfaction of Conditions to
Closing. MGB, 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 FLFC and FLB will use their reasonable, good faith efforts to
cause or obtain the satisfaction of the conditions specified in Article IX.
MGB will use its reasonable, good faith efforts to cause or obtain the
satisfaction of the conditions specified in Article X.
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8.02 Preparation of Registration Statement and the Policy
Statement/Prospectus. MGB, 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 MGB 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 FLFC Stock in the Merger and MGB shall
furnish all information concerning MGB and the holders of MGB 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 contemplated, 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.
8.04 Accounting and Tax Treatment, Each of the parties undertakes
and agrees to use its reasonable efforts to cause the Merger, and to take no
action which would cause the Merger not, to qualify for treatment as a
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code for federal income tax purposes. MGB undertakes and agrees to use its
reasonable efforts to cause the Merger, and to take no action that would cause
the Merger not, to qualify for pooling-of-interests accounting treatment.
8.05 Option to Maintain Separate Charter of MGB. Notwithstanding
any provisions of this Agreement to the contrary, FLFC shall have the option
(exercisable by FLFC in its sole discretion at any time on or before June 21,
1996) to elect not to merge MGB with and into FLB but rather to merge MGB with
and into a newly formed state chartered bank subsidiary of FLFC, with MGB being
the surviving entity of that merger. Upon that election by FLFC, the parties
shall enter into a revised Agreement and Plan of Merger on substantially the
same terms and
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conditions as this Agreement except that references to the merger of MGB with
and into FLB and references to the status of MGB's board of directors shall be
appropriately changed. In that event, the date "October 25, 1996" in Section
11.01 shall be changed to "November 8, 1996."
ARTICLE IX
CONDITIONS TO OBLIGATIONS OF MGB
Each of the obligations of MGB to be performed hereunder shall be subject
to the satisfaction (or waiver by MGB) 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 MGB a certificate in the form
provided as Schedule 9.01 and confirming such other matters as may be
reasonably requested by MGB.
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 MGB, 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 lndependent Certified Public
Accountants to FLFC. MGB 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 MGB which shall include an opinion that any share of FLFC Stock
received by MGB'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 MGB hereunder or in connection herewith shall be in form and substance
satisfactory to counsel for MGB, 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 MGB Stock entitled to vote thereon.
9.07 Absence of Adverse Facts. There shall have been no
determination by MGB that any fact, event or condition exists, is likely to
occur or has occurred that, in the reasonable judgment of MGB, (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
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waived by MGB (in the exercise of its sole and exclusive discretion), (b) would
be materially adverse to the interests of MGB, 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 the Nasdaq Stock Market, or
other national securities exchange.
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 MGB 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 MGB 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; MGB shall have performed and
complied in all respects with the covenants and agreements set forth herein to
be performed or complied with by MGB on or before the Closing Date; and MGB
shall have delivered to FLFC and FLB a certificate in the form provided as
Schedule 10.01, and confirming such other matters as may be reasonably
requested by FLFC or FLB.
10.02 No Material Change. MGB shall not have suffered any material
adverse change since December 31, 1995 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. MGB shall carry out its
operations from the date hereof through the Effective Time in the ordinary
course of business; provided, however, that, except as otherwise provided in
Section 6.01(d)(vi), MGB 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 MGB Stock or other securities of MGB.
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 MGB, 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.
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10.07 Director and Affiliates Agreements. FLFC shall have
received from each director and affiliate of MGB the agreements referred to in
Section 6.08 hereof.
10.08 Opinion of Counsel to MGB. FLFC and FLB shall have received
from counsel to MGB 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 MGB 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 MGB shall have delivered to FLFC and FLB their resignations as
officers and directors, effective as of the Closing Date.
10.11 Brown Employment Contract. W.L. Brown, President of MGB
shall have entered into a contract with FLB for his employment as its Peach
County President.
10.12 Accountants' Letters. FLFC and FLB shall have received a
letter from MGB's independent accountants with respect to the financial,
accounting and statistical data regarding MGB 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.
10.13 Other Agreements. MGB shall not be a party to any employment
or similar agreements with any person or persons or a party to any consulting
or financial advisory agreements with any persons or entities other than The
Robinson-Humphrey Co., Inc., ("R-H") pursuant to which MGB shall pay R-H
compensation with respect to the transaction contemplated by this Agreement in
an amount not more than $[225,000.00], including all expenses.
10.14 Limitation on Dissenting Stockholders. All periods for
notification of demands by Dissenting Stockholders pursuant to the Dissenter
Provisions shall have expired. Neither MGB, 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 MGB Stock.
10.15 Director Agreements. At the Effective Time, each director of
MGB shall enter into an agreement in the form provided as Schedule 10.15. Each
such director will receive a monthly fee of $250 for attendance at meetings of
the Peach County Community Board of Directors.
10.16 Loan Loss Reserve. The loan loss reserve of MGB shall be not
less than $1,539,000 or 2.35% of gross loans.
10.17 Reserve for Other Real Estate Owned. For each parcel of real
estate having a net book value of $25,000 or more, MGB shall acquire an
appraisal from a licensed appraiser completed within 120 days prior to the
closing, the adequacy of which appraisal shall be subject to the approval of
FLB. For each parcel owned at closing, MGB shall establish reserves adequate
to reduce the net book value of the appraised value less anticipated selling
expenses. However, under no circumstances shall the net book value of any
property owned at closing exceed the value listed in Schedule 10.17.
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10.18 Reserve for Compliance Matters. MGB shall have established a
reserve for compliance matters in an amount not less than $200,000.00.
10.19 Operating Results. MGB's 1996 operating results shall be
materially consistent with the projections provided to FLB.
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 October 25, 1996 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 MGB 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 MGB;
(b) By MGB 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 MGB 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 MGB
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 MGB of its intent to terminate this Agreement pursuant to this
subparagraph (c).
(d) By either FLFC, FLB or MGB 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 or MGB, which
prohibits or restrains FLFC, FLB or MGB from consummating the transactions
contemplated hereby, provided that FLFC, FLB or MGB 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 MGB, in writing, without liability,
if for any reason the Closing has not occurred by October 31, 1996.
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(f) By either FLFC or MGB 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 and MGB 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 MGB or any director (acting in any
capacity), officer, employee, agent or advisor of MGB, MGB 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 MGB 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 MGB 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 MGB, 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 January 17, 1996, as
amended; 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.
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 their respective successors and
assigns.
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.
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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 MGB, to:
Middle Georgia Bank
102 Highway 49 South
Byron, Georgia 31008
Attention: W. L. Brown, President
with a copy to:
Sell & Melton
P.O. Box 229
Macon, Georgia 31297
Attention: John D. Comer
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 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.
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14.09 Brokerage. MGB hereby expressly warrants and represents, 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 for the services and fees referred to in Section 10.13
hereof.
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 MGB will discuss any public announcements
or disclosures concerning the transactions contemplated by this Agreement with
the other party 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, MGB 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, 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 MGB to any person, partnership,
corporation, entity or other group, 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 MGB (collectively, a "Business
Combination"); except in a situation in which a majority of the full Board of
Directors of MGB 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 MGB, 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 MGB 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, MGB shall provide such notice, information and
undertaking to FLFC as promptly as practicable in the circumstances.
MGB, jointly and severally, covenant, acknowledge and agree that it
shall be a specific, absolute and unconditionally binding condition precedent
to MGB's 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 MGB 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 Merger, subject to a maximum amount
of $100,000 and (ii) paid to FLFC the sum of $100,000 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 result of such Mergers not
being consummated. FLFC and MGB acknowledge that
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the actual damages that FLFC will suffer as a result thereof are difficult, if
not impossible, to calculate accurately. FLFC and MGB further acknowledge
that, after considering a number of factors, $100,000 is their best estimate of
what such actual damages would be, and they in good faith believe that $100,000
bears a reasonable relationship to the amount of actual damages that FLFC would
suffer. Accordingly, MGB 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 $100,000 and reimbursed FLFC and
FLB for their costs and expenses up to $100,000 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
MIDDLE GEORGIA BANK
By: /s/ W. L. Brown
-------------------------------------------
W. L. Brown
President
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FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER is made and
entered into and is effective as of the 24th day of July, 1996, 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"), and Middle Georgia Bank, a state chartered commercial bank
organized under the laws of the State of Georgia ("MGB").
WITNESSETH:
WHEREAS, the parties entered into an Agreement and Plan of Merger as
of June 11, 1996 (the "Agreement"); and
WHEREAS, the parties wish to amend the Agreement as set forth below;
NOW, THEREFORE, in consideration of the sum of $10.00 and other good
and valuable consideration in hand paid by each party to the other, the receipt
and sufficiency of which is hereby acknowledged, the parties do hereby agree as
follows:
A. The Agreement is hereby amended by deleting Section 8.05 in its
entirety.
B. The Agreement is further amended by deleting from Section 11.01
the date "October 25, 1996" and inserting in lieu thereof the date "November,
1996."
C. The Agreement is further amended by deleting from Section
12.01(e) the date "October 31, 1996" and inserting in lieu thereof the date
"November 8, 1996."
D. Except as amended hereby, the Agreement shall remain unchanged.
IN WITNESS WHEREOF, each of the parties hereto has caused this First
Amendment 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
MIDDLE GEORGIA BANK
By: /s/ W. L. Brown
------------------------------------
W. L. Brown
President
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<PAGE> 136
SECOND AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
THIS SECOND AMENDMENT TO AGREEMENT AND PLAN OF MERGER is made and
entered into and is effective as of the 10th day of September, 1996, 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"), and Middle Georgia Bank, a state chartered
commercial bank organized under the laws of the State of Georgia ("MGB").
WITNESSETH:
WHEREAS, the parties entered into an Agreement and Plan of Merger as of
June 11, 1996, which was amended as of July 24, 1996 (the "Agreement"); and
WHEREAS, the parties wish to further amend the Agreement as set forth
below;
NOW, THEREFORE, in consideration of the sum of $10.00 and other good
and valuable consideration in hand paid by each party to the other, the receipt
and sufficiency of which is hereby acknowledged, the parties do hereby agree as
follows:
A. The Agreement is hereby amended by adding the following sentence at
the end of Section 3.01:
Provided, however, that if FLFC has
effected a 3-for-2 split in FLFC Stock
in the form of a 50% stock dividend on
or about October 1, 1996, then the
Exchange Ratio shall not be more than
5.667 (reflecting an FLFC Stock Price
of $15.00 per share) or less than 5.204
(reflecting an FLFC Stock Price of $16.33
per share).
B. The Agreement is further amended by deleting from Section 11.01 the
date "November 8, 1996" and inserting in lieu thereof the date "November 15,
1996."
C. The Agreement is further amended by deleting from Section 12.01(c)
the date "November 8, 1996" and inserting in lieu thereof the date "November 15,
1996."
D. Except as amended hereby, the Agreement shall remain unchanged.
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IN WITNESS WHEREOF, each of the parties hereto has caused this Second
Amendment to be duly executed on its behalf as of the date indicated in the
first paragraph above.
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
MIDDLE GEORGIA BANK
By: /s/ W.L. Brown
------------------------------------
W.L. Brown
President
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<PAGE> 138
APPENDIX B
<PAGE> 139
Official Code of Georgia Annotated Copyright 1982-1996 State of Georgia.
CODE OF GEORGIA
TITLE 14. CORPORATIONS, PARTNERSHIPS, AND ASSOCIATIONS
CHAPTER 2. BUSINESS CORPORATIONS
ARTICLE 13. DISSENTERS' RIGHTS
PART 1. RIGHT TO DISSENT AND OBTAIN PAYMENT FOR SHARES
Current through the End of 1995 Extraordinary Session of the
General Assembly
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.
(Code 1981, Sec. 14-2-1301, enacted by Ga. L. 1988, p. 1070, Sec. 1; Ga. L.
1993, p. 1231, Sec. 16.)
14-2-1302 Right to dissent.
(a) A record shareholder of the corporation is entitled to dissent from, and
obtain payment of the fair value of his shares in the event of, any of the
following corporate actions:
(1) Consummation of a plan of merger to which the corporation is
a party:
(A) If approval of the shareholders of the corporation is
required for the merger by Code Section 14-2-1103 or the
articles of incorporation and the shareholder is entitled to vote
on the merger; or
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(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, 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
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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.
(Code 1981, Sec. 14-2-1302, enacted by Ga. L. 1988, p. 1070, Sec. 1; Ga. L.
1989, p. 946, Sec. 58.)
14-2-1303 Dissent by nominees and beneficial owners.
A record shareholder may assert dissenters' rights as to fewer than all the
shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one beneficial shareholder and notifies the
corporation in writing of the name and address of each person on whose behalf
he asserts dissenters' rights. The rights of a partial dissenter under this
Code section are determined as if the shares as to which he dissents and his
other shares were registered in the names of different shareholders.
(Code 1981, Sec. 14-2-1303, enacted by Ga. L. 1988, p. 1070, Sec. 1.)
14-2-1320 Notice of dissenters' rights.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, the
meeting notice must state that shareholders are or may be entitled to assert
dissenters' rights under this article and be accompanied by a copy of this
article.
(b) If corporate action creating dissenters' rights under Code Section
14-2-1302 is taken without a vote of shareholders, the corporation shall notify
in writing all shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in Code Section
14-2-1322 no later than ten days after the corporate action was taken.
(Code 1981, Sec. 14-2-1320, enacted by Ga. L. 1988, p. 1070, Sec. 1; Ga. L.
1993, p. 1231, Sec. 17.)
14-2-1321 Notice of intent to demand payment.
(a) If proposed corporate action creating dissenters' rights under Code
Section 14-2-1302 is submitted to a vote at a shareholders' meeting, a record
shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken
written notice of his intent to demand payment for his shares if the
proposed action is effectuated; and
(2) Must not vote his shares in favor of the proposed action.
(b) A record shareholder who does not satisfy the requirements of subsection
(a) of this Code section is not entitled to payment for his shares under this
article.
(Code 1981, Sec. 14-2-1321, enacted by Ga. L. 1988, p. 1070, Sec. 1.)
Official Code of Georgia Annotated Copyright 1982-1996 State of Georgia.
14-2-1322 Dissenters' notice.
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(a) If proposed corporate action creating dissenters' rights under
Code Section 14-2-1302 is authorized at a shareholders' meeting, the
corporation shall deliver a written dissenters' notice to all shareholders
who satisfied the requirements of Code Section 14-2-1321.
(b) The dissenters' notice must be sent no later than ten days after
the corporate action was taken and must:
(1) State where the payment demand must be sent and where and
when certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is
received;
(3) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than 30 nor more than 60 days
after the date the notice required in subsection (a) of this Code
section is delivered; and
(4) Be accompanied by a copy of this article.
(Code 1981, Sec. 14-2-1322, enacted by Ga. L. 1988, p. 1070, Sec. 1.)
14-2-1323 Duty to demand payment.
(a) A record shareholder sent a dissenters' notice described in Code Section
14-2-1322 must demand payment and deposit his certificates in accordance with
the terms of the notice.
(b) A record shareholder who demands payment and deposits his shares under
subsection (a) of this Code section retains all other rights of a shareholder
until these rights are cancelled 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.
(Code 1981, Sec. 14-2-1323, enacted by Ga. L. 1988, p. 1070, Sec. 1.)
14-2-1324 Share restrictions.
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under Code Section 14-2-1326.
(b) The person for whom dissenters' rights are asserted as to uncertificated
shares retains all other rights of a shareholder until these rights are
canceled or modified by the taking of the proposed corporate action.
(Code 1981, Sec. 14-2-1324, enacted by Ga. L. 1988, p. 1070, Sec. 1.)
14-2-1325 Offer of payment.
(a) Except as provided in Code Section 14-2-1327, within ten days of the
later of the date the proposed corporate action is taken or receipt of a
payment demand, the corporation shall by notice to each dissenter who complied
with Code Section 14-2-1323 offer to pay to such dissenter the amount the
corporation estimates to be the fair value of his or her shares, plus accrued
interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal
year ending not more than 16 months before the date of payment, an
income statement for
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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.
(Code 1981, Sec. 14-2-1325, enacted by Ga. L. 1988, p. 1070, Sec. 1; Ga. L.
1989, p. 946, Sec. 59; Ga. L. 1993, p. 1231, Sec. 18.)
14-2-1326 Failure to take action.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If, after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under Code Section 14-2-1322 and repeat the payment demand
procedure.
(Code 1981, Sec. 14-2-1326, enacted by Ga. L. 1988, p. 1070, Sec. 1; Ga. L.
1990, p. 257, Sec. 20.)
14-2-1327 Procedure if shareholder dissatisfied with payment or offer.
(a) A dissenter may notify the corporation in writing of his own estimate of
the fair value of his shares and amount of interest due, and demand payment of
his estimate of the fair value of his shares and interest due, if:
(1) The dissenter believes that the amount offered under Code
Section 14-2-1325 is less than the fair value of his shares or that
the interest due is incorrectly calculated; or
(2) The corporation, having failed to take the proposed action,
does not return the deposited certificates or release the transfer
restrictions imposed on uncertificated shares within 60 days after the
date set for demanding payment.
(b) A dissenter waives his or her right to demand payment under this Code
section and is deemed to have accepted the corporation's offer unless he or she
notifies the corporation of his or her demand in writing under subsection (a)
of this Code section within 30 days after the corporation offered payment for
his or her shares, as provided in Code Section 14-2-1325.
(c) If the corporation does not offer payment within the time set forth in
subsection (a) of Code Section 14-2-1325:
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(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.
(Code 1981, Sec. 14-2-1327, enacted by Ga. L. 1988, p. 1070, Sec. 1; Ga. L.
1989, p. 946, Sec. 60; Ga. L. 1990, p. 257, Sec. 21; Ga. L. 1993, p. 1231, Sec.
19.)
14-2-1330 Court action.
(a) If a demand for payment under Code Section 14-2-1327 remains unsettled,
the corporation shall commence a proceeding within 60 days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding
within the 60 day period, it shall pay each dissenter whose demand remains
unsettled the amount demanded.
(b) The corporation shall commence the proceeding, which shall be a nonjury
equitable valuation proceeding, in the superior court of the county where a
corporation's registered office is located. If the surviving corporation is a
foreign corporation without a registered office in this state, it shall
commence the proceeding in the county in this state where the registered office
of the domestic corporation merged with or whose shares were acquired by the
foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding, which
shall have the effect of an action quasi in rem against their shares. The
corporation shall serve a copy of the petition in the proceeding upon each
dissenting shareholder who is a resident of this state in the manner provided
by law for the service of a summons and complaint, and upon each nonresident
dissenting shareholder either by registered or certified mail or by
publication, or in any other manner permitted by law.
(d) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) of this Code section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers
described in the order appointing them or in any amendment to it. Except as
otherwise provided in this chapter, Chapter 11 of Title 9, known as the
"Georgia Civil Practice Act," applies to any proceeding with respect to
dissenters' rights under this chapter.
(e) Each dissenter made a party to the proceeding is entitled to judgment
for the amount which the court finds to be the fair value of his shares, plus
interest to the date of judgment.
(Code 1981, Sec. 14-2-1330, enacted by Ga. L. 1988, p. 1070, Sec. 1; Ga. L.
1989, p. 946, Sec. 61; Ga. L. 1993, p. 1231, Sec. 20.)
14-2-1331 Court costs and counsel fees.
(a) The court in an appraisal proceeding commenced under Code Section
14-2-1330 shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court, but not
including fees and expenses of attorneys and experts for the respective
parties. The court shall assess the costs against the corporation, except that
the court may assess the costs against
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all or some of the dissenters, in amounts the court finds equitable, to the
extent the court finds the dissenters acted arbitrarily, vexatiously, or not in
good faith in demanding payment under Code Section 14-2-1327.
(b) The court may also assess the fees and expenses of attorneys and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters
if the court finds the corporation did not substantially comply with
the requirements of Code Sections 14-2-1320 through 14-2-1327; or
(2) Against either the corporation or a dissenter, in favor of
any other party, if the court finds that the party against whom the
fees and expenses are assessed acted arbitrarily, vexatiously, or not
in good faith with respect to the rights provided by this article.
(c) If the court finds that the services of attorneys for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to these attorneys reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
(Code 1981, Sec. 14-2-1331, enacted by Ga. L. 1988, p. 1070, Sec. 1.)
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.
(Code 1981, Sec. 14-2-1332, enacted by Ga. L. 1988, p. 1070, Sec. 1.)
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APPENDIX C
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Coopers & Lybrand L.L.P.
1100 Campanile Building
1155 Peachtree Street
Atlanta, Georgia 30309-3630
October 9, 1996
First Liberty Financial Corp.
201 Second Street
Macon, Georgia 31201
Middle Georgia Bank
102 Highway 49 South
Byron, Georgia 31008
Gentlemen
Pursuant to your request, this letter summarizes our opinion regarding the
following tax matters:
- the qualification of the Proposed Merger, described
herein, as a tax-free reorganization for Federal income tax
purposes;
- the Federal income tax consequences to the shareholders
of Middle Georgia Bank as a result of the Proposed Merger; and
- the Federal income tax consequences of owning First
Liberty Corp. Common Stock.
UNDERSTANDING OF TRANSACTION
It is our understanding that First Liberty Financial Corp. ("FLFC"), First
Liberty Bank ("FLB") and Middle Georgia Bank ("MGB") have entered into an
Agreement and Plan of Merger dated June 11, 1996, as amended (the "Agreement"),
which will enable FLB to expand its operations and presence in Peach County,
Georgia. FLFC owns all of the issued and outstanding shares of capital stock
of FLB. MGB has only one class of stock outstanding. In accordance with
applicable law, FLFC and FLB will enter into a transaction whereby MGB will be
merged with and into FLB and the separate existence of MGB will thereupon
cease. FLB shall be the surviving corporation in the merger and shall remain a
wholly-owned subsidiary of FLFC. (This transaction is hereinafter referred to
as the "Proposed Merger".)
At the time of the effective date of the Proposed Merger (the "Effective
Date"), each share of the outstanding shares of MGB common stock ("MGB Stock")
will be converted into the right to receive from FLFC the consideration
described in the following paragraph.
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Each share of MGB Stock issued and outstanding at the Effective
Time (other than shares held by dissenting stockholders) will be
converted into and exchanged for the right to receive from FLFC a
number of shares of FLFC common stock ("FLFC Stock") determined by
dividing $85.00 by the FLFC Stock Price (Exchange Ratio), with
fractional shares to be settled in cash. The term "FLFC Stock Price"
means the average of the closing price of FLFC Stock on the NASDAQ
Stock Market for the period of ten trading days ending five days before
the date on which the Effective Time occurs. Notwithstanding the
foregoing, the Exchange Ratio shall not be more than 5.667 or less than
5.204, after giving effect to the three-for-two stock split of the
FLFC Stock to be paid in the form of a 50% stock dividend on October
1, 1996.
Any and all shares of MGB stock held as treasury shares by MGB
will be canceled and retired on the Effective Date, and no
consideration will be paid for such shares.
Any dissenting shareholders of MGB 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 also our understanding that there is no plan or intention
on the part of any holder of MGB Stock who owns 1% or more of the MGB
Stock to sell, exchange, or otherwise dispose of a number of the
shares of the FLFC Stock after the Proposed Merger that would reduce
the aggregate ownership (by former holders of MGB Stock) of FLFC
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 MGB Stock
as determined immediately prior to the Effective Date. It is also our
understanding that to the best knowledge of MGB management, there is no
plan or intention on the part of the remaining MGB Shareholders to
sell, exchange, or otherwise dispose of a number of the shares of the
FLFC Stock after the Proposed Merger that would reduce the aggregate
ownership (by former holders of MGB Stock) of FLFC 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 MGB 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
Proposed Merger.
SUMMARY OF OPINION OF TAX CONSEQUENCES
Our analysis of the Proposed Merger was intended to allow us to
express opinions on the following tax matters:
(1) the qualification of the Proposed Merger as a tax-free
reorganization pursuant to Internal Revenue Code Sections (Code
Section) 368(a)(1)(A) and (a)(2)(D);
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(2) the extent to which the holders of MGB Stock will be
required for Federal income tax purposes to recognize taxable income
as a result of the Proposed Merger; and
(3) the Federal income taxation of owning FLFC Stock
issued in the Proposed Merger.
The following summarizes the conclusions that we have reached:
(1) It is our opinion that the Proposed Merger qualifies
as a tax-free reorganization pursuant to Code Sections 368(a)(1)(A)
and (a)(2)(D).
(2) It is our opinion that (i) the shareholders of MGB
who, pursuant to the plan of merger, exchange their stock in MGB
solely for FLFC Stock will recognize no gain or loss, and (ii) the
shareholders of MGB who dissent and exchange their stock in MGB for
cash only will recognize gain or loss equal to the difference between
the total cash received and such shareholder's basis in his or her MGB
Stock.
(3) It is our opinion that distributions on the shares of
FLFC 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 FLFC 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
FLFC Stock sold. Such gain or loss on the disposition of FLFC Stock
will be capital gain or loss if the FLFC Stock was held as a capital
asset and will be long-term capital gain or loss if the holding period
for the FLFC Stock is more than one year.
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 Proposed Merger qualifies as
a tax-free reorganization and meets all of the requirements of Code Section
354, the MGB shareholders will not recognize gain or loss, except as described
in the section of this letter entitled "Tax Consequences to MGB Shareholders."
Code Section 368 and the regulations promulgated thereunder provide the
definitions of tax-free reorganizations.
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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). In this type of reorganization, one
corporation essentially integrates another corporation into itself, assuming
its liabilities as well as its assets. The acquired entity then disappears for
legal and tax purposes. 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).
An "A" Reorganization generally assumes that one corporation will directly
acquire another. Code Section 368(a)(2)(D) expands this definition to allow
"A" Reorganization status where a subsidiary corporation uses the stock of its
parent in order to effect a merger, provided that (i) the subsidiary acquires
substantially all of the properties of the transferor corporation; (2) the
transferor is merged into the subsidiary; (3) the merger would have qualified
for "A" Reorganization treatment under Code e368(a)(1)(A) if the target
corporation had merged directly into the parent; and (4) no stock of the
subsidiary is used in the transaction. In such a situation, the former
shareholders of the target corporation become shareholders of the acquiring
corporation's parent.
Plan of Reorganization
An "A" Reorganization must meet certain additional requirements explicitly
contained in Code Section 354. This Section grants tax-free treatment to
exchanges only if made pursuant to 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 section 368(a). The term is not to be
construed as broadening the definition of "reorganization" as
set forth in 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 section 368(a)."
See Reg. e 1.368-2(g).
Although not statutorily required, it seems to be advisable that FLFC have a
written plan of reorganization, formally adopted by the corporate board of
directors, and including all material details of the Proposed Merger. It is
our understanding that FLFC does have such a written plan; thus, the
requirement of a plan of reorganization will be met.
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Party to a Reorganization
Code Section 354 refers to a corporation as a "party to a reorganization." The
term "party to a reorganization" is defined in Code Section 368(b) to include
any corporation resulting from a reorganization, and both corporations, in the
case of a reorganization resulting from the acquisition by one corporation of
stock or other properties of another corporation. In the case of a
reorganization qualifying under Code Section 368(a)(1)(A) by reason of Code
Section 368(a)(2)(D), the term "a party to a reorganization" includes the
corporation controlling the acquiring corporation and whose stock is used to
effect the reorganization. Accordingly, FLFC, FLB and MGB are each a "party to
a reorganization" of the Proposed 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 FLFC Stock used to effect the Proposed Merger qualifies as
stock pursuant to Code e 354, as discussed in the section of this letter titled
"Continuity of Proprietary Interest."
Code Section 354 limits tax-free exchange treatment solely to the stock
and/or securities surrendered and distributed in the exchange. This
requirement will be met in the Proposed Merger because the MGB Stock will be
exchanged solely for FLFC Stock. For dissenting shareholders receiving cash,
see "TAX CONSEQUENCES TO MGB SHAREHOLDERS."
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. Sections 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 propriety interest requirement, set forth
in Reg. Section 1.368-2(a), provides that the former shareholders of the
target corporation retain a significant equity participation in the combined
corporation following the transaction.
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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.
In addition to the character and amount of consideration received by the target
shareholders to satisfy the continuity of proprietary interest requirement, the
IRS and courts have interpreted the continuity of interest doctrine as
embodying a disposition limitation. That is, shareholders of the target
corporation must not have a preconceived plan or arrangement for disposing of
the stock received in the reorganization. If such a plan or arrangement
exists, any post-reorganization dispositions of such stock may be stepped
together with the initial receipt of the same stock in the reorganization.
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, 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. In addition, stock of a
corporation which controls the acquiring corporation may also represent a
sufficient interest. See Code Section 368(a)(2)(D). In the Proposed Merger,
because FLFC will issue FLFC Stock as its total consideration to the MGB
shareholders, there will be sufficient indicia of ownership to be "counted" as
providing the necessary continuity of interest.
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 "IRS") 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, John A. Nelson v.
Helvering, 296 U.S. 374 (1935), 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,
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October 9, 1996
Page 7
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 each share of MGB Stock issued and outstanding
(other than shares held by dissenting shareholders) will be converted into and
exchanged for the right to receive FLFC Stock. In other words, substantially
all of the merger consideration (other than cash used to settle dissenter
claims and functional shares) will be FLFC Stock. Further, FLFC's management
has represented that the fair market value of all of the FLFC Stock used as
consideration in the Proposed Merger is expected to equal the total of all
consideration used. Accordingly, the Proposed Merger will satisfy the
requirement that equity consideration represent a "substantial portion" of the
total consideration.
No Preconceived Plan for Disposition of New Shares
The continuity of proprietary interest requirement will not be met if the
target corporation's shareholders have a preconceived plan to dispose of the
new shares. A preconceived plan to dispose of shares would, in substance, be
as if the target shareholders simply sold their stock for cash. At the very
least, such a situation would likely result in the sellers of the stock being
taxed upon receiving the new stock. Moreover, a potentially more onerous
result could occur if the IRS determines that the transaction is no longer
defined as a "reorganization" under Code Section 368. Then, the entire
transaction would be taxable to all parties. However, because the holders of
MGB stock who will receive FLFC Stock have represented in the Agreement and
Plan of Merger that they do not have a preconceived plan or intent to sell,
exchange, or otherwise dispose of their shares of FLFC Stock, the step
transaction test will not be violated.
In summary, the Proposed Merger will meet the continuity of interest
requirement because (1) the FLFC Stock carries sufficient indicia of equity
ownership; (2) the value of the FLFC Stock represents a "substantial portion"
of the value of the total consideration to be given; and (3) the holders of
FLFC Stock have no preconceived plan or arrangement at the time of the Proposed
Merger for disposing of their stock.
Continuity of Business Enterprise. The second major judicial requirement
applicable to "A" Reorganizations adopted in the Regulations is that of
continuity of business enterprise. Continuity of business enterprise focuses
on the business conducted by the acquiring corporate entity itself. Since the
rationale for providing tax-free treatment for a reorganization is that the
overall transaction is essentially a mere change in business form, it seems
logical that the acquiring corporation should continue the operations of the
acquired corporation in some manner. As such, in order to satisfy the
continuity of business enterprise requirement, the Regulations provide that 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).
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First Liberty Financial Corp. and
Middle Georgia Bank
October 9, 1996
Page 8
In the Proposed Merger, FLB will continue to conduct MGB's historic line of
business, i.e., it will continue to be a financial intermediary. Accordingly,
the continuity of business enterprise test for the Proposed Merger is
satisfied.
Business Purpose. As a form of reorganization described in Code e 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 Merger, FLFC management has represented that, in accordance
with applicable corporate laws, FLB is primarily merging with MGB to expand its
banking operations and presence in middle Georgia, specifically, Peach County,
Georgia. Based on this representation, the requisite business purpose test is
satisfied.
Step Transaction Doctrine. The final judicial test to be satisfied by
corporations attempting to structure a tax-free reorganization is the step
transaction doctrine. The doctrine generally consists of a judicial
requirement that all integrated steps in a single transaction be combined in
determining the true nature of a transaction for Federal income tax purposes.
The scope of this test is relatively vague and there are no firm guidelines as
to when or how the test will be applied to different fact patterns.
There are various circumstances in which the IRS may 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 former target
shareholders sell newly acquired surviving corporation stock shortly after the
merger of the target into the survivor. 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.
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 MGB
stock who owns 1% or more of the MGB Stock to dispose of a number of shares of
the FLFC Stock after the Proposed Merger that would reduce the aggregate
ownership (by former holders of MGB Stock) of FLFC 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 MGB Stock as determined immediately prior to the
Effective Date. It is also our understanding that to the best knowledge of MGB
management, there is no plan or intention on the part of the remaining MGB
Shareholders to dispose of a similar number of shares resulting 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 Proposed Merger.
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First Liberty Financial Corp. and
Middle Georgia Bank
October 9, 1996
Page 9
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 Merger's "A" Reorganization status under Code Sections 368(a)(1)(A)
and (a)(2)(D).
Conclusion
Because the Proposed Merger will be effected in accordance with applicable
Georgia state law and will satisfy the regulatory and judicial doctrines, as
discussed above, it qualifies as a tax-free reorganization described in Code
Section 368 pursuant to the controlling statutory requirements of the Code and
Regulations promulgated thereunder.
TAX CONSEQUENCES TO MGB 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 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.
MGB Shareholders Who Receive FLFC Stock Only
An MGB shareholder who receives only FLFC Stock for his or her shares of MGB
Stock will recognize no gain or loss under the general rules of Code Section
354(a)(1).
MGB Shareholders Who Receive Cash Only
An MGB dissenting shareholder, who receives only cash for his or her shares of
MGB Stock, will recognize gain or loss for Federal income tax purposes measured
by the difference, if any, between the total cash
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First Liberty Financial Corp. and
Middle Georgia Bank
October 9, 1996
Page 10
received for the stock and such shareholder's basis in his or her stock. See
Code e1001(a). The gain or loss will be characterized for Federal income tax
purposes as capital gain or loss if the MGB shareholder's shares were held as
capital assets.
Basis of FLFC 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 or her 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 FLFC Stock received by an MGB shareholder will be identical to the
basis of the MGB Stock exchanged therefor. See Code Section 358(a)(1).
Holding Period
The holding period of FLFC Stock received by an MGB shareholder will include
the holding period for the MGB Stock exchanged because the basis of the FLFC
Stock received is determined in whole or in part by the basis of the MGB Stock
exchanged. See Code Section 1223(1).
OWNERSHIP OF FLFC STOCK ISSUED IN THE EXCHANGE
Dividends on the FLFC 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 FLFC
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 e 301 distribution exceeds E&P, it will be treated under
Section 301(c)(2) as a tax-free return of the shareholders' capital to the
extent of the shareholders' adjusted basis. Any amount in excess of a
shareholder's adjusted basis in FLFC 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 FLFC Stock is a capital asset in the shareholders'
hands. See Code Section Section 1221 and 1222.
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First Liberty Financial Corp. and
Middle Georgia Bank
October 9, 1996
Page 11
Sale or Exchange of FLFC Stock
The sale or exchange of FLFC 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 FLFC Stock sold. Such gain will be
capital gain or loss if the FLFC Stock was held as a capital asset and will be
long-term capital gain or loss if the holding period for the FLFC Stock is more
than one year. See Code Section Section 1221 and 1222.
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 FLFC 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
German Jimenez of our Firm.
Very truly yours,
/s/ Coopers & Lybrand L.L.P.
C-11
<PAGE> 158
APPENDIX D
<PAGE> 159
September 10, 1996
Board of Directors
Middle Georgia Bank
P.O. Box 25
Byron, Georgia 31008
Gentlemen:
In connection with the proposed acquisition of Middle Georgia Bank
("MGB") by First Liberty Financial Corp. ("FLFC") (the "Merger"), you have
asked us to render an opinion as to whether the financial terms of the Merger,
as provided in the Agreement and Plan of Merger dated as of June 11, 1996 among
such parties (the "Merger Agreement"), are fair, from a financial point of
view, to the stockholders of MGB. Under the terms of the Merger, holders of
all outstanding shares of MGB stock will receive consideration equal to $85.00
of FLFC Common Stock shares for each MGB share held, provided that the average
closing price on the Nasdaq Stock Market of the Common Stock of FLFC is within
the range specified in the Merger Agreement ($22.50 per share - $24.50 per
share). If the average closing price of FLFC is below $22.50 then the exchange
ratio will be 3.778. However, if the average closing price of FLFC is above
$24.50 then the exchange ratio will be 3.469. (Note: On August 29, 1996, FLFC
stated it will issue a 3-for-2 stock split on October 1, 1996 for shareholders
of record September 15, 1996. Assuming this transaction is consummated, the
new specified range for MGB shareholders will be $15.00 per share - $16.33 per
share. Therefore, if the average closing price of FLFC is below $15.00, then
the exchange ratio will be 5.667; however, if the average closing price of FLFC
is above $16.33, then the exchange ratio will be 5.205).
Our firm, as part of its investment banking business, is frequently
involved in the valuation of securities as related to public underwritings,
private placements, mergers, acquisitions, recapitalizations and other
purposes.
In connection with our study for rendering this opinion, we have
reviewed the Merger Agreement, MGB's financial results for fiscal years 1991
through 1995 and certain documents and information we deem relevant to our
analysis. We have also held discussions with senior management of MGB for the
purpose of reviewing the historical and current operations of, and outlook for
MGB, industry trends, the terms of the proposed Merger, and related matters.
We have also studied published financial data concerning certain other
publicly traded banks which we deem comparable to MGB as well as certain
financial data relating to acquisitions of other banks that we deem relevant or
comparable. In addition, we have reviewed other published information,
performed certain financial analyses and considered other factors and
information which we deem relevant.
We have reviewed similar information and data relating to FLFC
including its historical financial statements, for fiscal years 1991 through
1995.
In rendering this opinion, we have relied upon the accuracy of the
Merger Agreement, the financial information listed above, and other information
furnished to us by FLFC and MGB. We have not separately verified this
information nor have we made an independent evaluation of any of the assets or
liabilities of FLFC or MGB.
Based upon the foregoing and upon current market and economic
conditions, we are of the opinion that, from a financial point of view, the
consideration as provided in the Agreement and Plan of Merger is fair to the
stockholders of MGB.
Very truly yours,
/s/ THE ROBINSON-HUMPHREY COMPANY, INC.
---------------------------------------
THE ROBINSON-HUMPHREY COMPANY, INC.
D-1
<PAGE> 160
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
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.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------ -----------
<S> <C>
2 Agreement and Plan of Merger dated as of June 11, 1996, as amended by the First Amendment to Agreement and
Plan of Merger dated July 24, 1996 and the Second Amendment to Agreement and Plan of Merger dated September
10, 1996, among FLFC and Middle Georgia Bank (included as Appendix A to the Proxy Statement/Prospectus
filed as part of this Registration Statement).
3.1 Amended and Restated Articles of Incorporation of FLFC (Exhibit 3(a) to FLFC's Quarterly Report on Form
10-Q for the quarter ended March 31, 1996).
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).
5 Opinion of Long, Aldridge & Norman, LLP.**
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 Stockholder 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).
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).
</TABLE>
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<PAGE> 161
<TABLE>
<S> <C> <C>
(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 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, LLP (included in Exhibit 5).
23.2 Consent of Coopers & Lybrand L.L.P.*
23.3 Consent of McNair, McLemore, Middlebrooks & Co., LLP as to financial statements and auditor's report
for MGB.*
23.4 Consent of The Robinson-Humphrey Company, Inc.*
24 Powers of Attorney.**
99.1 Proxy Card.*
- ---------------
</TABLE>
* Filed herewith.
** Previously filed.
(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, 1995.
II-2
<PAGE> 162
SIGNATURES
Pursuant to the requirements of the Securities Act, the Registrant has
duly caused this Post Effective Amendment No. 1 to Registration Statement to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Macon, State of Georgia, on October 10, 1996.
FIRST LIBERTY FINANCIAL CORP.
By: /s/ Robert F. Hatcher
-----------------------------------
Robert F. Hatcher
Principal Executive Officer
Pursuant to the requirements of the Securities Act, this Post
Effective Amendment No. 1 to Registration Statement has been signed by the
following persons in the capacities indicated on October 10, 1996.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Thomas H. McCook* Chairman of the Board and
- ---------------------------------- Director
Thomas H. McCook
/s/ Robert F. Hatcher President and Chief Executive Officer;
- ---------------------------------- Director
Robert F. Hatcher
/s/ F. Don Bradford* Director
- ----------------------------------
F. Don Bradford
/s/ Richard W. Carpenter* Director
- ----------------------------------
Richard W. Carpenter
/s/ C. Lee Ellis* Director
- ----------------------------------
C. Lee Ellis
/s/ Melvin I. Kruger* Director
- ----------------------------------
Melvin I. Kruger
/s/ Herbert M. Ponder, Jr.* Director
- ----------------------------------
Herbert M. Ponder, Jr.
/s/ Jo Slade Wilbanks* Director
- ----------------------------------
Jo Slade Wilbanks
/s/ David L. Hall Executive Vice President and
- ---------------------------------- Chief Financial Officer
David L. Hall (Principal Financial Officer)
/s/ Laura B. Cross Vice President and Controller
- ---------------------------------- (Principal Accounting Officer)
Laura B. Cross
*By: /s/ Richard A. Hills, Jr.*
-----------------------------
Richard A. Hills, Jr.
As Attorney-in-Fact
</TABLE>
II-3
<PAGE> 163
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
2 Agreement and Plan of Merger dated as of June 11, 1996, as amended by the First
Amendment to Agreement and Plan of Merger dated July 24, 1996 and the Second Amendment
to Agreement and Plan of Merger dated September 10, 1996, among FLFC and Middle
Georgia Bank (included as Appendix A to the Proxy Statement/Prospectus filed as part
of this Registration Statement).
3.1 Amended and Restated Articles of Incorporation of FLFC (Exhibit 3(a) to FLFC's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1996).
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).
5 Opinion of Long, Aldridge & Norman, LLP.**
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 Stockholder 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).
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).
</TABLE>
II-4
<PAGE> 164
<TABLE>
<S> <C> <C>
(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 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, LLP (included in Exhibit 5).
23.2 Consent of Coopers & Lybrand L.L.P.*
23.3 Consent of McNair, McLemore, Middlebrooks Co., LLP as to financial statements and auditor's report for
MGB.*
23.4 Consent of The Robinson-Humphrey Company, Inc.*
24 Powers of Attorney.**
99.1 Proxy Card.*
- ---------------
</TABLE>
* Filed herewith.
** Previously filed.
II-5
<PAGE> 1
EXHIBIT 15
October 9, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
RE: First Liberty Financial Corp.
Registration on Form S-4
We are aware that our reports dated February 13, 1996, May 6, 1996 and August
12, 1996 on our review of interim financial information of First Liberty
Financial Corp. (The "Company") for the three-month, six-month and nine-month
periods ended December 31, 1995, March 31, 1996 and June 30, 1996,
respectively, and included in the Company's quarterly reports on Forms 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 a 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. 333-10617) of our letter,
dated October 9, 1996, 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 investments in
1993, dated November 9, 1995, on our audits of the consolidated financial
statements of the Company as of September 30, 1995 and 1994, and for the years
ended September 30, 1995, 1994 and 1993, which report is included in the
Company's Annual Report of Form 10-K for the year ended September 30, 1995. 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.
October 9, 1996
<PAGE> 1
EXHIBIT 23.3
CONSENT OF MCNAIR, MCLEMORE, MIDDLEBROOKS & CO., LLP
We hereby consent to the use of our report dated March 25, 1996 relating to the
financial statements of Middle Georgia Bank as of December 31, 1995 and 1994
and for each of the years in the three-year period ended December 31, 1995
included in this Registration Statement on Form S-4 and to the reference to our
firm under the heading "Experts" in the Prospectus.
/s/ MCNAIR, MCLEMORE, MIDDLEBROOKS & CO., LLP
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McNAIR, McLEMORE, MIDDLEBROOKS & CO., LLP
Macon, Georgia
October 8, 1996
<PAGE> 1
EXHIBIT 23.4
CONSENT OF THE ROBINSON-HUMPHREY COMPANY, INC.
We consent to the inclusion in this Registration Statement on Form S-4
of our opinion, dated September 10, 1996, as set forth as Appendix D to the
Proxy Statement/Prospectus and to the summarization thereof in the Proxy
Statement/Prospectus under the captions "Summary-The Merger" and "The
Merger-Opinion of Financial Advisor." In giving such consent, we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the Rules and
Regulations of the Securities and Exchange Commission thereunder.
/s/ THE ROBINSON-HUMPHREY COMPANY, INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
Atlanta, Georgia
October 9, 1996
<PAGE> 1
EXHIBIT 99.1
REVOCABLE PROXY -- MIDDLE GEORGIA BANK
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR
THE SPECIAL MEETING OF STOCKHOLDERS TO BE HELD NOVEMBER 6, 1996
The undersigned hereby appoints W.L. Brown and H.W. Peavy, Jr., and
each of them, proxies, with fully power of substitution, to act for and in the
name of the undersigned to vote all shares of Common Stock of Middle Georgia
Bank ("MGB") which the undersigned is entitled to vote at the Special Meeting
of Stockholders (the "Special Meeting"), to be held at The Byron Depot located
at 102 East Heritage Boulevard, Byron, Georgia, on Thursday, November 14, 1996,
at 2:00 p.m., local time, and at any and all adjournments and postponements
thereof, as indicated below.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL LISTED
BELOW.
A proposal to approve the Agreement and Plan of Merger dated
June 11, 1996, and as amended on July 24, 1996 and September 10,
1996, by and among First Liberty Financial Corp., First Liberty
Bank and MGB, and the transactions contemplated thereby.
FOR / / AGAINST / / ABSTAIN / /
THIS PROXY CARD WILL BE VOTED AS DIRECTED. IF NO INSTRUCTIONS ARE
SPECIFIED, THIS PROXY CARD WILL BE VOTED "FOR" THE PROPOSAL SET FORTH ABOVE.
(Continued and to be signed and dated on reverse side)
<PAGE> 2
If the undersigned elects to withdraw this proxy card on or before the
time of the Special Meeting or any adjournments or postponements thereof and
notifies the Secretary of MGB at or prior to the vote at Special Meeting of the
decision of the undersigned to withdraw this proxy card, then the power of said
proxies shall be deemed terminated and of no further force and effect. If the
undersigned withdraws this proxy card in the manner described above and prior
to the Special Meeting does not submit a duly executed and later dated proxy
card to MGB, the undersigned may vote in person at the Special Meeting all
shares of Common Stock of MGB owned by the undersigned as of the record date
(September 30, 1996).
Please mark this proxy card above and then date and sign this proxy
card below exactly as your name appears hereon. When shares are held jointly,
both holders should sign. When signing as attorney, executor, administrator,
trustee, custodian or guardian, please give your full title. If the holder is
a corporation or partnership, the full corporate or partnership name should be
signed by a duly authorized officer.
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Signature
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Signature, if shares held jointly
Date:
-----------------------
Do you plan to attend the Special Meeting?
YES / / NO / /
PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY CARD
IN THE ENCLOSED POSTAGE-PAID ENVELOPE
